Deckers Outdoor Corporation (DECK) is a leading designer, producer, and brand manager of innovative, niche footwear, such as sport sandals and luxury sheepskins, and apparel developed for outdoor, sports, and other lifestyle-related activities. The company's products are sold under Teva, Simple and UGG brand names.
We expect Deckers to report solid results for the fourth quarter, due to the continued success of its UGG product line. However, we believe the company's results in 2009 will disappoint investors. Deckers profit margins started to contract in 2008 and should decrease further in 2009.
What's more, the next few quarters will become increasingly difficult because of worsening economic conditions. Consumers are cutting back on discretionary purchases and/or trading down to cheaper alternatives. UGGs tend to sell at prices higher than most consumers are willing to pay in the current environment.
DECK shares are trading at a reasonable 8 times our 2009 EPS estimate. We maintain our Hold rating on the stock.
