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Deckers (DECK) Tops Q3 Earnings & Sales Estimates, Raises View

Zacks Equity Research

Deckers Outdoor Corporation DECK delivered better-than-expected third-quarter fiscal 2019 results. Management pointed that impressive growth across UGG, HOKA ONE ONE and Koolaburra brands aided the quarterly performance. This was the eighth straight quarter of positive sales and earnings surprises. Impressive performance prompted management to raise fiscal 2019 view.

For fiscal 2019 adjusted earnings are projected to be in the range of $7.85-$7.95, portraying an improvement over $5.74 reported in fiscal 2018. The current Zacks Consensus Estimate for fiscal 2019 is $6.91. The company had earlier guided adjusted earnings in the range of $6.65-$6.85 per share.

Notably, shares of this Zacks Rank #1 (Strong Buy) company were up roughly 4% during after-market trading session on Jan 31. The stock has advanced 9.6% in the past six months outperforming the industry’s growth of 0.6%. 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.

Let’s Delve Deep

This footwear and apparel retailer reported adjusted earnings of $6.59 per share that surpassed the Zacks Consensus Estimate of $5.31 and improved substantially from $4.97 in the prior-year period. Increased sales, supply chain optimization, higher gross margin, operating expense efficiencies, share buyback activity and lower effective tax rate facilitated bottom-line growth.

The top line also continues to improve, rising 7.8% to $873.8 million during the reported quarter, following an increase of 4% in the preceding quarter. Net sales also came ahead of the Zacks Consensus Estimate of $826.9 million. On a constant currency basis, net sales grew 7.7%.

UGG domestic wholesale contributed primarily to net sales growth that also benefited from rise in sales across HOKA ONE ONE and Koolaburra brands. Lower promotional activity for the UGG brand resulted in higher full price selling that benefited the top line and gross margin. These were partly offset by sluggishness witnessed internationally within DTC channel.

Deckers had earlier guided net sales in the range of $805-$825 million and earnings per share in the range of approximately $5.10-$5.25 for the quarter under review. However, this Goleta, CA-based company went on to post far better results than anticipated.

Gross margin expanded 160 basis points to 53.8% on the back of improved full-price selling. Adjusted SG&A expenses were $227.8 million up 3.4% from the same period last year, while as a percentage of net sales adjusted SG&A expenses came in at 26.1% down from 27.2% in the year-ago period.

Adjusted operating income came in at $242.3 million, up 19.3% from the year-ago quarter, while operating margin expanded 260 basis points to 27.7%.

Deckers Outdoor Corporation Price, Consensus and EPS Surprise

 

Deckers Outdoor Corporation Price, Consensus and EPS Surprise | Deckers Outdoor Corporation Quote

Sales by Geography & Channel

The company’s domestic net sales jumped 14.2% to $573 million in the reported quarter. Meanwhile, international net sales declined 2.6% to $300.8 million.
Direct-to-Consumer (“DTC”) net sales advanced 2.6% to $391.6 million. DTC comparable sales rose 1.4% year over year. Wholesale net sales in the reported quarter grew 12.5% to $482.2 million.

Brand-wise Discussion

UGG brand net sales increased 3.6% to $761 million in the reported quarter. Net sales for the Sanuk brand, known for its exclusive sandals and shoes, came in at $12.9 million, down 7% year over year.

HOKA ONE ONE brand net sales soared 79.2% to $56.9 million, while Teva brand net sales advanced 17.5% to $22.9 million.

Other Financial Aspects

At the end of the quarter, Deckers had cash and cash equivalents of $515.9 million, total short-term borrowings and mortgage payable of $31.7 million and shareholders’ equity of $1,017.9 million.

During the quarter under review, Deckers bought back approximately 249,000 shares of worth $27 million. As of Dec 31, 2018, the company had $89 million remaining under its $400 million share buyback program. The company’s board of directors recently approved an additional share repurchase authorization worth $261 million, which took the total stock buyback program to $350 million.

Guidance

Deckers provided an encouraging view for fiscal 2019. Management now anticipates net sales to be in the band of $1.986-$2.0 billion, up from its prior projection of $1,935-$1,960 million. Management guided revenues from UGG brand to be roughly flat and sales from Teva brand to be up low-single digit. Sanuk brand sales are expected to be down in mid-single digit. Meanwhile, sales at HOKA ONE ONE brand are projected to be up in mid-40% range.

Gross margin for the fiscal year is anticipated to be above 50.5%. Further, SG&A expense as a percentage of sales is projected to be lower than 36.5%. Operating margin is envisioned to be in the range of 14.5-14.7%.

For the fourth quarter, net sales are estimated to be in the range of $360-$374 million compared with $400.7 million reported in the year-ago period. The Zacks Consensus Estimate for revenues is pegged at $388.8 million for the quarter. Management forecasts the bottom line in the range of break-even to 10 cents compared with 50 cents a share in the prior-year quarter. The current Zacks Consensus Estimate for the quarter is 24 cents.

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