Business seems to have been below plan in the retail industry’s apparel segment. JP Morgan’s Matthew R. Boss downgraded the rating for Boot Barn Holdings Inc BOOT from Overweight to Neutral, while reducing the price target from $11 to $7.
Recent field work suggests the apparel segment witnessed a “sharp trend deceleration” in the back half of March and continued weakness into April, despite favorable weather and pent-up demand, analyst Matthew Boss said.
Moderating Trends And Unfavorable Macro Exposure
Boss cited Boot Barn’s unfavorable macro exposure to oil and gas markets as well as moderating top line and margin trends as the main reasons for the downgrade.
“Our multi-region checks point to moderating top-line trends in 2H March (& 1Q17-to-date) with elevated promotional activity across both apparel and boots (we estimate ~25% of the store with some level of markdown exceeding BOOT’s 90%/10% full-price to promotion target model structure) and rising levels of clearance inventory (apparel/accessories),” the analyst wrote.
Top line performance in oil and gas markets, which contribute 30 percent of Boot Barn’s sales, has deteriorated over 2,000bps since FY15. Although SSS in the oil and gas market are expected to improve, the expectation of flat comps in FY18 is likely to restrict the company’s chance of returning to mid-single-digit SSS for 2-3 years, Boss commented.
Boot Barn’s unique model, longer-term square feet prospects and lead position in a $20 billion Western market remain its strengths.
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