Deckers shares rise on prediction of lower costs

Shares of Deckers get a boost from prediction of lower costs for Ugg footwear

Associated Press

NEW YORK (AP) -- Shares of Deckers Outdoor Corp. rose Wednesday on analyst predictions that upcoming changes to the design of some of its Ugg boots may allow it to cut costs significantly.

THE SPARK: Sterne Agee analyst Sam Poser said that the company's new "Ugg Pure" concept could reduce costs by about 5 percent in 2014.

THE BIG PICTURE: Pure is a wool pile process that replicates the feel of the fur part of Uggs' twin-face sheepskin boots. The material will be used primarily in sock liners and foot beds.

THE ANALYSIS: "While the cost savings are real, the advent of Pure will help to create a more stable quality, supply, and pricing structure within the Ugg brand," Poser wrote in a note to investors. "The risk is that Deckers may choose to convert too much product to over time and hurt the Ugg brand."

Poser, who backed his "Buy" rating and $65 target price for the stock, said that the use of Pure will likely lower costs related to Ugg slippers by 20 percent to 30 percent and costs related to its boots by about 10 percent.

The analyst added that colder-than-normal spring weather also probably helped boost sales of Ugg boots at the company's retail stores. As a result, the company could beat its first-quarter guidance of a loss of 12 cents per share, which is in line with the average analyst estimate, according to FactSet.

THE SHARES: In afternoon trading, Deckers shares rose $2.64, or 5.3 percent, to $52.85. Over the past 52 weeks, the company's shares have traded between $28.53 and $69.80.

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