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Strong demand for the UGG brand facilitated Deckers Outdoor Corporation (DECK - Analyst Report) to post first-quarter 2013 earnings of 3 cents a share that fared better than the Zacks Consensus Estimate of a loss of 9 cents and management’s guidance of a loss of 12 cents.

However, the quarterly earnings fell substantially from 20 cents delivered in the year-ago quarter. 

Deckers’ total net sales grew 7.1% year over year to $263.8 million and came ahead of the Zacks Consensus Estimate of $255 million. Management had earlier anticipated revenue to remain flat for the quarter under review.

During the quarter, the company’s domestic sales jumped 7.1% year over year to $182.7 million, whereas international sales climbed 7% to $81.1 million.

Deckers has been grappling with increased inventory and higher input costs, primarily due to rise in sheepskin costs. In order to safeguard against rising sheepskin costs and other raw materials, Deckers has undertaken certain long-term programs, which include increasing the mix of non-sheepskin merchandises, new casual footwear materials less prone to weather, and innovative production technologies. Also, Deckers has developed a new material namely UGG Pure to safeguard against cost fluctuations.

The company is also targeting other profitable markets, and remains focused on product introductions, store augmentation along with geographic expansion. Management is eyeing opportunity for opening about 30 stores in 2013, approximately 67% in Asia, mainly in Japan and China, and the remaining in the U.S. and Europe.

Segment Discussion

UGG brand net sales grew 7.9% to $170.6 million primarily driven by increased worldwide retail sales from new store openings and comparable-store sales growth, coupled with higher global eCommerce sales, partly offset by fall in domestic and international wholesale sales.

Teva brand net sales jumped 3.6% to $51.6 million, reflecting increase in domestic wholesale and international distributor sales, partially offset by a fall in international wholesale sales.

Sales for the Sanuk brand, known for its exclusive sandals and shoes, were $30.9 million, down 4.4% from the year-ago quarter, reflecting lower international distributor sales, partially offset by higher domestic wholesale and eCommerce sales.

Combined net sales of Deckers’ other brands for the quarter were $10.6 million that surged 76.3% year over year on the back of HOKA ONE ONE brand, acquired in Sep 2012.

Retail Stores sales ascended 37.6% to $63.6 million, propelled by the opening of 29 new stores and 6.6% comparable-store sales growth.

eCommerce sales soared 22.6% to $26.6 million, reflecting robust demand of the UGG brand in both domestic and international markets. Moreover, inclusion of new international eCommerce websites and higher domestic demand of Sanuk brand bolstered sales.

Margins

Gross profit increased 9.1% to $123.6 million from the comparable prior-year quarter, whereas gross margin expanded 80 basis points to 46.8%. However, operating income fell to $2.7 million from $11.9 million due to increased selling, general and administrative expenses, whereas operating margin shriveled 380 basis points to 1%.

Other Financial Aspects

Deckers ended the quarter with cash and cash equivalents of $64.6 million, down significantly from $110.2 million in the previous quarter, while short-term borrowings decreased sequentially to $10 million from $33 million. Shareholders’ equity was $744.9 million at the end of the quarter. Inventories surged 23.3% year over year to $257.1 million.

Management reiterated capital expenditures of $85 million for 2013.

During the quarter, Deckers did not buy back any shares. As of Mar 31, the company has $79 million remaining at its disposal under its $200 million share repurchase authorization declared in Jul 2012.

Guidance

This Zacks Rank #3 (Hold) stock continues to project total revenue growth of 7% for 2013, anticipating an increase of 4% in UGG brand sales, 6% in Teva brand sales, 10% to 13% in Sanuk brand sales and sales worth $41 million from other brands. Earlier, the company had forecasted 15% sales growth at Sanuk brand and to generate sales of $40 million from other brands.

Management still envisions a 5% rise in 2013 earnings per share. Deckers also continues to anticipate gross profit margin of 46.5% and an operating margin of 12.5%.

The company typically generates lowers sales during the first half of the year and hence foresees revenue to remain flat in the second quarter of 2013. Moreover, the company expects to post a loss of $1.10 per share in line with the Zacks Consensus Estimate.

Other Stocks to Consider

Until any further upward revision in the Zacks Rank of Deckers, investors may consider other stocks in the same industry that look far more promising. These include Iconix Brand Group, Inc. (ICON - Analyst Report) carrying a Zacks Rank #1 (Strong Buy), and Adidas AG (ADDYY) and Nike Inc. (NKE - Analyst Report) both sporting a Zacks Rank #2 (Buy).

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