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Same Old Solid Results

Stock (Symbol) Stock Price

Deckers Outdoor (DECK)

$46

Data is as of Expected to Report Sector

August 11, 2010

Oct 22

Retail & Restaurant

Company Description
Deckers Outdoor Corporation is engaged in designing, producing, marketing and brand managing of footwear and accessories. The Company sells its products, including accessories, such as handbags, headwear, packs and outerwear, through domestic retailers and international distributors and directly to the consumers, both domestically and internationally, through its Websites, call centers, retail concept stores and retail outlet stores. The Company markets its products under three brands: UGG, Teva and Simple. The Company acquired 100% of the ownership interest of Ahnu, Inc. in March 2009.
Sharek’s Take
Deckers continues to roll. DECK put out solid results last quarter and continues to be one of the top growth stocks on the market. The shoe industry is hot as inventories are being bought up by retailers who are selling more shoes due to pent-up demand.

Profit margins could come in at 48-49% this year. Margins were 46% in 2009, 44% in the recessionary 2008, and 46% during 2006 and 2007 when the stock went gangbusters.

Deckers is in the process of moving from a sell-to-distributor model to one where the product gets sent directly to the retailer. This change will no-doubt boost profitability. Implementation started in Europe in January 2010 and should continue in that continent through 2011. Look for free-standing UGG stores, which will be starting out in New York, LA, Washington DC, Vegas, Miami and Orlando as well as Shanghai. I think these stores will be killer for sales and profits.

One-Year Chart
Looking at the one-year chart, DECK continues to disappoint me with lackluster Estimates for coming quarters. This is management’s idea of underpromising to overdeliver. Otherwise everything looks stout. Same old solid results as we are used to from Deckers.
Profit Growth Earnings Table
DECK’s profits jumped 156% last quarter, whipping estimates. Sales came in 34% above last year. Solid figures overall. Profit margins are much better this year than last year.
Beat the Street
Decker’s beat earnings estimates by 13 cents last quarter. Profit growth was expected to be 11% and instead it was 156%. I’m not really psyched by the impressive beat because in the year ago period DECK could have earned $0.09 or $0.22, depending how you look at it. I used the $0.09 number, bringing year-over-year growth to 156% instead of 5%.
Annual Profit Estimates
Annual Profit Estimates continue to push higher — this should continue as holiday sales could be strong. Profits are now expected to climb 18% this year. 18 times earnings is what I think the stock is worth.
Future Quarters
Quarterly estimates look fair — but are rising. I think Deckers management likes to beat earnings estimates on the day profits are announced, so DECK underpromises to overdeliver.
Fair Value
For the third consecutive quarter, I believe DECK should have a P/E of 18, and DECK has gotten a P/E of 18 in the past. 18 times earnings isn’t much for a company with the potential to grow 20-25% a year. Unfortunately shoe stocks are cyclical and depend of a good economy to prosper. Deckers still offers solid appreciation potential even after the strong move the stock’s made during the past year. DECK could grow 50% by 2011.
Year Profits x P/E = Price Upside/Downside
Today $3.52 x 13 = $46  
2010 Fair Value 3.52 x 18 = 63 37%
2011 Fair Value 3.95 x 18 = 71 54%
Ten-Year Chart
Deckers has been a great stock, but you have to be patient as the corrections can be strong and sometimes lengthy. The stock is hitting resistance around the $55 mark set back in 2007. I think if quarterly estimates showed stronger growth ahead then DECK could break through and maybe go to $70.
Power Ranking Bottom Line
Growth Portfolio

8 of 18

Deckers is currently the 8th best stock in the 18 stock Growth Portfolio. This quarters article was boring because there’s nothing new to report on. Same old solid results.

Deckers is not in the Aggressive Growth Portfolio because quarterly profit growth is not estimated to be over 20%.

Aggressive Growth Portfolio

N/A

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