Event: The maker of Ugg boots and Teva sandals reported earnings of $1.18 a share for the quarter ending Sept. 30, 2012 on Thursday after the market closed. Analysts expected Deckers (DECK) to report a profit of $1.05 for the quarter. Revenue for the three months came in at $376.4 million versus expectations of $412.1 million. For the current quarter, Deckers also slashed guidance. Deckers now expects a profit of $2.73 per share for the period ending in December. That is a far cry from the current analyst estimate of $3.40 per share. Shares of Deckers plunged nearly 20% in pre-market trading.
Analysis: The news from Deckers continues a troubling trend during the current earnings reporting season. The company beat on the bottom line, but the top line fell far short of expectations. In addition Deckers reduced guidance for the current period either in response to current economic conditions or to set the bar so low as to not have a repeat performance of what is likely to be a blood bath for the stock on Friday. The company’s flagship Ugg product is being discounted significantly to help turn things around. Deckers appears to blame global warming for the sales declines. Whatever the case may be, the timing could not be worse. The holiday season is fast approaching as is the winter season with or without global warming. It will take strong retail sales to turn this ship around. The news from Deckers shatters my own hypothesis that consumer stocks are likely to outperform. In this case it would appear that we are simply dealing with a fickle consumer that has decided to take its fashion taste elsewhere. The where remains to be seen.
Action: A 20% loss in Deckers is severe no matter the earnings results or downward guidance. I would expect a 5% to 10% recovery in share price between midday today and the end of the year. This one might be an Earnings Player opportunity short term trade (3-6 months) at these levels.
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