U-G-G-L-Y

01/25/09 03:49PM EST
I kept my nose out of getting involved in Decker’s – because I simply lacked the fundamental edge on the distribution model. But as I peel back the onion, I don’t like what I smell.

Let’s look at Ugg market share for a minute. In the latest holiday season, Ugg had a 38% market share of department store shoe sales. 38%!!! I don’t EVER recall seeing a brand with share of this magnitude.

Chart 2 below is vital. It shows how Ugg went from a 2 month winter season in ’06, to 3 months in ’07, and now 5-months in ’08. It seems to be expanding its seasonal growth given inability (or lack of desire) to push above 40% share.

Now the brand is selling at a 10%+ share as early as August. To expand this footprint much further, we need to see a much bigger push into warmer-weather footwear, which usually carries a lower price point.

The emotion over this stock is massive. On one hand, short interest is 28% of the float – but that’s down from 40% in late summer, and historical peak of 70%. Also, all but one sell side analysts has a buy rating, and the average price target calls for a 110% gain from here (the only Hold rating is calling for 40% price upside). Those targets are likely to come down.

I kept my nose out of getting involved in this name – because I simply did not have the fundamental edge on the business model and distribution. But as I peel back the onion, I don’t like what I smell.


Disclaimer: I am sitting here on my couch this fine Sunday afternoon wearing a pair of Uggs. The product is so dang comfortable, but once an aging hipster like myself embraces it, I’ve gotta question how cool it is.
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