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Deckers (DECK) Records Narrower-Than-Expected Loss in Q1

Zacks Equity Research
·5 min read

Deckers Outdoor Corporation DECK reported narrower-than-expected loss in first-quarter fiscal 2021. Moreover, its sales outpaced the Zacks Consensus Estimate for the 14th straight quarter. Both top and bottom lines also compared favorably with the year-ago quarter’s respective figures. Strength in the company’s direct-to-consumer platform and HOKA ONE ONE brand aided quarterly results. However, management did not issue fiscal 2021 outlook given the fluid economic landscape with respect to COVID-19.

We note that Deckers reopened the majority of its stores in fiscal first quarter and about 20% of its stores remained open for the full 90-day period. Nearly 95% of the company’s global stores are open as of this week. Many of such reopened outlets are working at a limited capacity as they are adapting to new and evolving challenges tied to the pandemic. Going forward, management anticipates potential risk of more closures or limitations in the peak periods owing to the ongoing and volatile pandemic-induced restrictions on retail store operations.

Deckers’ distribution center in Moreno Valley, CA, and other third-party distribution facilities are currently operating and supporting logistics. Further, management estimates operational headwinds like capacity constraints with increased levels of e-commerce shipments in peak wholesale-volume periods, coupled with higher costs in relation to warehouse employees’ safety and payroll expenses. To address these issues, the company has been phasing certain wholesale shipments earlier than in prior years. This might impact the timing of revenues between upcoming quarters.

This Goleta, CA-based company’s shares have gained 49.4% in the past three months, outperforming the industry’s 14.3% rally.

Let’s Delve Deeper

Deckers posted quarterly loss of 28 cents per share, which is narrower than the Zacks Consensus Estimate of a loss of $1.11 and the year-ago quarter’s  loss of 67 cents. Higher sales coupled with lower SG&A expense aided the bottom line.

Net sales rose 2.3% to $283.2 million during the reported quarter and also surpassed the Zacks Consensus Estimate of $265 million. On a constant-currency basis, net sales grew 2.8%.

Deckers Outdoor Corporation Price and EPS Surprise

Deckers Outdoor Corporation Price and EPS Surprise
Deckers Outdoor Corporation Price and EPS Surprise

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

We note that gross margin expanded 330 basis points to 50.3% during the quarter, driven by a favorable shift in channel mix stemming from lower wholesale volume, comprising reduction of closures and higher penetration of e-commerce. Moreover, the HOKA brand's growth and its increased mix of overall revenues contributed to growth.

SG&A expenses fell 6.9% year over year to $150.3 million due to variable category reductions with year-over-year savings and shifting of a portion of marketing expenditure, to be used later this fiscal. Furthermore, the company reported operating loss of $7.7 million compared to operating loss of $31.4 million in the year-ago quarter.

Sales by Geography & Channel

The company’s domestic net sales increased 10.2% to $184.3 million in the reported quarter. Meanwhile, international net sales dropped 9.7% to $98.9 million. Direct-to-Consumer net sales jumped 74.2% to $139.8 million. Wholesale net sales in the reported quarter declined 27.1% to $143.3 million.

Brand-wise Discussion

UGG brand net sales decreased 10% to $124.7 million in the reported quarter. HOKA ONE ONE brand net sales surged 37.1% to $109 million, while Teva brand net sales declined 7.9% to $35.2 million. Net sales for the Sanuk brand, known for its exclusive sandals and shoes, came in at $13.2 million, down 29.2% year over year.

Other Financial Aspects

At the end of the reported quarter, Deckers had cash and cash equivalents of $661.9 million, outstanding borrowings including mortgages of $30.7 million and shareholders’ equity of $1,136.9 million. Further, inventories as of Jun 30, 2020 were $435 million, down 8.1% year over year.

This Zacks Rank #2 (Buy) company had $469.7 million available under its existing revolving-credit facilities. However, it did not have outstanding borrowings under any of the existing revolving-credit facilities at fiscal first-quarter end. During fiscal first quarter, management did not buy back shares and had $160 million available under its stock-repurchase program as of Jun 30.

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