Deckers Outdoor Corporation DECK hits a new 52-week high of $154.64 on Apr 16, before closing the session a tad lower at $151.28. The company’s focus on expanding brand assortments, introducing more innovative line of products, targeting consumers digitally through marketing and sturdy e-commerce, and optimizing omni-channel distribution bodes well.
Notably, shares of this California-based company have surged roughly 27.2% in the past three months. During the same time frame, the S&P 500, the Consumer Discretionary sector and the Zacks Shoes and Retail Apparel industry have advanced 8.1%, 9.3% and 9.6%, respectively.
Does the Stock Have More Room to Run?
Usually, stocks that reach 52-week high are perceived to be winners. However, investors often wonder if the stock is overpriced, considering the high price level. While the apprehensions are not absolutely baseless, all stocks hitting a 52-week high are not necessarily overpriced. A brief glance at some valuation metrics seems to indicate that this Zacks Rank #3 (Hold) company has enough room to scale higher. Further, a Value Score of B also substantiates the same.
Deckers’ price-to-sales (P/S) ratio of 2.2 compared with that of the industry’s 3.1 indicates that the stock has enough upside potential. A forward price-to-earnings (P/E) multiple of 17.8x versus industry’s 29.6x also makes the stock attractive. The company has an EV/EBITDA ratio of 11.2, lower than 15.4 for the industry.
The stock’s attractive valuation and sound fundamentals make it worth holding.
A Brief Introspection
Deckers is on track with product innovations, store expansion and enhancement of e-commerce capabilities. Further, the company has been constantly developing its e-commerce portal to keep up with the changing trends. Also, Deckers has made substantial investments to strengthen online presence and open smaller concept omni-channel outlets. The company’s focus on expanding programs — Retail Inventory Online; Infinite UGG; Buy Online, Return In Store; and Click and Collect — to enhance customers’ shopping experience is an added positive.
Additionally, the company is focusing on product and marketing strategies to enhance customer experience. Also, Deckers is expanding its product categories according to customer purchasing trends that change with weather. Moreover, in order to capture incremental sales and margins, the company is selling directly to wholesale customers. Apart from these, the company’s store fleet optimization plan aims at striking the right balance between digital and physical stores.
However, the company is grappling with declining sales from the Sanuk brand. During the third quarter of fiscal 2019, net sales from the Sanuk brand came in at $12.9 million, down 7% year over year. This followed a decline of 9.4% and 6.6% in the second and first quarters, respectively. Management guided sales from Sanuk brand to decline mid-single digit during fiscal 2019.
Notably, Sanuk brand, being the smallest brand of Deckers, accounted for 1% of net sales in third-quarter fiscal 2019. Meanwhile, UGG, HOKA ONE and Teva brands have been performing well. In fact, impressive growth across UGG, HOKA ONE and Koolaburra brands aided third-quarter results. This was the eighth straight quarter of positive sales and earnings surprises. Impressive performance prompted management to raise fiscal 2019 view.
For fiscal 2019, management now anticipates net sales of $1.986-$2.0 billion, up from its prior projection of $1,935-$1,960 million. Adjusted earnings are projected to be $7.85-$7.95 per share, reflecting an improvement from $5.74 in fiscal 2018. Gross margin for the fiscal year is anticipated to be above 50.5%.
3 Stocks to Watch
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Rocky Brands, Inc. RCKY delivered average positive earnings surprise of 43.6% in the trailing four quarters. It carries a Zacks Rank #2 (Buy).
Skechers U.S.A., Inc. SKX has long-term earnings growth rate of 7% and a Zacks Rank #2.
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