Deckers' Q1 Loss Narrower than Expected, Widens Y/Y - Analyst Blog
Deckers Outdoor Corporation DECK posted first-quarter fiscal 2016 loss of $1.43 per share, narrower than the Zacks Consensus Estimate of a loss of $1.51. However, the loss widened from a loss of $1.07 per share reported in the year-ago quarter. Higher selling, general and administrative expenses and subdued gross margin weighed upon the bottom line.
The company’s net sales of $213.8 million fell short of the Zacks Consensus Estimate of $217 million, but inched up 1.1% from the year-ago quarter figure, buoyed by the strong performance of its Teva and HOKA ONE ONE brands. This improvement, however, was offset by sluggish performance across the UGG and Sanuk brands. On a constant currency basis, net sales jumped 4.5%.
Sales trends remained sturdy across the Direct-to-Consumer division, while Omni-Channel initiatives boosted consumer experience. The E-commerce platform too is witnessing an upside. Alongside, the company is making new additions to its portfolio and focusing on balancing the global price.
During the reported quarter, the company’s domestic sales grew 1.7% to $134.5 million, while international sales inched up 0.1% to $79.3 million (up 9.1% to $86.5 million on a constant currency basis).
Direct-to-Consumer sales rose 5.2% to $60.4 million. On a constant currency basis, sales improved10.5% on the back of 16 net new outlets opened, along with 3 new country specific E-commerce sites launched last year. Direct-to-Consumer comparable-store sales (comps) were flat year over year. Management remains optimistic about attaining low single-digit growth in comps for the fiscal year.
Gross profit edged down 0.2% to $86.6 million in the quarter, whereas gross margin contracted 50 basis points (bps) to 40.5% due to unfavorable currency fluctuations, partly offset by increased proportion of Direct-to-Consumer sales.
Brand-wise Discussion
The UGG brand’s net sales fell 7.2% to $114.5 million. On a constant currency basis, sales declined 3% due to foreign currency headwinds that weighed upon international distributor sales and Direct-to-Consumer sales worldwide. This was partly offset by a jump in global wholesale sales.
The Teva brand’s net sales grew 6.8% to $41.9 million. On a constant currency basis, sales climbed 12%, buoyed by higher global wholesale and distributor sales, and Direct-to-Consumer sales worldwide.
Sales for the Sanuk brand, known for its exclusive sandals and shoes, were $33.5 million, down 7% from the year-ago quarter on both a reported and constant currency basis. The decline in sales was due to a fall in wholesale and distributor sales worldwide, partially offset by higher Direct-to-Consumer sales globally.
Combined net sales of Deckers’ Other brands for the quarter came in at $23.9 million, soaring 85.6% year over year, primarily on the back of the company’s HOKA ONE ONE brand that witnessed sales growth of $9.8 million.
Store Update
Deckers, the designer, producer and brand manager of footwear and accessories, aims to open 11 new outlets during fiscal 2016 compared with 30 stores opened in fiscal 2015. The company had earlier planned to open 16 stores. There are currently 142 company-owned retail stores.
Other Financial Aspects
Deckers ended the quarter with cash and cash equivalents of $168.7 million, short-term borrowings of $43.4 million, and shareholders’ equity of $847.9 million. Inventories jumped 5% year over year to $373.6 million.
During the quarter, Deckers bought back approximately 625,000 shares at a price of $72.69 per share, aggregating $45.4 million. As of Jun 30, 2015, the company still had $126.7 million remaining under its $200 million stock repurchase authorization announced in Jan 2015.
Guidance
Management now projects total revenue growth of 10.5%, on a constant currency basis, to $2.01 billion for fiscal 2016. On a reported basis, revenue is expected to increase 8% to $1.96 billion.
Gross margin for fiscal 2016 is estimated to contract 30 bps to approximately 48% on account of a strong U.S. dollar, partly offset by a fall in input costs and positive changes in the channel mix.
Management now projects earnings for fiscal 2016 to rise 22%, on a constant currency basis, to $5.68 per share, while on a reported basis, earnings per share are expected to be $5.15, reflecting an increase of 10.5%. The company raised its earnings per share outlook from $5.09 projected earlier owing to shares bought back in the quarter under review. The current Zacks Consensus Estimate for fiscal 2016 stands at $5.08, which could witness an upward revision in the coming days.
For the second quarter of fiscal 2016, Deckers envisions revenue to rise 5% on a constant currency basis and 1% on a reported basis. Management anticipates reported revenue to increase approximately 9% in the third quarter and around 18% in the fourth quarter on a year-over-year basis.
Management also expects second-quarter fiscal 2016 earnings of approximately $1.05 per share on a reported basis. On a constant currency basis, earnings are projected to be $1.41 per share, reflecting growth of approximately 20%. The current Zacks Consensus Estimate for the second quarter is pegged at $1.25, which could witness a downward revision in the coming days.
Zacks Rank
Deckers currently carries a Zacks Rank #2 (Buy). Other stocks in the retail sector worth considering include Skechers USA Inc. SKX, sporting a Zacks Rank #1 (Strong Buy), NKE and Carter's, Inc. CRI, both carrying a Zacks Rank #2.
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