This 1 Thing Could Crush Deckers Outdoor Stock

Photo Credit: Joeri van Veen

Deckers Outdoor Corp. (DECK) Consumer Discretionary - Textiles, Apparel & Luxury Goods| Reports May 26, After Market Closes

Key Takeaways

• The Estimize consensus is looking for earnings of 7 cents per share on $363.39 million in revenue, 1 cent higher than Wall Street on the bottom and right in line on the top
• Deckers currently operates three core brands but UGGs still accounts for a majority of the company’s revenue
• The first quarter after the holiday season is typically weakest for retailers who simply try to minimize their losses
• What are you expecting for DECK? Get your estimate in here!

Retailers have had a rough season witnessing losses ranging from apparel to footwear. The biggest challenge for these companies is minimizing their losses in Q1 after generating a majority of their sales during the holiday season. For Deckers these problems are exacerbating as the rise of all purpose athletic apparel has infringed on its market share. Coming into its Thursday report, expectations are largely muted, although growth is still expected to be robust.

The Estimize consensus is looking for earnings of 7 cents per share on $363.39 million in revenue, 1 cent higher than Wall Street on the bottom and right in line on the top. Compared to a year earlier, this represents an 75% increase in earnings with sales expected to grow by 7%. Given the ups and downs in earnings, it’s not surprising that the stock reacts in a similar fashion. On average though, shares increase the most in the month following a report. This should provide some comfort to shareholders who have withstood a 34% loss in the past 12 months.

Deckers is best known for running UGG Brands which accounts for a majority of its revenue. With a weak holiday season and unusually warmer weather, it won’t be surprising if UGG sales suffered this quarter. Still, the cold weather boots managed to eke out a 1% gain last quarter, primarily led by an increase in global DTC and domestic wholesale revenue. Deeper discounts have helped Deckers’ move key products and avoid an inventory hangover. Moreover, Deckers recently released a new line of weather universal UGGs with a slimmer fit

Deckers fashion forward brand, Teva, fared better given the warmer weather. The third quarter saw sales increase 3.2% to $14.1 million compared to $13.6 million from the same period last year. Sanuk brand sales, on the other hand, declined 17% , making it the worst of the three core brands Deckers operates. Like other multinationals, currency headwinds have constrained revenue growth in global operations.

While it won’t be surprising if earnings falls short this quarter, investors will be keen to know when thing will turn around. Efforts to frequently update its product line and create new buzz around its brand, particularly UGGs, have been a step in the right direction but ultimately results and guidance are what really matters.