Activist Investor Criticizes Ugg Parent for ‘History of Underperformance,’ Calls for Sale or Board Overhaul

ugg classic II boot
The new water and stain resistant Ugg Classic II.
Courtesy of brand.

Update: Deckers Provides Statement

In response to an email inquiry from Footwear News, a spokesperson for Deckers Brands provided the following statement this afternoon:

We appreciate the views of our stockholders. As previously announced on April 25, 2017, our Board of Directors is reviewing a broad range of strategic alternatives to enhance stockholder value. As always, our Board of Directors will continue to take actions that are in the best interests of the Company and all stockholders.

What We Reported Earlier

Marcato Capital Management LP, an activist investor with a 6 percent stake in Deckers Brands’ shares, said today that it would nominate a slate of new directors to replace the Ugg parent’s entire board if the company’s strategic review — initiated in April — does not result in a sale.

In a letter sent to Deckers’ board today, the hedge fund criticized the company’s “history of underperformance … attributable to years of poor decision-making and operational neglect, highlighted by a failed retail expansion strategy, runaway corporate expenses and wasteful capital allocation.”

Just days after Deckers’ stock took a tumble on its significant third-quarter earnings miss in February, Marcato Capital snapped up its 6 percent stake in the firm. The move was widely considered the first big sign, following months of speculation, that a Deckers Brands buyout might materialize.

The activist hedge fund disclosed in a filing with the U.S. Securities and Exchange Commission that it had snapped up 1.9 million Deckers shares and that it planned to have discussions with the firm’s management, board and other shareholders around enhancing shareholder value.

Ugg’s confirmation that it was pursuing strategic alternatives — including a sale or other transaction — came two months later, in April.

In its letter to management today, Marcato managing partner Mick McGuire said that the firm typically seeks “to work constructively with boards to implement change,” but viewed “this situation differently.’’

McGuire said he believes that Deckers’ strategic-review process lacked transparency and that its board and current management may not execute a sale that results in maximum value for stockholders. McGuire noted that Deckers board chairman and former CEO Angel Martinez recently launched a mayoral campaign, which he suggested could distract from the “urgency” surrounding the process.

“Given Deckers’ chronic underperformance, stockholder frustration and fatigue, a sale of the company in this case very likely offers the highest risk-adjusted return for stockholders,” McGuire writes. “If, for any reason, the process fails to produce a desirable outcome, we believe a new management team led by a new board of directors will be much more likely to succeed in achieving the revenue and expense opportunities at Deckers.”

McGuire also argued that Deckers has failed to translate the strength of the Ugg brand — which brings in the lion’s share of Deckers’ revenues, about 80 percent — into earnings growth and stockholder value.

In addition to hero brand Ugg, the Deckers portfolio includes Teva, Sanuk, Ahnu, Hoka One One and Koolaburra.

FN has contacted Deckers for a comment and will provide an update if/when one is available.