In this episode of Industry Focus: Consumer Goods, join Motley Fool Analyst Asit Sharma and host Emily Flippen as they take a listener's question and talk about this rapidly expanding boot business. Find out what differentiates it from competitors, what its business model is, and whether it makes the watch lists of these Fools.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

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This video was recorded on March 30, 2021.

Emily Flippen: Welcome to Industry Focus. Today is Tuesday, March 30th, and I'm your host of this consumer goods-focused episode, Emily Flippen. Today, I'm joined once again by Motley Fool Analyst Asit Sharma, and we are going to be taking a member's question and talking about a business that I had seen growing up in Texas but never considered as a public company, Boot Barn (BOOT -1.25%). Asit, how are you doing?

Asit Sharma: Emily, I am doing well and I'm glad that we have boots on the ground for this episode today. [laughs]

Flippen: I love that.

Sharma: I try. I don't always make it here, but I'll try. [laughs].

Flippen: The idea for this episode actually came from a listener email. A member, I should say, a listener named Austin emailed us and said, "Hi, my name is Austin, I'm 24, and my question is about Boot Barn. I think it's a potential under-the-radar growth stock. In their recent investor presentation, they reported net sales CAGR of 20%. They added 15 new stores during 2020, up from 251 to 266 in December 2020. On a recent ski trip, I ran into a Boot Barn employee, who told me they're opening eight new stores every six months. I looked at their earnings report, and as mentioned above, it checks out. She told me that Boot Barn has a competitive moat from e-commerce brands because since boots are notoriously hard to find the right fit for and are generally pretty expensive, people like to come into the store and try them on for themselves. She said the company culture is great and really enjoys working there. Have you guys looked at Boot Barn? Austin.''

Well, Austin, no, we hadn't [laughs] until this episode, but thank you for giving us this idea. I'm really excited to talk about a lot of the things you've mentioned.

Sharma: Yeah, for sure. Any chance to talk about retail, and there are so many interesting companies that fly under the radar screen in this industry. Emily, many of them, you don't want to get involved with, [laughs] given all the change and transformation in retail with the growth of e-commerce and just the slow, unseemly death at so many mall-based brands have have died, have experienced over the past few years, but this one, I think, it's in much better shape.

Flippen: Yeah, I really love this question, particularly because part of my other work here at The Fool is working on a service called Trend Spotter. One of the trends that I, alongside Seth Jayson and Auri Hughes, analyze is something we call niche e-commerce or specialty e-commerce. It's trying to root out these brands that have a really cult-like and loyal following that somehow persist against the giants that are Walmarts, Target, Amazons of the world. The e-commerce aspect of Boot Barn, as Asit mentioned, is much smaller in comparison to its retail footprint. I still think that this gets at an interesting niche of the market that maybe gives it a little bit more staying power than I initially assumed, having seen and been to, say, a Boot Barn, at least, growing up in Texas.

Sharma: Yeah. Emily, I really have been looking for companies of this type. I thought I found one a few years ago in a company called The Buckle, which is another specialty small retailer with a physical store presence and e-commerce. They sell jeans, like high-end price-point jeans, but just didn't have enough to persuade me just to get interested and maybe pull the trigger. But I am interested in Boot Barn because it distinguishes itself from so many other companies that we've looked at. Now, we'll get into this. It's got its drawbacks as well. But Austin, thank you for this idea. This is going to be a fun breakdown here.

Flippen: I actually love that you've mentioned Buckle, or I guess the company's name is The Buckle, as another type of company that you've looked at because Buckle was actually one of the businesses that management outlines as an example of a competitor or a comparable business in their proxy form. If you're familiar with businesses, I think that they also have Lands' End, Zoomies, The Tile Shop. This is a type of business that we're thinking about, at least from the perspective of management. But Boot Barn is different because it is, in fact, the largest retail chain of specialty stores that offer Western footwear, A.K.A. boots, apparel, and accessories in the United States, so this is a special one. [laughs]

Sharma: For sure. Emily, one more thing before we really jump in here. I was just curious: Do you know of any other brand-name, boot retailer, or did you know before you maybe read through in preparation for this episode?

Flippen: No. That was one of the really interesting key takeaways that I was going to pull from this episode, was that, other than Boot Barn, I do not know where people go to buy boots, especially when we're talking about boots, we're talking about Western-inspired boots. I'm trying to think of cowboys and out west. These are the things we're talking about, not necessarily steel-toed work boots, but that's the only place that came to mind. Boot Barn did come to mind because again, I grew up in an area that had I wouldn't  say a lot of Boot Barns. But if you were going to buy boots, you did go to Boot Barn.

