Is Deckers Outdoor Following in the Footsteps of Crocs?

Is Deckers Outdoor (DECK) eventually going to be another Crocs (CROX)? The stock is priced at around 27 times this year's earnings (according to Yahoo Finance). It relies heavily on Ugg Boots for revenue growth and earnings, although it does have other brands such as Teva, Simple, and newly acquired Tsubo.

Many traders are certainly betting against DECK, as short interest is approx. 27% of the float! However, this may actually be causing a short-squeeze in the short-term -- by the way, DECK has an abysmally low number of shares for float, which may actually contribute to some share strength (Google (GOOG) is in a similar boat).

I've come to the conclusion that, while Uggs will not go completely "out of style", the brand is losing/has lost its "of-the-moment trendiness", where women are wearing them with mini-skirts, in the summer etc. They will become, at best case, a winter clothing classic, which may not ever go out of style. But I think that DECK stock has trendy growth priced into it, which will have to come out sometime.

Based on my research, brands like Coach (COH) and Baby Phat are making boots to compete with Uggs, knockoffs like Bear Paw are giving lower-priced alternatives, and stores like Costco (COST) are stocking similar boots for much less.

I also perceive a potential environmental/green/vegan/PC type risk aspect to the continued growth story -- Uggs are made from real sheepskin, as far as I know, and it seems young women (principle product buyers) are becoming more and more "green/politically aware" in their shopping habits.

To sum up, I don't think Uggs or DECK will have as dramatic a decline as CROX, for the simple fact that its product quality is very good (apparently) and is harder to knock off successfully, but I do think that the trendy growth aspect will be taken out of the stock price eventually -- whether it is sooner or later, who knows?

Full Disclosure: I own a bearish position on DECK in my personal account. This is a personal analysis only, not on behalf of the company I work for.

Comments

[gracec:]

I agree with your analysis of UGGs in a way. One only has to look at the spike up and down of Sketchers a few years ago. Shoes like UGG and Tevas are elastic commodities- people substitute it out for products that are similar that don't have the premium if they like that particular style. Decker will definitely go down but right now with such a high short interest I think it'll go sideways.

2008 May 14 02:24 PM

[nyka:]

"I've come to the conclusion" equals wordiness. Drop it, since we know by what you write that you've "come to the conclusion."

2008 May 15 02:13 PM

[ex-footwearguy:]

I just saw this in footwear news. It never ceases to amaze me how these footwear exec--just like politicians--spin all positive. If you really broke it down--TEVA is sucking. and hasn't grown in years. Simple sales are a third of the heyday of when i was there. And UGG is the only dog that can hunt, but it's getting long in the fashion cycle, as you noted. I haven't seen Tsubo anywhere for a while and that goofy looking organic walking comfort look is a crowded market, plus Born owns it. Bottom line, Angel--the bright boy from Rebook-- should make Simple and Teva work instead of diverting his attention to some other wounded bird. Sound like the Deckers organization need it every three-year management spring cleaning.

www.footwearnews.com/s...

2008 May 16 03:54 PM