1. The Lure of UGG
Spotted on celebrities such as Sarah Jessica Parker, Nicole Ricci, Kate Hudson and the likes, UGG is not just another pair of furry, comfy , chunky boots, it is a fashion statement. 15 years after being acquired by DECK, UGG sales now carry over 90% of the sales of the company. The message is clear, the growth of UGG equals the growth of DECK.
UGG has demonstrated years of double digit growth. In the third quarter, UGG has once again turned in a 20% year-over-year growth. Well, one could very well argue that it is unrealistic to expect double digit growth forever. Granted this is a valid argument, another equally valid question is: If decelerating growth is inevitable, what would be the trigger events?
Given that the fashionable niche of UGG has been proven to be sustainable (by years of double digit growth), the trigger events include either a formidable competition in the category or saturation of markets. Neither is in sight yet.
2. International Expansion
Saturation of markets is unlikely for DECK in the next few years as there is still a lot of room for international expansion. International business carries only 26% of the company business. The company is just starting to gain traction in its international markets such as Europe and Asia, especially China (China of course). In the last quarter, international sales expanded as much as 48% over last year.
DECK has a P/E of 16, on par with peers in the industry. This a very conservative multiple for a company that has demonstrated sequential double-digit growth. For a slightly higher multiple ranging from 18 to 20 and the current estimate of 2010 EPS, the stock should command a price ranging from $66 to $73.
Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.
Disclosure: The blog author does not own DECK in her personal account as of October 29, 2010Related posts:
1. DECK and UGG continue to rock