Deckers Outdoor (DECK) plunged 16% on Feb. 3 when it reported atrocious earnings but recouped most of its losses last week when Marcato Capital Management took a big stake in the beaten-down maker of Uggs. Marcato has argued that Deckers could be worth $69 a share, but Susquehanna’s Sam Poser and team "do not agree." They explain why:
It appears that Marcato’s Mick McGuire mistakenly shares the same confidence in the UGG brand that is held by Deckers management. Based on that confidence, Mr. McGuire appears focused only on capital allocation and the ugg australia outlet stores. We believe the problems facing the UGG brand are entirely about the need to reassert a brand identity, and have the distribution reflect that identity, through the most impactful distribution necessary. Over the past 15 months, we have witnessed numerous poor product and distribution decisions made with the UGG brand. Those decisions have resulted in poor ugg australia sales and margin results, and elevated inventory levels. It’s going to take a seasoned footwear brand leader with operational expertise to right the ship, and it will take some time.
Thos problems were exacerbated, Posner says, by Deckers decision to sell Ugg at Macy’s (M), Bon-Ton ugg australia outlet stores (BONT), and on Amazon.com (AMZN), which forced the company to offer more discounts and diluted the brand. It’s that problem, not the capital allocation one, that needs to be fixed, Posner contends.
Shares of Deckers Outdoor have gained 1.8% to $52.51 at 10:53 a.m. today, while Macy’s has advanced 0.5% to $32.73, Bon-Ton ugg australia outlet stores has risen 1.3% to $1.15, and Amazon.com has declined 0.3% to $833.83.