Deckers (DECK) Up Post-Earnings: Will Momentum Last?

Deckers Outdoor Corporation 's DECK shares surged roughly 24% since the company released its fourth-quarter fiscal 2017 earnings results. Shares of this Zacks Rank #2 (Buy) company grew 17% in the past month outperforming the Zacks categorized Shoe & Retail Apparel industry's increase of 1.3%.

So what's driving this sturdy performance? Let's have a look into the company's recently reported fourth quarter results and its operational strategies, for gaining a deeper insight regarding this momentum.

Factors Impacting Performance

The stock's surge was primarily driven by solid fourth quarter performance. This footwear and apparel retailer surprised investors by posting profit in the final quarter. Earnings for the quarter came in at 11 cents per share that surpassed the Zacks Consensus Estimate of a loss of 6 cents and management's earlier projection of a break-even to a loss of 10 cents.

Deckers' cost containment efforts had led to this improved bottom-line performance. The top line came ahead of our estimates, after missing the same in the preceding two quarters.

Improved performance of the company was driven by its well-thought strategies that include targeting profitable markets, focusing on product innovations and store augmentation. Deckers' inclination towards expanding its brand assortments, targeting consumers digitally via marketing and sturdy eCommerce and optimizing omni-channel distribution bodes well.

The company's store fleet optimization plan focuses on striking the right balance between digital and physical stores. Deckers plans to close approximately 30 to 40 outlets over the next two years. By fiscal 2020, it expects a company-owned fleet of approximately 125 stores worldwide.

After ending fiscal 2017 on a high note, management expects cost savings of about $150 million on the back of improvement in cost of goods sold and SG&A savings, which includes consolidation of retail outlets and process improvement efficiencies. This will help realize $100 million operating profit improvement by fiscal 2020. Management anticipates total sales of about $2 billion with operating margin of 13% by fiscal 2020.

Despite a strong bottom line performance in the previous quarter, Deckers' top line continues to decline year over year and management now expects fiscal 2018 net sales to be flat to down 2%. The company's over-reliance on the UGG brand is a matter of concern and requires the company to undertake stringent efforts to strengthen its other brand.

Bottom Line

We believe that the company's strategic initiatives will propel the stock in the coming days. Influenced by strong fourth-quarter performance and its policies, the Zacks Consensus Estimate for the first quarter narrowed to a loss of $1.66 from $1.73. For fiscal 2018 the same improved by 31 cents to $4.08.

Deckers exhibits a VGM Score of "A" and has a long-term earnings growth rate of 9.8%, making us confident of the company's inherent strength.

Other Key Picks

Better-ranked stocks worth considering in the retail space include Aaron's, Inc. AAN , Best Buy Co., Inc. BBY and The Children's Place, Inc. PLCE . All these three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Aaron's has reported better-than-expected earnings in the trailing four quarters, with an average beat of 10.6%.

Best Buy has an impressive long-term earnings growth rate of 11.8% and has also surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average earnings beat of 33.8%.

The Children's Place has reported earnings beat in the trailing four quarters, with an average of 36.6%.

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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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