Sharma: I grew up in a pretty rural place, not so rural anymore, but about 30 miles east of Raleigh, North Carolina where I'm based now and I hadn't heard of Boot Barn at all. We had small, independent shops. In fact, there's still one between Raleigh and the town I grew up in, Smithfield, about halfway. It's on Highway 70, for those of you who live in North Carolina. That is a really cool big western wear shop, but I think it's maybe one location, at least in this part of the country now. We're not horse country, Emily, it seems when I imagine Texas. I knew you have these huge cities [laughs] like Houston and Dallas. But a lot of Texas seems to me to be quite rural and a great demand for stores like this. I could see you have multiple locations. I did look up, and there is a Boot Barn sort of near me. It's about an hour away in a town called Burlington, so now I know where to go if I want to get a pair of new boots. It's been years since I bought a pair of boots. But I have a place now I can stop in.

Flippen: I don't want to make this too anecdotal, but I will say, I'm maybe not the best person to ask about boots. I have huge feet for a woman, I have size 10, 10.5 feet, so if I put a pair of boots on, I look like Bigfoot walking around the city with boots. I have never actually owned a pair of boots.

But Boot Barn, to your point, does have a lot of local, smaller competitors. I apologize if I offended any local loyalists who grew up in Texas who are now saying, "Come on, Emily, there's a ton of local mom-and-pop shops, you don't go to Boot Barn." But for me personally, Boot Barn was the one that came to mind.

Well, with that, let's get into the business a little bit. I did mention that it's mainly known for boots, and we spent a lot of the beginning of the show talking about its boot business. That's for good reason. Boots makeup over half of the business's total revenue. Western-inspired apparel makes up mainly 35% or so, and accessories making up the rest. So really, Boot Barn has its name right. Boot Barn is what's really driving the majority of its revenue. But they do have a number of e-commerce operations as well. You may be familiar with Sheplers, the brand. It's the brand that Boot Barn actually acquired, I believe back in 2015, it was their biggest acquisition. That's also Western wear inspired apparel and footwear. So they had some acquisitions beyond just the Boot Barn name that investors may be familiar with.

Sharma: Yeah, and for this company, they are a really acquired practice. They've been around since 1978. Emily, I know you had pointed out in our prep that the company seems to hit a regular cadence of acquisitions, but they're small. Most of their acquisitions outside of Shelpers in recent years have been in the neighborhood of $2 million to $4 million. They're picking up these smaller companies, independently owned westernwear shops or boot shops, and they have a great practice just integrating them into their system. Reminds me a little bit of a company called UniFirst, which specializes in workwear rental. They also are an acquirer of mom-and-pop businesses that they've been pulling through a mix of organic growth and acquired growth.

Flippen: Before we get into a lot of, Asit, really good points about store growth just looking at what the business has today. If you look at their stores, they're about the size of a drugstore. So around 10,000 square feet of selling space, gives you an idea about how big the store is. Boot Barn has over 250 stores in 35 states across the US, but the largest markets in terms of total stores and total sales are by far in Texas, California, and Arizona. They are pretty concentrated with where they are located today.

Sharma: Yeah, they are definitely a formulaic type of company in that they know their sweet spot in retail. Although this is so interesting, you mentioned the expansion that they're working on, Emily. Their latest stores are actually 8,000 to 12,000 feet in total. I guess the selling space is going to be a little bit smaller per store. This is their prototype model going forward. I think that this follows a trend we've seen in other retail where companies are understanding to have this brick-and-mortar presentation in an omnichannel business, you have to really be efficient with the space, as efficient as you can, because you're competing with all types of companies, especially in a fragmented industry like this. Many of them sell just purely online. So I like that management is trying to tinker a little bit with that average store size.

Flippen: Management has also caught out opportunities for growth beyond just reformatting their stores. One of the things that surprised me was in fiscal 2020, and that's their fiscal year before COVID hit. It ended right in March 2020. Most of the numbers I'll be talking about or we'll be talking about today do come from prepandemic to normalize things a bit.

