Growth is Back at This Company!
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On January 17th 2013, Deckers (NASDAQ: DECK) participated in the 15th annual ICR XChange conference in Miami, Florida. There, Mr. Zohar, Chief Operating Officer gave the presentation and several pieces of information are worth mentioning. So, here is a recap of that conference.
The company gave us a breakdown on the sales and what percentage is attributable to each of the brands they carry.
|UGG Australia||84%||Decreased from 87% on 2011|
|Teva||9%||Reaccelerated on the 3rd quarter (growth of 21.8% yoy)|
|Sanuk||6%||Showed a 17% growth yoy on its first comparable quarter|
|Other||1%||Ahnu, Tsubo, Mozo, Hoka|
One thing I noted while reviewing their 3Q12 income statement once again, was the fact that overall revenues showed signs of improving. While in 2011 Deckers reported 1,377M on revenue, now, if we take a look at their last twelve months of revenue, this number shows an increase of 1.7% for a total of 1,401M.
2012 a Challenging Year.
Mr. Zohar continued the presentation reviewing what the year 2012 meant for Deckers. He noted that weather – being warmer than average – had an impact on the business. Also, he noted that the macroeconomic conditions in Europe played an important role on the sales in that part of the world. Sheepskin costs (a key component of the UGG boots which are the main source of income for the company) increased significantly, therefore, putting pressure on margins.
This is not new, management has been telling us this for a while now, and as a matter of fact, that was the reason they kept lowering guidance during 2012. However, I believe that a shift to that trend is happening right now. A Business Insider article by Kim Bhasin noted that the hottest product that shoppers were looking for, during Thanksgiving holiday was in fact the UGG boots, and the results of that, has yet to be released on the next earnings report.
Weather, this small-yet-important factor, is also playing in favor of Deckers. At least in the United States, colder temperatures (compared to 2011) have been registered during the last couple of months, making the UGG boots more appealing than they were a year ago. This can also translate into higher sales for this 4th quarter 2012 and 1st quarter 2013.
Sheepskin costs will be lower for this 2013. Mr. Zohar said on the conference that prices of sheepskin have been locked at an 11% reduction compared to 2012. With this, margins will be wider, affecting positively the bottom line.
Though Europe is still struggling with the macroeconomic conditions, the company gave two good indicators of international presence and growth; Asia, Japan sales to be more specific, grew 80% from a year ago, making Japan the #3 market for Deckers. China also showed improvement of 70% from 2011 placing the People’s Republic of China as the 4th biggest market.
In my opinion, here is where the real profit for the company will come in the next couple of years. Deckers opened 30 new stores in during 2012 bringing the total store count to 77, that’s an increase of 63% in one year. Sales per square foot is averaging $1,700.00, that is pretty much in line with Coach (NYSE: COH) with $1,824 per square foot - according to Kim Peterson in an article published in 2012 - and roughly 55% of what Tiffany (NYSE: TIF) is doing at $3,085 per square foot .
That alone, is no indicative of the future performance of Deckers, but, if we consider that the company plans to have 200 stores by 2014 and that, as per Mr. Zohar, marketing campaigns budget increased to 5% from sales compared to a 4% from previous year, we can then get an idea to where the company is heading with its retail stores.
Deckers is diversifying to other products as well. Handbags, accessories and apparel are some examples of the items they are promoting in order to bring the company into a year round business and not only winter concentrated. The Sanuk brand for example, is a sports action brand targeting young individuals. This brand competes directly with Sperry Top-Sider owned by Wolverine World Wide (NYSE: WWW) and with crocs loafers which of course is a trademark of Crocs (NASDAQ: CROX).
There’s still more road to be covered by Deckers and its management team before investors realize that a positive shift in the company has occurred, but this can give us a good indication that things are improving.
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