Deckers to Outperform - Analyst Blog

We recently upgraded our recommendation on Deckers Outdoor Corporation (DECK), one of the leading designers and producers of innovative footwear and accessories, to Outperform with a price target of $90.00. Earlier we had a Neutral rating on the stock.

Deckers' sustained focus on new product introductions and geographic expansion has helped robust growth. The company's top line has increased at a CAGR of 32% in the last five fiscal years.

Deckers recently delivered better-than-expected third-quarter 2010 results on the heels of strong demand for the product lines under the UGG and Teva brands, prompting management to lift its fiscal 2010 outlook.

The quarterly earnings of $1.07 per share outdid the Zacks Consensus Estimate of 93 cents, and rose 24.4% from 86 cents earned in the prior-year quarter. Deckers said that total net sales jumped to $277.9 million, up 21.7% from the prior-year quarter, comfortably surpassing the Zacks Consensus Revenue Estimate of $266 million.

For fiscal 2010, management now expects total revenue to increase by 16% compared to 14% predicted earlier. Earnings per share are expected to rise by 22% versus 16% previously forecasted.

The international markets provide a significant growth opportunity, and we remain optimistic about the company's incremental sales and earnings potential. Deckers international sales soared 48.2% in the third quarter. Internationally, the company distributes its products throughout Europe, Asia Pacific, Canada and Latin America.

Following the expiration of existing distribution agreements, Deckers, effective January 2011, will manage the distribution of UGG, Teva and Simple brands in the U.K. and the UGG and Simple brands in the Benelux region and France. This will help capture incremental sales and margins by selling directly to wholesale customers.

Deckers, which faces stiff competition from Skechers USA Inc. (SKX">SKX)  also portrays a healthy balance sheet with a significant cash and cash equivalents balance of $250.5 million and shareholders' equity of $562.3 million without any debt at the end of the third quarter, which provides ample liquidity for capitalizing on future growth opportunities.

Given the strong fundamentals, Deckers holds a Zacks #1 Rank, which translates into a short-term Strong Buy recommendation and correlates with our long-term view.

 
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