Deckers' Earnings Beat Expectations - Analyst Blog

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Deckers Outdoor Corporation ( DECK ) posted fourth-quarter 2013 earnings of $4.04 per share that surpassed the Zacks Consensus Estimate of $3.81, and surged 45.8% from $2.77 earned in the prior-year quarter. Expanding direct-to-consumer operations, omnichannel strategies, effective inventory management and optimum capital allocation contributed to bottom-line growth.

Despite sturdy results, shares of this Goleta, California based company tumbled approximately 13.8% during aftermarket trading hours yesterday, as management projected loss for the first quarter of 2014 that surprised investors, since analysts were expecting profit per share.

Deckers' total net sales jumped 19.2% year over year to $736 million and came ahead of the Zacks Consensus Estimate of $708 million.

During the quarter, the company's domestic sales grew 14.3% year over year to $510.7 million, while international sales increased 32.1% to $225.3 million. Direct-to-Consumer comparable sales, comprising worldwide retail comparable-store sales and e-Commerce sales, rose 19%.

Rising sheepskin costs has always been a concern for Deckers. In order to safeguard against rising sheepskin costs and other raw materials, the company has undertaken certain long-term programs, which include increasing the mix of non-sheepskin merchandises, new casual footwear materials less prone to the weather, and innovative production technologies. Also, Deckers has developed a new material namely UGG Pure to safeguard against cost fluctuations.

The company is also targeting other profitable markets, and remains focused on product introductions, store augmentation along with geographic expansion. Management is eyeing opportunities for store expansion in Asia, mainly Japan and China.

Segment Discussion

UGG brand net sales rose 18.1% to $690.9 million, primarily due to sales generation from new retail outlets and comparable-store sales growth, rise in global e-Commerce sales, and increase in domestic and international wholesale sales.

Teva brand net sales showed an increase of 13.6% to $15.5 million, reflecting a rise in domestic and international wholesale sales and international distributor sales.

Sales for the Sanuk brand, known for its exclusive sandals and shoes, were $22.2 million, up 45.2% from the year-ago quarter, reflecting increased domestic wholesale sales and higher international distributor sales.

Combined net sales of Deckers' Other brands for the quarter were $7.4 million that surged 110.1% year over year on the back of HOKA ONE ONE brand and Ahnu brand.

Retail Stores sales ascended 31.4% to $178 million, propelled by the opening of 40 new stores after fourth-quarter 2012 and comparable-store sales growth of 6.1%. Deckers witnessed comps growth in the mid-single digit in China, a double-digit increase in Japan, and low single-digit rise in the U.S. and European region.

e-Commerce sales surged 33.9% to $117.3 million, reflecting robust demand of the UGG brand globally, higher domestic sales of Sanuk brand and the inclusion of new international eCommerce websites.

Gross profit climbed 31.5% to $376.2 million from the comparable prior-year quarter, whereas gross margin expanded 480 basis points to 51.1% due to a decline in product costs on account of fall in sheepskin prices. Deckers reported operating income of $201.5 million, up 39.8% from the prior-year period, whereas operating margin increased 410 basis points to 27.4%.

Stores Update

Deckers plans to open 25 stores during 2014. The company currently operates 117 company-owned retail stores, of which 113 are UGG brand stores and the remaining is a mix of Sanuk and Teva brands. The company in the long run remains optimistic of achieving the target of 200 stores.

Other Financial Aspects

Deckers ended the quarter with cash and cash equivalents of $237.1 million, up significantly from $110.2 million in the prior-year quarter. Shareholders' equity was $888.1 million at the end of the quarter. Inventories declined 13.1% year over year to $260.8 million.

Management anticipates capital expenditures of $90 million for 2014. During 2013, the company made capital expenditures of $83.5 million.

2014 Guidance

This Zacks Rank #2 (Buy) stock now projects total revenue growth of 10% for 2014, anticipating an increase of 9% in UGG brand, 5% in Teva brand, 10% in Sanuk brand and sales worth $65 million from other brands. Management now envisions an 8% rise in 2014 earnings per share.

Deckers for the first quarter of 2014 forecasts 6% revenue growth but anticipate a loss of 16 cents a share.

The current Zacks Consensus Estimate for the first quarter and 2014 are 11 cents and $4.79 per share, respectively, and could witness revisions in the coming days.

Other Stocks to Consider

Besides Deckers, other stocks worth considering include Iconix Brand Group, Inc. ( ICON ) carrying a Zacks Rank #1 (Strong Buy) and Francesca's Holdings Corporation ( FRAN ) and Skechers USA Inc. ( SKX ) sporting a Zacks Rank #2 (Buy).



DECKERS OUTDOOR (DECK): Free Stock Analysis Report

FRANCESCAS HLDG (FRAN): Free Stock Analysis Report

ICONIX BRAND GP (ICON): Free Stock Analysis Report

SKECHERS USA-A (SKX): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: DECK , FRAN , ICON , SKX

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