Deckers Outdoor Corporation · NYSE:DECK
Deckers Outdoor — Proxy Contest (October 2017)
26 slides from Deckers Outdoor's proxy contest presentation, Oct 5, 2017
Slide 1: Sohn Conference October 2017
Sohn Conference October 2017
Slide 2: Disclaimer
Disclaimer The views expressed in this presentation (the “Presentation”) represent the opinions of Marcato Capital Management LP and/or certain affiliates (“Marcato”) and the investment funds it manages that hold shares in Deckers Outdoor Corporation. (the “Company”). This Presentation is for inform
Slide 3: Certain Information Concerning the Participants
CERTAIN INFORMATION CONCERNING THE PARTICIPANTS Marcato International Master Fund Ltd. (“Marcato International”) and the other Participants (as defined below) intend to file a preliminary proxy statement and accompanying proxy card with the Securities and Exchange Commission (the “SEC”) to be used t
Slide 4: Overview: Deckers (DECK)
Overview: Deckers (“DECK”) Ticker: “DECK” Recent Stock Price: $66 Source: Company filings, CapitalIQ. Market data as of 9/26/17 Multi-branded footwear and apparel company: UGG Hoka One One Sanuk Teva Consensus Estimates (FYE 3/31/18E): 2018E EBITDA: $239 million 2018E EPS: $4.08 Valuation (FYE 3/31/
Slide 5: Deckers brand overview
Deckers brand overview Item UGG Product Type Comfort Shoes & Apparel Running Shoes Casual Shoes Outdoor Shoes & Sandals Revenue FYE 3/31/17 $1,451m ~$115m $92m $118m Growth Profile Mature grower Rapid growth Low growth Low growth (1) Source: Company filings, Marcato estimates See appendix for footno
Slide 6: Why we invested in Deckers
Why we invested in deckers UGG is a substantial footwear brand that generates strong cash flows, returns and is underpenetrated internationally Hoka One One is a rapidly growing running shoe brand whose value is not recognized by the market Significant share price and operational underperformance du
Slide 7: UGG is a large & established brand in casual footwear
ugg is a large & established brand in casual footwear UGG Brand Revenue ($M)(1) Note: 2005-2013 are 12/31 fiscal end. 2014-2017 are 3/31 fiscal end. Due to a change in reporting period, the company has no 2014 fiscal year. 2014 above is the LTM period through 3/31/14 Source: Company filings, Wall St
Slide 8: Retail expansion has damaged ROIC and EBIT margins
Retail expansion has damaged ROIC and EBIT margins Note: 2006-2013 are 12/31 fiscal end. 2014-2017 are 3/31 fiscal end. Due to a change in reporting period, the company has no 2014 fiscal year. 2014 above is the LTM period through 3/31/14 Source: Company filings See appendix for footnotes Company RO
Slide 9: SG&A and Unallocated Overhead have grown faster than revenue
SG&A and Unallocated Overhead have grown faster than revenue SG&A Unallocated Overhead % of Revenue Note: 2011-2013 are 12/31 fiscal end. 2014-2017 are 3/31 fiscal end. Due to a change in reporting period, the company has no 2014 fiscal year. 2014 above is the LTM period through 3/31/14 Source: Comp
Slide 10: I. Focus on Core UGG Brand, Exit Non-Core Brands
I. Focus on Core UGG Brand, Exit Non-Core Brands
Slide 11: Poor history of investing capital into non-UGG brands
Poor history of investing capital into non-ugg brands Last year Deckers wrote-down the asset value of its Sanuk brand by over 60% Sanuk writedown Other Brands Wholesale segment ($M) Note: 2011-2013 are 12/31 fiscal end. 2014-2017 are 3/31 fiscal end. Due to a change in reporting period, the company
Slide 12: Opportunity to Unlock Value From Non-Core Brands
Opportunity to Unlock Value From Non-Core Brands Source: Marcato estimates
Slide 13: II. Rationalize Retail Footprint
II. Rationalize Retail Footprint
Slide 14: Retail Expansion Continued Despite Declining Metrics
