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Why Is Deckers (DECK) Up 19.1% Since the Last Earnings Report?
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A month has gone by since the last earnings report for Deckers Outdoor Corporation (DECK - Free Report) . Shares have added about 19.1% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Deckers Beats Q4 Earnings Estimates
Deckers Outdoor Corporation ended fiscal 2017 on a high note as this footwear and apparel retailer surprised investors by posting profit in the final quarter and beating the Zacks Consensus mark by a wide range. Top line also came ahead of our expectations, after missing the same in the preceding two quarters.
Deckers posted fourth-quarter adjusted earnings of $0.11 per share that surpassed the Zacks Consensus Estimate of loss of $0.06 and also management’s earlier projection of break-even to a loss of $0.10. The quarterly earnings remained flat year over year. The company’s cost containment efforts led to improved bottom-line performance.
Net sales came in at $369.5 million, down 2.4% year over year but beat the Zacks Consensus Estimate of $359 million. The company had earlier anticipated net sales to decline by 5–6% for the quarter under review. On a constant currency basis, net sales declined 1.5%.
Further, the company’s domestic net sales declined 4.3% to $230 million in the reported quarter. On the contrary, international net sales jumped 0.9% to $139.5 million, while on a constant currency basis, the same climbed 4.1%.
Direct-to-consumer (“DTC”) net sales advanced 3% to $150.4 million, while on a constant currency basis, sales increased 4.3%. DTC comparable sales remained flat year over year. Wholesale net sales in the reported quarter decreased 5.8% to $219.1 million, while on a constant currency basis, sales fell 5.2%.
Gross margin expanded 130 basis points to 46.7% due to improved input costs and supply chain optimization, partly offset by foreign currency headwinds.
Deckers is focused on expanding brand assortments, introducing a more innovative line of products, targeting consumers digitally via marketing and sturdy eCommerce along with optimizing omnichannel distribution. The company’s omnichannel endeavors include Click & Collect, Infinite UGG and new UGG Rewards loyalty program.
Moreover, management expects cost savings of about $150 million on the back of improvement in cost of goods sold and SG&A savings, which includes consolidation of retail outlets and process improvement efficiencies. This will help realize $100 million operating profit improvement by fiscal 2020. Management anticipates total sales of about $2 billion with operating margin of 13% by fiscal 2020.
With respect to the store fleet optimization plan that focuses on striking the right balance between digital and physical stores, Deckers plans to close approximately 30 to 40 outlets over the next two years. By fiscal 2020, Deckers expects company-owned fleet of approximately 125 stores worldwide.
Brand-wise Discussion
UGG brand net sales went down 1.1% to $243 million in the reported quarter. On a constant currency basis, sales improved 0.2%. Sales fell owing to lower domestic wholesale sales, partly offset by higher international wholesale and DTC sales.
Teva brand net sales plunged 13.3% to $51.3 million, while on a constant currency basis, the same declined 13.2%. Sales tumbled due to fall in wholesale sales worldwide, partly offset by higher DTC sales.
Net sales for the Sanuk brand, known for its exclusive sandals and shoes, dropped 16.1% year over year to $32.3 million on both a reported and constant currency basis. The decline in sales came on account of lower global wholesale and DTC sales.
Combined net sales of Deckers’ Other brands came in at $42.9 million in the quarter, surging 21.2% year over year. On a constant currency basis, sales were up 22%. The increase in net sales was principally attributable to higher HOKA ONE ONE brand net sales that advanced 32.7%.
Other Financial Aspects
At the end of the quarter, Deckers had cash and cash equivalents of $291.8 million, short-term borrowings of $549,000 and shareholders’ equity of $954.3 million. Inventories edged down 0.4% year over year to $298.9 million. Management projects capital expenditures of approximately $45 million for fiscal 2018 and expects to generate free cash flow of about $150 million.
Guidance
Deckers now expects fiscal 2018 net sales to be flat to down 2% and projects adjusted earnings between $3.95 and $4.15 per share. Gross margin for the fiscal year is anticipated to be 47.5%. Further, SG&A expense as a percentage of sales is anticipated to be nearly 37%.
Management expects UGG brand sales to be down 1–3%; HOKA brand sales to be up approximately 20–25%; Teva brand sales to be up 1–5%, Sanuk brand sales to be down 5–10%, and Koolaburra brand sales to be approximately between $13 million and $16 million.
In the first quarter, net sales are estimated to up low single digits. Management envisions loss per share of approximately $1.70–$1.65 compared with loss of $1.80 delivered in the year-ago period.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter
At this time, Deckers' stock has a nice Growth Score of 'B', a grade with the same score on the momentum front. Following the exact same course, the stock was allocated also a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for value, growth, and momentum investors.
Outlook
While estimates have been trending upward for the stock, the magnitude of these revisions looks promising. It comes with little surprise shares of the company have a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.
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Why Is Deckers (DECK) Up 19.1% Since the Last Earnings Report?
