Please ensure Javascript is enabled for purposes of website accessibility

Deckers Decks Pessimists

By Alyce Lomax – Updated Apr 5, 2017 at 5:15PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

UGGs keep on carrying Deckers to lofty new heights.

The concern Deckers (NASDAQ:DECK) was showing that its UGG boots may lose some of their fashionable luster this season was overly pessimistic, it turns out, judging by the company's third-quarter results.

I shared those very concerns. I recently removed Deckers as an "outperform" pick in my Motley Fool CAPS portfolio and can only wish I had actually bought the shares when I first tagged it as an outperform!. But could it be that UGGs are here to stay for a while yet?

Deckers' third-quarter results insinuate that may be the case. Net income skyrocketed 86% to $19.3 million, or $1.47 per share. Sales increased by 57.2% to $129.4 million as well.

Of course, UGGs were a significant contributor, with a 67.5% increase in sales. In the company's press release, company head Angel Martinez touted strong full-priced selling of UGGs in the U.S. as well as a growing hankering for the brand internationally. Deckers' Teva sandals have lagged recently, but those sales improved, too, increasing by 12.1%. Customers appear to be responding favorably to the company's new closed-toe Tevas as well.

In more good news, Deckers has upped its guidance for the fourth quarter as well, anticipating 35% revenue growth and 15% EPS growth.

I recently opined on how it might be risky to invest in shoe companies, where faddish fashions may mask themselves as sustainable advantage and consumers can be notoriously fickle. I know many people don't agree with my suspicion that Crocs' (NASDAQ:CROX) wild popularity may turn out to be a fad, but Heelys' (NASDAQ:HLYS) recent crash should serve as ample reminder of what happens when growth abruptly slows. Timberland (NYSE:TBL) may have perfectly serviceable and practical boots, but it's hit hard times, and Skechers (NYSE:SKX) hit the skids recently, although it looks like it's regaining its footing.

It's terribly difficult to call fashion and consumer preference, and it's understandable that many investors have been nervous about Deckers' future, given its growing stock price and what looked like increasingly high multiples. And there's risk in the fact that UGGs has been the major driver, with Teva lagging and Simple still an infant brand. With more than a 27% pop today, I have to admit I'm still way too conservative (or nervous) to consider Deckers a good buy. Still, I salute those who hung tight. So far, Deckers has kept on delivering the growth.

Many Fools have agonized over what to do with Deckers in 2007:

Deckers is a former Motley Fool Hidden Gems recommendation. To see what other small-cap stocks the Hidden Gems team has recommended, take a 30-day free trial.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.