Deckers Outdoor Sharply Higher on Upgrade

Deckers Outdoor

is up about 7% in early trading following an upgrade by Sterne Agee analyst Sam Poser. Deckers, which markets the UGG brand of winter footwear, Teva sandals and other, smaller brands of headwear, outerwear and accessories, such as handbags, has been one of the worst performing shares in the apparel and footwear industry having hit a low of 28.53 on October 31, down from a 2012 high of 92.27 on February 17. Analysts had been concerned that UGG, the company's main brand, had lost its appeal to consumers after poor sales during the mild winter of 2011-2012. Sterne Agee's Poser, who had been “hyper-critical” of Deckers management's handling of the UGG brand, has reconsidered his view. “…raising prices without innovation and increasing distribution” put the UGG brand at risk, Poser wrote. “The UGG Classics were becoming commodity cold weather items rather than coveted comfort fashion items.” Poser continued, “It appears as if the UGG product team has finally taken corrective actions.” Poser emphasized in his report that he still expects sales and earnings to be relatively weak through the end of the second quarter of 2013. But he expects a major improvement in the second half of 2013 “… based an expected positive inflection in fall 2013 due to material improvement in the product offerings, based on our conversations with those who have previewed the fall '13 collection.” Poser is very positive on the outlook for the fall and winter season of 2013, “The reaction by retailers to updates to the Classic product for fall '13, primarily at retails of $155-$195, has been very positive. UGG has apparently refocused its efforts on revitalizing the Classics with new uppers and new outsoles” Poser continued, “The boot that appears to be attracting the most positive buzz is an adult version of the Bailey Bow or something similar at ~$205 retail…Based on our checks, the focus of UGG fall business going forward will be primarily around Classics and Classic derivative. We understand that there have been some price adjustments and SKU count reductions in fall Fashion style offerings, which we view as a positive.” Sterne Agee's Poser is not the only analyst to turn positive on Deckers. On November 19,

also went positive, saying that management had begun to deal with higher costs, particularly for sheepskin, by “increasing the mix of non-sheepskin merchandises, new casual footwear materials less prone to weather, and innovative production technologies.” The prolonged decline of Deckers share price during 2012 has made the valuation attractive enough to put the shaer in play as a takeover target, according to

. “As the leader in luxury winter accessories with the opportunity to expand in handbags and men's footwear, Deckers would be attractive for private-equity firms and rivals such as VF Corp.

, owner of the North Face and Timberland brands, according to Wedbush Inc.” Bloomberg Businessweek continued, “Alternative Investment Management & Research SA said the $1.17 billion company could fetch at least $50 a share, a 51 percent premium to last week's closing price.” Even with today's rally, the shares are still relatively inexpensive, trading at 13.4x Poser's EPS estimate for 2012 and 10.8x Poser's outlook for 2013. Looking at the chart, there is resistance in the 40-44 area but good support at the 50-day simple moving average (34.99). If Poser is right, a pullback to the 35-36 level might be a good opportunity to take another look at Deckers.