Is it Really the “Weather” that’s Taking this Company Down?

Pratik is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

We all know demand in Europe hasn’t been at its best because of economic woes. Plus, rising costs often eat away margins. But Angel Martinez, C.E.O. of Deckers Outdoor (NASDAQ: DECK), put the majority of the blame for her company's results on one factor: “weather.” The company posted its third quarter results and the numbers aren’t speaking well.

The footwear that isn’t comfortable

Revenue at Deckers Outdoor, the outdoor footwear manufacturer, fell 9% to $376.4 million, compared to $414.4 million last year. The net income posted was $43.1 million, versus $62.5 million, and earnings per share came down to $1.18 per share compared to last year's $1.59 per share.

The company eventually lowered its outlook and is now expecting only a 5% increase in sales over previous guidance of a 19% jump. They are also expecting earnings to fall by 14%, which is in contrast to the previous guidance of 22% growth. They completely missed the train in their previous guidance. Hopefully they are right this time.

Why UGG is going “UGGLY”

UGG, which is Deckers' top selling brand, is also facing the heat, with sales plunging 11.6%. Revenue from UGG for this quarter was $332.8 million, compared to $376.7 million last year.

The company is facing weak demand in Europe because of economic instability. Also, there is a rise in cost for sheepskin, which has increased by 40% over last year. It is due to this that the prices of the shoes have shot up. Consumers have started tagging the brand as “too pricey.” The major reason for the decrease in sales was “weather,” according to the C.E.O. Warm weather, particularly in the home country (U.S.) pulled down the sales. A warmer winter and too hot of a summer added to the existing problems of low demand.

On the other side

Crocs (NASDAQ: CROX), one of Deckers’ largest competitors, posted great results. Due to its experiments with loud color, the company’s earnings shot up by a whopping 49%. The company added 89 stores, bringing it to a total of 499 stores, which further pushed its revenue north. Crocs has been seeking to strengthen its business in China, where it witnessed growth of 47%.

Though Wolverine World Wide (NYSE: WWW) did not post glorious results, but the company seems to be making all the right decisions. It has new products in the market with new colors, and it's planning to roll out a variety of new collections. M-connect is expected to be launched in the beginning of 2013, which can help the company witness better days. The company seems to be working a lot on its product offerings.

Will Christmas save Deckers?

With the holiday season knocking at the door, sales are expected to pick up momentum. But the challenge is how Deckers will attract customers. With no new products in its portfolio and negligible marketing efforts, it will be difficult to snatch away customers from its competitors. It looks pretty weak when compared to the moves its competitors have been making.

The question to be asked is, “will the unsold stock be cleared during the festive season?” I'd say you should stay away and watch.


Prat369 has no positions in the stocks mentioned above. The Motley Fool owns shares of Crocs. 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.

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