Deckers Efforts On Track, Stock Rallies 21% In Six Months

Deckers Outdoor Corporation (NYSE:DECK) has not only outperformed the industry but also the broader sector in the past six months. The stock has increased 21.5%, while the industry has witnessed a decline of 3.7%. Meanwhile, the broader Consumer Discretionary sector gained 2.9%. So, what’s driving this Zacks Rank #2 (Buy) stock.

We believe that the company’s disciplined approach toward enhancing e-commerce capabilities, innovative line of products and concentrated efforts on expanding brand assortments has been well received by investors. Additionally, the stock’s long-term earnings growth rate of 9.8% and a VGM Score of A reflect its inherent strength.

Let’s Take a Closer Look

Deckers is targeting profitable markets and remains focused on product innovations and store augmentation along with transitioning to a direct subsidiary model from a distributor model outside the United States. The company’s focus on expanding brand assortments, bringing more innovative line of products, targeting consumers through marketing and optimizing omni-channel distribution also bode well.

In keeping with the changing trends, Deckers has made substantial investments to strengthen online presence and improve shopping experience for customers. Further, it is focused on opening smaller concept omni-channel outlets and expanding programs such as Retail Inventory Online, Infinite UGG; Buy Online, Return In Store; and Click and Collect to enhance shopping experience.

Moreover, in an effort to drive long-term growth, the company has taken strategic initiatives. Its store fleet optimization plan focuses on striking the right balance between digital and physical stores. Additionally, Deckers expects cost savings of about $150 million on the back of improvement in cost of goods sold and SG&A savings, which includes consolidation of retail outlets and process improvement efficiencies. This will help realize $100 million operating profit improvement by fiscal 2020.

However, management expects second-quarter fiscal 2018 net sales to decline approximately 10% on account of store closures and earlier-than-planned shipments in the first quarter. Management informed that the last year quarter sales also benefited from the shipment of Women's Classic II. Moreover, Deckers envisions earnings in the range of approximately $1.00-$1.05 compared with $1.23 per share delivered in the year-ago period.

Nevertheless, we believe that the company’s strategic endeavors will help overcome short-term impediments.

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