NEW YORK (Reuters) - Mick McGuire, founder of activist hedge fund Marcato Capital Management, told CNBC on Monday that Deckers Outdoor Corp <DECK.N> had erred by investing significantly in physical retail stores.

McGuire, whose fund reported a 6 percent stake in Deckers on Feb. 8, told the cable television network that the maker of UGG boots and apparel and Teva sandals had invested hundreds of millions of dollars over the last five years expanding physical retail locations while other retailers have worked to reduce their footprint.

"Deckers is...a business with a great brand, generates a lot of cash flow and actually trades at one of its lowest valuations in its history, but they've made some very critical missteps around capital allocation and really a lack of discipline around costs and returns on capital," McGuire said.

"The principal capital allocation error that this company has made now for several years on end has been the deployment of significant investment in the physical retail stores that have really translated into no physical return on investment of any kind," McGuire said.

McGuire said Deckers' UGG brand was "very valuable" and still had enormous growth opportunity internationally and domestically, but that the brand needed to be handled more effectively.

When asked if Marcato would seek a proxy contest against Deckers, McGuire said: "We will have to see how our conversations progress." He said that Marcato had spoken with Deckers' management team before buying shares in the past week.

McGuire, who told CNBC that he did not have much enthusiasm for the brick and mortar retail sector, also said Marcato had cut its stake in retailer Macy's Inc. <M.N> "quite significantly" since its shares rallied into the mid-$40s in the wake of the Nov. 8 U.S. election.

McGuire also said Marcato had exited its position in equipment rental company United Rentals Inc <URI.N>, noting that its stock price had had an "incredible run" and was currently pricing in an enormous amount of business and revenue that may not materialize for a couple of years.

Deckers and Macy's officials were not immediately available for comment, while a United Rentals spokesperson declined to comment. Deckers shares were last down 0.5 percent at $51.85 in afternoon U.S. trading, while Macy's shares were up 2.9 percent at $32.92 and United Rentals shares were up 0.8 percent at $128.14.

(Reporting by Sam Forgione; editing by Grant McCool and Cynthia Osterman)