North America

Earnings Preview: Deckers Outdoor Q4 2017 (DECK)

By: Craig Bowles

Overview

Deckers Outdoor, Corp. (DECK) is slated to report 4Q 2017 earnings after the bell on Thursday, May 25th. The earnings release is expected at approximately 4:00 p.m. ET followed by a 4:30 p.m. conference call available at Decker’s 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.

 

Outliers & Strategy

Key measures:

  • Non-GAAP/Ex-Items Earnings Per Share (EPS): Company guidance is a range of $(0.10) to $0.00. The Street estimate is $(0.06). (Source: Yahoo! Finance) The company produced a “clean” earnings number before the past year. Consensus was $0.44 three months ago.
  • Revenues: Company guidance is -6% to -5% y/y. Analysts expect a y/y decrease of -5.5% to $357.86 mln. Consensus was $383.5 mln three months ago.
  • Earnings Per Share (EPS) Guidance for 1Q2018: The Street estimate is $(1.74).
  • Earnings Per Share (EPS) Guidance for FY2018: The current Street estimate is $3.80.
  • Revenue Guidance for 1Q2018: The Street estimate is up 3.2% y/y to $180.04 mln.
  • Revenue Guidance for FY2018: The current Street estimate is a 0.7% y/y increase to $1.79 bln.
  • Price/Book of 1.9 compares to a 5-year average of 2.6, Price/Sales of 1.1 compares to a 5-year average of 1.5, and Price/Cash Flow of 13.0 compares to a 5-year average of 12.7.
  • Analysts view Deckers with 8 Buy, 11 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • Deckers’ insiders sold a net 41,366 shares the last three months and a net 96,894 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 6.31%. Options are pricing in an implied move of 8.96% off earnings.

Recent News

  • 04/26: Susquehanna raised their price target on Deckers Outdoor to $60.00 but maintained a Neutral rating after the company announced that its board is reviewing strategic alternatives, including a possible sale. Susquehanna doesn’t believe strategic suitors are interested but the probability of a DECK takeout, possibly by a financial buyer, is on the rise, according to a post on StreetInsider.com.
  • 04/11: Wedbush initiated coverage on Deckers Outdoor with a Neutral rating while suggesting investors should wait to see improvements surround products and distribution for the fall season, according to a post on StreetInsider.com.
  • 03/31: Jefferies reiterated a Buy rating on Deckers Outdoor following an investor lunch with management citing a $150M cost savings plan. Management also noted that Teva and Sanuk together generate ~$30M in annual EBITDA, and view reinvestment of cash flow in priority brands like UGG and HOKA as a way to propel growth, according to a post on StreetInsider.com.
  • 02/14: Susquehanna remains concerned with Deckers Outdoor’s numerous poor product and distribution decisions made with the UGG brand. Marcato Capital Management appears focused only on capital allocation and the stores, according to a post on Barron’s.com.
  • 02/09: Stifel contends Deckers could be worth $70 in a takeout which Marcato could explore. The potential value from divesting Teva and Sanuk (estimated ~$4 per share) and reducing corporate overhead could make $70 conservative, according to a post on Barron’s.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 next low is expected in 2019 if in keeping with cyclicality that’s been in place since 2009. Point and figure technicians met their bearish price objective in February and the stock remained above the $40.74 January 14th low. (Chart courtesy of StockCharts.com)

Summary

Deckers Outdoor named Dave Powers as the new CEO in June 2016 and the company is already exploring strategic alternatives. Analysts haven’t shown much change in ratings but insider selling picked up the past three months. Deckers has beaten and missed consensus estimates by an average of 13c with the year-ago quarter beating by 5c. Estimize consensus for a Non-GAAP EPS of $(0.03) on revenue of $352.94 mln compares to analyst consensus of $(0.06) on revenue of $357.86 mln. Guidance is important, as well.

 

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