Company Spotlight - Deckers Outdoor (Nasdaq:DECK) Ugg Is Beautiful | | DECK | $114.38 | The Good: Earnings are jumping.
The Bad: Company depends mostly on one product.
The Beautiful: That product is in higher and higher demand. | P/E | 27 | | PSR | 2.5 | | ROE | 23% | | Debt/Eq. | 0 | | Beta | 3.64 |
February 18, 2008 -Deckers Outdoor Corp. (DECK-NASDAQ) makes and markets Teva sports sandals -- a cross between a hiking boot and a flip-flop. They're used for walking, hiking, and rafting, among other pursuits. While imitations flood the market, the firm distinguishes Teva from its numerous competitors by avoiding distribution in off-price outlets, creating a stronger brand image for the sandals. Other product lines include Simple (casual footwear) and UGG (sheepskin boots/shoes). Deckers Outdoor's products are made by independent contractors in Asia, Australia, and New Zealand. It's the Uggs that make the whole thing go.
That's right. These are the people who bring us Ugg boots, the must have item last Christmas. Demand is so strong for the sheepskin boots and slippers that there was no discounting during the holiday season. As a result, earnings should come in at $4.90 for 2007, up from $3.22 in 2006. Projection for 2008 earnings is $6.00. Over the next 5 years, predictions are for earnings to grow by 20% a year, on average, while sales improve by 15% a year, on average. Revenues for 2006 were $304 million with expectations of $435 million in 2007. Look for $530 million in 2008.All this good earnings growth hasn't gone unnoticed. The stock rockected from a low of $3.30 in late 2003 to a recent all-time high of $166.50. It hasn't been a straight up chart, but from the end of 2005 until the end of last year, it was. Valuations are also getting up there with the stock carrying a P/E ratio (price to earnings) of 27, a price to book value of 5.5. While Ugg gets a lot of attention, the company also sells Teva and Simple brands. The first is a well received sandal/hiking shoe, a staple for many outdoor types. Simple is simply casual footwear. While neither has the exciting growth story of Uggs, both are strong staples. Together, they've grown about 10% in the last year but only add up to 12% of total revenues. Most likely they'll soon be joined by another brand, if speculation is correct. The company has over $5 in cash per share with current assets almost 5 times current liabilities. There's plenty of room on the balance sheet to buy a brand that will diversify the company and leave it less vulnerable to a slow down for Uggs, if it ever comes. Other numbers: Return on Equity is a remarkable 23%. This is a mid-cap company with a $1.5 billion market cap on 12.8 million shares. Net profit margin is a robust 15%. Chairman Douglas Otto owns about 13% of the company. There is no dividend. There is no debt. Now that the stock has come down by almost 33% from its high, DECK warrants some investigation by investors looking for retail stocks. It has a strong balance sheet, good management, and a hot fashion item, which, of course, can go from hot to not quickly. But spring orders for Uggs are high so there isn't any indication that the boots are waning in popularity. This company is more than a one hit wonder but not by much. Investors will no doubt find comfort in an acquisition that would help diversify revenues and profits. - Company Web site: http://www.deckers.com/ - Ted Allrich |
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