But one of the things that's surprising the most was that 65% of all sales were men's merchandise. I don't know what I expected from Boot Barn. [laughs] I guess putting a little bit of a brain effort behind it, I should have been able to assume that demand for boots, especially for occupations that require boots, would be higher for men. But I saw a retail store and I thought women's. What was also interesting because CEO Jim Conroy had mentioned in an interview last January that foot traffic to their stores was actually around 50%, if not a little bit higher, skewed toward women. That was an interesting opportunity for them as well. They've been historically so focused on the men's opportunity for boots that maybe there's an opportunity to even just expand its addressable market by just changing the merchandise in the store without changing the store layout.

Sharma: I think there's a huge opportunity for that. I noticed on their website that they seemed to be marketing more actively toward women now to have a little bit of fashion on their site. It's a pretty savvy site, by the way, you might not innately associate it with a western-wear brand, but it looks to me like a contemporary e-commerce retailer just from the website. It's interesting, Emily. First, I want to call you out on associating higher retail sales with women. But I think it's probably true, [laughs] that this idea of marketing to women is a strong one.

Women in the states that the companies, and so 35-state, you mentioned a lot of them in the Midwest, out west, and in the South, they're huge purchasers not just of boots but of western type fashion. Of course, if you've been into a Boot Barn and you're familiar with boots, they've got a good divide between what I call just western wear or western boots, so think cowboy boots, and work boots. I think that women have been increasing their share of the overall boot market in recent years. Quite a lot of fashion there to be tapped into, so I agree with you that CEO Jim Conroy is onto something there.

Flippen: One last thing before we talk a bit more about what Austin is getting at with the growth opportunities. I don't want to fly by that. But one of the things I did think was interesting, and I didn't expect when going through Boot Barn's last annual report, was private-label merchandise. Boot Barn actually has been selling private-label brands in their stores, not just partnering with third parties. In the last fiscal year, private-label brands made up over 20% of total revenue. That's good, because that's higher-margin sales for Boot Barn.

But it did get me thinking that this might expose them to some additional risks that other retailers don't face. Because Boot Barn has so many partnerships with well-known western-style brands, it's important for them to retain those relationships, and if they're coming out in launching their own private-label brands, that bigger brands, bigger suppliers perceive as competitive, maybe those suppliers won't be willing to work with Boot Barn in the future if their private-label brands start eating into those sales, especially as Boot Barn continues to expand their store count.

Sharma: It's astute to point out that risk. In recent years, we've seen all types of big retailers. I'm thinking about Dick's Sporting Goods, Kohl's. So many have started their own private labels, and they're benefiting from that, but when you are a really big national chain selling into billions and billions of years, then you've got a little bit of cloud of your own. You can develop this long term frenemy relationship with the brand names that you carry in your store. Not so much for a smaller retailer. I think it's a fine line that they walk on. I'm glad you called that out. If they can get this mix just right, though, that should be net positives margins.

Flippen: When we think about how their stores could expand, as Austin mentioned, Boot Barn's strategy for growth just comes from obviously retaining a certain level of same-store sales growth, but also just fundamentally expanding their stores. Management believes that there is a long-term opportunity to double their store count. They have just over 250-ish, 260 to over 500 stores just in the United States alone. Management actually has what they tout as this proprietary model. I'm not sure how much [laughs] proprietary data really goes into it, but they have a model that sees them expanding their store base by around 10% every year.

Clearly, 2020 was a bit of a weird year where they didn't hit those numbers, and I'm totally willing to give management a pass on that, and we'll talk more about how COVID has more greatly impacted this business than others. But that's some pretty aggressive expansion numbers, especially when you consider their demand for western wear may not be as great in, say, Massachusetts or Pennsylvania. Just throwing out some northeast states in comparison to that that they are experiencing in Arizona.

Sharma: I'm laughing. If you're listening to the podcast, you can't see me, but our live viewers are seeing me laugh [laughs] because, yes, it's a lifestyle sort of branding, isn't it, Emily? The company cited in its recent quarterly reports that the absence of rodeos and country music concerts has been a headwind against the business; there aren't a ton of rodeos in those upper northeast states. Nevertheless, I think there's some demand for boots there.

But Emily, this caught my attention. One of the things I didn't like about The Buckle is that they were managing the business while transitioning out of the worst malls they were in but didn't really have a good way to increase their store base. This company reminds me of some other companies that I've become very fond of. I'm thinking about Dollar General. I'm talking about Sleep Number Corporation, we've talked about both of these on Industry Focus, but if you can get a dependable expansion of your square footage every year, and you can estimate that the selling square footage will go along with the store units. If you could expand that by 10%, and then you can layer on 5% or 6%, or 6.5% of same-store sales, that suddenly looks like a really fast annual growth rate and it's attention-catching.

