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Deckers Outdoor (DECK) Up 3.2% Since Earnings Report: Can It Continue?
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About a month has gone by since the last earnings report for Deckers Outdoor Corporation (DECK - Free Report) . Shares have added about 3.2% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Deckers Defies Retail Challenges, Tops on Q2 Earnings
It was not UGG but sturdy sales performance across HOKA ONE ONE and Teva brands coupled with lower cost of sales and SG&A expenses that enabled Deckers Outdoor Corporation to post better-than-expected second-quarter fiscal 2018 results. Despite tough retail scenario, this footwear and apparel retailer reported quarterly earnings of $1.54 that beat the Zacks Consensus Estimate of $1.03 and surged 25.2% from the year-ago period.
The top line did feel the pinch of soft sales across UGG and Sanuk brands, and fell 0.7% to $482.5 million during the second quarter, following an increase of 20.3% registered in the preceding quarter. However, net sales came ahead of the Zacks Consensus Estimate of $438 million, marking the third straight quarter of positive surprise. On a constant currency basis, net sales declined 0.3%.
Indeed, the results did surprise investors, who had braced themselves for a dismal show. Deckers in the last quarter had guided a 10% fall in net sales and envisioned earnings in the range of $1.00-$1.05 per share. Instead, this Goleta, CA-based company went on to post far better results than anticipated and also announced that it is no longer pursuing its plan of sale. Following the results, management raised fiscal 2018 view but provided a soft third-quarter outlook.
Gross margin expanded 220 basis points to 46.7%, while SG&A expenses were $157.8 million down from $162.4 million for the same period last year. Adjusted operating income soared 23.5% to $67.8 million, while operating margin increased 280 basis points to 14.1%.
Deckers is focused on expanding brand assortments, introducing more innovative line of products, targeting consumers digitally through marketing and sturdy e-commerce along with optimizing omnichannel distribution. The company’s omnichannel endeavors include Click & Collect, Infinite UGG and ship-from-store.
Management had earlier projected 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. Deckers expects fiscal 2018 operating margin to better than 10.5%.
Sales by Geography & Channel
The company’s domestic net sales fell 3.1% to $302.7 million in the reported quarter. Meanwhile, international net sales jumped 3.5% to $179.8 million.
Direct-to-Consumer (“DTC”) net sales advanced 6.2% to $91.3 million. DTC comparable sales rose 3.7% year over year. Wholesale net sales in the reported quarter fell 2.2% to $391.2 million.
Brand-wise Discussion
UGG brand net sales declined 2.9% to $400.4 million in the reported quarter. Net sales for the Sanuk brand, known for its exclusive sandals and shoes, came in at $15.2 million, down 19.3% year over year.
HOKA ONE ONE brand net sales surged 34.4% to $40.6 million, while Teva brand net sales grew 24.9% to $21.4 million.
Other Financial Aspects
At the end of the quarter, Deckers had cash and cash equivalents of $230.6 million, short-term borrowings of $133.5 million and shareholders’ equity of $968.8 million. Inventories fell 3.9% year over year to $555.6 million. The company’s board of directors announced a new share repurchase program of $335 million, which along with $65 million remaining under current authorization brings the total to $400 million.
Guidance
Deckersraises fiscal 2018 projection. Management now expects net sales to be up approximately 1-2% from last year and envisions adjusted earnings between $4.15 and $4.30 per share, up from $3.82 reported last year. 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%.
Earlier, the company had guided net sales to be flat to down 2% and adjusted earnings in the band of $3.95-$4.15 per share.
Management expects DTC comps to be down low single digits to up low single digits. Domestic wholesale revenue is expected to decline in the low-to-mid single digits, while international wholesale revenue is envisioned to improve in high single digit to low double digits.
In the third quarter, net sales are estimated to be in the range of $735-$745 million down from $760.3 million reported in the year-ago period. The year over year decline in sales is due to the timing of orders from the third quarter into the second.
Management forecasts earnings in the range of approximately $3.65-$3.75 compared with $4.11 per share delivered in the prior-year quarter. The year over year decline in earnings is attributable to higher operating expenses on account of performance-based compensation.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.
VGM Scores
Currently, the stock has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.
