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Deckers (DECK) Down 23.3% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Deckers (DECK). Shares have lost about 23.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Deckers due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Deckers Posts Narrower-Than-Expected Q1 Loss, Ups View

Deckers Outdoor Corporation commenced fiscal 2020 on a strong note, wherein both the top and the bottom line surpassed the Zacks Consensus Estimate and improved on a year-over-year basis. Impressive performance across UGG and HOKA ONE ONE brands aided the first-quarter results. Notably, we note that this was 10th straight quarter of top and bottom-line beat. Apparently, better-than-expected results prompted management to lift fiscal 2020 view.

The company remains focused on expanding brand assortments, introducing more innovative line of products, targeting consumers digitally through marketing and sturdy e-commerce, and optimizing omni-channel distribution. All these bode well for the company in the long run.

However, we note that this footwear and apparel retailer did not provide an encouraging view for the second quarter of fiscal 2020, as the numbers remained soft when compared with the Zacks Consensus Estimate.

Let’s Delve Deep

This Goleta, CA-based company reported a loss per share of 67 cents narrower than the Zacks Consensus Estimate of a loss of $1.15. The figure also improved significantly from a loss of 98 cents incurred during the prior-year period. Higher net sales, improved margins and tax refunds aided the bottom-line performance. Net sales increased 10.5% to $276.8 million during the reported quarter, following a decline of 1.6% in the preceding quarter. The metric also surpassed the Zacks Consensus Estimate of $259.9 million. On a constant currency basis, net sales improved 11.6%.

Deckers had earlier guided net sales in the range of $250-$260 million and bottom-line loss of $1.15-$1.25 per share for the quarter under review. However, the company went on to report better-than-anticipated results. The quarterly results gained from earlier delivery of wholesale and distributor shipments in the UGG brand and strong performance across HOKA ONE ONE brand aided by the launch of Carbon X.

Gross margin expanded 110 basis points to 47% during the quarter under review. SG&A expenses came in at $161.4 million, up 4.9% from the prior-year period while as a percentage of net sales SG&A expenses shrunk 310 basis points to 58.3%. The company reported operating loss of $31.4 million compared with operating loss of $38.9 million for the same period last year.

Sales by Geography & Channel

The company’s domestic net sales jumped 18.1% to $167.3 million in the reported quarter. Meanwhile, international net sales inched up 0.6% to $109.5 million. Direct-to-Consumer net sales rose 10% to $80.3 million. Direct-to-Consumer comparable sales jumped 16.2% year over year. Wholesale net sales in the reported quarter grew 10.7% to $196.6 million.

Brand-wise Discussion

UGG brand net sales increased 1.5% to $138.5 million in the reported quarter. Net sales for the Sanuk brand, known for its exclusive sandals and shoes, came in at $18.7 million, down 23.5% year over year. HOKA ONE ONE brand net sales soared 69.2% to $79.5 million, while Teva brand net sales decreased 4.3% to $38.3 million.

Other Financial Aspects

At the end of the quarter, Deckers had cash and cash equivalents of $502.6 million, total short-term borrowings and mortgage payable of $31.4 million and shareholders’ equity of $995.3 million. During the quarter under review, Deckers bought back 227,000 shares for a total of $35 million and has $315 million, as of Jun 30, 2019, remaining under share repurchase authorization.

Guidance

Deckers now anticipates fiscal 2020 net sales to be in the band of $2.100-$2.125 billion, which indicates year-over-year growth of about 4-5%. The company also forecast adjusted earnings between $8.40 and $8.60 per share. Further, the company had delivered adjusted earnings of $8.84 per share in fiscal 2019. The company had earlier guided net sales between $2.095 billion and $2.120 billion and earnings in the range of $8.20-$8.40 per share. Management now expects revenues from HOKA ONE ONE brand to be increasing in the high 30% range for the year. This will be offset by reductions in the Sanuk domestic wholesale business on account of the decision to exit the warehouse channel. Gross margin for the fiscal year is anticipated to be 50.5% compared with 51.5% reported in fiscal 2019. Further, SG&A expense as a percentage of sales is projected to be at or marginally better than 36%. Operating margin is envisioned to be 14.5% compared with 16.2% in fiscal 2019.

For the second quarter, net sales are estimated to be in the range of $515-$525 million compared with $501.9 million reported in the year-ago period. Management forecasts second-quarter adjusted earnings of $2.15-$2.25. The company had reported earnings of $2.38 per share in the prior-year quarter.

How Have Estimates Been Moving Since Then?

Estimates review followed a downward path over the past two months. The consensus estimate has shifted -7.33% due to these changes.

VGM Scores

Currently, Deckers has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Deckers has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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