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Deckers (DECK) Beats on Q1 Earnings, Raises Fiscal '22 View

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In spite of macroeconomic headwinds, Deckers Outdoor Corporation (DECK - Free Report) commenced fiscal 2022 on a strong note. This designer, marketer and distributor of footwear, apparel, and accessories posted better-than-expected first-quarter results, wherein both the top and the bottom lines improved meaningfully from the year-ago respective tallies. Impressive performance, prompted management to lift fiscal year view.

Quarterly results were driven by strength in the HOKA ONE ONE, UGG and Teva brands as well as solid gains across direct-to-consumer channels. Acceleration of omni-channel capabilities as well as customer-centric product and marketing strategies helped navigate through challenges.

Let’s Delve Deeper

Deckers posted quarterly earnings of $1.71 per share, which compared favorably with the Zacks Consensus Estimate of loss of 4 cents. The bottom line improved sharply from a loss of 28 cents reported in the year-ago pandemic-hit quarter. Higher sales and margins primarily fueled the bottom line.

Net sales of this Goleta, CA-based company surged 78.2% to $504.7 million during the quarter, and handily beat the Zacks Consensus Estimate of $398.2 million. On a constant currency basis, net sales grew 76.1%. Sturdy top-line performance was driven by the HOKA ONE ONE, UGG and Teva brands.

We note that gross margin expanded 130 basis points to 51.6% during the quarter. SG&A expenses jumped 32.2% year over year to $198.7 million on account of  higher compensation associated to increased warehouse wages, comprising hazard pay, onboarding additional talent to scale the organization and long-term incentive performance compensation.

The company posted an operating income of $61.8 million, against an operating loss of $7.7 million recorded in the year-ago quarter.

Brand Wise Discussion

UGG brand net sales rose 70.8% to $213 million, while HOKA ONE ONE brand net sales increased 95.5% to $213.1 million during the reported quarter. Teva brand net sales grew 65.9% to $58.5 million.

Net sales for the Sanuk brand jumped 13.7% to $15 million. Net sales for the Other brands, mainly comprising Koolaburra, skyrocketed 435.9% to $5 million.

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

Deckers’ domestic net sales soared 82.3% year over year to $336.1 million during the quarter under review. We note that international net sales climbed 70.5% to $168.6 million from the year-ago period.

By channel, wholesale net sales surged 140.2% to $344.3 million. Earlier shipments for UGG coupled with robust demand for spring and summer products across entire portfolio fueled the wholesale business. Direct-to-consumer net sales increased 14.7% to $160.4 million, primarily driven by HOKA ONE ONE brand.

Other Financial Aspects

Cash and cash equivalents stood at $956.7 million as of Jun 30, 2021, compared with $661.9 million as of Jun 30, 2020. The company ended the quarter with total stockholders’ equity of $1,419 million. There were no outstanding borrowings.

During the quarter, the company repurchased about 249 thousand shares for $82.2 million. As of Jun 30, 2021, the company had $728.5 million remaining under its stock repurchase authorization.

A Sneak Peek into Outlook

Deckers raised its outlook for fiscal 2022, highlighting strength in the HOKA ONE ONE and Teva brands. Management now envisions net sales in the range of $3.010-$3.060 billion, up from the prior view of $2.950-$3.000 billion. This current projection suggests a sharp increase of 18-20% from $2.546 billion reported in fiscal 2021.

Brand wise, management anticipates growth rate in the 50% range for HOKA ONE ONE brand with revenues exceeding the $850 million milestone. For UGG, the metric is likely to grow in the high single-digit to low double-digit range. Teva brand revenues are now expected to grow in the high teens range. While Koolaburra revenues are anticipated to improve in the low double-digit range, Sanuk brand revenues are likely to remain flat year over year.

Gross margin is now anticipated to be marginally below 53%. Higher costs related to ocean containers and greater utilization of air freight are likely to exert pressure on gross margin. SG&A expenses, as a percentage of sales, are now projected to be about 35%, with operating margin still expected between 17.5% and 18%.

The company now expects fiscal 2022 earnings to be $14.45-$15.10 per share, up from its earlier guidance of $14.05-$14.65. The current estimate compares favorably with earnings of $13.47 per share reported last fiscal.

Management informed that nearly 66% of the company's global stores were open throughout the first quarter compared with roughly 20% in the prior-year period. Deckers anticipates that temporary retail store closures and operating limitations in certain geographies may continue for at least a portion of the second quarter and potentially beyond, due to the ongoing pandemic.

Wrapping Up

The first-quarter reflects the progress Deckers is making toward attaining long-term goals that include building HOKA ONE ONE, a $1-billion plus brand, elevating UGG as a global lifestyle brand with diverse product offerings round the year, and prioritizing direct-to-consumer acquisition online. The company is striving toward creating a direct-to-consumer business that will represent 50% of total revenues.

Shares of this Zacks Rank #2 (Buy) company have gained 35.9% in the past six months, outperforming the industry’s growth of 23.3%.

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