In many ways, Crocs and Deckers Outdoors are similar. They both made it big by leveraging a single brand, grew quickly and eventually opened their own retail stores. But that’s where the similarities end. Crocs got its start in 1999. By then, Deckers had been in business for 26 years. It really got going in 1995, when it acquired the UGG Australia brand. While UGG boots still account for 70% of its overall business, its revenue diversification is ongoing.
Deckers might appear to be an overnight sensation, but it has taken almost four decades to get where it is today, which is at the pinnacle of footwear success. Gradual change is at the heart of its business. For instance, as of the end of the second quarter, it had 30 retail stores open in the U.S. and elsewhere. Meanwhile, Crocs has 397 stores or kiosks open worldwide, 10 times more than Deckers.
We all know the story of the tortoise and the hare. If you sell products people truly want, they’ll wait for you to open more stores. In the second quarter, Deckers opened 11 stores and converted its European business from a distributor model to that of a true wholesale business. As a result, it lost money in Q2. However, it is on course in 2011 for a 17% increase in earnings per share, to $4.72, and a 26% boost in revenues, to $1.26 billion. It has loads of cash, and on July 1 parted with some of it to acquire the Sanuk brand of sandals and apparel for $126 million, or three times sales.
Jeff Harbaugh’s Market Watch blog suggests Deckers got itself a great brand with impressive 60% gross margins and an entrée into the independent skate and surf shops it doesn’t currently serve. Forget P/Es for a moment — this is a company with a true vision of its future.
Successful business has everything to do with execution and little to do with financial formulas. When choosing between two businesses, always go with the better company. That’s Deckers Outdoors.
As of this writing, Will Ashworth did not own a position in either of the stocks named here.