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Percoco v. Deckers Outdoor Corporation

United States District Court, Third Circuit

July 8, 2013

MICHAEL PERCOCO, Individually and on Behalf of All Others Similarly Situated, Plaintiff,
v.
DECKERS OUTDOOR CORPORATION, ANGEL R. MARTINEZ, and THOMAS A. GEORGE, Defendants.

James P. McEvilly, III, Esquire of Faruqi & Faruqi, LLP, Wilmington, Delaware, Counsel for Plaintiff. Of Counsel: Richard W. Gonnella, Esquire, and Francis P. McConville, Esquire of Faruqi & Faruqi, LLP.

William M. Lafferty, Esquire, and Angela C. Whitesell, Esquire of Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware, Counsel for Defendant. Of Counsel: William F. Alderman, Esquire, and Alexander K. Talarides, Esquire of Orrick, Herrington & Sutcliffe LLP.

MEMORANDUM OPINION

SUE L ROBINSON, District Judge.

I. INTRODUCTION

On August 1, 2012, plaintiff Michael Percoco ("Percoco"), individually and on behalf of all others similarly situated, instituted the present securities class action lawsuit against defendants Deckers Outdoor Corporation ("Deckers"), Angel Martinez ("Martinez"), and Thomas A. George ("George") (collectively, "defendants"). (D.I. 1) Presently before the court is defendants' motion to dismiss this action without leave to amend. (D.I. 15) The court has jurisdiction over this matter pursuant to 28 U.S.C. § 1331. For the reasons that follow, defendants' motion to dismiss is granted, and Percoco is denied leave to amend.

II. BACKGROUND

A. Parties

Michael Percoco is an individual who invested solely in put options[1] for Deckers. (D.I. 19 at 7) Deckers is a Delaware corporation with its principal place of business in Goleta, California. (D.I. 3 at ¶ 13) Martinez is and was, at all relevant times, Deckers' Chief Executive Officer. (D. I. 3 at ¶ 14) George is and was, at all relevant times, Deckers' Vice President and Chief Financial Officer. (D.I. 3 at ¶ 15)

B. Deckers' Public Filings, Press Releases, and Earnings Calls

This action seeks damages for transactions and statements made by defendants between October 27, 2011 and April 26, 2012, inclusive (the "Class Period").[2] (D.I. 3 at ¶ 1) In his complaint, Percoco alleges that defendants failed to disclose adverse facts regarding Deckers' UGG brand.[3] The complaint contains numerous block quotes taken from public filings, earnings calls, and press releases regarding the third and fourth quarter of 2011, as well as the first quarter of 2012. (D.I. 3 at ¶¶ 1, 4-5, 35-36)

On October 27, 2011, Deckers announced record third quarter 2011 results, including increased sales, gross margins, and earnings per share. (D.I. 3 at ¶ 23) The press release also stated inventories had increased over 80%, the majority of which was driven by UGG, and that Deckers would experience further increases in raw material prices. ( Id. ) On an earnings call later that day, George indicated "[w]e think some of these measures... will help partially offset the increase in our cost of goods sold in the near term while others take more time...." ( Id. at ¶ 25)

On February 23, 2012, Deckers reported record results for its fourth quarter, noting increased sales, gross margins, and earnings per share. ( Id. at ¶ 29) Deckers also announced record results for its fiscal year 2011, with increased sales and earnings per share up to $5.07 per share, but slightly decreased gross margins. ( Id. ) Deckers stated that projections for first quarter 2012 were based on an assumption of a 48% gross margin. ( Id. ) Martinez later indicated that Deckers "expects full year diluted earnings per share to be approximately flat with 2011 levels due primarily to the increase in sheepskin costs in 2012 compared to 2011, which [Deckers] projects adversely impacts profitability by $1.40 per diluted share." ( Id. ) He also noted that expectations were for "first quarter 2012 revenue to increase approximately 19% over 2011, and... first quarter 2012 diluted earnings per share to be down approximately 50% compared to 2011." ( Id. ) This decrease in earnings per share would drop the earnings from $0.49 per share to approximately $0.245 per share. ( See id. )

On an earnings call on February 23, 2012, George stated:

The higher sheepskin cost - the higher sheepskin prices are costing us about 500 basis points of gross margin or roughly $1.40 in earnings per share in 2012. However, primarily through selective price increases, the full year addition of Sanuk and a greater contribution from our retail division, we'll be able to offset about 300 basis points of the gross margin decline and fully offset the negative impact of our bottom line.

( Id. at ¶ 31) On the same call, Martinez stated: "Despite the mildest winter in recent memory, we still grew UGG brand sales 38% in the fourth quarter" and that UGG is not "a cold weather brand. It is a comfort brand...." ( Id. at ¶ 32)

On April 26, 2012, Deckers issued a press release announcing its financial results for the first quarter 2012.[4] ( Id. At ¶ 35) The press release noted increased sales, a decreased gross margin of 46%, and diluted earnings per share of $0.20 per share. Based on the performance through the first quarter, Deckers revised its full year forecast to first lower the expected increase in sales from 15% to 14%, and to lower its yearly earnings per share estimate from flat to decreasing "approximately 9% to 10%." ( Id. at ¶ 36)

Following this news, Deckers stock dropped from a closing price of $69.46 per share on April 26, 2012, to close at $51.829 per share on April 27, 2012, on volume of almost 15 million shares. This single day decline was approximately 25%, which ...


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