Deckers Outdoor Corporation BUY Target $ 103

DECK : NASDAQ : US$78.53

BUY 
Target: US$103.00 

COMPANY DESCRIPTION:
Deckers Outdoor Corp. engages in the design,
manufacture, and marketing of footwear and accessories
for outdoor activities and casual lifestyle use. DECK
distributes their goods through specialty retailers,
department stores, outdoor retailers, sporting goods
retailers and online retailers. DECK also sells directly to
consumer through its websites and retail concept stores.
The company was founded in 1973 and headquartered
in California.

All amounts in US$ unless otherwise noted.

Consumer & Retail — Footwear and Apparel
SOLID Q, IMPRESSIVE BACKLOG; REITERATE BUY, $103 TARGET
Investment recommendation
DECK reported a solid EPS beat of -8c vs. our -14c estimate driven by
stronger sales growth (+11.7% vs. our 6.4% estimate), greater gross
margin expansion (+210bps vs. our +35bps), and modestly better
expense leverage. As we anticipated, the extended cold winter helped
drive sales of UGG boots and slippers, while spring product has recently
begun to sell well in warmer weather markets. As such, inventory was
down 18%, indicating a healthy position heading into the new fiscal
year. In no uncertain terms, this was a solid, clean quarter. In addition,
the backlog ending March 31, was up a very strong +19% vs. our 10%
estimate driven by strong demand for UGG, HOKA, loungewear, and I
Heart UGG product. That said, wholesale growth was guided +LDD,
suggesting strong upside potential to w/s estimates. Nonetheless, given
the strength across all brands, DECK raised F14 guidance. With all
aspects of the business working well, we reiterate our BUY rating.
Investment highlights
 DECK is taking its German UGG distribution in house beginning July
1, 2014. We expect both sales and gross margin will benefit from
the transition, thus contributing incrementally to FQ2 and FQ3 EPS.
 New store growth is increasing from 25 to 30-35 stores as DECK
takes advantage of opportunistic real estate openings. E-commerce
(+45%) experienced robust growth as well, and should continue to
aid in brand awareness, particularly internationally (e.g. Germany).
Valuation
Our $103 target is a blend of 19x 2015E EPS, 11x EBITDA , DCF

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