Janney Capital Markets Reiterates Buy Rating on Deckers Outdoor Corp. Ahead of 3Q Print Next Week

In a report published Thursday, Janney Capital Markets analyst Eric Tracy reiterated a Buy rating on Deckers Outdoor Corp. DECK. In the report, Janney Capital Markets noted, “We remain constructive on the shares of DECK heading into the company's 3Q print next week (expected 10/24, after-market close) and expect modest upside to 3Q EPS based primarily on better GM. Proprietary channel checks suggest demand for Ugg product has been healthy (see page 4), setting the stage for potential increased re-orders and reduced cancellations against a balanced inventory position. While we recognize a relatively more 4Q weighted guide (retailers ordering later given concerns over the consumer exacerbated by difficult prior year seasonality), should weather normalize, we believe the opportunity exists for top-line/EPS upside. Inventories (+0.8% Ugg brand inventories in 2Q, with backlog more than accounting for current position) are much cleaner in the channel, and should lead to reduced markdown risk. Further, lower sheepskin costs (begin in 3Q/4Q) augmented by the introduction of Ugg Pure (should be ~10% penetration by Holiday) and increasing mix of DTC should drive a material margin recovery over time. Additionally, an improving international business (particularly in the UK) and opening of 36 new stores could further support the top line, although investments to support LT growth somewhat tempers the magnitude of fixed cost leverage over the near-term.” Deckers Outdoor Corp. closed on Wednesday at $60.52.