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Bear of the Day: Deckers Outdoor (DECK)

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Deckers Outdoor ( DECK ) is now a Zacks Rank #5 (Strong Sell) after the company reported earnings late last week. Leading into the report estimates were coming down and now after the company cut guidance, estimates should continue to fall. The California company's shares have fallen almost 50% from the start of 2015 and continue to see pressure.

Company Description

Deckers designs, markets, and distributes footwear, apparel, and accessories for casual lifestyle use. The company has a market cap of $1.6 Billion with a PE of 11 and pays no dividend. The stock has Zacks Style Scores of "D" in both Value and Growth, along with a "F" in momentum. The company resides in an industry ranked 207 out of 265 (Bottom 22%) of the Zacks Industry Rank.

Estimates and revisions

The chart below shows us that recent revisions have been to the downside. Over the last 60 days, estimates have come 11% for fiscal year 2016 and 17% for 2017.Furthermore, analysts have been in 100% agreement with eight out of eight analysts revising to the downside. These revisions point to growth struggles at the company and there is no reason to be involved in the stock unless we see a turn around.

Earnings and guidance

On February 4th, Deckers reported earrings and issued guidance that was underwhelming. The third quarter came in at $4.78 versus the $4.70 expected, with revenues coming in below the $836 Million expected at $795.9 Million. The company guided Q4 lower, seeing $0.07 versus the $0.26 expected and sees revenue up 7.9% year over year. They also cut fiscal year 2016 to $5.15 versus their prior target of $5.73 and revenues to $1.91Billion versus $2.01 Billion.

CEO Angel Martinez went into detail on the call about the company's struggles: "Our third quarter was more challenging than we expected as warm weather and weak store traffic across retail pressured demand... While we have made significant progress diversifying our brands and product lines and transforming our organization over the past several years, we recognize the need to accelerate elements of our long-term strategy. To do this, we are streamlining our organization so we can dedicate more resources to our largest market opportunities. We are targeting approximately $35 million in annualized run rate expense savings from office consolidations, realignment of our brand management, and select retail store closings. We plan to invest approximately $10 million of this savings back into the business. We are confident these changes will increase profitability and improve shareholder returns."

Price action after earnings was negative at first, but the stock bounced back to unchanged after selling off 4%. Typically, this can be taken as a good sign, but with Deckers muted growth outlook it is best to stay away.

A better option

Francesca ( FRAN ) is Zacks Rank #2 (BUY) and a better option than Deckers. The company is a specialty retailer of women's apparel products that operates a chain of retail boutiques in the United States. Analysts have been revising estimates higher over the last 90 days, for both fiscal years 2016 and 2017. The stock has held up well compared to most of late and is actually up 20% over the last three months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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