It has been about a month since the last earnings report for Deckers Outdoor Corporation (DECK - Free Report) . Shares have added about 17.6% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is DECK due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Deckers Beats Earnings Estimates in Q4, Guides FY19
Deckers Outdoor Corporation 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.
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.
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.
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.
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. 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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter. In the past month, the consensus estimate has shifted downward by 7.5% due to these changes.
Deckers Outdoor Corporation Price and Consensus
At this time, DECK has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was also allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, DECK has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.