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Deckers' Posts Narrower-than-Expected Q2 Loss - Analyst Blog
7/26/2013 10:50:00 AM
Deckers Outdoor Corporation ( DECK ) posted second-quarter 2013 loss of 85 cents a share that fared better than the Zacks Consensus Estimate of a loss of $1.06. Also, this compared favorably with management's guidance of a loss of $1.10 due to lower operational expenses.
However, the quarterly loss widened substantially from a loss of 53 cents a share delivered in the year-ago quarter due to soft sales across the UGG brand and sluggish sales of sandals for the Teva and Sanuk brands.
Deckers' total net sales dropped 2.5% year over year to $170.1 million and fell short of the Zacks Consensus Estimate of $180 million. Management had earlier anticipated revenue to remain flat for the quarter under review.
During the quarter, the company's domestic sales declined 3% year over year to $110.1 million, whereas international sales fell 1.6% to $60 million.
Deckers has been grappling with higher input costs, primarily due to rise in sheepskin costs. In order to safeguard against rising sheepskin costs and other raw materials, Deckers has undertaken certain long-term programs, which include increasing the mix of non-sheepskin merchandises, new casual footwear materials less prone to 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, and to enhance presence in South Korea, Taiwan, Mongolia, Singapore, and Australia.
UGG brand net sales fell 6.9% to $100.4 million, primarily due to a fall in domestic and international wholesale sales, decline in international distributor sales and a decrease in comparable-store sales, partially offset by a rise in worldwide retail sales on account of new store openings and a rise in global eCommerce sales.
Teva brand net sales plunged 8.4% to $31.2 million, reflecting a fall in domestic wholesale sales, partly offset by higher international distributor sales.
Sales for the Sanuk brand, known for its exclusive sandals and shoes, were $30.1 million, up 7.5% from the year-ago quarter, reflecting higher domestic wholesale and eCommerce sales, rise in international distributor sales, and favorable launch of the brand in the wholesale markets of Europe.
Combined net sales of Deckers' Other brands for the quarter were $8.3 million that surged 87% year over year on the back of HOKA ONE ONE brand, acquired in Sep 2012.
Retail Stores sales ascended 29.1% to $32.5 million, propelled by the opening of 36 new stores, partly offset by a 5.3% decline in comparable-store sales.
eCommerce sales soared 34.2% to $10.7 million, reflecting robust demand of the UGG brand in both domestic and international markets. Moreover, inclusion of new international eCommerce websites and higher domestic demand of Sanuk brand bolstered sales.
Gross profit decreased 5.1% to $69.8 million from the comparable prior-year quarter, whereas gross margin contracted 110 basis points to 41.1%. Deckers reported operating loss of $42.8 million compared with the loss of $28.7 million in the year-ago period.
Other Financial Aspects
Deckers ended the quarter with cash and cash equivalents of $49.1 million, down significantly from $114.4 million in the prior-year quarter, while short-term borrowings were $26 million. Shareholders' equity was $718.2 million at the end of the quarter. Inventories grew 4.6% year over year to $362.1 million. The company had borrowings of $26 million under its credit facility.
Management now anticipates capital expenditures between $85 million and $90 million for 2013.
During the quarter, Deckers did not buy back any shares. As of Jun 30, the company has $79 million remaining at its disposal under its $200 million share repurchase authorization declared in Jul 2012.
On the back of robust eCommerce sales trends and more than expected opening of new outlets (36 opened versus 30 planned) Deckers provided an improved outlook for 2013.
This Zacks Rank #3 (Hold) stock now projects total revenue growth of 8% for 2013, anticipating an increase of 7% to 8% in UGG brand sales, flat to marginally down sales at Teva brand, 5% increase in Sanuk brand sales and sales worth $39 million from other brands.
Earlier, the company had forecasted total revenue growth of 7% for 2013 on the back of a 4% jump in UGG brand sales, 6% rise in Teva brand sales, 10% to 13% growth in Sanuk brand sales and sales worth $41 million from other brands.
Management now envisions an 8% rise in 2013 earnings per share, up from 5% predicted earlier.
Deckers now projects third-quarter 2013 revenue to climb 2.5%, while earnings per share are projected to decline 41% year over year. For the fourth quarter, revenue is anticipated to take a leap of 14.5%, whereas earnings per share are forecasted to surge 38% from the year-ago quarter.
Other Stocks to Consider
Until any further upward revision in the Zacks Rank of Deckers, investors may consider other stocks in the same industry that look far more promising. These include Skechers USA Inc. ( SKX ), Wolverine World Wide Inc. ( WWW ) and Brown Shoe Co. Inc. ( BWS ) all portraying a Zacks Rank #1 (Strong Buy).
BROWN SHOE CO (BWS): Free Stock Analysis Report
DECKERS OUTDOOR (DECK): Free Stock Analysis Report
SKECHERS USA-A (SKX): Free Stock Analysis Report
WOLVERINE WORLD (WWW): Free Stock Analysis Report
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