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Deckers (DECK) Defies Retail Challenges, Tops on Q2 Earnings
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It was not UGG but sturdy sales performance across HOKA ONE ONE and Teva brands coupled with lower cost of sales and SG&A expenses that enabled Deckers Outdoor Corporation (DECK - Free Report) to post better-than-expected second-quarter fiscal 2018 results. Despite tough retail scenario, this footwear and apparel retailer reported quarterly earnings of $1.54 that beat the Zacks Consensus Estimate of $1.03 and surged 25.2% from the year-ago period.
The top line did feel the pinch of soft sales across UGG and Sanuk brands, and fell 0.7% to $482.5 million during the second quarter, following an increase of 20.3% registered in the preceding quarter. However, net sales came ahead of the Zacks Consensus Estimate of $438 million, marking the third straight quarter of positive surprise. On a constant currency basis, net sales declined 0.3%.
Indeed, the results did surprise investors, who had braced themselves for a dismal show. Deckers in the last quarter had guided a 10% fall in net sales and envisioned earnings in the range of $1.00-$1.05 per share. Instead, this Goleta, CA-based company went on to post far better results than anticipated and also announced that it is no longer pursuing its plan of sale.
Following the results, management raised fiscal 2018 view but provided a soft third-quarter outlook. Market experts believe that this might be one of the reasons behind stock’s muted performance during after-market trading hours yesterday. Despite stronger-than-expected results, shares fell 1.3% during extended hours trading session. Nevertheless, we noted that shares of this Zacks Rank #2 (Buy) company have increased about 26.6% so far in the year compared with the industry’s gain of 12.1%.
Gross margin expanded 220 basis points to 46.7%, while SG&A expenses were $157.8 million down from $162.4 million for the same period last year. Adjusted operating income soared 23.5% to $67.8 million, while operating margin increased 280 basis points to 14.1%.
Deckers is focused on expanding brand assortments, introducing more innovative line of products, targeting consumers digitally through marketing and sturdy e-commerce along with optimizing omnichannel distribution. The company’s omnichannel endeavors include Click & Collect, Infinite UGG and ship-from-store.
Management had earlier projected cost savings of about $150 million on the back of improvement in cost of goods sold and SG&A savings, which includes consolidation of retail outlets and process improvement efficiencies. This will help realize $100 million operating profit improvement by fiscal 2020. Management anticipates total sales of about $2 billion with operating margin of 13% by fiscal 2020.
Sales by Geography & Channel
The company’s domestic net sales fell 3.1% to $302.7 million in the reported quarter. Meanwhile, international net sales jumped 3.5% to $179.8 million.
Direct-to-Consumer (“DTC”) net sales advanced 6.2% to $91.3 million. DTC comparable sales rose 3.7% year over year. Wholesale net sales in the reported quarter fell 2.2% to $391.2 million.
Brand-wise Discussion
UGG brand net sales declined 2.9% to $400.4 million in the reported quarter. Net sales for the Sanuk brand, known for its exclusive sandals and shoes, came in at $15.2 million, down 19.3% year over year.
HOKA ONE ONE brand net sales surged 34.4% to $40.6 million, while Teva brand net sales grew 24.9% to $21.4 million.
Other Financial Aspects
At the end of the quarter, Deckers had cash and cash equivalents of $230.6 million, short-term borrowings of $133.5 million and shareholders’ equity of $968.8 million. Inventories fell 3.9% year over year to $555.6 million. The company’s board of directors announced a new share repurchase program of $335 million, which along with $65 million remaining under current authorization brings the total to $400 million.
Guidance
Deckers raises fiscal 2018 projection. Management now expects net sales to be up approximately 1-2% from last year and envisions adjusted earnings between $4.15 and $4.30 per share, up from $3.82 reported last year. The current Zacks Consensus Estimate for the fiscal is $4.12. Gross margin for the fiscal year is anticipated to be 47.5%. Further, SG&A expense as a percentage of sales is anticipated to be nearly 37%.
Earlier, the company had guided net sales to be flat to down 2% and adjusted earnings in the band of $3.95-$4.15 per share.
In the third quarter, net sales are estimated to be in the range of $735-$745 million down from $760.3 million reported in the year-ago period. Analysts polled by Zacks expect revenues of $752.3 million for the quarter.
Management forecasts earnings in the range of approximately $3.65-$3.75 compared with $4.11 per share delivered in the prior-year quarter. The current Zacks Consensus Estimate for the quarter is $4.11, which could witness a downward revision in the coming days.
3 Hot Stocks Awaiting Your Look
G-III Apparel Group, Ltd. (GIII - Free Report) delivered an average positive earnings surprise of 3.5% in the trailing four quarters and has a long-term earnings growth rate of 15%. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
PVH Corp. (PVH - Free Report) delivered an average positive earnings surprise of 3.6% in the trailing four quarters and has a long-term earnings growth rate of 13.1%. The company carries a Zacks Rank #2.
Best Buy Co., Inc. (BBY - Free Report) delivered an average positive earnings surprise of 27.2% in the trailing four quarters and has a long-term earnings growth rate of 12.4%.The company carries a Zacks Rank #2.