Retail Expansion Continued Despite Declining Metrics Retail stores (Year end) Retail EBIT and Margins (2)(3) Note: 2011-2013 are 12/31 fiscal end. 2014-2017 are 3/31 fiscal end. Due to a change in reporting period, the company has no 2014 fiscal year. 2014 above is the LTM period through 3/31/14 Sou
Slide 15: Ecommerce and Retail Segments Were Combined To Hide Retail Weakness
Ecommerce and Retail Segments Were Combined To Hide Retail Weakness Direct to Consumer EBIT Breakdown Direct to Consumer EBIT % Margin Note: 2011-2013 are 12/31 fiscal end. 2014-2017 are 3/31 fiscal end. Due to a change in reporting period, the company has no 2014 fiscal year. 2014 above is the LTM
Slide 16: Retail profitability significantly lower after allocating overhead
Retail profitability significantly lower after allocating overhead Retail EBIT % Margin Before and After Estimated Corporate Allocation Retail ROA Before and After estimated corporate allocation(4)(5) Note: 2011-2013 are 12/31 fiscal end. 2014-2017 are 3/31 fiscal end. Due to a change in reporting p
Slide 17: Retail Stores would benefit from Margin Improvement Or Closure
Retail Stores would benefit from Margin Improvement Or Closure After allocating corporate expenses, average profitability levels need to more than double to improve retail segment margins above Deckers’ cost of capital Source: Company filings, Marcato estimates See appendix for footnotes Est. DECK 2
Slide 18: III. Optimize Profitability
III. Optimize Profitability
Slide 19: Deckers Has Announced Profit Improvement Goals
“…we are pleased to share that $150 million announced cumulative savings will drive a $100 million improvement in operating profit for the fiscal year 2020 [relative to 2017]. With these savings, along with modest low single-digit revenue growth, we believe we can achieve an operating margin of 13%
Slide 20: Efficiency Consultants Estimate Savings Opportunity of $150-$200M
Efficiency Consultants Estimate Savings Opportunity of $150-$200M Best in class consultant that has worked with leading footwear and apparel companies including Nike, Adidas, Timberland and Wolverine Worldwide has identified $150-$200m of savings potential xx Source: External consulting firm estimat
Slide 21: IV. Wolverine Case Study
IV. Wolverine Case Study MARCATO
Slide 22: Wolverine cost savings program
Wolverine cost savings Program Retail Footprint Rationalization In process of reducing total stores from 466 stores in 2013 to ~80 going forward Exited all Stride Rite stores and converted wholesale business to a licensing model to improve ROIC Post rationalization, Stride Rite generates similar EBI
Slide 23: V. Valuation Impact
V. Valuation Impact MARCATO
Slide 24: Marcato's optimization plan would drive earnings
Before revenue growth, marcato’s optimization plan would drive earnings Non-UGG brands monetized Conservative revenue assumptions for remaining UGG based on public target EBIT increases over 75% Margins double Retail EBIT improves with rationalization Unallocated corporate declines with cost program
Slide 25: Marcato proposal: over 2x opportunity over 3 year horizon
Marcato proposal(1) Marcato Believes Deckers’ stock price Has over 2x opportunity over 3 year horizon Potential value creation for deckers| FY2017A – FY2020E Note: Company’s fiscal year ends 3/31 Source: Company filings, Marcato estimates. Market data as of 9/26/17 20% 26% 31% ROIC(1) EPS 7.0x 7.5x
Slide 26: Appendix: Footnotes
Appendix: Footnotes Page 4 Marcato estimate Page 6 Includes UGG brand revenue from both the wholesale and direct to consumer channels Sourced from company filings and a Buckingham 3/3/2017 research report Page 7 ROIC Defined as (EBIT*(1-Tax Rate)/ (Average period net PPE + Working capital). Working