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Deckers (DECK) Up 19.1% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Deckers (DECK - Free Report) . Shares have added about 19.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Deckers due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Deckers Q4 Earnings & Sales Beat Estimates

Deckers Outdoor Corporation posted better-than-expected fourth-quarter fiscal 2019 results. Impressive performance across HOKA ONE ONE and Koolaburra brands aided the quarterly results. This was the ninth straight quarter of positive sales and earnings surprises. However, we note that while earnings per shares surged year over year, net sales declined from the year-ago period.

Let’s Delve Deep

This Goleta, CA-based company reported adjusted earnings of 85 cents a share that crushed the Zacks Consensus Estimate of 10 cents and improved substantially from 50 cents reported in the prior-year period. Improved margins, additional cost savings, early shipment of spring wholesale order, and higher sales related to domestic e-commerce in the UGG brand facilitated the bottom line.

The top line fell 1.6% to $394.1 million during the reported quarter, following an increase of 7.8% in the preceding quarter. Fall in net sales was primarily owing to retail store closures. However, net sales came ahead of the Zacks Consensus Estimate of $377.4 million. On a constant currency basis, net sales declined 1.3%.

Deckers had earlier guided net sales in the range of $360-$374 million and earnings per share in the range of approximately break-even to 10 cents for the quarter under review. However, the company went on to report better-than-expected results. Earlier than expected wholesale shipments in the UGG brand led to better-than-anticipated net sales, which also benefited from delivery of spring summer product into the marketplace before time and higher domestic e-commerce sales for the UGG brand.

Gross margin expanded 360 basis points to 51.6% on the back of improved full-price selling and supply chain efficiencies. Adjusted SG&A expenses were $170.4 million, down 1.2% from the same period last year, while as a percentage of net sales adjusted SG&A expenses came in at 43.2% marginally up from 43.1% in the year-ago period. Adjusted operating income came in at $32.9 million, up significantly from $19.9 million in the year-ago quarter, while operating margin expanded 330 basis points to 8.3%.

Sales by Geography & Channel

The company’s domestic net sales jumped 1.2% to $252 million in the reported quarter. Meanwhile, international net sales declined 6.3% to $142.1 million. Direct-to-Consumer net sales declined 11.8% to $156.6 million. Direct-to-Consumer comparable sales dipped 0.5% year over year. Wholesale net sales in the reported quarter grew 6.4% to $237.5 million.

Brand-wise Discussion

UGG brand net sales fell 7.2% to $239 million in the reported quarter. Net sales for the Sanuk brand, known for its exclusive sandals and shoes, came in at $31.5 million, down 11.7% year over year. HOKA ONE ONE brand net sales soared 33.2% to $67.1 million, while Teva brand net sales decreased 3.8% to $52.9 million. Koolaburra in the quarter under review grew 67% to $3.6 million.

Other Financial Aspects

At the end of the quarter, Deckers had cash and cash equivalents of $589.7 million, total short-term borrowings and mortgage payable of $31.5 million and shareholders’ equity of $1,045.1 million. During the quarter under review, Deckers did not buy back any shares and has $350 million, as of Mar 31, 2019, remaining under share repurchase authorization. Management anticipates capital expenditures in the range of $35-$40 million for fiscal 2020.

FY20 Guidance

Deckers now anticipates fiscal 2020 net sales to be in the band of $2.095-$2.120 billion, which reflects year-over-year increase of 4-5%. The company also forecast adjusted earnings between $8.20 and $8.40 per share. Further, the company had delivered adjusted earnings of $8.84 per share in fiscal 2019. Management guided revenues from UGG brand to be up low-single digit and sales from Teva brand to be roughly flat. Sanuk brand sales are also expected to be roughly flat. Meanwhile, sales at HOKA ONE ONE brand are projected to be up in mid-20% range.

Gross margin for the fiscal year is anticipated to be in the range of 50-50.5% compared with 51.5% reported in fiscal 2019. Further, SG&A expense as a percentage of sales is projected to be at or marginally better than 36%. Operating margin is envisioned to be in the range of 14.2-14.5% compared with 16.2% in fiscal 2019.

For first-quarter fiscal 2020, net sales are estimated to be in the range of $250-$260 million compared with $250.6 million reported in the year-ago period. Management forecasts first-quarter bottom-line loss of $1.15-$1.25. The company had reported a loss of 98 cents a share in the prior-year quarter.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -20.21% due to these changes.

VGM Scores

Currently, Deckers has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Deckers has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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