One of the things that really slowed me down as I was reading through this is this formula. Dollar General has something very similar, they get up, if you remember, to about 10% to 11% in their equation. Austin, you're on to something there. I really liked that about this company.

Flippen: That's what the company's historically been doing in terms of same-store sales growth. If you go back to pre-COVID times, they were growing around 5% in terms of same-store sales. There was a period where they grew 10%, so pretty outstanding. But that has been very lumpy over time. I can't figure out exactly why it's been so dramatically lumpy as it has been, but I do think it maybe has to do with the Boot Barn market.

Boot Barn, as you mentioned, has driven a lot of their sales through events. They sponsor rodeos, themes, these sorts of events and parties. Concerts, country music attractions. All of these things can drive demand for Boot Barn's products, and maybe there's just been periods historically where that's been higher than others. Certainly 2020, none of those things were happening, at least not on any large scale, which did impact this business. Although admittedly, not as much as I thought it could do, presuming that they come back to this historical norm of 4% to 5% on top of their 10% a year increase in the number of store counts, pretty outstanding.

Sharma: For sure. I wonder if some of that lumpiness is due to disposable income. The boots are a big driver of the business. For those of you who invest in boots, I call it an investment, they're not cheap. A beginning pair of good leather boots can run you a couple hundred bucks. Boot Barn has boots on its website that are running for $500 and $600, if you go to their section called Exotics, which is not the pairs that I would buy, but because they're expensive and also because they're using some animal hides like ostrich.

Nonetheless, when disposable incomes are rising in a strong economy, I can see them hitting that maybe 10% rhythm of same-store sales. Then when the economy is hitting a trough, people are pulling back that disposable-income component. Maybe at that point, you're going to skip your western boots and maybe just buy a pair of work boots if you need a pair. That could have something to do with it, but I like that when you average this out, you're right, Emily, they're hitting at least 5%, 6%, 7% each year.

Flippen: It's true what you say about the disposable income and maybe that's the aspect that I'm missing. But I'm still surprised when looking at the performance of the business over the past year. Even if everybody was spending their stimulus checks on ostrich boots, Boot Barn has done a pretty impressive job, because 85% of their sales pre-COVID were happening in-store, and this goes back to what Austin mentioned about that employee saying that people like to try on boots and see them on them before they make this multihundred-dollar investment. It would come to mind for investors that when this pandemic happens, people aren't going out, they're not visiting in stores, so it would impact this business pretty substantially.

It did, but not nearly to the level that I would've presumed. Even looking at the total growth they experienced over 2020, and that's calendar year 2020, so not fiscal [laughs] year 2020. But in terms of total growth over the last 12 months, revenue has only fallen 3% year over year, which is, in my opinion, really not bad.

Sharma: That was surprising. I think part of it may be the phenomenon of people staying home and just deciding that they weren't going to spend on experiences and trips, their e-commerce channel rose in volume, and so maybe there's some offset there. I think the company ascribes to its loyal customer base and its ability to offer brands and styles on its website that are appealing in the market, so there's some of that as well. But I think it also speaks to a replenishment cycle. Remember, it's not just boots, it's belts, it is some western wear, so they are, in some part, also a fashion store as well.

Flippen: One of the competitive advantages that Boot Barn management lay out in their 10-K is their employees. Any brand-based business always says, "Our employees, our staff, are what makes us special." It's really easy to say these things and harder to back it up, but it's wonderful that Austin found an employee who is such a prominent spokesperson for the Boot Barn brand, because Boot Barn needs to hire people who are enthusiasts of the western lifestyle, who love wearing Boot Barn products, because that's going to make their loyal customers come back. It's going to make the Boot Barn experience different from that of even a local mom-and-pop shop. That's the sort of thing that's going to set this business apart over time.

Sharma: Emily, again, reminding me of attributes I like in other companies. One of the things that I love about Sleep Number is that they hire people who are going to become experts and who can sell those expensive mattresses over the phone and know every last detail. Similarly, Boot Barn tends to hire people who know a lot about the lifestyle, the materials, how the boots are made, how the other clothes are stitched together. They've got, as you say, sort of these advocates as people who are selling the product, and that can really help. Not just backed by a very decent culture, which it seems to have, but the knowledge base and people who are on the floor, since it is a model where people are walking in, they're going to try on a pair of boots, a few pairs.

