Sturdy sales performance across UGG, HOKA ONE ONE and Teva brands enabled Deckers Outdoor Corporation (DECK - Free Report) to deliver better-than-expected third-quarter fiscal 2018 results. This footwear and apparel retailer reported quarterly earnings of $4.97 that beat the Zacks Consensus Estimate of $3.84 and surged approximately 21% from the year-ago period. Encouraging retail scenario and favorable weather conditions along with latest tax reform and improved margins as well as share repurchases aided the results.
The top line improved 6.6% to $810.5 million during the quarter, following a decline of 0.7% registered in the preceding quarter. Net sales also came ahead of the Zacks Consensus Estimate of $750.2 million, marking the fourth straight quarter of positive surprise. On a constant currency basis, net sales grew 6.3%.
Deckers in the last quarter had guided net sales in the range of $735-$745 million and envisioned earnings in the range of $3.65-$3.75 per share. Instead, this Goleta, CA-based company went on to post far better results than anticipated and raised fiscal 2018 view. As a result, the stock gained 8.1% during extended hours trading session yesterday. We noted that shares of this Zacks Rank #3 (Hold) company have increased about 87.2% in a year compared with the industry’s growth of 30.8%.
Gross margin expanded 170 basis points to 52.2%, while adjusted SG&A expenses were $220.4 million up from $201.4 million for the same period last year. Adjusted operating income soared 11.5% to $203.1 million, while adjusted operating margin increased 110 basis points to 25.1%.
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 omni-channel distribution.
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 at least 13% by fiscal 2020.
Sales by Geography & Channel
The company’s domestic net sales jumped 2.5% to $501.7 million in the reported quarter. Meanwhile, international net sales soared 14% to $308.8 million.
Direct-to-Consumer (“DTC”) net sales advanced 2.7% to $381.7 million. DTC comparable sales rose 1.7% year over year. Wholesale net sales in the reported quarter grew 10.3% to $428.8 million.
UGG brand net sales increased 4.3% to $734.7 million in the reported quarter. Net sales for the Sanuk brand, known for its exclusive sandals and shoes, came in at $13.9 million, flat year over year.
HOKA ONE ONE brand net sales surged 65.7% to $31.8 million, while Teva brand net sales grew 33.4% to $19.5 million.
Other Financial Aspects
At the end of the quarter, Deckers had cash and cash equivalents of $493 million, total short-term borrowings and mortgage payable of $32.2 million and shareholders’ equity of $1,032.9 million. Inventories increased 6.1% year over year to $396.3 million.
During the quarter under review, Deckers bought back approximately 361,000 shares of worth $24.7 million. As of Dec 31, 2017, the company had $375.6 million remaining under its $400 million share buyback program. The company plans to repurchase roughly $75 million worth of shares before the conclusion of fiscal 2018.
Deckers raises fiscal 2018 projection. Management now expects net sales to be in the band of $1,873-$1,878 million and envisions adjusted earnings in the range of $5.37-5.42 per share, up from $3.82 reported last year. The current Zacks Consensus Estimate for the fiscal is $4.37. Gross margin for the fiscal year is anticipated to be 49%. Further, SG&A expense as a percentage of sales is anticipated to be nearly 37%. The company stated that it plans to repatriate $250 million of international cash by the end of the fiscal year.
Earlier, the company had guided net sales to be up approximately 1-2% and adjusted earnings between $4.15 and $4.30 per share.
In the fourth quarter, net sales are estimated to be in the range of $370-$375 million compared with $369.5 million reported in the year-ago period. Management forecasts earnings in the range of approximately 15-20 cents compared with 11 cents a share delivered in the prior-year quarter. The current Zacks Consensus Estimate for the quarter is 24 cents.
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