Everyone Went Crazy for Ugg Boots This Christmas and That’s Great News for Deckers Outdoor
Deckers Outdoor recovered from earlier declines after analysts at Canaccord Genuity were reported to regard the stock as a buy thanks to strong holiday sales from its Ugg Winter Outlet brand.
The stock, which opened down 67 cents in pre-market trading, recovered a bit and closed down 31 cents, or 0.55%, to $57.81. The Canaccord analysts set a $70 price target on the shares.
The firm’s checks showed that cold winter weather in late November through December drove a sharp increase in weekly sell-through rates, likely in the 25% range. Canaccord analyst Camilo Lyon noted that December is usually the month for the largest retail volume and markdown activity helped Deckers sell through inventory.
“Discounting on UGGs seemed aggressive in early November before the winter weather arrived; however, we believe it was concentrated on past season’s product with only a portion of the current assortment on sale,” Lyon wrote.
Since anxious retailers discounted Ugg Winter Outlet in early November when the weather was still relatively warm without the support of Deckers, the company’s gross margins weren’t affected by the discounted prices.
“In fact, we believe the markdowns taken by retailers such as Lord and Taylor, Neiman Marcus, and The Walking Company speak more to the issues of those retailers than of the UGG brand. As such, we believe gross margins could surpass our +167bp estimate,” Lyon wrote.
Compared to last year, online promotional activity at key department store retailers was lower this year, a good sign for Deckers’ margins.
Additionally, the firm’s post-holiday assessment of Ugg Winter Outlet sales at key retailers like Nordstrom and Dillard’s showed that most of the mark downs that occurred were on non-core colorways and irregular products. The majority of Ugg Winter Outlet’s signature Classic II products were not on sale.