Deckers Outdoor (NYSE: DECK) - American shoe sellers. The company increased sales during the difficult time of the pandemic, and its shares have risen strongly. But logistical problems, standing in front of her, too big.
What do they earn
Deckers is engaged in design, design and sale of shoes: uggs, moccasins, Sandals. She sells some of the shoes in her stores and through her websites., and some through retail companies. Deckers brands can be found on the company's website.
According to the company's annual report, by channels, revenue is divided as follows:
- Wholesale buyers — 65%. They, who independently buys and resells Deckers products. These are mainly retail chains..
- Direct sales — 35%. It's like selling a company's products online., as well as Deckers brand stores, which are about 140. As a matter of fact, the entire segment consists of online sales, because stores are pickup points.
Distribution of the company's revenue by brands. Operating margin takes into account only wholesale channels:
- UGG — 67,45%. Segment operating margin — 17,04%.
- HOKA — 22,43%. Segment operating margin — 19,46%.
- Teva — 5,45%. Segment operating margin — 19,54%.
- Sanuk — 3,01%. Segment operating margin — −0.38%, unprofitable segment.
- Other brands — 1,66%. Segment operating margin — 28,12%.
Deckers Revenue by Country and Region: USA - 69,2%, and 30,2% - Unnamed countries.
Arguments in favor of the company
Fallen and sleeping. The company's shares have unreasonably risen during the pandemic., and then they fell badly.. It seems to me, this creates an opportunity for an activist investor campaign, which will require action on the part of Deckers management, aimed at improving the lives of shareholders.
For example, it can force a company to introduce dividends, say, near 6 $ per share per year, and that's about 60% from the company's profits, which will give a little more 2% per annum. Or even raise the question of selling the company. All in all, such a drop creates fertile ground for manipulation by shareholders..
Strong bookkeeping. The company alone has money in the accounts slightly more than the amount of all debts - as short-term, both long-term and long-term. Maybe, management will solve this "problem" and spend on expansion. But so far, taking into account the complication of lending conditions for business and the rise in price of loans, the current situation in the company's accounting department can be considered a plus.. Stocks will not scare off investors, who are afraid of a rise in the rate and a rise in the cost of servicing debts by indebted companies.
Diversification. According to the company's annual report, no customer gives her more 10% proceeds. This strengthens the negotiating position of the company and eliminates the risks of deterioration of reporting due to the departure of one client..
Not very expensive. The company is worth, basically, acceptable money: P / E — 17,36, P / S — 2,41 and capitalization of 7.5 billion dollars. Even if it doesn't predispose to growth, then, at least, doesn't bother him.
Can buy. Considering all of the above, the company may well buy some larger clothing or shoe brand. The situation in this area is not very due to the eternal pandemic and the decline in consumer purchasing power - and Deckers, demonstrating very decent growth in these difficult circumstances, looks like a success story against the general background.
What can get in the way
Logistics. The company does not have its own production, and therefore its business is vulnerable to the vicissitudes of the supply side..
The company's manufacturing contractors are located in Asia , mainly in China and Vietnam.. Sheep leather for Deckers shoes, for example, exported from Australia and the UK to enterprises in China. And this creates just perfect conditions for logistical troubles.: From Western countries, Australia and the UK have shown themselves to be the toughest in terms of quarantines, a China, I guess, introduced the strictest policy on coronavirus in the world - there now can put the whole city in quarantine, if at least one case of the disease has been detected.
In China, most of the quarantines occur in the coastal provinces, which significantly complicates the export of goods from the country. The coronavirus situation is particularly harsh in Hong Kong, an important transport hub for Deckers., and for the whole of Asia. If a severe quarantine is established on the island, then it will further damage the company's business.
In 2021, the growth of the company's costs has already led to a noticeable drop in margins.: gross margin fell from 54.2 to 51,7%, and operating room — from 22.7 to 20%. And it could get worse.. By the way,, long before this whole story, back at the end of January, experts predicted multibillion-dollar losses for clothing and shoe brands.
Resume
The fall of Deckers shares gives, On the one side, nice entry point. But, On the other hand, I fear further cost increases and deckers' margins decline in the current challenging environment.
Therefore, I would invest in Deckers only after an even greater drop in shares., when its price tag becomes obscenely low.
However, current circumstances lead to the emergence of an activist investor, кампания которого может привести к росту котировок.
