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Deckers (DECK) Beats Earnings Estimates in Q4, Guides FY19

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Deckers Outdoor Corporation (DECK - Free Report) delivered better-than-expected fourth-quarter fiscal 2018 results driven by sturdy sales performance across UGG, HOKA ONE ONE, Teva and Sanuk brands. This footwear and apparel retailer reported adjusted earnings of 50 cents a share that beat the Zacks Consensus Estimate of 18 cents for the fifth straight quarter and surged considerably from 11 cents in the year-ago period.

The top line also sustained its winning streak improving 8.4% to $400.7 million during the quarter, following an increase of 6.6% in the preceding quarter. Net sales also came ahead of the Zacks Consensus Estimate of $377.3 million, marking the fifth straight quarter of positive surprise. On a constant currency basis, net sales grew 6.6%.

Deckers in the last quarter had guided net sales in the range of $370-$375 million and envisioned earnings in the range of 15-20 cents per share. Instead, this Goleta, CA-based company went on to post far better results than anticipated. As a result, the stock gained roughly 5% during extended hours trading session yesterday. We noted that shares of this Zacks Rank #3 (Hold) company have increased about 43% in the past six months compared with the industry’s growth of 18%.

Gross margin expanded 500 basis points to 48% driven by fewer closeout sales, improved promotional environment, enhanced supply chain and a favorable channel mix. Adjusted SG&A expenses were $172.5 million up from $153.9 million for the same period last year on account of higher incentive compensation along with increased marketing and sales related expenses.

Adjusted operating income soared to $19.9 million from $5.1 million in the year-ago quarter, while adjusted operating margin increased 360 basis points to 5%.

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. The company anticipates total sales of about $2 billion with operating margin of at least 13% by fiscal 2020.

Deckers Outdoor Corporation Price, Consensus and EPS Surprise

 

Deckers Outdoor Corporation Price, Consensus and EPS Surprise | Deckers Outdoor Corporation Quote


Sales by Geography & Channel

The company’s domestic net sales jumped 8.3% to $249 million in the reported quarter. Meanwhile, international net sales rose 8.7% to $151.7 million.

Direct-to-Consumer (“DTC”) net sales advanced 18.1% to $177.6 million. DTC comparable sales rose 15% year over year. Wholesale net sales in the reported quarter grew 1.8% to $223.1 million.

Brand-wise Discussion

UGG brand net sales increased 6% to $257.5 million in the reported quarter. Net sales for the Sanuk brand, known for its exclusive sandals and shoes, came in at $35.6 million, up 10.3% year over year.

HOKA ONE ONE brand net sales surged 34.1% to $50.4 million, while Teva brand net sales grew 7.3% to $55 million.

Other Financial Aspects

At the end of the quarter, Deckers had cash and cash equivalents of $430 million, total short-term borrowings and mortgage payable of $32.1 million and shareholders’ equity of $940.8 million. Inventories remained almost flat at $299.6 million.

During the quarter under review, Deckers bought back approximately 1.34 million shares of worth $125 million. As of Mar 31, 2018, the company had $251 million remaining under its $400 million share buyback program. Management expects to incur capital expenditures of approximately $35-$40 million during fiscal 2019.

Guidance

Deckers provided an encouraging view for fiscal 2019. Management now anticipates net sales to be in the band of $1,925-$1,950 million, reflecting year-over-year growth of about 2%. The company expects revenues from UGG and Teva brands to be down in low-single digits and high single digits, respectively. Sales from HOKA brand is projected to improve in the mid-20% range, while sales at Sanuk brand is expected to remain flat. DTC comparable sales are also expected to remain flat.

Further, adjusted earnings are projected to be in the range of $6.20-$6.40 per share, which portrays an improvement over $5.74 reported in fiscal 2018. The current Zacks Consensus Estimate for fiscal 2019 is $5.79. Gross margin for the fiscal year is anticipated to be marginally better than 49%. Further, SG&A expense as a percentage of sales is projected to be marginally better than 36.5%. Operating margin is envisioned to be in the range of 12.6-12.8%.

In the first quarter, net sales are estimated to be in the range of $225-$235 million compared with $209.7 million reported in the year-ago period. Management forecasts loss in the range of approximately $1.41-$1.50 compared with loss of $1.28 per share incurred in the prior-year quarter. The current Zacks Consensus Estimate for the quarter is a loss of $1.32.

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