Is UGG Stealing Market Share From Timberland? (TBL, DECK)

Timberland TBL is down today. Way down. Down as in -25%. What happened overnight to this multi-billion-dollar firm that suddenly is threatened with a new reality as a multi-million-dollar firm? Q1 2011 results saw the footwear giants' net income decline -30.2% to $18 million, or $0.35 per diluted share. While President and CEO Jeffrey Swartz made all the expected noises about how net incomes compares with net income of $25.7 million for the same period last year, investors will be wondering why Swartz and his board aren't more concerned. Speculation is rife that Deckers Outdoor DECK and it's UGG brand, which specializes in fashionable yet practical cold-weather boots, is playing a not-so-inconsequential role in the decimation of Timberland's profits. UGG has wowed investors with better-than-expected earnings on several recent announcements, and its branded footwear directly competes with Timberland's products. Reuters reported today that Timberland expects margins to remain under pressure this year as it battles rising product and labor costs. In addition to seeing shares plummet 32%, Timberland's quarterly profit missed Wall Street projections for the first time in seven quarters. "(Timberland's) miss was pretty shocking," said Wall Street Strategies analyst Brian Sozzi. "They surprised the market in terms of how much they are spending on investments." In contrast, DECK saw its net sales increase 31.4 percent to $204.9 million compared to $155.9 million last year. Specifically, UGG brand sales increased 42.2 percent to $148.4 million compared to $104.4 million last year. As rumors continue to circulate that the swift growth of UGG will overtake the sales momentum at Timberland, Deckers stock rallies. Thursday alone, Deckers stock hit levels over 4% higher than Wednesday while their competitor plummeted over 32%.