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Key Factors Setting the Tone for Deckers' (DECK) Q2 Earnings

Zacks Equity Research

Deckers Outdoor Corporation DECK is slated to report second-quarter fiscal 2020 results on Oct 24, after the closing bell. In the last four quarters, this Goleta, CA-based footwear and apparel retailer’s bottom-line has outperformed the Zacks Consensus Estimate by a wide margin. Investors are counting on another beat by Deckers in the to-be-reported quarter. If all goes well, this will be the 11th straight quarter of positive earnings and sales surprise.

The Zacks Consensus Estimate for earnings for the quarter under review is pegged at $2.34. The company had reported earnings of $2.38 per share in the year-ago quarter. We note that the Zacks Consensus Estimate has improved by a couple of cents in the past seven days. The consensus estimate for revenues stands at $531.8 million, suggesting growth of approximately 6% from the year-ago quarter.

In the last earnings call, the company projected second-quarter net sales in the range of $515-$525 million with earnings of $2.15-$2.25 per share.

Key Factors to Note

Deckers has been benefiting from focus on expanding brand assortments, introducing more innovative line of products, targeting consumers digitally through marketing and sturdy e-commerce and optimizing omni-channel distribution. Further, in keeping with the changing scenario, the company has made substantial investments to strengthen online presence and open smaller concept omni-channel outlets. These are anticipated to have had favorably impacted the second-quarter results.

However, we are concerned about Deckers' over-reliance on the UGG brand. In the event of stagnation or decline in UGG sales growth, the company's overall results are likely to be affected. This is because the percentage of contribution from the company’s other brands is probably too minimal to offset any slowdown in UGG sales. Per management, the upside registered in the UGG business during the first quarter is likely to be offset by currency headwinds in the rest of the fiscal year.

We also note that the company has been grappling with falling sales from the Sanuk Brand, a trend that most likely continued in the second quarter. Management expects reductions in the Sanuk domestic wholesale business on account of the decision to exit the warehouse channel. Moreover, headwinds related to currency, freight expense and higher promotional environment cannot be ignored. These might show on margins and in turn the bottom line.

The Zacks Consensus Estimate for sales for UGG brand stands at $398 million for the quarter under review, indicating a marginal increase of roughly 0.4% year over year. The consensus estimates for sales for Sanuk and Teva brands are pegged at $10.6 million and $21.7 million, respectively, compared with $13.8 million and $21.5 million reported in the year-ago period.

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

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Deckers this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Deckers has a Zacks Rank #1 and an Earnings ESP of +3.17%.

3 Stocks With a Favorable Combination

Here are three companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Boot Barn Holdings BOOT has an Earnings ESP of +4.13% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Target TGT has an Earnings ESP of +1.79% and a Zacks Rank #1.

Children's Place PLCE has an Earnings ESP of +17.24% and a Zacks Rank #3.

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