North America

Earnings Preview: Deckers Outdoor Q3 2017 (DECK)

By: Craig Bowles

Overview

Deckers Outdoor, Corp. (DECK) is slated to report 3Q 2017 earnings after the bell on Thursday, February 2nd. The earnings release is expected at approximately 4:00 p.m. ET followed by a 4:30 p.m. conference call available at Deckers Investor Relations. The outdoor footwear and apparel company, most widely known for their UGG boots, also produces the Teva brand that’s popular among hikers and kayakers.

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Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS): Company guidance is for $4.16 to $4.28. The Street estimate is $4.24 with a range of $4.16 to $4.30. (Source: Yahoo! Finance) The company normally produces a “clean” earnings number but will give an Ex-items/Non-GAAP EPS when needed as with the last three quarters. Consensus was $4.64 three months ago.
  • Revenues: Company guidance is -2% to 0% y/y. Analysts expect a decrease of -0.7% y/y to $790.10 mln (range $783.0 mln to $803.7 mln). Consensus was $808.45 mln three months ago.
  • Earnings Per Share (EPS) Guidance for 4Q2017: The Street estimate is $0.44 (range $0.34 to $0.51).
  • Earnings Per Share (EPS) Guidance for FY2017: Company guidance is $4.05 to $4.25. The current Street estimate is $4.14 (range $3.99 to $4.25).
  • Revenue Guidance for 4Q2017: The Street estimate is up 1.3% y/y to $383.5 mln (range $369.96 mln to $394.70 mln).
  • Revenue Guidance for FY2017: Company guidance is -3% to -1.5%. The current Street estimate is -2.2% y/y to $1.83 bln (range $1.82 bln to $1.86 bln).
  • Price/Book of 2.0 compares to a 5-year average of 2.6, Price/Sales of 1.1 compares to a 5-year average of 1.5, Price/Earnings of 17.7 compares to a 5-year average of 16.7, and Price/Cash Flow of 12.0 compares to a 5-year average of 12.7.
  • Analysts view Deckers with 8 (6 last qtr) Buy, 10 Hold, and 3 Sell ratings. (source: MarketBeat.com)
  • Deckers’ insiders sold a net 3,829 shares the last three months and a net 68,385 shares in the past year. (source: NASDAQ.com) Stock buybacks had been running at approximately $100 mln per year but the last twelve months only had $25 mln.
  • Deckers Outdoor results are compared to other shoe manufacturers, such as Nike (NKE) and Wolverine Worldwide (WWW).
  • Deckers shares have a 1-day average price change on earnings of 4.39%. Options are pricing in an implied move of 9.30% off earnings.

Recent News

  • 01/19: Susquehanna maintained a Negative rating on Deckers but acknowledged that a late Dec. pick-up will likely save 3Q17 (Dec.). Checks indicate that RTVs and markdown money are likely to pressure the March quarter, according to a post on StreetInsider.com.
  • 01/13: Canaccord checks on Deckers showed that cold winter weather in late November through December drove a sharp increase in weekly sell-through rates, likely in the 25% range, according to a post on SeekingAlpha.com.
  • 01/09: Deckers, has named H&M in a trade dress and design patent infringement lawsuit, according to a post on thefashionlaw.com.
  • 11/07: Decker’s $20 rewards certificates could lead to lower sales dollars and lower margins this year, according to a post on Fool.com.

Technical Review

2011 and 2014 found resistance when close to $100 and the stock moved down to the $20s in between, so the fear is a retest. The stock making lows every 3+ years suggests the early 2016 low would have been in keeping with a cyclicality that’s been in place since 2009. Point and figure technicians have a bearish price objective of $43 which would still be above the $40.74 January 14th low. Pushing above $62 breaks their downtrend line. (Chart courtesy of StockCharts.com)

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Summary

Deckers Outdoor named Dave Powers as the new CEO beginning in June 2016 after having served as President. Analysts worry about increased risk with new product offerings while fearing a decline in popularity of old products. Insider selling didn’t carry over into the past three months. Deckers is currently facing gross margin pressure from foreign currency exchange rates but has beaten consensus estimates three of the past four quarters by an average of 4c and one quarter by 28c. Estimize consensus for an EPS of $4.30 on revenue of $786.83 mln compares to analyst consensus of $4.24 on revenue of $790.10 mln. Guidance is important, as well.

 

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