Jefferies analyst: Don't count Uggs out yet

AP News
Posted: Nov 05, 2012 12:16 PM
Jefferies analyst: Don't count Uggs out yet

NEW YORK (AP) — Think Uggs are over? Not so fast. Shares of Deckers Outdoor rose on Monday, after an analyst said the maker of Uggs sheepskin boots should expect performance to improve.

THE SPARK: Jefferies analyst Randal J. Konik said in a note to investors that he expects Uggs brand to improve performance, even though sales of the brand sank in the third quarter. In October, Deckers said its third-quarter net income fell 31 percent, mainly due to a 12 percent drop in revenue from its Uggs line.

THE BIG PICTURE: The poor results led many to forecast the end of Uggs' popularity. The sheepskin boots have been bestsellers around the holidays for several years, despite their $200-plus price tag. But Konik said the brand isn't dead.

"Google search trends, Facebook likes and unique visitors to the Ugg website all show that the brand is still healthy and relevant," he wrote in a note to investors.

ANALYSIS: Konik advised investors to "aggressively buy" Deckers shares. He said weather trends are in the brands favor, since last year was an exceedingly warm winter and this winter should be more normal, making comparisons easier. In addition, skinny jeans and leggings remain popular, which are a "natural pairing" with Uggs.

In addition, the fact that the company lowered its prices on Uggs is not a sign of brand weakness, Konik said.

"Ugg is an aspirational luxury brand and the classic boot price over $200 became too high; adjusted prices should reignite demand," he predicted.

SHARE ACTION: Shares rose $1.16, or 3.98 percent, to $31.45 in midday trading. But the stock had been down 60 percent since the beginning of the year. Konik has a $50 price target on the shares.