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Deckers (DECK) Q4 Earnings & Sales Beat Estimates, Stock Up

Zacks Equity Research

Shares of Deckers Outdoor Corporation DECK increased roughly 5.2% during the after-market trading session on May 23. The stock received a boost following the company’s better-than-expected fourth-quarter fiscal 2019 results. Impressive performance across HOKA ONE ONE and Koolaburra brands aided the quarterly results. This was the ninth straight quarter of positive sales and earnings surprises.

Deckers is 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. Notably, shares of this Zacks Rank #3 (Hold) company have increased approximately 15.1% during the past six months, outperforming the industry’s growth of 11.3%.

However, we note that while earnings per shares surged year over year, net sales declined from the year-ago period. Moreover, this footwear and apparel retailer did not provide an encouraging view for the first quarter and fiscal 2020.

Let’s Delve Deep

This Goleta, CA-based company reported adjusted earnings of 85 cents a share that crushed the Zacks Consensus Estimate of 10 cents and improved substantially from 50 cents reported in the prior-year period. Improved margins, additional cost savings, early shipment of spring wholesale order, and higher sales related to domestic e-commerce in the UGG brand facilitated the bottom line.

The top line fell 1.6% to $394.1 million during the reported quarter, following an increase of 7.8% in the preceding quarter. Fall in net sales was primarily owing to retail store closures. However, net sales came ahead of the Zacks Consensus Estimate of $377.4 million. On a constant currency basis, net sales declined 1.3%.

Deckers had earlier guided net sales in the range of $360-$374 million and earnings per share in the range of approximately break-even to 10 cents for the quarter under review. However, the company went on to report better-than-expected results.

Deckers Outdoor Corporation Price, Consensus and EPS Surprise

Deckers Outdoor Corporation Price, Consensus and EPS Surprise

Deckers Outdoor Corporation price-consensus-eps-surprise-chart | Deckers Outdoor Corporation Quote

Earlier than expected wholesale shipments in the UGG brand led to better-than-anticipated net sales, which also benefited from delivery of spring summer product into the marketplace before time and higher domestic e-commerce sales for the UGG brand.

Gross margin expanded 360 basis points to 51.6% on the back of improved full-price selling and supply chain efficiencies. Adjusted SG&A expenses were $170.4 million, down 1.2% from the same period last year, while as a percentage of net sales adjusted SG&A expenses came in at 43.2% marginally up from 43.1% in the year-ago period. Adjusted operating income came in at $32.9 million, up significantly from $19.9 million in the year-ago quarter, while operating margin expanded 330 basis points to 8.3%.

Sales by Geography & Channel

The company’s domestic net sales jumped 1.2% to $252 million in the reported quarter. Meanwhile, international net sales declined 6.3% to $142.1 million. Direct-to-Consumer net sales declined 11.8% to $156.6 million. Direct-to-Consumer comparable sales dipped 0.5% year over year. Wholesale net sales in the reported quarter grew 6.4% to $237.5 million.

Brand-wise Discussion

UGG brand net sales fell 7.2% to $239 million in the reported quarter. Net sales for the Sanuk brand, known for its exclusive sandals and shoes, came in at $31.5 million, down 11.7% year over year.

HOKA ONE ONE brand net sales soared 33.2% to $67.1 million, while Teva brand net sales decreased 3.8% to $52.9 million. Koolaburra in the quarter under review grew 67% to $3.6 million.

Other Financial Aspects

At the end of the quarter, Deckers had cash and cash equivalents of $589.7 million, total short-term borrowings and mortgage payable of $31.5 million and shareholders’ equity of $1,045.1 million. During the quarter under review, Deckers did not buy back any shares and has $350 million, as of Mar 31, 2019, remaining under share repurchase authorization. Management anticipates capital expenditures in the range of $35-$40 million for fiscal 2020.

FY20 Guidance

Deckers now anticipates fiscal 2020 net sales to be in the band of $2.095-$2.120 billion, which reflects year-over-year increase of 4-5%. The Zacks Consensus Estimate for revenues is pegged at $2.090 billion for fiscal 2020. The company also forecast adjusted earnings between $8.20 and $8.40 per share, the mid-point of which $8.30 is below the current Zacks Consensus Estimate of $8.35. Further, the company had delivered adjusted earnings of $8.84 per share in fiscal 2019.

Management guided revenues from UGG brand to be up low-single digit and sales from Teva brand to be roughly flat. Sanuk brand sales are also expected to be roughly flat. Meanwhile, sales at HOKA ONE ONE brand are projected to be up in mid-20% range.

Gross margin for the fiscal year is anticipated to be in the range of 50-50.5% 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 in the range of 14.2-14.5% compared with 16.2% in fiscal 2019.

For first-quarter fiscal 2020, net sales are estimated to be in the range of $250-$260 million compared with $250.6 million reported in the year-ago period. The Zacks Consensus Estimate for revenues is pegged at $270.7 million for the quarter. Management forecasts first-quarter bottom-line loss of $1.15-$1.25. The company had reported a loss of 98 cents a share in the prior-year quarter. The current Zacks Consensus Estimate for the quarter is a loss of 96 cents.

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