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Deckers' Strategic Steps Aid Growth, Soft Sanuk Sales Hurt

Zacks Equity Research

Deckers Outdoor Corporation’s DECK focus on expanding brand assortments, introducing a more innovative line of products, targeting consumers digitally through marketing and sturdy e-commerce along with optimizing omni-channel distribution bode well. However, soft Sanuk brand sales remain a drag on the top line.

Notably, we observe that shares of this Zacks Rank #3 (Hold) company have gained approximately 31% in the past three months, outperforming the industry’s growth of 12.2%.

Let’s take a closer look at the aspects driving the company’s performance.

Factors Driving Deckers’ Performance

Deckers is focusing on product and marketing strategies that are more skewed toward customers. The company is concentrating on expanding its product categories according to the purchasing trends that differs with weather. It is emphasizing on casual boots, winter and weather boots, and casual shoes. Moreover, in order to capture incremental sales and margins, the company is selling directly to wholesale customers.

Also, the company has made substantial investments to strengthen its online presence and improve shopping experience. It is focused on opening smaller concept omni-channel outlets and expanding programs such as Retail Inventory Online; Infinite UGG; Buy Online, Return in Store; and Click and Collect to enhance customers’ shopping experience. These apart, the company’s store fleet optimization plan emphasizes striking the right balance between digital and physical stores.

These efforts, along with impressive growth across UGG, HOKA ONE, ONE and Koolaburra brands, have contributed to the company’s third-quarter fiscal 2019 results. Its top and bottom lines not only surpassed Zacks Consensus Estimate but also improved year over year. This prompted management to raise fiscal 2019 view.

Management anticipates net sales in the band of $1.986-$2.0 billion, up from its prior projection of $1,935-$1,960 million. For fiscal 2019, adjusted earnings are projected in the range of $7.85-$7.95, portraying an improvement over $5.74 reported in fiscal 2018. The company had earlier guided adjusted earnings in the range of $6.65-$6.85 per share.

Near Term Headwinds

For the past few quarters, Deckers has been witnessing soft Sanuk Brand sales. This weakness is likely to persist in fiscal 2019 as well. During the third quarter of fiscal 2019, net sales from the Sanuk brand came in at $12.9 million, down 7% year over year. This follows a decline of 9.4% and 6.6% in the second and first quarter, respectively. Management guided that sales from the Sanuk brand are expected to be down in mid-single digit during fiscal 2019.

Also, the company gave a muted fourth-quarter guidance. Net sales are estimated in the range of $360-$374 million compared with $400.7 million reported in the year-ago period. 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.

Nevertheless, we expect Deckers’ strategic endeavors to address these challenges and help sustain momentum.

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