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Deckers (DECK) Beats on Q2 Earnings & Revenues, Guides Up


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Deckers Outdoor CorporationDECK delivered better-than-expected second-quarter fiscal 2019 results. Management pointed that sustained profitability in the UGG brand along with top-line improvement in the HOKA ONE ONE brand aided quarterly performance. This footwear and apparel retailer reported earnings of $2.38 per share that surpassed the Zacks Consensus Estimate of $1.72 and improved substantially from $1.54 in the prior-year period.

Increased sales, higher gross margin, share buyback activity and lower effective tax rate facilitated bottom-line growth. This was the seventh straight quarter that the company's bottom line has outperformed the consensus mark.

The top line also continues to improve, rising 4% to $501.9 million during the reported quarter, following an increase of 19.5% in the preceding quarter. Net sales also came ahead of the Zacks Consensus Estimate of $496.2 million, marking the seventh successive quarter of positive surprise. On a constant currency basis, net sales grew 3.3%.

HOKA ONE ONE brand contributed primarily to net sales growth, which also benefited from rise in sales across UGG domestic e-commerce, Asia-Pacific wholesale and Koolaburra. These were partly offset by sluggishness in UGG European wholesale sales and fall in retail sales on account of store closures.

Deckers had earlier guided net sales in the range of $485-$495 million and earnings per share in the range of approximately $1.60-$1.70 for the quarter under review. However, this Goleta, CA-based company went on to post far better results than anticipated.

Nevertheless, we note that shares of this Zacks Rank #1 (Strong Buy) company have increased about 17% in the past six months outperforming the industry 's growth of 2%. 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.

Gross margin expanded 350 basis points to 50.2% on the back of cost containment efforts, favorable product mix and improved full-price selling. Adjusted SG&A expenses were $161.2 million up from $157.3 million for the same period last year, while as a percentage of net sales SG&A expenses came in at 32.1% down from 32.6% in the year-ago period.

Adjusted operating income came in at $90.7 million, up 33.7% from the year-ago quarter, while operating margin expanded 400 basis points to 18.1%.

Deckers Outdoor Corporation Price, Consensus and EPS Surprise

Deckers Outdoor Corporation Price, Consensus and EPS Surprise | Deckers Outdoor Corporation Quote



Sales by Geography & Channel

The company's domestic net sales jumped 2.9% to $311.6 million in the reported quarter. Meanwhile, international net sales rose 5.9% to $190.3 million.

Direct-to-Consumer ("DTC") net sales advanced 2.8% to $93.9 million. DTC comparable sales rose 4.8% year over year. Wholesale net sales in the reported quarter grew 4.3% to $408 million.

Brand-wise Discussion

UGG brand net sales fell 1% to $396.3 million in the reported quarter. Net sales for the Sanuk brand, known for its exclusive sandals and shoes, came in at $13.8 million, down 9.4% year over year.

HOKA ONE ONE brand net sales surged 28.4% to $52.1 million, while Teva brand net sales grew 0.6% to $21.5 million.

Other Financial Aspects

At the end of the quarter, Deckers had cash and cash equivalents of $182.2 million, total short-term borrowings and mortgage payable of $102.7 million and shareholders' equity of $846.8 million.

During the quarter under review, Deckers bought back approximately 1.1 million shares of worth $125 million. As of Sep 30, 2018, the company had $116 million remaining under its $400 million share buyback program.

Guidance

Deckers provided an encouraging view for fiscal 2019. Management now anticipates net sales to be in the band of $1,935-$1,960 million, up from its prior projection of $1,930-$1,955 million. Management guided revenues from both UGG and Teva brands to be down in low-single digits, while the Sanuk brand sales is expected to be down in mid-single digit in fiscal 2019. Meanwhile, sales at HOKA ONE ONE brand are projected to be up in the mid to high 30% range.

Further, fiscal 2019 adjusted earnings are projected to be in the range of $6.65-$6.85 per share, portraying an improvement over $5.74 reported in fiscal 2018. The current Zacks Consensus Estimate for fiscal 2019 is $6.45. The company had earlier guided adjusted earnings in the range of $6.25-$6.45 per share.

Gross margin for the fiscal year is anticipated to be about 50%. Further, SG&A expense as a percentage of sales is projected to be marginally better than 37%. Operating margin is envisioned to be in the range of 13-13.2%.

For the third quarter, net sales are estimated to be in the range of $805-$825 million compared with $810.5 million reported in the year-ago period. The Zacks Consensus Estimate for revenues is pegged at $800.3 million for the quarter. Management forecasts earnings of approximately $5.10-$5.25 compared with $4.97 per share in the prior-year quarter. The current Zacks Consensus Estimate for the quarter is $5.21.

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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 Nasdaq, Inc.



This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: DECK , GIII , VFC , COLM



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