A month has gone by since the last earnings report for Deckers Outdoor Corporation (DECK - Free Report) . Shares have added about 19.1% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Deckers Beats Q4 Earnings Estimates
Deckers Outdoor Corporation ended fiscal 2017 on a high note as this footwear and apparel retailer surprised investors by posting profit in the final quarter and beating the Zacks Consensus mark by a wide range. Top line also came ahead of our expectations, after missing the same in the preceding two quarters.
Deckers posted fourth-quarter adjusted earnings of $0.11 per share that surpassed the Zacks Consensus Estimate of loss of $0.06 and also management’s earlier projection of break-even to a loss of $0.10. The quarterly earnings remained flat year over year. The company’s cost containment efforts led to improved bottom-line performance.
Net sales came in at $369.5 million, down 2.4% year over year but beat the Zacks Consensus Estimate of $359 million. The company had earlier anticipated net sales to decline by 5–6% for the quarter under review. On a constant currency basis, net sales declined 1.5%.
Further, the company’s domestic net sales declined 4.3% to $230 million in the reported quarter. On the contrary, international net sales jumped 0.9% to $139.5 million, while on a constant currency basis, the same climbed 4.1%.
Direct-to-consumer (“DTC”) net sales advanced 3% to $150.4 million, while on a constant currency basis, sales increased 4.3%. DTC comparable sales remained flat year over year. Wholesale net sales in the reported quarter decreased 5.8% to $219.1 million, while on a constant currency basis, sales fell 5.2%.
Gross margin expanded 130 basis points to 46.7% due to improved input costs and supply chain optimization, partly offset by foreign currency headwinds.
Deckers is focused on expanding brand assortments, introducing a more innovative line of products, targeting consumers digitally via marketing and sturdy eCommerce along with optimizing omnichannel distribution. The company’s omnichannel endeavors include Click & Collect, Infinite UGG and new UGG Rewards loyalty program.
Moreover, management expects cost savings of about $150 million on the back of improvement in cost of goods sold and SG&A savings, which includes consolidation of retail outlets and process improvement efficiencies. This will help realize $100 million operating profit improvement by fiscal 2020. Management anticipates total sales of about $2 billion with operating margin of 13% by fiscal 2020.
With respect to the store fleet optimization plan that focuses on striking the right balance between digital and physical stores, Deckers plans to close approximately 30 to 40 outlets over the next two years. By fiscal 2020, Deckers expects company-owned fleet of approximately 125 stores worldwide.
Brand-wise Discussion
UGG brand net sales went down 1.1% to $243 million in the reported quarter. On a constant currency basis, sales improved 0.2%. Sales fell owing to lower domestic wholesale sales, partly offset by higher international wholesale and DTC sales.
Teva brand net sales plunged 13.3% to $51.3 million, while on a constant currency basis, the same declined 13.2%. Sales tumbled due to fall in wholesale sales worldwide, partly offset by higher DTC sales.
Net sales for the Sanuk brand, known for its exclusive sandals and shoes, dropped 16.1% year over year to $32.3 million on both a reported and constant currency basis. The decline in sales came on account of lower global wholesale and DTC sales.
Combined net sales of Deckers’ Other brands came in at $42.9 million in the quarter, surging 21.2% year over year. On a constant currency basis, sales were up 22%. The increase in net sales was principally attributable to higher HOKA ONE ONE brand net sales that advanced 32.7%.
Other Financial Aspects
At the end of the quarter, Deckers had cash and cash equivalents of $291.8 million, short-term borrowings of $549,000 and shareholders’ equity of $954.3 million. Inventories edged down 0.4% year over year to $298.9 million. Management projects capital expenditures of approximately $45 million for fiscal 2018 and expects to generate free cash flow of about $150 million.
Guidance
Deckers now expects fiscal 2018 net sales to be flat to down 2% and projects adjusted earnings between $3.95 and $4.15 per share. Gross margin for the fiscal year is anticipated to be 47.5%. Further, SG&A expense as a percentage of sales is anticipated to be nearly 37%.
Management expects UGG brand sales to be down 1–3%; HOKA brand sales to be up approximately 20–25%; Teva brand sales to be up 1–5%, Sanuk brand sales to be down 5–10%, and Koolaburra brand sales to be approximately between $13 million and $16 million.
In the first quarter, net sales are estimated to up low single digits. Management envisions loss per share of approximately $1.70–$1.65 compared with loss of $1.80 delivered in the year-ago period.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter
Deckers Outdoor Corporation Price and Consensus
Deckers Outdoor Corporation Price and Consensus | Deckers Outdoor Corporation Quote
VGM Scores
At this time, Deckers' stock has a nice Growth Score of 'B', a grade with the same score on the momentum front. Following the exact same course, the stock was allocated also a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for value, growth, and momentum investors.
Outlook
While estimates have been trending upward for the stock, the magnitude of these revisions looks promising. It comes with little surprise shares of the company have a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.