Fifty percent of that store traffic, if men make up most of the sales. The other half of that store traffic is going to be a significant other coming in and also asking questions, so I think employees can make the difference. You're right, I read so many annual reports in my life that taut the importance of employees. "Our people are our most important asset." [laughs] Our people make the sales, but so much of it can be just boilerplate stuffing in an annual report. This seems to be a little different.

Flippen: It's showing up in terms of its financial performance as well. The average net sales per store in fiscal 2020 was over $2.5 million. That's pretty impressive when you consider that the average net cash investment it takes just to open a Boot Barn store is $800,000. That results in an average payback period of around three years for each store opened. Well, that's not immediate; you're not making your money back the way you would if you open up, say, a Chick-Fil-A in a really popular downtown location. -- I'm going off personal experience there. The lines are always incredibly crazy.

But that is pretty good for a western wear inspired apparel brand, and it does get that with management strategy of opening stores. I would expect for their cash flow, when you look at the operating cash flow, it's probably going to be pulled down more than maybe some investors expect over the next few years because of how aggressively management is going to be investing capital into opening these stores. But if the stores that they open continued the same payback period of around three years, that could really mean great things for Boot Barn longer term.

Sharma: Absolutely. And we should point out that this has been traditionally, since the company was founded, self-funded growth. The company is generating pretty strong cash flow. It's investing in new inventory, in new stores, doesn't have a ton of leverage on its balance sheet, and it does have some goodwill on its books because it acquires so many companies. But this isn't an enterprise that is going out and trying to issue a lot of debt so it can expand quickly. It's got this set cadence. They are very smart about the way they manage their inventory, which can really help you grow when the least understood and most problematic issues with store expansion if you have inventories, is how to put that inventory into new stores, how much to allocate to that and how will you fund it?

I like that Boot Barn has built these automatic replenishment levels in their stores. So when you look at their total inventory, they explained to us in their annual port, about 70% of it is on auto-replenishment. That means once you get to a certain level of inventory, an automatic order comes into place, now whether that means that someone has filled out a manual ticket or this is actually fully automated, I don't know.

But the point is that they've established order points over time. It's really hard to do in a fashion business, when to reorder key merchandise. All these things come together in this picture of a company that has been self-funding its growth and is very good at spotting out ideal leases. We should mention, their typical store is either freestanding or in a strip mall. They're really not in traditional malls, and they tend to cluster in areas where there is [laughs] high interest in this type of merchandise. It takes a lot of elements to be able to expand successfully like this. I like what I see, how astute management is, as you said, and being able to provide a three-year payback period on an $800,000 cash investment.

Flippen: I will say, I have to dock points a little bit for merchandising, not because the company has historically done it poorly in the past -- I think they've actually done a pretty impressive job, and I tend to be overly skeptical of companies that have to worry about merchandising just because of how we've seen poor merchandising takeaway from a lot of the legacy retail businesses that we end up talking about on this consumer goods-focused show.

But one of the weird things I did note in their annual report were some disclosures regarding related-party transactions. Whenever I see a business that depends on merchandising, I like to look at who their chief merchandising officer is and see, OK, do they have the chops to really be smart about how they manage inventory. In this case, the husband of Boot Barn's chief merchandising officer, is an independent sales representative for collection of boot companies, and Boot Barn essentially gets all of their supplies, a significant amount of their merchandise from the suppliers that's co-owned by the chief merchandiser and the chief merchandiser's husband.

We don't have a great sense. I mean, presumably, the supplies that they're buying from this outlet is high quality, enough in demand, enough to sell-through it has historically. But I just don't like it when the chief merchandiser has a vested financial interest in selling a certain type of merchandise as opposed to going out and finding the merchandise that they believe has the best sell-through potential. That's a little bit of a conflict of interest to me that I did want to call out.

Sharma: No, it's a great one to call out, and these types of things, you see from time to time, from companies that have evolved from a smaller base, they get disclosed in the company audits. Sometimes they don't get disclosed [laughs], and then there's a really bad conflict of interest, and sometimes there can be fraud. I'm never quite comfortable with those types of situations either, because it means someone may be getting, as you point out, a sweet deal and maybe pricing isn't as competitive as it could be. Nonetheless, they've put it out there in their financial statements. It's passed muster with the auditors. But I do think that's a risk, Emily, something to watch over as they continue to grow in scale.

