When BOOT last reported earnings, I wrote that next time 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.”
In that post I also stated that analysts (in BOOT’s case just one analyst) were underestimating the earnings power and I felt the company would report 45c per share in Q4 earnings.
BOOT reported Q4 earning on Januray 29th of 38c per share which is up 8% YoY however below the 40c per share analyst estimate and my 45c per share estimate.
I am not going to waste time by regurgitating the earnings release which you can read yourself and will just state that the company blamed the unseasonably warm October and November for the 2% decline in outdoor footwear sales and the earnings miss.
The work market continued to chug along with 8% top line growth and both gross and SG&A margins improved on a YoY basis. The large inventory growth vs. sales was blamed entirely on the warm weather with the CEO stating on the conference call that BOOT is not going to take markdowns on this access inventory as its all basic, high turnover outdoor hunting products.
The CEO also hinted on the conference call that the decline in weather in the beginning of the first quarter is helping sell this access inventory. I believe the CEO’s is hinting that almost everything that was not sold in Oct/Nov is being sold in Dec/Jan. It was also announced that the company instituted a 3%-5% price increase across the board on its products in January.
Today, BOOT announced a special $1 per share dividend as well as its regular quarterly dividend to be paid March 18th.
So, how attractive is the stock today? Here is how the numbers break down at ...
Market Value $89M
Cash on Hand $15M
Enterprise Value $74M
Estimated fcf over next 12 months $7.5M - $7.8M
Current Cash Yield 10% - 10.5%
Current Multiple 9.5x - 10x
If in fact the weather effected Q4 sales, than there should be another few million that will be dislodged from inventory and into cash in Q1 as sales catch up and that will lower the EV/free cash flow multiple to 9x – 9.5x.
At the time of the Q3 report I also wrote that “I think a fair price to pay is somewhere between $17.5 to $20. I am not wildly excited about paying 13x-15x forward cash earnings but would allocate new money to this tock since you do get a growing company with growing margins and a fortress balance sheet.”
I think the recent earnings miss is just a short term bump in the road and I am getting more excited about the long term capital appreciation prospect as the multiple falls below 10x. At this point, you get to buy a company with premium brands, fortress balance sheet with cash being returned to shareholders and you are paying a sub-10x cash flow multiple. Even if the next 12 -24 months are a little bumpy, in the long term BOOT shareholders will benefit from 8%-10% earnings growth as well as multiple expansion from the current sub-10x level.
In the next quarter I will be primarily looking for indication that the misstep in Q4 was due to weather rather than some broad negative trend. As always I will be looking for margin trends and changes in inventory and A/R relative to sales.
* 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.
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