TD Cowen says a resurgence in Western styles could boost stocks specializing in denim. Analyst Oliver Chen praised the denim category for its strong performance, which should be maintained through at least the end of 2024. “We believe the recent momentum in the denim category is sustainable in the short to medium term,” Chen wrote to clients on Wednesday. “Our experts highlight that continued growth in the Western fashion cycle is likely to continue until at least the end of this year and into Q1’25.” Chen highlighted trends in head-to-toe denim apparel and handmade apparel, which could drive increased spending in the category . At the same time, a broader Western style – of which denim is often considered central – gained popularity through its association with music icons and the Louis Vuitton collection launched earlier this year. Specifically, the look gained attention as attendees of Taylor Swift’s ambitious “Eras” tour imitated the “The Tortured Poets Department” singer’s early country music style. Pop star Beyoncé gave it another boost with her country album “Cowboy Carter,” released earlier this year. But Chen noted that a key risk to this trend is whether customers will still be willing to spend money on appearance amid rising prices. Driving a denim renaissance For apparel makers Levi Strauss and Ralph Lauren, Chen sees reasons to be bullish on them beyond a resurgence in the West. Chen said that by upgrading the brand, Ralph Lauren has increased average unit revenue, while gross margin and return on invested capital have also climbed to record highs. Ralph Lauren’s “strong heritage” in the United States and the West will also benefit U.S. comparable sales figures. At the same time, the analyst said that Levi’s direct-to-consumer high-end efforts deserve investors’ attention. The company’s line of jeans was mentioned in the “Cowboy Carter” song “Levii’s Jeans,” which management previously said underscored the brand’s cultural status. Both stocks have outperformed the market in 2024, with Ralph Lauren up about 16% and Levi Strauss soaring about 36%. But Wall Street is divided on what to expect next. Analysts have an average buy rating, and the price target suggests upside potential for Ralph Lauren of about 15%. On the other hand, Wall Street expects Levi Strauss shares to fall more than 2%, with most rating the stock a hold. While Boot Barn is also feeling the boost, he’s not sure there’s a specific catalyst to thank. Chen said Boot Barn’s same-store sales growth should reaccelerate as interest in Western clothing increases. While CEO James Conroy acknowledges that Boot Barn specializes in looks that have a lot of cultural support, he points out that company data shows that few customers will change their buying habits because of Beyoncé’s projects. Still, Conroy did acknowledge that Beyoncé could help bring new customers to the business. “This is just the fringe, or the icing on the cake, of our typical customer base,” he said on Boot Barn’s earnings call. Boot Barn reported Tuesday that its fiscal fourth-quarter profit and revenue topped Wall Street consensus estimates. Guidance for upcoming results, however, is more complicated. The company said revenue should be stronger than expected again this quarter, but earnings per share should be lower than expected for the same period. The California-based retailer also gave a weaker-than-expected outlook for both product lines in fiscal 2025. Analysts have a Buy rating on Boot Barn, and the average price target suggests the stock will remain flat next year.
