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The following profile of Deckers Outdoor is excerpted from the latest issue of Portfolio Manager's Review. To view PDF version of the following write-up, click here.

BUSINESS OVERVIEW

• Owns UGG and Teva brands, which accounted for 84% and 13% of 2008 sales. The sheepskin UGG boots and other footwear emphasize luxury and comfort. Teva targets active outdoor customers. Deckers outsources manufacturing, with most products made at six contractor factories in China.
• Wholesale distribution was 84% of sales in 2008. Online and direct retail sales (14 stores) represent less than 20% of sales. Average wholesale price per pair increased 16% to $31 in 1H09, due to higher UGG sales. Volume rose 6% to 6.6 million pairs.
• Guiding for 2009 EPS to be “flat to up slightly” from $7.27in 2008. Sales should rise 9-10%, with gross and SG&A margins of 44.5% and 24.5%.
• Chairman and CEO Angel Martinez worked at Reebok and Keen before joining Deckers in 2005.
• Strong balance sheet, with $108 million of cash, $67 million of short-term investments and no debt.
• Repurchased 150,000 shares for $10 million in 3Q09 ($67 per share). Deckers approved a $50 million stock repurchase program in June 2009.
• Shares trade at 14% trailing EBIT-to-EV yield.

• Dependence on UGG brand for majority of sales. TheUGG brand has grown in sales from $24 million in 2002 to $582 million in 2008. Changing fashion styles are a big risk.
• Highly competitive industry with low barriers to entry. Footwear competitors include established companies as well as thousands of start-up brands.
• Universal strapping system patent used in Teva sandals expired in 2007. While this could lead to increased competition from companies copying Teva’s designs, Deckers is generally at risk of knock-off products selling at lower price points.
• Increased authorized number of shares from 20 million to 50 million at AGM in May.