Deckers Outdoor drops as analyst cuts rating over UGG boots

By Noel Randewich | SAN FRANCISCO

Shares of Deckers Outdoor (DECK.N) were on track on Thursday for their biggest one-day drop since early 2015 after an analyst downgraded the footwear maker over concerns about discounts on its UGG boots.

The sheepskin boots, which have grown wildly popular over the past decade, have boosted Deckers’ revenue to nearly $2 billion a year, but growth is losing steam.

A $20 UGG rewards certificate program introduced by Deckers last week and the company’s recent decision to sell the boots on (AMZN.O) and through Macy’s (M.N) will annoy long-time loyal wholesalers like Nordstrom (JWN.N) and Journeys, Susquehanna analyst Sam Poser wrote in a research note.

He downgraded his outlook on Deckers to “negative” from “neutral.” The stock fell 5.9 percent to $57.39 at mid-afternoon.

“We would sell (Deckers) as the health of the UGG brand is clearly at risk,” Poser said.

UGG sales exploded from $37 million in 2003 to $1.52 billion in fiscal 2016 as the boots turned up from Rodeo Drive to college campuses to malls, but last year’s growth was a meager 2.1 percent.

In the June quarter, net sales of UGG fell 20 percent. Net sales from the Goleta, California-based company’s other brands, Teva and Sanuk, also declined.

Despite concerns about slow sales growth, the number of mutual funds owning Deckers shares increased by 9 percent to 340 in the past quarter, according to Morningstar data.

For the fiscal second quarter, Deckers’ revenue is expected to increase 2.1 percent and its full-year revenue is seen falling 1 percent, according to the average estimate of analysts followed by Thomson Reuters.