We recently upgraded our recommendation on
Deckers Outdoor Corporation
) to Neutral with a price target of $36.00, following its
third-quarter 2012 bottom-line performance. Earlier, we had an
Underperform rating on the stock.
Deckers' quarterly earnings of $1.18 per share came ahead of
the Zacks Consensus Estimate of $1.02 per share. However, it
declined 25.8% year over year due to muted top-line performance
but fared better than the projected decline of 31% in the bottom
line due to effective cost management coupled with the share
Total net sales of $376.4 million fell short of the Zacks
Consensus Estimate of $412 million, and declined 9.2% from the
prior-year quarter, as the price hiked to mitigate an 80% rise in
sheepskin and raw material costs boomeranged. Warm weather
condition also had an adverse impact on the demand of UGG brand
with the ongoing European crisis playing spoil sport. The company
had earlier forecasted top-line growth of 1%.
To counter this, Deckers decided to make retrospective
adjustment in prices of selected Classic styles that were shipped
since July 1, 2012. Moreover, in order to safeguard against
rising sheepskin costs and other raw materials, Deckers has
undertaken certain long-term programs, which includes increasing
the mix of non-sheepskin merchandises, new casual footwear
materials less prone to weather, and innovative production
The company is eyeing other profitable markets, and remains
focused on product introductions, store augmentation, along with
geographic expansion. Management intends to focus on China, where
the company has increased its store count to 20 by opening 7 new
stores during the quarter. In the year-ago quarter, Deckers had 8
Deckers has been grappling with inflated inventories and
sluggish demand on account of increase in prices. Consequently,
amidst waning demand for its UGG product lines, the company
trimmed its fourth quarter and fiscal 2012 outlook.
Management now projects total revenue growth of 5% for fiscal
2012, down from the prior guidance of a 14% increase. Earnings
per share are expected to decline 33% compared with a 9% to 10%
decrease forecasted earlier. The company now foresees a 6% jump
in total revenue and a 14% decrease in earnings per share for the
fourth quarter. Earlier, management had guided growth of 19% in
total revenue and a 22% jump in earnings per share.
Despite a dismal outlook, the stock suggests enough upside
potential as it trades at a discount to its peers based on our
forward earnings estimates. Deckers currently trades at a forward
P/E of 9.17x, reflecting a 43.8% discount to the peer group
average of 16.32x.
Consequently, given the pros and cons, we adopt a Neutral
stance on the stock. However, Deckers, which competes with
Wolverine World Wide Inc.
), holds a Zacks #5 Rank that translates into a short-term Strong
Sell rating, and defines the company's sluggish top-line
performance and trimmed outlook.
DECKERS OUTDOOR (DECK): Free Stock Analysis
NIKE INC-B (NKE): Free Stock Analysis Report
WOLVERINE WORLD (WWW): Free Stock Analysis
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