NO ONE CARES ABOUT BOOT!

Here is a question ...if a company reports 30% YoY operating earnings per share growth and no one hears it, did it really happen?

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.”

I also stated that “if BOOT reports similar sales growth in the seasonally important 3^rd quarter than estimates will surely go up and the stock will have a strong up side move.”

By just about every measure, BOOT reported impressive numbers in their fiscal 3rd quarter. The stock was up as much as 4.5% midday but finished up 1.2% with only 9,100 shares trading hands .... no one cared!

Revenue came in up 12% and ahead of the company’s long term growth target of 8%. Work boots were above average with 20% YoY sales growth and recreational boots came in at slightly below average at 7%.

While the revenue growth is very nice, the real jem is continued margin improvement due to good inventory management. Gross margins came in at 40.1% and up 10bps YoY (the reported GMargins are 39.1% however this includes Dep&Amort expense). Operating expense grew slower than sales at 9.1% causing EBITDA margins to come in at 14.4% and up 70bps from last year’s Q3.

For Q3:3007, GAAP NI was $3.3M and up 30% YoY, eps came in at $0.52 (beating the single analyst estimate by 4c) and up 27% YoY. Operating EPS for the first nine months of 2007 is $0.77 up 28% YoY (actual eps in first nine month of 2006 was $0.67 however that includes a 7c tax benefit).

The balance sheet continues to be pristine with one small black mark. Cash is $4.7M with no debt. Inventory grew slower than sales. The one black mark is that A/R are up roughly 19% YoY vs. sales up 12% -- generally not considered a good sign but there is a lot of quarter-to-quarter noise in those numbers.

Revenue $36.87
GProfit 14.8 (reported GP includes effects of Dep, this number adds back dep)
SG&A 9.5
EBITDA $5.32

L9M EBITDA $8.51
L12M EBITDA $12.6

Q4 EPS estimate $0.45 (this is my estimate, analysts are currently at $0.39 but that is before the earnings announcement so I assume these will be increasing). To get here I assumed 10% revenue growth, small improvement in GMargin and EBITDA margins of 13.7% which is 75bps ahead of last years Q4.

2008 EBITDA Estimate $15.1
2008 EPS Estimate $1.35

So at this point you have BOOT trading at roughly $17.5 with 2008 estimated earnings of $1.35 which gives me a very reasonable forward multiple of 13x 2008 estimates. While all signs point to the company growing operating earnings 30% this year, this growth rate will slow down next year.

Assuming the positive upside momentum continues, I think a fair price to pay is somewhere between $17 to $20. I am not wildly excited paying 13x-15x forward cash earnings but would allocate new money to this stock since you do get a growing company, with premium brand names (ask any avid hunter about Danner boots) with growing margins, and a fortress balance sheet.

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. I will also be watching the change in A/R relative to sales.

To answer my own question posted in the beginning of this entry.....It did happen and I hope no one hears it. Continued ignorance about BOOT increases the probability of the stock trading to or below my next buy point at roughly $17.

* 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.