Back to top

Analyst Blog

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

We recently upgraded our recommendation on Deckers Outdoor Corporation (DECK - Analyst Report) 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 repurchase program.

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 technologies.

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 outlets.

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 Nike Inc. (NKE - Analyst Report) and Wolverine World Wide Inc. (WWW - Snapshot Report), 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.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
BITAUTO HOLD BITA 34.24 +11.28%
CHINA DISTAN DL 14.99 +5.71%
E HOUSECHINA EJ 10.63 +5.67%
GENTHERM INC THRM 36.66 +5.47%
NOAH HOLDING NOAH 13.96 +5.04%