Volatility Alert For Deckers Outdoor Q3 2011

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 |  About: Deckers Outdoor Corporation (DECK)
by: Selerity Research

Summary

Deckers Outdoor (NYSE:DECK), the maker of increasingly popular UGG© brand boots and Teva© sandals, reports earnings after the close of trading on Thursday, October 27. Expansion into international markets and high-margin brands are among the factors expected to contribute to a solid quarter. The stronger than expected earnings from VFC Corp. (NYSE:VFC), which attributed strength in the Timberland division – a close rival, also bodes well for Deckers.

The Street is looking for the company to deliver a solid quarter, with Earnings Per Share (EPS) climbing to $1.35, up from $1.07 a year earlier, with revenue rising nearly 40% to $387 mln (Estimate Source: Yahoo! Finance).

The company previously indicated it expects third quarter 2011 revenue to increase approximately 38% and diluted EPS to rise approximately 22% over 2010 levels. That would equate to EPS of $1.31 and revenue of $383.5 mln. The consensus estimates are slightly higher. Given the market backdrop, Deckers may need to deliver EPS closer to the high end of estimates at $1.51 on EPS and $405.19 mln on revenue to carry the shares to new all-time highs.

Chart Review

  • Decker Outdoors shares are just off the recent all-time high of $109.90 - a key resistance level to watch provided earnings meaningfully exceed expectations.
  • Initial support is at $105 – a level going back to early August, with further downside risk to $100, and the 50-Day SMA near $95.
  • Based on the November strikes, the options market is pricing in a 10%-plus move on earnings. Also note that the Average True Range (ATR), a key volatility measure, above 5.0 reflects the wide price swings.
  • Short interest is at more than 11% of the float. Look for these positions to get covered in the event of a weak report and offer some degree of support.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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