Shares of this apparel manufacturer were recently upgraded by Susquehanna, from ‘Negative’ to ‘Neutral’ and by Buckingham Research, from ‘Neutral’ to ‘Buy’.
Deckers Outdoor Corporation (DECK)
From Canaccord Genuity Research
We are buyers of Deckers Outdoor Corporation (DECK). Our favorable outlook relative to the Street is based on previously discussed store and online checks in December and follow-up discussions with our industry contacts, which indicated a robust pick-up in demand in the weeks leading up to Christmas that more than offset the slow start to the quarter. While robust sell-throughs in December enabled department stores to exit the holiday season with clean inventory, we do not believe reorders materialized to a significant degree, leaving smaller independents as the source of modest reorders.
That said, a strong finish to the holiday season bodes well for fall ’17 orders as the UGG backlog was -6% and order growth is likely should retailers want to achieve growth next season. We are projecting gross margin expansion of 167bps, benefiting from the high discounting that ensued last year (gross margin -378bps in FQ3 last year) coupled with a lower promotional cadence this season. We are projecting SG&A deleverage of 332bps, negatively impacted by a reversal in expenses related to performance-based compensation last year, thereby creating an SG&A headwind this year.
Our $70 PT is an average of 15x our F2017E EPS estimate, 9x EV/EBITDA, and DCF. We reiterate our BUY rating.
Camilo Lyon and Pallav Saini, Canaccord Genuity Research, www.canaccordgenuity.com, 617-371-3711, January 31, 2017