Deckers Outdoor Corporation (DECK), a leading designer, producer, and brand manager of innovative, niche footwear and accessories, posted its first-quarter 2012 results on April 26. Here we will discuss the company's scorecard based on the recent earnings announcement, subsequent estimate revisions by analysts as well as the Zacks Rank and long-term recommendation for the stock. Last Quarter Synopsis
Based in Goleta, California, Deckers posted lower-than-expected first-quarter results as the unfavorable weather conditions adversely impacted the sales of UGG boots. Rising sheepskin prices, up 40% from the 2011 level, and increased operating expenses also hurt the bottom line. Consequently, management lowered its fiscal 2012 outlook.
The first quarter earnings of 20 cents a share missed the Zacks Consensus Estimate of 25 cents, and dropped more than 50% from 49 cents earned in the prior-year quarter.
However, Deckers' total net sales of $246.3 million came almost in line with the Zacks Consensus Estimate, and jumped 20.2% from the prior-year quarter, reflecting strength across the Sanuk brand coupled with healthy demand for the UGG brand's spring collection. However, these were partially offset by sluggishness experienced in UGG boots sales due to unusually warm weather conditions.
(Read our full coverage on this earnings report: Deckers Misses, Lowers Forecast)
Agreement of Estimate Revisions
The agreement of estimate revisions indicates that the majority of analysts were unidirectional following Deckers' first-quarter 2012 results.
In the last 7 days, 13 out of 14 analysts covering the stock lowered their estimates, whereas none raised the same for the second and third quarters of 2012.
For fiscal 2012 and 2013, 13 analysts trimmed their estimates, whereas none raised the same in the last 7 days.
What Drives Estimate Revision
Clearly, a negative sentiment is palpable among most of the analysts, who remain pessimistic on Deckers' performance. Following the earnings release, the Zacks Consensus Estimates have been portraying downward trends with the majority of analysts remaining bearish on the stock.
The lower-than-expected bottom-line results and dismal guidance failed to impress the analysts, who went on to make downward revisions to their estimates in order to better align with management's guidance range.
Total revenue for fiscal 2012 is now expected to increase 14%, down from 15% forecasted earlier. Earnings for the year are predicted to decline between 9% and 10%. Earlier, the company had projected fiscal 2012 earnings to remain flat with the prior year. Moreover, for the second quarter, although management forecasted an 8% growth in total revenue, it anticipates a loss per share of 60 cents.
Deckers registered growth in the top line during the quarter, but not enough to alleviate the concern about the increasing gross margin pressure. Gross profit margin contracted 400 basis points to 46% during the first quarter of 2012. Management now expects gross profit margin contraction of 250 basis points for fiscal 2012 due to increases in costs of goods sold and closeout sales levels.
Magnitude of Estimate Revisions
The magnitude of estimate revisions by the analysts is clearly reflected through changes in the Zacks Consensus Estimates.
The Zacks Consensus Estimate for the second quarter of 2012 has deteriorated to a loss of 60 cents from a loss of 40 cents in the last 7 days. The Zacks Consensus Estimate for the third quarter fell 22 cents to $1.50.
For fiscal 2012, the Zacks Consensus Estimate has fallen by 53 cents to $4.61 in the last 7 days. For fiscal 2013, the Zacks Consensus Estimate has declined by 54 cents to $5.60.
Deckers is doing to keep itself afloat in a difficult consumer environment -- focusing on product introductions, new store openings and geographic expansion. The company's efforts to expand internationally are also encouraging as these provide immense growth opportunity.
Moreover, a debt-free balance sheet with a healthy cash balance provides enough liquidity to capitalize on future growth opportunities. However, over-reliance on the UGG brand, intense competition, rising sheepskin costs and a sluggish economic recovery remain matters of concern. Currently, we have a long-term Neutral rating on the stock.
Deckers, which competes with Nike Inc. (NKE) and Wolverine World Wide Inc. (WWW), holds a Zacks #4 Rank that translates into a short-term Sell rating, and well defines the company's disappointing first-quarter 2012 results, bleak outlook and falling Zacks Consensus Estimates.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These "Earnings Estimate Scorecard" articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education
DECKERS OUTDOOR (DECK): Free Stock Analysis Report
NIKE INC-B (NKE): Free Stock Analysis Report
WOLVERINE WORLD (WWW): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research