On Wall Street, stocks with a cult following can deliver big gains, especially when there's an innovation driving growth. Stocks like this can be risky, though, especially when expectations get too high and euphoria takes over.
Deckers Outdoor(DECK) doesn't have this problem -- at least not yet -- even though the stock looks a bit tired after a big price run in 2009 and the first half of 2010. But the fact that the stock looks tired doesn't mean it can't start a new uptrend, especially after another strong performance by the major stock indices on Wednesday. Despite Deckers' 5.4% gain on Wednesday, I still view it as a broken stock that needs a round of institutional buying to improve its technical picture. Note that Wednesday's nice gain came amid below-average volume, so it wasn't clear that institutions were the driving force behind the buying. But even though Deckers' technical picture is still a bit questionable, I don't believe it's a broken company -- far from it, actually -- as its growth prospects in international markets look pretty darn good.
Deckers Outdoor is a maker of niche footwear and accessories, with a market capitalization of $1.7 billion. Its UGG sheepskin boots have a cult following. While the company is heavily reliant on the brand for growth, there's optimism that growth will continue, especially in international markets. The company plans to accelerate its expansion with six new store openings this year in the U.S. and three new stores in China. Deckers' retail stores contributed a small amount of revenue in the quarter, but sales are growing rapidly. In the second quarter, retail-store sales jumped 63% from a year ago to $10 million.
In 2009, its UGG brand accounted for 88% of total sales, and its Teva sandals brand made up 9% of sales. One knock against Deckers is that the company is overly reliant on UGG. It's Simple and Other footwear brands are too small to pick up the slack if UGG sales start to moderate.Deckers sells its footwear through specialty domestic retailers, international distributors and directly to customers through its website and catalogs. In July, it reported another strong quarter, with earnings and sales growth accelerating sequentially for the second quarter in a row. Second-quarter profit surged 156% from a year ago to $0.23 a share. The Thomson/Reuters estimate was for $0.10 a share. Sales jumped 34% to $137.1 million. In the second quarter, UGG sales grew 35% to $100.2 million, while Teva sales increased 38% to $31.2 million. Total sales of Deckers' other brands were $5.6 million, flat from the year-ago period.
U.S. sales in the quarter rose 16% to $65.2 million, but international sales vaulted 55% to $71.8 million. The company's goal is to have 30% of total annual sales from international markets by 2012. If second-quarter results are any indication, the company appears well on its way to achieving this goal. The company sees strong growth prospects in Japan, and it's increasing its presence China.
ugg boots uk I like the fact that annual earnings growth has increased every year at Deckers since 2004. It's an impressive feat and a claim that not too many other companies can make in the wake of recent softness in the economy. A consistent track record of growth, no debt and $334 million in cash at the end of the second quarter point to a well-managed company. After a huge price run in 2009 and the first half of 2010, buying demand has dried up recently in Deckers. At 19% off its recent high, the stock looks like it is on sale, but is it buyable now as it continues to consolidate recent gains? My general strategy for picking growth stocks is to buy stocks with strong fundamentals that are poised to break out of consolidation phases. Deckers has strong fundamentals, but it has more work do in its chart before a viable upside breakout takes shape.Deckers has been in a consolidation pattern since late June. To its credit, most of its recent declines have come amid tepid volume, which tells me that institutional investors haven't been dumping shares. A couple of scenarios could play out from here. The first is that Deckers successfully finds support at its 200-day moving average and starts to work its way toward its prior high of $53.65. This scenario is certainly possible, especially if new money continues to come in off the sidelines. It's riskier buying a stock in anticipation of an upside breakout -- especially in a case like Deckers, where it's still trading below its 50-day moving average. As a result, the stock could face some selling pressure around $48. Frankly, I'd like to see more signs of institutional buying in the stock before starting a position. ugg boot