Analyzing The Evolution of Ugg

Ugg is poised for progress.

In an analyst meeting during FFANY’s December show shoe, Deckers Brands President Dave Powers unveiled an ambitious plan for an overhaul of the Ugg Classics business for fall ’16.

Deckers announced that Ugg will remove all remaining Classic Ugg boots from U.S. wholesale following this winter season and replace them with a revamped Classics II collection featuring upgraded features — at likely higher price points — for fall ’16, Citi Research analyst Corinna Van der Ghinst explained.

New product features include a treadlite sole, a water-resistant finish, a slimmer last and more cushioning.

Van der Ghinst said she believes management’s new business plan has “the potential to drive upside to FY17 estimates while also creating a path for more sustainable long-term growth in both the U.S. and internationally.

In phase 1, the vendor will take Classics out of the marketplace from April to June. In phase 2, Ugg will ship the all-new Classics II and extensions in July and August, Van der Ghinst noted.

The benefit of this is twofold: Any excess Classic 1 product taken back from retailers will be sold through Ugg outlets at a higher margin to Deckers, and a new product cycle likely results in increased backlog orders on like-for-like items,” explained Canaccord Genuity Inc. analyst Camilo Lyon. “This evolution of the Classics franchise is what will drive long-term consistency of demand, we believe.”

Following Ugg’s fall ’16 preview, Lyon was upbeat on the brand’s “planned promotions, minimal cancellations and evolution and expansion.”

“We are incrementally more positive coming out of Deckers’ Ugg fall 2016 product preview as two important facts came to light that should ease concerns around the current environment,” Lyon wrote. “The promotions we have seen both at Ugg [direct-to-consumer] and in the wholesale channel were planned, and cancellations have not been out of the ordinary thus far.”

In addition to the Classic 2 revamp next year, Deckers is expanding its classics franchise to include an expanded Classic Slim offering, as well as Classic Street and Classic Luxe, Lyon noted.

Lyon reiterated a buy rating on the stock.

When Deckers last reported, sales at Ugg brand had advanced 0.9 percent year-over-year, to $421.1 million.

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