The resurgence of Western styles could boost denim stocks, according to TD Cowen. Analyst Oliver Chen called the denim category a strong performer that could maintain momentum until at least the end of 2024. Positive about stocks around the world, he singled out Boot Barn, Levi Strauss and Ralph Lauren as key trends. “We believe the recent momentum in the denim category will be sustainable in the short to medium term,” Chen wrote to clients on Wednesday. “Our experts noted continued growth in the Western fashion cycle, likely at least until the end of the year and into the first quarter of 2025.” Chen highlighted trends in head-to-toe denim and craftwear that could drive spending in the category. That’s because broader Western style, usually centered around denim, has gained popularity thanks to its association with musical icons and the Louis Vuitton line that debuted earlier this year. The look in particular gained attention as members of Taylor Swift’s high-profile Eras tour emulated the “The Tortured Poets Department” singer’s early days in the country genre. He got another boost from fellow pop star Beyoncé’s “Cowboy Carter,” a chart-topping country album released earlier this year. But a key risk to the trend is that buyers remain willing to spend money on appearance as prices rise, Chen said. Playing into a denim revival As for apparel makers Levi Strauss and Ralph Lauren, Chen sees reasons for optimism beyond the West’s resurgence. Ralph Lauren increased average unit revenue as it strives to elevate the brand, and gross margins and return on invested capital rose to record highs, Chen said. And Ralph Lauren’s “strong American and Western heritage” will also benefit comparable US sales. Meanwhile, the analyst said investors should keep an eye on Levi Strauss’ direct-to-consumer premiumization efforts. The company’s line of jeans is referenced in the Cowboy Carter song “Levii’s Jeans,” which management previously said highlights the brand’s position in the culture. Both stocks have 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 rating with a price target that suggests Ralph Lauren has ~15% upside potential. On the other hand, Wall Street expects Levi Strauss to pull back more than 2%, with most recommending holding the stock unchanged. While Boot Barn is also seeing growth, it’s not entirely clear that there is a specific catalyst at work. Chen noted that Boot Barn’s same-store sales growth should accelerate again due to increased interest in Western clothing. While CEO James Conroy acknowledged the outpouring of cultural support for the looks that Boot Barn specializes in, he pointed to hard data showing that very few customers changed their shopping habits as a result of Beyoncé’s project. However, Conroy acknowledged that Beyoncé could help bring new customers to the business. “This is just an afterthought or cherry on top of our typical customer database,” he said during the Boot Barn conference call. Boot Barn beat Wall Street consensus estimates for fiscal fourth-quarter earnings and revenue, the company reported Tuesday. However, forecasts for the upcoming performance were more mixed. The company said revenue for the current quarter should again be higher than expected, but earnings per share for the same period should be below expectations. The California retailer also gave weaker-than-forecast guidance on both fronts for fiscal 2025. Boot Barn shares are up nearly 40% since the start of 2024. The average price target implies the stock will remain at the same level over the next year.
