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Deckers (DECK) Strategic Efforts Bode well: Should You Hold?

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Deckers Outdoor Corporation (DECK - Free Report) focus on e-Commerce capabilities, innovative line of products and concentrated efforts on expanding brand assortments has been received well by investors, evident from the stock’s gain of 17.5% in the last six months. Moreover, the stock has also outperformed the industry which has witnessed a decline of 4.3%.

However, in the past month the stock has lost momentum and witnessed a marginal decline of 2%. Let’s delve deeper.

Hidden Catalyst

Deckers is targeting profitable markets, and remains focused on product innovations and store augmentation. Management is eyeing opportunities for store expansion, targeting underpenetrated markets, enhancing e-Commerce capabilities along with transitioning to a direct subsidiary model from a distributor model outside the United States. The company’s focus on expanding brand assortments, bringing more innovative line of products, targeting consumers through marketing and optimizing omni-channel distribution bode well.

In keeping with the changing trends, Deckers has made substantial investments to strengthen online presence and improve shopping experience for customers. Further, it is focused on opening smaller concept omni-channel outlets and expanding programs such as Retail Inventory Online, Infinite UGG; Buy Online, Return In Store; and Click and Collect to enhance shopping experience.

Moreover, in an effort to drive long-term growth, the company has taken strategic initiatives. Its store fleet optimization plan focuses on striking the right balance between digital and physical stores. Additionally, Deckers plans to close approximately 30 to 40 outlets over the next two years. By fiscal 2020, it anticipates a company-owned fleet of approximately 125 stores worldwide.

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.

Concerns

Following first-quarter fiscal 2018 results, Deckers has kept fiscal 2018 guidance intact but provided a soft second-quarter outlook. Management expects net sales to decline approximately 10% on account of store closures and earlier-than-planned shipments in the quarter under review. Management informed that the last year quarter sales also benefited from the shipment of Women's Classic II. Moreover, Deckers envisions earnings in the range of approximately $1.00-$1.05 compared with $1.23 per share delivered in the year-ago period.

Further, 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 adversely affected. This is because the percentage of contribution from the company’s other brands are too small to offset any slowdown in UGG sales.

3 Retail Stocks Hogging the Limelight

Top-ranked stocks, which warrant a look in the retail sector includes, Big Lots, Inc. (BIG - Free Report) , The Gap, Inc. (GPS - Free Report) and Burlington Stores, Inc. (BURL - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Big Lots has an impressive long-term earnings growth rate of 13.5%.

The Gap delivered an average positive earnings surprise of 9.3% in the trailing four quarters and has a long-term earnings growth rate of 8%.

Burlington Stores delivered an average positive earnings surprise of 17.7 in the trailing three quarters and has a long-term earnings growth rate of 16.2%.

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