Analysts: Ugg Brand Intact Even as Deckers’ Guidance Disappoints

Analysts: Ugg Brand Intact Even as
A fall '11 campaign image.

Deckers Outdoor Corp. will likely remain in the penalty box for the next two quarters, said analysts, but the competitive position of the firm’s flagship Ugg Australia brand remains intact.

“Coming out of the holiday season, it was clear that warm weather had affected sales of cold-weather product, and Deckers was not immune,” said Christopher Svezia, analyst at Susquehanna Financial. “Open-to-buy is expected to shrink for fall ’12 for cold-weather products and Europe remains pressured, while input costs are also a larger headwind than expected. That being said, we expect Deckers to become a ‘beat and raise’ story with the potential for strong growth in the back half.”

Analysts also approached the firm’s conservative guidance for fiscal 2012 cautiously. Scott Krasik, analyst at BB&T Capital, said, “The ultimate question is: How healthy is the Ugg brand? In my mind, what the indicators are telling you is that even though retailers such as Nordstrom, Dillard’s and Journeys have more inventory than they want [from the last two quarters], the fact that they are raising prices on Classic product [going forward] suggests they’re not worried about the brand. They’ve ordered roughly flat on a total dollar basis year over year, and remember last year was a huge year.”

Angel Martinez, chairman, president and CEO of Deckers, is clearly banking on the brand going forward.

“I have no indication that our bigger customers have seen any slowdown at all, other than the weather being the issue. What I found, independent of anyone I talked to, is that without Ugg, it’s very tough to make your fourth-quarter number.”
 
Deckers beat estimates in the fourth quarter, earning a net income of $124.7 million, or $3.18 a share, a 39.8 percent increase from $89.2 million, or $2.27. Net sales advanced 40.4 percent to $603.9 million. Analysts were expecting earnings per share of $3.14 on revenue of $565.2 million, as polled by Yahoo Finance.

The company said first-quarter revenue will rise about 19 percent year over year, but EPS will be down about 50 percent year over year due to higher levels of fixed overhead for new retail stores, international infrastructure and other general and administrative costs. Relief from significant rises in sheepskin prices is expected to begin in 2013.

For fiscal 2012, Deckers predicts full-year revenue will increase approximately 15 percent over 2011 levels, but EPS is expected to be flat.

The firm ended the year with cash and cash equivalents of $263.6 million.

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