Is This Footwear Company a Profitable Wintertime Play?
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Many investment firms thought it would be a good idea to buy Deckers Outdoor (NASDAQ: DECK), distributor of the UGG brand boots, going into the fall season. Now that we are several months closer to winter is it an even better idea to follow these funds into Deckers?
UGG is Deckers’ mid to upper-priced comfort brand of luxury sheepskin footwear. The company’s other types of footwear include sports and performance brands. Given the usually warm winter of 2011, the sale of UGGs and Teva boots have not met expectations, putting pressure on the stock; the stock is down over 50% year to date. The UGG brand accounted for 87% of Deckers’ 2011 sales.
Deckers reported 2Q revenue of $174 million and EPS of negative $0.53, versus EPS estimates of negative $0.60; retail comps were up 6% and e-commerce sales were up 40% year over year. 3Q revenue growth is only expected to grow 1%
Deckers was down as much as 16% after its 2Q earnings announcement on poor guidance, then rebounding to over $50 before toppling to below $40 earlier this week on a report from Sterne Agee’s analyst Sam Poser that UGG sales were off to a slow start for the holiday and winter season.
Deckers’ trailing P/E ratio is 9. Analyst estimates put the company’s earnings at $5.27 per share for 2013, a 19% increase over estimated full-year 2012 figures. This gives investors some confidence in a strong UGG rebound and puts Deckers’ forward P/E at 7, and the PEG ratio based on a five-year growth rate at 0.85.
Deckers did attract some notable interest from funds, including a 400% increase from Christian Leone’s firm, Luxor Capital Group, who now owns 2.9 million and is Deckers’ top owner (per their 2Q 13F) of the funds we track. Also, Owl Creek Asset Management and Nantahala Capital Management took new positions in the company, with Owl Creek buying 1.6 million shares and Nantahala purchasing around 350,000. See all the funds owing Deckers here. Insider sentiment has also been on the positive side, with the latest transactions being insider purchases.
One of Deckers’ key competitors is Crocs (NASDAQ: CROX). Crocs, much like Deckers, is a specialized footwear company, focusing on molded products and footwear. Crocs is expected to increase 2013 revenues by 14%, versus Deckers’ 11%, but Crocs also has a higher earnings multiple. Crocs’ trailing P/E of 13 and forward P/E of 10 suggest the company’s products should fare well going forward.
Other Deckers competitors include Steven Madden (NASDAQ: SHOO), Skechers USA (NYSE: SKX) and Wolverine World Wide (NYSE: WWW). When comparing Deckers to the other key footwear companies it appears cheap on a multiples basis. Steven Madden trades at a trailing P/E of 18 and a forward P/E of 14, and is expected to post current-quarter earnings growth of 20%, and sales growth of 13%.
On the other hand, Skechers posted most recent quarterly earnings that were negative, but beat EPS estimates of negative $0.12 by posting actual earnings of negative $0.04. The company appears to be in a period of transition with estimated earnings growth for next quarter at 88%, while trading at a forward P/E of 25.
Wolverine World Wide beat its most recent quarterly estimates, posting EPS of $0.48, versus consensus of $0.44. Much like the other competitors, Wolverine’s forward P/E indicates strong upcoming performance. Wolverine has earnings estimates that imply a forward P/E of 14, compared to its trailing P/E of 19.
For those investors interested in gaining exposure to the footwear industry, Wolverine might well be a better investment than Deckers for now. Deckers is on our list of “the terrible 20″, and the company faces headwinds in the upcoming holiday and winter season, as many retailers and wholesalers still have surplus inventory from last year, and will likely be cautious with new orders as the season progresses.
This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article The Motley Fool owns shares of Crocs and SKECHERS USA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.