Flippen: I will say it's easy for me, sitting here behind my computer nitpicking over annual reports, to call out these when I see them. Beyond that disclosure, which the company did make, I will say in terms of the merchandise that they've had historically, there's nothing to imply historically speaking that they've made bad merchandising decisions. It's fun for me, I enjoy having that critical eye behind the safety of the anonymity of the internet here, but I still did want to call it out.

One of the other things that stood out to me... Also, I'd probably say a risk. I think it depends on your perspective of this industry, I will say, how much of Boot Barn's market opportunity depends on the oil and gas industry in particular. Demand for things like safety-toe boots, flame-resistant and high-visibility clothing. They actually come from various industrial and outdoor occupations, especially in key markets like Texas, a lot of the people coming over and buying these products work in the oil and gas industry. The company actually notes that a global slowdown in the demand for oil does have a material impact on their sales. That was not a connection I would have made independently.

I guess if you're thinking about Boot Barn as a really a long-term investment, I would have to wonder about the lasting demand for, not that all of these occupations are going away, but I do wonder if the demand for those sorts of items are going to be as high as they have historically been.

Sharma: It's a good point. The other part of that equation is that they are going up against your competitors. I mentioned UniFirst earlier. They rent the same kind of specialty garments just to this industry. You're competing with two things. One is the prevalence of some big, well-heeled competitors who will offer these up for rent versus just trying to persuade someone to buy them and then replenish them that way. But also the fact that it's not their core area, yet, it seems to make up just enough of that revenue to call it out as a risk. You could see like if this goes away over time, they're going to have to replace that with something else.

Now, this could be an opportunity because the workwear industry, it's going to be, I think, ripe for expansion. UniFirst, Cintas is another example. These companies have been plowing this field for years. It's got great recurring revenue and it could be a nice lateral type of expansion for Boot Barn, but I think they would have to spend some money and invest in understanding lateral, adjacent industries. There's so many workwear possibilities, if that's something they want to get into outside of their core business, just being confident. This one industry, I guess it makes sense, Emily, because they've got such a big presence, as you mentioned, in Texas and some of the southern states that are big in oil drilling. You can see how this sort of organically probably came about over the years. But it's interesting, perhaps to pursue further as an expansion revenue stream for them.

Flippen: That's interesting. I didn't think about that as an opportunity, I think I had solely considered it a risk in my mind. Before we do get off to what I would consider maybe my biggest risk here, I'm curious how you think about competition. At the beginning of the show, you mentioned you've had some experience with these mom-and-pop shops and management does say that in the majority of their markets, their No. 1 competitor only has one or two locations. So there really isn't a global competitor to Boot Barn. Do you think that's a good thing, or do you think that's a risk?

Sharma: I almost think it's a risk, simply because, again, we're going partially on industry knowledge, partially on anecdotal evidence. But I'm sure many of our viewers have had this experience. The reason there are only one or two western-type competitors in a certain town or even city is because the market is just not that big. If you've got a competitor who has been around and has 12,000 to 15,000 square feet worth of well-stocked space, like this small company that I was talking about at the beginning or referring to, which is a company midway between where I live now and where I grew up in a rural area, it's hard to knock them from that patch, and it's almost easier if there are two stores given their run rate to acquire them for $1 million or $2 million, which is what Boot Barn has been doing. It's a fragmented industry that doesn't really lend itself that well to consolidation. You can imagine they have a talent for this. But at the end of the day, how big is this market?

I will say that we should point out demographic trends have been good for this business. I don't remember specifically seeing this in their latest annual report. But for those of you who are even glancingly familiar with this industry, the influx of the Hispanic demographic into the Southern states, legal immigration, and illegal immigration, if you will, but just the influx of Hispanics who come, in many instances, from very small countries. I'm thinking of the Honduras, Guatemala, which I visited, where that type of wear is almost a fashion statement. That's actually a trend in the company's favor, and I know that on their website, they're carrying some styles that appeal to a Central American market. They have some really nice jackets with Mexican flags aimed at women. Emily, [laughs] they're thinking that sort of two in one.

This is one thing, for me, it's going to be more of a case of watching Boot Barn just smartly follow this self-funded plan of expansion than thinking they could ever become just truly dominant in this industry. It's just too fragmented. What are your thoughts on that?

