Jefferies lowered its rating on Deckers Outdoor to “Hold” in part due to the stock’s recent run-up in price, upgraded Genesco to “Buy,” and listed Under Armour and Foot Locker among its long-term buys.
Deckers was lowered to “Hold” from “Buy” with a price target of $75.
Randal Konik, the lead analyst in the space at Jefferies, wrote in a note that Deckers has made “solid progress” with efforts to transition toward a more DTC centric
business model, diversify its product assortment, and lower expenses.
But he said the shares have already risen 45 percent in 2017. While channel checks show traffic picked up with the recent streak of cold weather, any likely benefit to Ugg’s sales has already been priced into current trading levels, the analyst believes. He further believes that based on commentary with select footwear retailers and brands, warmer temperatures toward the end of Fall led to weak early-season boot sell-throughs and “may foil DECK’s expectations for re-orders from wholesale partners later in the season.”
Finally, on Ugg, Konik believes its major wholesale exposure remains a risk and “tighter inventory practices on behalf of key department store partners will be a growing headwind in the future.”
Among Deckers’ other brands, Jefferies noted that while Hoka has “high potential,” prospects for Teva and Sanuk, appear more limited than the investment firm had previously estimated.
Jefferies raised Genesco to “Buy” from “Hold” and lifted its price target to $40 from $27. Konik believes the stock’s current depressed levels “under-appreciates the potential earnings power of the Journeys segment,” particularly as product trends shift more in favor of the teen chain.
Journeys’ sales are particularly expected to benefit from the resurgence of Vans as well as continuing strength in Adidas Stan Smith and Superstar styles with its younger, teen customer despite softness for those brands in other channels. Boot sales at Journeys are expected to benefit from the arrival of colder weather since November as well as easy year-ago comparisons, led by Ugg, Timberland and Doc Martins.
Konik also wrote that ”market fears over the company’s real estate exposure are overblown, given significant lease flexibility and progress in negotiating lower rent expense.”
He still called the Lids segment a “wild card in this story” with the third-quarter particularly impacted by a “sudden decline” in performance of NFL-related product. Promotions on NFL-merchandise likely weighed heavily on Lids’ fourth quarter, he added. The analyst noted that while the visibility on Lids “is admittedly low at this point,” its underperformance is likely reflected in guidance.
Jefferies listed Under Armour among its “top long ideas’ with a “buy” rating and a $24 price target. UAA is expected to benefit from its revamped management team.
“Our worst call in 2017 was to buy Under Armour,” admitted Konik in the note, “Clearly we underestimated the difficulties of management transition, bloated cost structure, slowing sales, and rising competition from Adidas. However, we are doubling down on UAA for 2018 believing the brand is fine not broken, management direction is improving, and numbers are finally bottoming.”
Foot Locker also was marked as a top long-term buy with a price target of $61. Konik believes current trading levels at Foot Locker don’t reflect Jefferies’ expectations for continued share gains. Easy comparisons, its leadership position, its strong relationship with Nike, and a robust athletic footwear cycle across running and lifestyle will support gains. Wrote Konik, “We continue to see FL as a prime beneficiary of the strong athletic footwear cycle and rise of sneaker culture, given its dominant position in the category.”
Photo courtesy Journeys
