Tuesday November 01, 2011
by Geoffrey Seiler, editor BullMarket.com
Recommended List selection Deckers Outdoor (DECK) recently reported Q3 earnings, easily topping analyst estimates on both the top and bottom lines.
This was another fabulous quarter from Deckers, as its UGG brand continues to resonate with its core female customers, while its men's line is starting to gain traction.
For the quarter, the maker of the popular UGG boots posted a profit of $62.5 million, or $1.59 per share, compared to $42.1 million, or $1.07 per share, a year earlier. Analysts were looking for EPS of $1.35.
Revenue jumped 49.1% to $414.4 million, topping the $387.0 million analysts were expecting. Retail sales soared 72.1% to $34.7 million.
Despite commodity cost headwinds, the company was able to nicely grow gross margins, helped by the conversion to a direct-selling model in Europe.
While the company technically lowered its Q4 EPS forecast due to some expenses moving into Q4 from Q3, it's worth noting that the company has always been extremely conservative.
Overall, the company is very well positioned heading into Q4 with a diverse, well-received winter line and it should continue to benefit from its new direct-selling model in Europe and a larger retail store presence, both of which help margins.
We're expecting a very strong Q4, and think the inventory numbers help foreshadow that.
Commodity costs will continue to be a headwind in 2012, but Deckers has a number of levers to pull to mitigate the increased costs. The move to a direct-selling model in Europe, more retail stores, and its new high-margin Sanuk brand should all help on this front, as well.
Given its growth rate (a five-year projection of more than 20%) and as the focus starts to shift to fiscal year 2013, we think the stock can garner a $140 price over the next year.
Learn more about this financial newsletter at Geoffrey Seiler's BullMarket.com.
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