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Booting up profits: Ugg puts big spring into Deckers

By   /   Monday, November 29th, 2010  /   Comments Off on Booting up profits: Ugg puts big spring into Deckers

Deckers Outdoor Corp.’s profits jumped 24.4 percent to $42 million in its most recent quarter on strong sales of its signature Ugg brand of boots and Teva sandals.

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Call them a fashion faux pas if you will, but Ugg boots continue to put the swing in Deckers Outdoor Corp.’s step.

Goleta-based Deckers’ profits jumped 24.4 percent to $42 million in its most recent quarter on strong sales of its signature Ugg brand of boots and, to a lesser degree, its Teva sandals. Despite assertions by fashion bloggers that Ugg’s best days are over, Deckers sold $255.8 million of the boots in its most recent quarter, up 20.2 percent year-over-year. Analysts continue to rave about the company’s long-term prospects, and CEO Angel Martinez says Deckers expects strong sales in the future, particularly in Europe, of its new Ugg and Teva lineups.

“We have really strong brands,” he said. “Our success lies in the quality and value of our brands.”

In a Nov. 11 interview with the Business Times at the company’s Goleta headquarters, the footwear CEO detailed Deckers’ plans for growth: Annual sales will likely hit the $1 billion mark before 2012, he said, and the shoemaker is shopping around for a smaller footwear or apparel manufacturer to acquire and a new South Coast headquarters location.

Although the company isn’t talking about specific plans yet, sites in Carpinteria, Goleta and near its current location at the Santa Barbara Municipal Airport have surfaced as possibilities for its new base, according to several South Coast commercial real estate insiders.

Several people with knowledge of leasing plans at the 25-acre mixed-use Lagunitas project in Carpinteria told the Business Times that site is at the top of the heap. Deckers would not confirm whether the information was correct, but has said that it will formally announce its new headquarters site in coming weeks.

[wikichart align=”right” ticker=”DECK” showannotations=”true” livequote=”true” rollingdate=”1 year” width=”300″ height=”245″]The $697-million asset company is the second-largest publicly traded firm in the Tri-Counties by market capitalization. It operates debt-free and sits on more than $250 million in free cash, according to its most recent regulatory filings. The shoemaker’s international sales soared 48.2 percent to $73.2 million in the third quarter and it predicts that total fourth-quarter earnings will top 2009 levels by about 8 percent.

Baird analyst Mitch Kummetz maintained an “outperform” rating on the shoemaker following its third-quarter earnings release, saying in a note that the company’s fourth-quarter sales outlook is actually very conservative.

Motley Fool columnist Tim Beyers wrote that “with weakening competition, strong cash flows, a sturdy balance sheet, and a well-managed portfolio of popular products, Deckers seems to be the top stock in footwear and a sustainable growth story.”

The firm’s share price is up more than 105 percent year-to-date. But while investors may love Deckers, and by extension, Uggs, the same can’t be said of fashionistas.

“[Uggs] are not quite ‘in fashion’ in the way they were two or three years ago, when every second person was wearing them, but they’re not going anywhere fast, either,” style blog The Fashion Police wrote back in 2006.

In recent years, celebrities including Britney Spears, Eva Longoria, Pamela Anderson and Jennifer Aniston have brought Hollywood fame to the Ugg name as they don the boots around town, but several have been called out on alleged fashion flubs, such as wearing the sheepskin boots with sundresses or shorts.

The Fashion Police concluded four years ago that the boots were “not quite a crime of fashion — but almost,” saying that, “they’re designed for comfort, not style, and with the wrong kind of outfit they can go disastrously wrong.”

More recently, a forum on popular fashion website Chictopia discussed whether or not Uggs, which retail for upwards of $100 a pair, were fashion history. “I think they are pretty ugly but looking at the amount of people still wearing them, they seem to still be in style,” wrote one user.

“I have a pair and whenever I’m having one of those days where I can’t stand the idea of wearing heels, I slip the Uggs on. It’s like walking on a cloud,” wrote another.

Deckers has also spent years battling Ugg lookalikes — known colloquially as fake Uggs or “Fuggs.” In early November, Deckers filed suit against boot maker Bearpaw, which it alleges is “copying the trade dress design” of several Ugg boots.

“Ugg Australia’s success has fueled an entire industry of knock-off products like Bearpaw,” Martinez said in a press release announcing the lawsuit.

“Ugg,” as both a term and a style of shoe, predates the founding of Ugg Australia, the company that Deckers acquired in 1995. “Ugg” is considered a generic term in Australia, but Deckers has trademarked it in the U.S. and more than 100 other countries.

Sales of Uggs were just $17 million a year when Deckers bought the company from Australian surfer Brian Smith.
Deckers has since worked to expand the brand beyond the original Ugg — a calf-high, chunky, suede boot with sheepskin fleece lining — to include sleeker heeled boots, sheepskin-lined booties, equestrian-style knee-high leather boots and lace-up snow boots. And the company has teamed up with high-end shoe designer Jimmy Choo this year to launch a collection of studded and grommeted Ugg boots that sell for more than $600 a pair.

“Our current line-up of shoes is the best we’ve ever had,” Martinez said. “And we predict only stronger growth going forward.”

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About the author

Managing Editor

Marlize van Romburgh covers banking, finance, agricultural and viticulture. She writes a weekly column on commercial real estate and a monthly column on the restaurant industry. Follow her at @marlizevr

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