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Deckers Crashes on Q3 Earnings & Revenue Miss, Cuts View

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Shares of Deckers Outdoor Corporation (DECK - Free Report) plunged 14.3% during after-market trading hours following disappointing third-quarter fiscal 2015 performance and the subsequent trimming of outlook.

On the one end, quarterly earnings of $4.50 per share missed the Zacks Consensus Estimate by a couple of cents, while on the other, net sales of $784.7 million fell short of the Zacks Consensus Estimate of $811 million. Management pointed out that the sluggish October and November selling period hurt results.

 

However, reduced incentive compensation expense accruals and a lower-than-anticipated effective tax rate provided cushion to the bottom line that surpassed the company’s projection of $4.46 per share and registered year-over-year growth of 11.4%. The company’s top line also increased 6.6%, buoyed by strong demand for its UGG brand, partially offset by the sales decline across its Teva and Sanuk brands.

It should be noted that the sales growth rate missed the company’s forecast of 10%. A strong U.S. dollar and higher wholesale order cancellations also weighed upon the company’s top-line performance. On a constant currency basis, sales jumped 8.2%.

Sales trends remained sturdy across the Direct-to-Consumer division, while Omni-Channel initiatives boosted consumer experience. Stellar eCommerce performance also contributed to sales growth. The company is focusing on opening smaller concept omni-channel outlets and is concentrating on expanding a new tool – Retail Inventory Online – to help customers locate products before they visit the company’s outlets.

During the third quarter, the company’s domestic sales grew 3.1% to $526.3 million while international sales increased 14.6% to $258.4 million. Direct-to-Consumer comparable sales, comprising worldwide retail comparable-store sales (comps) and eCommerce sales, rose 7.6%.

Gross profit climbed 10.4% to $415.1 million from the prior-year quarter, while gross margin expanded 180 basis points (bps) to 52.9%. Deckers reported operating income of $214.6 million, up 6.5% from the year-ago period, whereas operating margin contracted 10 bps to 27.3%. 

Segment Discussion

The UGG brand’s net sales rose 6.5% to $736 million, primarily on an increase in international wholesale and distributor sales, contribution from new retail outlets and a surge in global eCommerce sales. This was partly offset by a decline in domestic wholesale sales and comps.

The Teva brand’s net sales tumbled 12.1% to $13.6 million, reflecting a fall in international wholesale and distributor sales, partly offset by higher domestic wholesale and eCommerce sales worldwide.

Sales for the Sanuk brand, known for its exclusive sandals and shoes, were $20.5 million, down 7.9% from the year-ago quarter. The decrease is attributable to the decline in global wholesale sales and international distributor sales, partly mitigated by higher domestic eCommerce sales and contribution from new retail outlets.

Combined net sales of Deckers’ Other brands for the quarter were $14.6 million that surged 96.5% year over year, primarily on the back of the company’s HOKA ONE ONE brand.

Retail Stores sales advanced 8.3% to $192.7 million, propelled by the opening of 29 new stores after Dec 31, 2013, partly offset by a 7.2% decline in comps.

E-commerce sales surged 25.2% to $146.9 million, reflecting robust demand of the UGG brand globally.

Store Update

Deckers, the designer, producer and brand manager of footwear and accessories, targets to open 30 new outlets during fiscal 2015. There are currently 138 company-owned retail stores.

Other Financial Aspects

Deckers, which competes with Wolverine World Wide Inc. (WWW - Free Report) , ended the quarter with cash and cash equivalents of $369.4 million, short-term borrowings of $5.4 million, and shareholders’ equity of $1,033.2 million. Inventories jumped 12.7% year over year to $293.9 million.

During the quarter, Deckers bought back approximately 157,000 shares at a price of $84.69 per share, aggregating $13.3 million. As of Dec 31, 2014, the company still had $66 million remaining under its share repurchase authorization of $200 million announced in Jul 2012. The company’s Board of Directors also approved an additional $200 million stock repurchase authorization.

Guidance

Following lower-than-expected results, management cuts its full-year forecast. This Zacks Rank #3 (Hold) stock now projects total revenue growth of 13.5% to $1.8 billion for fiscal 2015, down from 15% forecasted earlier. Also, the company anticipates sales growth of 11% at the UGG brand (down from the previous projection of a 14% rise), low double-digits growth at both the Teva and Sanuk brands, and sales worth $83 million from Other brands, up from $82 million projected earlier.

Management now projects earnings for the fiscal year to rise 12.6% to $4.58 per share – down from a 15.8% jump predicted earlier – taking into account an estimated gross profit margin of approximately 49% and an operating margin of about 12.5%.

For the fourth quarter of fiscal 2015, Deckers continues to forecast 10% revenue growth. However, management now projects breakeven results for the quarter as against its earlier forecast of earnings per share of 15 cents due to gross margin pressure on account of foreign currency exchange rates.

For fiscal 2016, management now anticipates revenues to increase approximately in high single digits, while earnings per share are projected to grow at a marginally higher rate than revenues, either at or near 10%. Gross margin is expected to contract approximately 30 bps due to foreign currency exchange rate pressures.

Other Stocks to Consider

Other favorably ranked stocks in the retail sector include Shoe Carnival Inc. (SCVL - Free Report) , sporting a Zacks Rank #1 (Strong Buy) and Skechers USA Inc. (SKX - Free Report) , carrying a Zacks Rank #2 (Buy).



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