Deckers Outdoor Corporation
) seems to be in an unfavorable position as the soft economic
environment continues to take its toll on the performance of this
designer, producer, and brand manager of innovative, niche footwear
and accessories, as evident from its second-quarter 2012 bottom
The company's dismal performance compelled us to take a bearish
stance on the stock, and therefore we went on to downgrade our
recommendation to "Underperform" with a price target of $33.00.
Earlier, we had a "Neutral" view on the stock.
Second Quarter Loss Widened
Deckers second-quarter 2012 loss of 53 cents a share fared
better than the Zacks Consensus Estimate of loss of 59 cents but
widened from a loss of 19 cents delivered in the year-ago quarter
due to sluggishness in the European market on account of the
ongoing economic crisis. International sales during the quarter
dropped 14.7% to $61 million. UGG brand net sales fell marginally
by 0.3%, whereas Teva brand net sales tumbled 15.4%.
Despite a 14% expected growth in the top line, management
projects fiscal 2012 earnings to decline between 9% and 10%, and
anticipates 1% growth in total revenue and a 31% decline in
earnings per share for the third quarter.
Deckers, which competes with
Wolverine World Wide Inc.
), also forecasts a gross profit margin contraction of 250 basis
points due to increase in costs of goods sold and higher closeout
sales level for fiscal 2012.
Downhill Estimate Revision
Following Deckers' second quarter results, the Zacks Consensus
Estimates have been portraying a downward trend.
The Zacks Consensus Estimate for the third quarter of 2012
dropped by 5 cents to $1.07 per share in the last 60 days. For the
fourth quarter, the Estimate fell 16 cents to $3.59. For fiscal
2012 and 2013, the Zacks Consensus Estimates slid 24 cents and 30
cents to $4.24 and $4.96, respectively, in the last 60 days.
Deckers' over-reliance on the UGG brand is a matter of concern.
In the event of stagnation or decline of UGG sales growth, the
company's overall results will be affected adversely. This is
because the percentage of contribution from the company's other
brands are too small to offset any slowdown in UGG
Due to high exposure to international markets, Deckers remains
prone to currency fluctuations. The weakening of foreign currencies
against the U.S. dollar may require the company to either raise
prices or contract profit margins in locations outside the U.S. An
increase in price may have an adverse impact on the demand for the
An erratic consumer behavior and a sluggish economic recovery
still remain matters of concern. The above analysis supports our
unbiased view, and advocates our bearish stand on the stock, which
is well defined through our Zacks #5 Rank that translates into a
short-term "Strong Sell" rating.
DECKERS OUTDOOR (DECK): Free Stock Analysis
NIKE INC-B (NKE): Free Stock Analysis Report
WOLVERINE WORLD (WWW): Free Stock Analysis
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