Analysts: Deckers Heading in Right Direction

Market watchers are encouraged by progress made at Deckers Outdoor Corp., but they acknowledged the company still has work to do to regain investor confidence.

Inventory levels remained a concern, while guidance was generally thought to be conservative.

“While the extended colder weather helped clear channel inventory, [it] remained surprisingly high,” said Camilo Lyon, analyst at Canaccord Genuity. “[The] high degree of conservatism [in guidance] is understandable given last year’s debacle, and that there is still a fair amount of uncertainty around fourth-quarter weather.”

Both Sterne Agee analyst Sam Poser and BB&T Capital Markets analyst Scott Krasik reiterated their “buy” ratings on Deckers’ shares, which were trading 8.7 percent lower on Friday.

“The Ugg Australia business has stabilized,” said Poser, “but there is a long way to go this year. Trend-right product is essential.”

Despite Krasik’s optimistic outlook, he noted that earnings per share will be heavily weighted toward the fourth quarter, from the third.

“Two consecutive warm fall seasons have prompted retailers to delay orders for cold-weather items,” he said. “But that’s largely a transitional issue and is mostly ‘noise’ for the full year.”

Speaking to analysts on a conference call late Thursday, Angel Martinez, Deckers’ chairman, president and CEO, said the firm beat Wall Street expectations in the first quarter, partly thanks to better-than-expected consumer demand for the Ugg brand in both wholesale and direct-to-consumer channels.

Still, the CEO is staying conservative.

“People have just been, generally speaking, cautious … across the board,” Martinez said.

He added: “Interestingly … as a result of the cooler weather this spring, people may look at their order book and realize that if we start to trend toward a more normalized winter, they may be a little short on core classic product and core colors. We’ll find that out as the season progresses.”

Martinez also spoke about diversifying Ugg’s product lines to lower product costs. One way to do that, he said, is with Ugg Pure, a wool-pile textile created by crafting wool fibers and weaving them into a plush footbed material.

“Ugg Pure gives us another important key to further unlock the lifestyle nature of the Ugg brand, well beyond footwear. We’re excited about the flexibility we believe [it] can potentially provide. We will expand Ugg Pure into other products in our line over time,” he said.

For the period ended March 31, Goleta, Calif.-based Deckers earned a net income of $1 million, or 3 cents a share, down from $8 million, or 20 cents, in the same period a year ago.

Net sales advanced 7.1 percent to $263.8 million, from $246.3 million. Gross margin improved 80 basis points to 46.8 percent of sales.

Analysts were expecting the firm to lose 10 cents a share on revenue of $252.3 million, as polled by Yahoo Finance.

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