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Deckers (DECK) Defies Retail Challenges, Tops on Q2 Earnings
It was not UGG but sturdy sales performance across HOKA ONE ONE and Teva brands coupled with lower cost of sales and SG&A expenses that enabled Deckers Outdoor Corporation (DECK - Free Report) to post better-than-expected second-quarter fiscal 2018 results. Despite tough retail scenario, this footwear and apparel retailer reported quarterly earnings of $1.54 that beat the Zacks Consensus Estimate of $1.03 and surged 25.2% from the year-ago period.
The top line did feel the pinch of soft sales across UGG and Sanuk brands, and fell 0.7% to $482.5 million during the second quarter, following an increase of 20.3% registered in the preceding quarter. However, net sales came ahead of the Zacks Consensus Estimate of $438 million, marking the third straight quarter of positive surprise. On a constant currency basis, net sales declined 0.3%.
Indeed, the results did surprise investors, who had braced themselves for a dismal show. Deckers in the last quarter had guided a 10% fall in net sales and envisioned earnings in the range of $1.00-$1.05 per share. Instead, this Goleta, CA-based company went on to post far better results than anticipated and also announced that it is no longer pursuing its plan of sale.
Following the results, management raised fiscal 2018 view but provided a soft third-quarter outlook. Market experts believe that this might be one of the reasons behind stock’s muted performance during after-market trading hours yesterday. Despite stronger-than-expected results, shares fell 1.3% during extended hours trading session. Nevertheless, we noted that shares of this Zacks Rank #2 (Buy) company have increased about 26.6% so far in the year compared with the industry’s gain of 12.1%.
Gross margin expanded 220 basis points to 46.7%, while SG&A expenses were $157.8 million down from $162.4 million for the same period last year. Adjusted operating income soared 23.5% to $67.8 million, while operating margin increased 280 basis points to 14.1%.
Deckers is focused on expanding brand assortments, introducing more innovative line of products, targeting consumers digitally through marketing and sturdy e-commerce along with optimizing omnichannel distribution. The company’s omnichannel endeavors include Click & Collect, Infinite UGG and ship-from-store.
Management had earlier projected cost savings of about $150 million on the back of improvement in cost of goods sold and SG&A savings, which includes consolidation of retail outlets and process improvement efficiencies. This will help realize $100 million operating profit improvement by fiscal 2020. Management anticipates total sales of about $2 billion with operating margin of 13% by fiscal 2020.
Sales by Geography & Channel
The company’s domestic net sales fell 3.1% to $302.7 million in the reported quarter. Meanwhile, international net sales jumped 3.5% to $179.8 million.
Direct-to-Consumer (“DTC”) net sales advanced 6.2% to $91.3 million. DTC comparable sales rose 3.7% year over year. Wholesale net sales in the reported quarter fell 2.2% to $391.2 million.
Brand-wise Discussion
UGG brand net sales declined 2.9% to $400.4 million in the reported quarter. Net sales for the Sanuk brand, known for its exclusive sandals and shoes, came in at $15.2 million, down 19.3% year over year.
HOKA ONE ONE brand net sales surged 34.4% to $40.6 million, while Teva brand net sales grew 24.9% to $21.4 million.
Other Financial Aspects
At the end of the quarter, Deckers had cash and cash equivalents of $230.6 million, short-term borrowings of $133.5 million and shareholders’ equity of $968.8 million. Inventories fell 3.9% year over year to $555.6 million. The company’s board of directors announced a new share repurchase program of $335 million, which along with $65 million remaining under current authorization brings the total to $400 million.
Guidance
Deckers raises fiscal 2018 projection. Management now expects net sales to be up approximately 1-2% from last year and envisions adjusted earnings between $4.15 and $4.30 per share, up from $3.82 reported last year. The current Zacks Consensus Estimate for the fiscal is $4.12. Gross margin for the fiscal year is anticipated to be 47.5%. Further, SG&A expense as a percentage of sales is anticipated to be nearly 37%.
Earlier, the company had guided net sales to be flat to down 2% and adjusted earnings in the band of $3.95-$4.15 per share.
In the third quarter, net sales are estimated to be in the range of $735-$745 million down from $760.3 million reported in the year-ago period. Analysts polled by Zacks expect revenues of $752.3 million for the quarter.
Management forecasts earnings in the range of approximately $3.65-$3.75 compared with $4.11 per share delivered in the prior-year quarter. The current Zacks Consensus Estimate for the quarter is $4.11, which could witness a downward revision in the coming days.
3 Hot Stocks Awaiting Your Look
G-III Apparel Group, Ltd. (GIII - Free Report) delivered an average positive earnings surprise of 3.5% in the trailing four quarters and has a long-term earnings growth rate of 15%. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
PVH Corp. (PVH - Free Report) delivered an average positive earnings surprise of 3.6% in the trailing four quarters and has a long-term earnings growth rate of 13.1%. The company carries a Zacks Rank #2.
Best Buy Co., Inc. (BBY - Free Report) delivered an average positive earnings surprise of 27.2% in the trailing four quarters and has a long-term earnings growth rate of 12.4%.The company carries a Zacks Rank #2.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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