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Deckers (DECK) Earnings & Sales Beat Q3 Estimates, Rise Y/Y

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Deckers Outdoor Corporation (DECK - Free Report) posted sturdy third-quarter fiscal 2021 results. Both the top and the bottom line outpaced the Zacks Consensus Estimate and compared favorably with the year-ago quarter’s respective tallies.

Quarterly results were backed by demand across the UGG brand and strength in global expansion of the HOKA ONE ONE brand. Moreover, compelling and innovative product launches and gains from e-commerce channel that boosted awareness and customer acquisition were tailwinds. Strength in the company’s brands, strong balance sheet and stable operating model poise Deckers well for success. Going ahead, the company is now shifting focus toward improving brand heat and customer attention for the spring and summer seasons.

This Goleta, CA-based company’s shares have gained 53.4% in the past six months, outperforming the industry’s 38.2% rally.

Let’s Delve Deeper

Deckers posted quarterly earnings of $8.99 per share, which beat the Zacks Consensus Estimate of $7.01 and increased 25.9% from the year-ago quarter’s earnings of $7.14. The bottom line benefited from higher revenue volume from the UGG and HOKA brands, increased proportion of full-priced UGG revenues and a higher mix of direct-to-consumer (DTC) revenues. Also, favorable currency rates and SG&A leverage were tailwinds. These were partly offset by higher expenditure on marketing, warehouse and performance-based compensation along with the mixed impacts of a higher tax rate and share count.

Net sales rose 14.8% to $1,077.8 million during the reported quarter and also surpassed the Zacks Consensus Estimate of $965 million. Notably, sales outpaced the Zacks Consensus Estimate for the 16th straight quarter. On a constant-currency basis, net sales grew 13.8%. The top-line performance was boosted by delivering relevant and compelling product as well as focusing execution to optimize demand via the direct-to-consumer channels. Also, e-commerce growth was outstanding in the quarter.

We note that gross margin expanded 290 basis points (bps) to 57% during the quarter, driven by a favorable channel mix, strong full-price selling environment of UGG brand and gains from favorable exchange rates.

SG&A expenses rose 13.2% year over year to $285.2 million owing to the variable marketing, warehouse and logistic expenses, and performance-based compensation. These were somewhat offset by savings from lower travel and retail costs. Furthermore, the company reported operating income of $328.7 million, up 28.5% from the year-ago quarter. Also, operating margin expanded 270 bps to 20.6% in the reported quarter.

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

Sales by Geography & Channel

The company’s domestic net sales increased 19.3% to $770.5 million in the reported quarter. Meanwhile, international net sales rose 4.8% to $307.2 million. DTC net sales jumped 25.7% to $519.9 million. Wholesale net sales in the reported quarter edged up 6.2% to $557.9 million. Further, DTC comparable sales were up 33.8% year over year.

Brand-wise Discussion

UGG brand net sales jumped 12.2% to $876.8 million in the reported quarter. HOKA ONE ONE brand net sales surged 52.1% to $141.6 million, while Teva brand net sales declined 8.7% to $15.7 million. Net sales for the Sanuk brand, known for its exclusive sandals and shoes, came in at $7 million, down 17.3% year over year. For the other brands, mainly composed of Koolaburra, net sales fell 5.5% to $36.7 million.

Other Financial Aspects

At the end of the reported quarter, this Zacks Rank #2 (Buy) company had cash and cash equivalents of $1,156.6 million, outstanding borrowings of $30.4 million and shareholders’ equity of $1,243 million. Further, inventories as of Dec 31, 2020, were $305.3 million, down 16.6% year over year.

During the fiscal third quarter, management did not buy back shares. As of Dec 31, 2020, it had $160 million available under its stock-repurchase program.

COVID-19 Update

With respect to the pandemic, the company has been evolving its operations. It will continue to review expert agency guidelines and information from local authorities, while assessing the scope of operations and allocation of resources to maneuver this unprecedented environment. As of Sep 30, 2020, Deckers had a liquidity of about $1.1 billion, including $626.4 million of cash and $462.6 million under its existing revolving-credit facilities.

Management informed that nearly 75% of the company's global stores were open throughout the fiscal third quarter. These stores were operating with limited capacity on enhanced health and safety measures. Deckers anticipates temporary retail store closures across certain geographies for at least some point in the fiscal fourth quarter owing to the volatile pandemic-induced conditions. Further, its distribution center in Moreno Valley, California, and other third-party distribution facilities that the company leverages to service operations are presently operating and supporting logistics. However, these facilities may continue operating at limited capacity owing to safety protocols.

Moreover, management expects operational headwinds like capacity constraints and elevated costs with respect to warehouse employee safety and payroll costs. Also, the company’s third-party logistics providers are witnessing capacity constraints, which are affecting the company’s operations. During the reported quarter, the company witnessed some capacity constraints in its sourcing network apart from disruptions associated with travel limitations. Although impacts of such disruptions have been mitigated, the company expects possible disruptions ahead.

A Few More Solid Picks

Steven Madden (SHOO - Free Report) has delivered an earnings surprise of 18.4% in the last four quarters, on average. The company currently has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Crocs (CROX - Free Report) , also a Zacks Rank #1 stock, has an earnings surprise of 191.7% for the last four quarters, on average.

PVH Corp (PVH - Free Report) has an average earnings surprise of 123.1% for the trailing four quarters and flaunts a Zacks Rank #1.

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