According to TD Cowen, a renaissance in Western style could lead to more brands specializing in denim. Analyst Oliver Chen praised the jeans fabric category, which is performing well and should be able to maintain its momentum until at least the end of 2024. He is positive about stocks in the sector, but singles out Bootburn, Levi Strauss and Ralph Lauren in particular. An important role lies in trends. “We view the recent momentum in the denim category to be sustainable in the short to medium term,” Chen said in a letter to clients on Wednesday. “Our experts emphasized that the Western fashion cycle is likely to continue to grow until at least the end of the year and the first quarter of 2025.” Chen said that head-to-toe denim dressing and artisan He highlighted trends in technical clothing and said these could drive increased spending in this sector. This comes as a broader Western style, typically thought of as denim-centric, has gained popularity through its association with music icons and Louis Vuitton’s line, which debuted earlier this year. Specifically, the look gained attention after attendees of Taylor Swift’s successful Elas Tour imitated the “The Tortured Poets Department” singer’s early days in the country genre. . It was further boosted by fellow pop star Beyoncé’s “Cowboy Carter,” a chart-topping country album released earlier this year. However, the main risk to this trend is whether customers are still willing to spend money on the look even as prices rise, Chen noted. For clothing makers Levi Strauss and Ralph Lauren, which are responsible for denim’s resurgence, Chen thinks there’s more reason to be bullish than just a Western revival. Mr. Chen said Ralph He Lauren increased its average selling price by promoting the brand’s status, and its gross profit and return on invested capital rose to record highs. And Ralph Lauren’s “strong heritage” in Americana and Western will also benefit comparable sales in the United States. Meanwhile, analysts said investors should keep an eye on Levi Strauss & Co.’s efforts to make direct-to-consumer premium. The company’s jeans line was referenced in the “Cowboy Carter” song “Levis Jeans,” and management has previously said this underscores the brand’s place in culture. Both stocks outperformed the market in 2024, with Ralph Lauren up about 16% and Levi Strauss up about 36%. But Wall Street is divided on what to expect next. The average analyst has a Buy price target, suggesting Ralph Lauren has about 15% upside potential. Meanwhile, Wall Street expects Levi Strauss to exit by more than 2%, with the majority holding the stock unchanged. Boot Barn is also seeing momentum, but it’s not entirely clear what specific catalysts are at work. Chen said Boot Barn’s same-store sales growth should accelerate again due to increased interest in Western clothing. While CEO James Conroy acknowledged that there was an outpouring of cultural support for Bootburn’s signature looks, there was evidence that few customers had changed their buying habits as a result of Beyoncé’s project. pointed out the data. Still, Conroy acknowledged that Beyoncé could help introduce new customers to the business. “This is just an ancillary piece or a icing on top of our typical customer database,” he said on Bootburn’s earnings call. Boot Barn beat Wall Street consensus estimates for fiscal fourth-quarter earnings and sales, the company reported Tuesday. However, guidance regarding future performance was more mixed. The company said it expects sales for the current quarter to again beat expectations, but earnings per share for the same period will be lower. The California-based retailer also gave a weaker-than-expected outlook for both products for fiscal 2025. Bootburn’s stock price has soared nearly 40% since the beginning of 2024. The typical analyst surveyed by LSEG rates Bootburn a Buy, but the average price means the stock will remain flat over the next year.
Denim stocks could benefit from Western style trends, says TD Cowen
