Shares of casual shoe company Deckers Outdoor
Unsurprisingly, sales of the red-hot UGG brand of sheepskin products drove the lion's share of Deckers' Q3 growth: It's a move that's paid off fantastically well for Deckers, which can't match UGG for hipness through its Simple and Teva lines -- though the latter two are also performing well. (Simple actually saw the largest percentage gains, sales-wise, but was good for less than 10% of the total top line.)
A brand like UGG is gold for company like Deckers, and you can see why by checking out the numbers and factors that make up the bottom line. They're a premium product, meaning good gross margins: Heck, a pair of women's slippers can run you $65. Demand is driving customers to high-margin direct sales, trimming markdowns, and helping forge deals that have helped the company cook up the gravy my ol' grammy likes to call "license revenue."
Smoother operations, meanwhile, are cutting into operating costs. All in all, things are looking pretty darn good -- and, with that in mind, the company yesterday raised near-term profit guidance. It's looking for EPS of between $1.84 and $1.88 for 2004 and between $2.15 to $2.25 for 2005, suggesting that management expects about 18% growth next year.
Given that, though, the shares are hardly cheap at prices currently around 20 times the middle of Deckers' EPS range for this year, but I have to confess I expected to find a higher multiple -- particularly given the company's impressive run of results and share appreciation over the last 12 months. Still, given the strength of Deckers' business at the moment it's difficult to foresee any real bargains ahead unless the UGG business gives out unexpectedly.
Management, investors, and Deckers' licensing partners are betting it won't.
Deckers is a Motley Fool Hidden Gems recommendation. For continuing coverage on this company and other explosive small-caps, take a free, 30-day trial today.
Fool contributor Dave Marino-Nachison doesn't own shares of Deckers Outdoor.