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Deckers (DECK) Q4 Earnings & Sales Beat, FY22 EPS View Up

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Shares of Deckers Outdoor Corporation (DECK - Free Report) jumped nearly 6% in after-hours trading on May 20 following the company’s sturdy fourth-quarter fiscal 2021 results. Both the top and the bottom line outpaced the Zacks Consensus Estimate and also compared favorably with the year-ago quarter’s respective tallies. As a result, management issued encouraging view for fiscal 2022.

Quarterly results were backed by strength in the HOKA ONE ONE and UGG brands as well as solid gains from the direct-to-consumer (DTC) channels. We note that gains from the HOKA ONE ONE brand's innovative products and UGG brand’s unique fashion assortment coupled with robust e-commerce capabilities that drove consumer acquisition and demand creation through disciplined marketplace management were tailwinds.

Growth in brands, strong balance sheet and a stable operating model poise Deckers well for success. Over the long term, management is focused on key drivers including building HOKA to a $1-billion plus brand, driving DTC business toward 50% of its global revenues, scaling international markets and capturing opportunities beyond footwear.

This Goleta, CA-based company’s shares have gained 27.8% in the past six months, outperforming the industry’s 2.5% rise.

Let’s Delve Deeper

Deckers posted quarterly earnings of $1.18 per share, which considerably beat the Zacks Consensus Estimate of 58 cents and also more than doubled the year-ago quarter’s earnings of 57 cents. Higher sales and margins mainly fueled the bottom line.

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

Net sales jumped 49.7% to $561.2 million during the reported quarter and also surpassed the Zacks Consensus Estimate of $438 million. Notably, sales outpaced the Zacks Consensus Estimate for the 17th straight quarter.

On a constant-currency basis, net sales grew 47.9%. The top-line performance was boosted by impressive growth at HOKA ONE ONE and UGG labels. Also, e-commerce growth was outstanding in the quarter.

We note that gross margin expanded 170 basis points (bps) to 53.2% during the quarter, buoyed by an improved full-price selling, a greater proportion of DTC business and gains from foreign currency exchange rates. This upside was, however, offset by an elevated freight and transportation cost.

SG&A expenses rose 38.6% year over year to $244 million due to the variable spend with respect to higher revenues coupled with additional marketing, performance-related compensation and other items. These expenses were partly mitigated by savings from lower travel and retail costs.

Also, the company reported an operating income of $54.6 million, up significantly from $16.7 million recorded in the year-ago quarter. Plus, operating margin rose sharply to 9.7% from 4.5% seen in the year-earlier quarter.

Sales by Geography & Channel

The company’s domestic net sales increased 64.3% to $379.2 million in the reported quarter. International net sales rose 26.2% to $181.9 million. DTC net sales jumped 63% to $235.1 million. Wholesale net sales in the reported quarter surged 41.4% to $326.1 million. DTC comparable sales were up 76.3% year over year.

Brandwise Discussion

UGG brand net sales soared 53.1% to $300.5 million in the reported quarter. HOKA ONE ONE brand net sales surged 74.2% to $177.5 million while Teva brand net sales inched up 1% to $60.2 million. Net sales for the Sanuk brand, known for its exclusive sandals and shoes, came in at $12.1 million, down 8.8% year over year. Net sales for the Other brands, mainly comprising Koolaburra, skyrocketed 178.5% to $10.9 million.

Other Financial Aspects

At the end of the reported quarter, this presently Zacks Rank #3 (Hold) company had cash and cash equivalents of $1,089.4 million and shareholders’ equity of $1,444.2 million. Further, inventories as of Mar 31, 2021 were $278.2 million, down 10.7% year over year. At the end of the reported quarter, there were no outstanding borrowings as the company fully repaid its outstanding mortgage on its corporate headquarters.

During the fiscal fourth quarter, management repurchased nearly 307 thousand shares for $99.1 million. As of Mar 31, 2021, it had $60.7 million available under its stock-repurchase program. Additionally, the company’s board approved an increase of $750 million to its stock repurchase authorization.

Outlook

Following a sturdy quarter, management issued an upbeat sales and earnings guidance for fiscal 2022. It projects net sales growth rate of mid-to-high teens in the $2.950-$3.000 billion range, indicating a rise from $2.546 billion generated in fiscal 2021. Notably, the Zacks Consensus Estimate for fiscal 2022 sales is currently pegged at $2.70 billion.

Brandwise, management expects revenue growth of 40% for HOKA, hence accomplishing $800 million revenues. For UGG, the metric is likely to grow in the high single-digit to low double-digit range on domestic wholesale strength and restoration of international growth.

While Koolaburra revenues are anticipated to improve in the low double-digit range, Teva revenues are projected to increase in the mid-single digit band and Sanuk revenues are likely to remain flat year over year.

Further, gross margin is likely to come in at 53.3%, implying a 70-bps decline from the prior fiscal year’s tally. Higher shipping cost for ocean containers and air usage, adverse product mix on lower price items, inflationary headwinds and potential channel mix challenges might cause this downside.

SG&A expenses as a percentage of sales are envisioned to be 35.5% while operating margin is anticipated to fall in the 17.5-18% band. Capital expenditures are estimated in the range of $65-$70 million,

Earnings per share are forecast in the bracket of $14.05-$14.65, suggesting growth from $13.47 reported last fiscal. This view does not assume the impacts of additional share repurchases. We note that the Zacks Consensus Estimate for fiscal 2022 earnings currently stands at $14.34.

COVID-19 Update

Prompted by the pandemic, the company has been evolving its operations for a while now. It will continue to review expert agency guidelines and information from the 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 $1.1 billion including $626.4 million of cash and $462.6 million under its existing revolving credit facilities.

Management informed that nearly 77% of the company's global stores was open throughout the fiscal fourth quarter. These stores were operating with limited capacity on improved health and safety measures. Deckers continues to anticipate temporary retail store closures across certain geographies for at least some point in the first quarter of fiscal 2022 due to the volatile pandemic conditions.

Further, its distribution center in Moreno Valley, CA 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 due 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 contractions, which are affecting the company’s operations.

During fiscal 2021, the company witnessed some capacity reductions in its sourcing network. Although impacts of such disruptions were mostly mitigated, the company expects possible interruptions ahead.

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