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Deckers (DECK) Beats on Q2 Earnings, Raises FY20 Outlook

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Deckers Outdoor Corporation (DECK - Free Report) continued with its upbeat performance in fiscal 2020. The company’s second-quarter results are the testimony to same. Remarkably, both the top and the bottom lines surpassed the Zacks Consensus Estimate and continued to improve on a year-over-year basis. Impressive performance across HOKA ONE ONE, Teva and Koolaburra brands and strength witnessed in early shipments with respect to the UGG brands’ domestic operations aided the results.

Notably, this was the 11th straight quarter of positive sales and earnings surprises. Apparently, better-than-expected numbers and momentum witnessed in HOKA ONE ONE brand prompted management to lift fiscal 2020 view.

The company remains focused on expanding brand assortments, introducing more innovative line of products, targeting consumers digitally through marketing and sturdy e-commerce, and optimizing omni-channel distribution. All these bode well for the company in the long run. Markedly, shares of this Zacks Rank #1 (Strong Buy) company have increased approximately 34.8% in a year compared with the industry’s growth of 25.7%.

Let’s Delve Deep

This Goleta, CA-based company reported quarterly earnings of $2.71 surpassing the Zacks Consensus Estimate of $2.34. The figure also improved significantly from $2.38 reported in the year-ago period. Higher net sales, improved gross margin, lower tax rate and share repurchase activities aided the bottom line.

Net sales rose 8% to $542.2 million during the reported quarter, following an increase of 10.5% in the preceding quarter. The metric also surpassed the Zacks Consensus Estimate of $531 million. On a constant currency basis, net sales improved 9.5%.

Deckers had earlier guided net sales in the range of $515-$525 million and earnings in the band of $2.15-$2.25 per share for the quarter under review. However, the company went on to report better-than-anticipated results. The quarterly results gained from strong performance across HOKA ONE ONE brand, earlier domestic wholesale shipments for the UGG brand and decent results in both wholesale and direct to consumer channels.

Deckers Outdoor Corporation Price, Consensus and EPS Surprise

 

Deckers Outdoor Corporation Price, Consensus and EPS Surprise

Deckers Outdoor Corporation price-consensus-eps-surprise-chart | Deckers Outdoor Corporation Quote

Gross margin expanded 20 basis points to 50.4% during the quarter under review. The company reported operating income of $97.1 million, up 7.1% year over year. However, operating margin shrunk 20 basis points to 17.9%.

SG&A expense jumped 9.1% year over year to $175.9 million, while as a percentage of net sales SG&A expense increased 30 basis points to 32.4%. Incremental marketing investments resulted in higher SG&A expenses.

Sales by Geography & Channel

The company’s domestic net sales jumped 14.9% to $358 million in the reported quarter. Meanwhile, international net sales fell 3.2% to $184.2 million. Direct-to-Consumer net sales rose 5.1% to $98.7 million. Direct-to-Consumer comparable sales climbed 7.2% year over year. Wholesale net sales in the reported quarter grew 8.7% to $443.5 million.

Brand-wise Discussion

UGG brand net sales increased 2.2% to $404.9 million in the reported quarter. Koolaburra brand global sales surged 41% to $26 million.

HOKA ONE ONE brand net sales soared 49.9% to $78.1 million, while Teva brand net sales increased 6.7% to $23 million. Net sales for the Sanuk brand, known for its exclusive sandals and shoes, came in at $10.7 million, down 22.4% year over year.

Other Financial Aspects

At the end of the quarter, Deckers had cash and cash equivalents of $177.7 million, total short-term borrowings and mortgage payable of $44.2 million and shareholders’ equity of $916.3 million. During the quarter under review, Deckers bought back approximately 1.1 million shares for a total of $155 million. As of Sep 30, 2019, the company had $160 million remaining under share repurchase program.

Guidance

Deckers now anticipates fiscal 2020 net sales to be in the band of $2.115-$2.140 billion, which indicates year-over-year growth of about 5-6%. The Zacks Consensus Estimate for revenues is pegged at $2.13 billion for fiscal 2020. The company had earlier projected net sales between $2.100 billion and $2.125 billion.

The company also forecast adjusted earnings between $8.90 and $9.05 per share, the mid-point of which — $8.975 — is higher than the current Zacks Consensus Estimate of $8.72. Further, the company had delivered adjusted earnings of $8.84 per share in fiscal 2019. Management had previously estimated earnings in the range of $8.40-$8.60 per share.

Deckers anticipates flat to low single-digit sales growth at UGG brand. Management now expects sales from HOKA ONE ONE brand to be up in the mid to high 40% range for the year. Sales at Teva brand is expected to be approximately flat, while at Koolaburra brand the metric is expected to increase in the mid 50% range. This will be offset by reductions in the Sanuk domestic wholesale business on account of the decision to exit the warehouse channel. Sanuk is expected to be down in the 30% range.

Gross margin for the fiscal year is anticipated to be 50.8% compared with 51.5% reported in fiscal 2019. Further, SG&A expense as a percentage of sales is projected to be marginally lower than 36%. Operating margin is envisioned to be 15% compared with 16.2% in fiscal 2019.

For the third quarter, net sales are estimated to be in the range of $885-$900 million compared with $873.8 million reported in the year-ago period. The Zacks Consensus Estimate for revenues is pegged at $908.5 million for the quarter. Management forecasts third-quarter earnings in the band of $6.30-$6.40, the mid-point of which — $6.35 — is above the current Zacks Consensus Estimate of $6.32. The company had reported earnings of $6.59 per share in the prior-year quarter.

Looking for High Performance Stocks

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