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Deckers Outdoor (DECK) Up 3.2% Since Earnings Report: Can It Continue?
About a month has gone by since the last earnings report for Deckers Outdoor Corporation (DECK - Free Report) . Shares have added about 3.2% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Deckers Defies Retail Challenges, Tops on Q2 Earnings
It was not UGG but sturdy sales performance across HOKA ONE ONE and Teva brands coupled with lower cost of sales and SG&A expenses that enabled Deckers Outdoor Corporation to post better-than-expected second-quarter fiscal 2018 results. Despite tough retail scenario, this footwear and apparel retailer reported quarterly earnings of $1.54 that beat the Zacks Consensus Estimate of $1.03 and surged 25.2% from the year-ago period.
The top line did feel the pinch of soft sales across UGG and Sanuk brands, and fell 0.7% to $482.5 million during the second quarter, following an increase of 20.3% registered in the preceding quarter. However, net sales came ahead of the Zacks Consensus Estimate of $438 million, marking the third straight quarter of positive surprise. On a constant currency basis, net sales declined 0.3%.
Indeed, the results did surprise investors, who had braced themselves for a dismal show. Deckers in the last quarter had guided a 10% fall in net sales and envisioned earnings in the range of $1.00-$1.05 per share. Instead, this Goleta, CA-based company went on to post far better results than anticipated and also announced that it is no longer pursuing its plan of sale. Following the results, management raised fiscal 2018 view but provided a soft third-quarter outlook.
Gross margin expanded 220 basis points to 46.7%, while SG&A expenses were $157.8 million down from $162.4 million for the same period last year. Adjusted operating income soared 23.5% to $67.8 million, while operating margin increased 280 basis points to 14.1%.
Deckers is focused on expanding brand assortments, introducing more innovative line of products, targeting consumers digitally through marketing and sturdy e-commerce along with optimizing omnichannel distribution. The company’s omnichannel endeavors include Click & Collect, Infinite UGG and ship-from-store.
Management had earlier projected 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. Deckers expects fiscal 2018 operating margin to better than 10.5%.
Sales by Geography & Channel
The company’s domestic net sales fell 3.1% to $302.7 million in the reported quarter. Meanwhile, international net sales jumped 3.5% to $179.8 million.
Direct-to-Consumer (“DTC”) net sales advanced 6.2% to $91.3 million. DTC comparable sales rose 3.7% year over year. Wholesale net sales in the reported quarter fell 2.2% to $391.2 million.
Brand-wise Discussion
UGG brand net sales declined 2.9% to $400.4 million in the reported quarter. Net sales for the Sanuk brand, known for its exclusive sandals and shoes, came in at $15.2 million, down 19.3% year over year.
HOKA ONE ONE brand net sales surged 34.4% to $40.6 million, while Teva brand net sales grew 24.9% to $21.4 million.
Other Financial Aspects
At the end of the quarter, Deckers had cash and cash equivalents of $230.6 million, short-term borrowings of $133.5 million and shareholders’ equity of $968.8 million. Inventories fell 3.9% year over year to $555.6 million. The company’s board of directors announced a new share repurchase program of $335 million, which along with $65 million remaining under current authorization brings the total to $400 million.
Guidance
Deckersraises fiscal 2018 projection. Management now expects net sales to be up approximately 1-2% from last year and envisions adjusted earnings between $4.15 and $4.30 per share, up from $3.82 reported last year. 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%.
Earlier, the company had guided net sales to be flat to down 2% and adjusted earnings in the band of $3.95-$4.15 per share.
Management expects DTC comps to be down low single digits to up low single digits. Domestic wholesale revenue is expected to decline in the low-to-mid single digits, while international wholesale revenue is envisioned to improve in high single digit to low double digits.
In the third quarter, net sales are estimated to be in the range of $735-$745 million down from $760.3 million reported in the year-ago period. The year over year decline in sales is due to the timing of orders from the third quarter into the second.
Management forecasts earnings in the range of approximately $3.65-$3.75 compared with $4.11 per share delivered in the prior-year quarter. The year over year decline in earnings is attributable to higher operating expenses on account of performance-based compensation.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.
VGM Scores
Currently, the stock has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.