Are investors done with Crocs and Uggs?

It looks like Wall Street's fashion sense may be improving.

By Minyanville Feb 24, 2012 4:54PM
minyanville media,inc.Image: Shoebox of money (© Jonathan Kitchen/Getty Images/Getty Images)Updated 4:30 p.m. ET

It's a bad day for anyone who invested in the long-term potential of appalling shoe fads.

Deckers Outdoor Corp. (DECK), which sells the much-hated but reputedly comfy Ugg brand of boots, is getting slammed by investors after its earnings release. The stock closed down nearly 14% Friday.

Deckers actually earned its highest profit ever, far more than expected by analysts, most of whom must be flabbergasted at the company's continued ability to convince women to wear big, unflattering sheepskin boots with no arch support. Analysts give Deckers an average rating of outperform.

Crocs (CROX), another fashion felony that won’t go away, also beat earnings expectations. Net profit rose 18%. Even so, Crocs shares closed down 5% Friday.

If earnings are in line, why the sell-off? Is Wall Street spurning these companies based on fashion taste?

Both companies' outlooks for the next quarter and the coming year aren't very good. Uggs' margins will be significantly hurt by a jump in the price of sheepskin. But, to the chagrin of fashionistas, sales aren't going to come down much on a seasonal basis. And the company is looking to add customers. New England Patriots quarterback Tom Brady is now hawking Uggs to, of all people, men. If that catches on, there might be some hope for the fuzzy boot.

In the case of Crocs, revenue is expected to slide. The company suffered during the recession because, well, it sells $30 flip-flops. Sales have recovered slowly since then, but it looks like they won’t for long.  

If the hypothetical Wisdom Tree Footwear Fad ETF existed, this would be bad news.

More from Minyanville:
Tags: CROX
1Comment
Feb 24, 2012 8:28PM
avatar
I'm totally spoiled by my Uggs, they're the most comfortable pair of boots I've ever had. Love em. That said, the stock is a little pricey but they are expanding into mens shoes and boots, accessories for men and women and even handbags where the margins are tremendous. Your call.
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