Flippen: One of the things I didn't like was that they didn't explicitly draw out a market opportunity in their annual report. I like it when businesses quantify. At a minimum, it provides me some starting level for evaluating how management sees their total addressable market. But the fact that Boot Barn really only briefly mentions their market opportunity, and it's really within the context of the broader apparel and footwear industry and maybe a bit of agriculture, oil and gas, and manufacturing industry aspects. It's interesting that they didn't actually call out any of the changing demographic trends as a potential tailwind. Because as I'm laughing here, looking at a comment, somebody has said, "Cowboy stuff is so 1800s." [laughs]

That's exactly where my mind went, beyond somebody who would need these items for the job, who is their target customer? I think maybe you're getting at what could be an increasingly growing target customer for this business. The fact that management hasn't talked about it at all makes me wonder if they're even interested in trying to grab that market, or at least if they are in their merchandising strategy, they're not talking about it in their 10-K. I wish they had quantified it a little bit more, but it is interesting that you mentioned that, because that's not where my mind went initially, and now I'm starting to understand who's going to this Boot Barn on a recurring basis in a better sense.

Sharma: For sure.

Flippen: I want to pass it off to you for your final thoughts about the stock if you'd be a buyer of Boot Barn at some point in the near future. But I'll give my thoughts before passing it off to you, because I think I've made mine clear. I'm not a big fan of Boot Barn. I don't think it's a bad business. I certainly don't. But I do wonder about some of their private, higher-end competitors, those local mom-and-pop shops that do have loyal followings. Whenever I have these questions, especially about consumer brands and retail brands, I  like to ask myself David Gardner's snap test, which is, if you snap your fingers and make this company, this brand, this business disappear, would anybody notice?

While I'm sure I very upset some listeners, very deeply by making the statements. Maybe I'm horribly wrong. I do have to wonder if I snap my fingers right now and make Boot Barn disappear. If anybody is really put out that much. For that reason, I'm not really sure if I'm super interested. It is not a bad business. I should really be knocking on wood, because, of course, Boot Barn has crushed the market over the past three to five years, I believe. But moving forward, I truly wonder about the addressable market and competition.

Sharma: This has really so many characteristics that make you want to like it. I will say I wish I had found the Boot Barn earlier. I was looking at The Buckle a couple of years ago, because maybe at that point I would've bought it. I know that today it's trading at around 38 times its forward earnings. Without technology, something persuasive, and it doesn't have to be hi-tech. Let me just give an example. One that we love to lush ourselves over, Yeti, [laughs] was very savvy in using Instagram when it was first growing. You can't call it a text stack, but in the use of technology, you can see how they leveraged it to move their sales forward.

Boot Barn doesn't have anything like this in their structure, nor do they have a true tech element that they can leverage to make the company worth 38 times forward earnings multiple. What it looks like now is people are discovering how great it is, how great the forward growth is. It is, I think, persuasive for some who know this market really well. I certainly place it much more highly than many other companies I've looked at.

Now, do I prefer this to some of the companies that I've mentioned, like Dollar General, which has invested so much technology in its supply chain and is so great at merchandising? Or Sleep Number, which has its own data that it is manipulating internally and using to design new products. Yeah, I don't like it quite as much. But at the same time, let's say that the market really took a plunge, and I don't know if this multiple went down to something more reasonable, like 20 times forward earnings. Would I take a nibble? Maybe.

Flippen: It'll definitely be one for the watch list, and it's definitely going to be one that I'm probably going to get some angry emails over from the boot enthusiasts. [laughs]

Sharma: Well, we have to give them their due. I mean, they certainly do carry the banner in terms of utility and fashion in this world.

Flippen: Certainly. Special thanks to Austin for emailing us with his experiences and his thoughts about Boot Barn, giving us some wonderful content to talk about on today's show. For that, I appreciate it, and as always, Asit, thank you so much for joining.

Sharma: Absolutely, Emily, lots of fun as always.

Flippen: Listeners, that does it for this episode of Industry Focus. If you have any questions or just want to reach out to say "Hi," feel free to shoot us an email at [email protected] or tweet us @MFIndustryFocus. As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against any stocks mentioned, so don't buy or sell anything based solely on what you hear. Thanks to Tim Sparks for his work by screen today. For Asit Sharma, I'm Emily Flippen. Thanks for listening, and Fool on!