Shares of Deckers Outdoor Corp. fell Monday after an analyst reiterated that sales on its classic Uggs boots — which are rarely discounted — are a troubling sign for the shoe maker. The note came two days after the same analyst warned that Deckers' margins might come under pressure after an unexpected sale of Uggs showed up on a Website.
THE SPARK: In a note to investors on Wednesday, Sterne Agee analyst Sam Poser said retailers have received a letter from Deckers Outdoor that due to 2013 sheepskin prices, the company is cutting prices on its Classic Ugg styles. Effective last Saturday, Sept., 15, the tall boot is going to $195.20 from $210 and the short boot will sell for $155.30 from $165, along with other price reductions. On Monday, Poser said that Ugg's classic style and 37 other Ugg styles appeared on beyondtherack.com during a flash sale on Saturday and Sunday.
Deckers did not immediately return a call for comment.
THE BIG PICTURE: A company's profit margins — the amount of each dollar of revenue a company actually keeps — are eroded if products go on sale or the price is reduced. Poser said that the lower prices mean margin pressures are inevitable.
Deckers Outdoor also makes Simple, Teva and Tsubo shoes, but its Uggs sheepskin boots have been popular sellers during the holidays for years. They are known for rarely, if ever, going on sale from their full price of upward of $200.
THE ANALYSIS: "It appears to us that Deckers may finally be reading the writing on the wall, and realizing that given the extremely high level of inventory and the price resistance occurring at retail, that they had to finally act to address this problem," Poser said.
He reiterated his "Underperform" rating on the stock with a $38 price target.
SHARE ACTION: Shares fell $3.35, or 7.6 percent, to $40.60 during midday trading. The stock is down 42 percent since the start of the year.