For Deckers Outdoor Corp (DECK), it’s Ugg or Bust!

Page 1 of 2

Deckers Outdoor Corp (NASDAQ:DECK), best known for its Ugg sheepskin boots, has had a rough year. The Goleta, Calif.-based company struggled with rising commodity costs, lower margins and declining sales over the past year, and shares lost half their value as investors fretted over the questionable future popularity of its Ugg boots.

However, the stock finally caught a break after its fourth quarter earnings topped Wall Street expectations and the company projected strong top line growth next year. Is Deckers finally worth a look for bottom-fishing value investors, or is this just another soggy boot caught on the fishing rod?

Fourth Quarter and Guidance

For its fourth quarter, Deckers Outdoor Corp (NASDAQ:DECK) earned $98 million – a 22.9% decline from the prior year quarter. Diluted earnings per share came in at $2.77 per share, down from $3.18 per share a year earlier, but still topped the Thomson Reuters consensus of $2.61.

Revenue rose 2.2% to $617.3 million, missing the analyst estimate of $623.03 million.

For the full year, Deckers’ profit was down 36.1% from the prior year to $129 million. Revenue was approximately the same at $1.4 billion.

While those numbers looked mediocre, it was the company’s guidance – which forecast sales growth of 7% in 2013 – that propelled the stock to rally 15% on March 1.

Sales Growth

Deckers Outdoor Corp (NASDAQ:DECK) reported more robust sales growth abroad than back at home. Its domestic sales edged up 2.1% to $446.7 million, while international sales surged 15.6% to $170.5 million.

Retail sales rose 37% to $135.5 million, but same-store sales declined 3.4%. However, the company fared better online, with e-commerce sales rising 31% to $87.6 million.

Deckers intends to open over 100 company-owned stores globally over the next three years. This is roughly in line with its prior expansion effort in fiscal 2012, when it added 30 new stores.

Ugg or Bust!

During the fourth quarter, Decker’s Ugg sheepskin boots – its best-selling product – generated $584 million, or 96.4% of the company’s total revenue.

At this rate, Deckers should change its ticker from DECK to UGG since it has become completely dependent on a single brand. Total revenue from Ugg sales rose 2.9% from the prior year quarter, which the company attributed to a colder winter season.

A look at Deckers’ revenue quarterly growth over the past five years reveals the cyclical importance of colder seasons – making the fourth quarter the company’s most important reporting period.



DECK Revenue Quarterly data by YCharts

However, analysts have expressed concern that Ugg is losing its exclusive appeal due to its widespread availability at discount retailers such as Marshalls, and from a variety of discount e-commerce sites.

Other Brands

Decker’s other brands, though dwarfed by Ugg’s sales, showed mixed signs of growth during the fourth quarter.

Sanuk, its flip-flops and sandals brand, grew sales 39.2% to $15.3 million. Deckers expects Sanuk sales to rise 15% during the year.

But Teva, which sells sandals, hiking shoes and water shoes, posted a 29.5% sales decline to $13.7 million.

Shrinking Margins

Due to Deckers’ heavy dependence on Ugg, rising costs for sheepskin and other raw materials are a major threat to the company’s margins. Throughout the first half of the year, Deckers raised prices on its Ugg boots to offset those rising costs – resulting in a decline in sales volume.

Last fall, the company cut the cost of the boots to revive sales. As a result, gross margin dropped from 51.0% to 46.3%.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Most Expensive Apartments in New York City

Bloodiest UFC Fights Ever Fought

Most Expensive Rum Brands in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!