DECK: 2.5x EBIT?

I was never a massive fan of the DECK story, but it’s rare that I see any brand have this kind of momentum and get so beat up by the market. DECK printed a solid quarter, but inventories were up and sales guidance was light for 2009. That’s all this market needs to punish a stock that was already getting painted with the CROX brush – the ‘ol ‘earnings are not real because the fashion trend will not sustain itself’ call. While you call your 18-year old daughter/niece/neighbor/wife (hopefully not 18) to gauge the sustainability of the Ugg brand, consider this…
1. Let’s believe company guidance for a minute…
a. We’re looking at about $7 per share in earnings, but this includes $10.5mm in stock comp expense and $10mm of added marketing expenses for its Simple and TSUBO brands. We can’t ignore these P&L events, but they each account for $0.50 in EPS that management could have averted if it so chose. In my mind, $8 in EPS is closer to the core earnings number here.

b. The market cap is down to $620mm, but DECK has an astonishing $175mm in cash ($15/shr). Yes, $175mm in cash and $175mm in EBIT next year if you believe mgmt can actually forecast its business and hold core EBIT flat. Net it all out and this thing is at 2.5x EBIT. If you trust this management team, you can’t ignore this name here. I don’t think that management is anything to write home about in the grand scheme of retail, but I’d go as far as to say that it is a better team than a company the size of DECK probably deserves…

2. Let’s say that the US business rolls over, proves to have already hit its point of saturation, but remains a well-run, tightly distributed relevant brand in key consumer segments (a realistic bear case, I think). Then we’re likely looking at earnings closer to $6. No – not the direction of revisions I want to see. But that suggests that this name is trading at 8x earnings today.

I know you can’t make valuation calls in this market, but once real capitalists creep back onto the scene some of these small – but relevant – brands will be plucked away.

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more