If you look at the stock market on a day-to-day basis, people seem to forget that what ultimately drives its performance, or lack of it, is the profits of the corporations that make up the stock market. That is why you can never look at the stock market as a whole when evaluating the prospects of each company. Each one has its own story to tell, and the company we are highlighting today has a great story to tell.
Decker's Outdoor Corporation (DECK) is a leading retailer that is best known for its UGG boots. It is true that the shares have nearly doubled in the past year, up over 92%. But at a P/E of under 27, Decker's remains cheap.
Decker's has posted quarter after quarter of records, defying fears of a recession and a debt crisis in Europe. This company has shown that weak economies do not affect all companies equally. In the third quarter, sales and profits reached records of $414.4, and EPS reached $1.59, representing growth of 49.1%, and 48.6% respectively. Angel Martinez, Decker's CEO, commented that, "our international sales more than doubled fueled by growth in wholesale volume units in the United Kingdom and Beneluz, coupled with an increase in sales resulting from our conversion to wholesale operations in these regions." As companies consistently remain cautious about Europe, here is a company that is bullish on Europe, and is expanding rapidly in the region. On the call, CEO Martinez noted that "overall, we're pleased with our performance in Europe. We're obviously cognizant of the concerns about Europe due to the economic situation in several countries, and we'll closely monitor sell-through as we head into the holiday period." Decker's does not see the debt crisis in Europe as a meaningful headwind for the company, which we see as a sign of the resilience of the products Decker's has to offer. Overall, international sales increased 113.8% year-over-year, to $156.4 million, and Decker's aggressive store opening schedule in Asia will allow for that growth to continue. By mid-November, Decker's will have 44 stores worldwide, in key markets such as Japan and Canada. Decker's is poised for great success in the years to come, thanks to its 3 brands, which we profile below:
- UGG: This is by far Decker's most well known brand, and for good reason. Customers rave about the quality and comfort of these boots and so should investors. Sales of UGG's rose by 47.3% this quarter, driven by wholesale sales in Europe, accelerating sales in the company's stores, and higher domestic wholesale sales. The company has launched a new marketing campaign featuring Tom Brady, designed to expand UGG's to a wider male audience. It is true that UGG's account for over 90% of sales, but the brand is stable, and Decker's has worked hard to grow its 2 other brands.
- Teva: Sales increased by 7.3% this quarter, driven by the brand's new fall line. On the call, CEO Martinez said that, "once again, we're anticipating 20-plus percent increases around [the] Teva brand for this year. And we feel it's on a nice trajectory. Spring bookings, were just exceptional, very happy about that. We anticipate a lot of fresh new product, a lot more spread and assortment of Teva and a significant amount of closed-toe in the spring, which is for Teva, really a first. So, breaking new ground with Teva every single season."Decker's has worked hard to dispel the notion that it is a "one trick pony" and it is investing aggressively into its other brands, and those investments are starting to pay off. We think Teva will make a much more meaningful contribution to the company's bottom line in the quarters to come.
- Sanuk: Decker's paid $126.6 million to acquire Sanuk, and the acquisition closed on July 1, 2011. Sales at the Sanuk brand were $15.6 million this quarter. While it is still too early to draw conclusions from only a single quarter of data, we think that the brand's 25% margin will show that this was a wise acquisition.
Decker's has been investing aggressively in its e-commerce business as well, with online sales rising by 18.3% this quarter. The company recently launched its UK site, and is well positioned for an increasingly online retail world. Going forward, we expect more records from Decker's and the company hinted as much on its conference call. CEO Angel Martinez spoke briefly about spring bookings, saying that, "it's been strong, consistent with what we've seen in years past, with more penetration and more stuff. We're going more real estate than we've had in the past. So the mix is very good. We're very happy with the mix."
Decker's is poised for continued growth & record profits. Yet, despite nearly doubling this past year, the shares trade for less than 28 times earnings, and the company has a forward P/E ratio of less than 20. For a company growing earnings at an annualized rate of 37.9%, revenues at a 30.5% rate, and cash flow at a 38.7% rate, this is cheap. Analysts agree with us. Credit Suisse sees the stock at $122, S&P sees it at $120, RBC sees it at $125, and Baird sees it at $132. We think that the Reuters average target of $121.07 does not fully reflect the accelerating sales the company is positioned to deliver. Decker's makes some of the most comfortable shoes on the market, and we think investors should be very comfortable with Decker's in their portfolio.