BOOT -- 2nd Quarter Earning Analysis

When I last wrote about BOOT I stated that going forward I will be looking for:

“trends in gross margins and SG&A as % of sales and if revenue is trending above or below the 8% level set by management as the goal”

BOOT reported on July 30th and while I am in danger of plagiarizing myself it looks like the quarter was mixed but with more positives than negatives.

The blow out was on the top line with total sales up 14.6% and substantially ahead of the 8% set by management as the de facto benchmark. Sales to the work market were up 6% and up 26% to the outdoor market with new products driving sales.

The only black mark was gross margin which came in at 39.2% and was down 60bps YoY due to an inventory write-down. SG&A margins came in better than last year at 33.3% of sales vs. 35.2% of sales in Q2:2006.

EBITDA was up 40% YoY with EPS up 36% when adjusted for an 8c tax related gain in Q2 last year. Looks like analysts don’t expect the strong YoY eps growth to continue in the last two quarter of the year which account for almost 75% of earnings. Despite two consecutive earnings beats analysts did not budge their 2007 estimates which are currently at $1.17 per share.

I bought a tiny 1.5% position in BOOT in the Best Ideas Marketocracy portfolio at $17.13 and at current prices of roughly $20 per share I am not compelled to add more or to sell. While I am very glad to see the stock continue to surprise on the upside I think the shares are fairly valued and don’t provide much margin of safety. If the stock pulls back to $17 per share I will add another 1% to the Best Ideas portfolio and hope that the momentum of the first two quarter carries into the third quarter.

If BOOT reports similar sales growth in the seasonally important 3rd quarter than estimates will surely go up and the stock will have a strong up side move.

Going forward, I will be watching for trends in gross margins and SG&A as % of sales and if revenue is trending above or below the 8% level set by management as the goal.


* DISCLOSURE: I or accounts I manage may be long or short any and/or all stocks mentioned in this post. This is not a recommendation to buy or sell any security. For informational and educational purposes only.