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Deckers (DECK) Tops Q2 Earnings, Lags Revenue Estimates

Deckers Outdoor CorporationDECK continued with its better-than-expected bottom-line performance for the sixth straight quarter, as it reported second-quarter fiscal 2017 results. This footwear and apparel company posted adjusted earnings of $1.23 per share that beat the Zacks Consensus Estimate of $1.19 and also came ahead of management's earlier projection of $1.12−$1.22 per share for the quarter. The quarterly earnings increased 10.8% year over year.

Net sales of this Goleta, CA-based company came in at $485.9 million, down 0.2% year over year, and also short of the Zacks Consensus Estimate of $498.6 million, after surpassing the same in the preceding two quarters. The company had earlier anticipated net sales growth of 1−3% for the quarter under review. The lower-than-expected top line stemmed from a delay in shipments. On a constant currency basis, net sales inched up 0.3%.

Further, the company's domestic net sales increased 3.6% to $312.2 million in the reported quarter. On the other hand, international net sales slumped 6.3% to $173.7 million, while on a constant currency basis, the same declined 5.1%.

Direct-to-consumer (DTC) net sales edged down 0.7% to $86 million, while on a constant currency basis, sales fell 1%. DTC comparable sales slipped 3.2% year over year. On the other hand, Wholesale and distributor net sales in the reported quarter decreased marginally by 0.1% to $399.9 million, while on a constant currency basis, sales grew 0.6%.

Gross margin expanded 50 basis points to 44.5% due to improved input costs.

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Deckers is focused on expanding its brand assortments, introducing a more innovative line of products such as the launch of the Arrowood collection of sneaker boots, targeting consumers digitally via marketing and sturdy eCommerce along with optimizing omnichannel distribution.

Management hinted that the company's outlets are also witnessing lower traffic. With respect to the store fleet optimization plan that focuses on striking the right balance between digital and physical stores, during the quarter Deckers shuttered one of the approximately 21 outlets identified for closure during fiscal 2017. The company has closed seven stores in first-half fiscal 2017.

Brand-wise Discussion

UGG brand net sales went down 2.1% to $412.2 million in the reported quarter. On a constant currency basis, sales declined 1.6%. Sales fell due to lower European combined wholesale and distributor sales on account of delay in European shipments now deferred to the third quarter, and a fall in DTC comparable sales.

Teva brand net sales decreased 4.2% to $17.1 million, while on a constant currency basis, the same declined 4.8%. The fall in sales was owing to a decline in domestic wholesale sales.

Net sales for the Sanuk brand, known for its exclusive sandals and shoes, climbed 9.2% year over year to $18.9 million. On a constant currency basis, sales jumped 9%. The increase in sales came on the back of higher global wholesale and distributor sales.

Combined net sales of Deckers' Other brands came in at $37.7 million in the quarter, surging 23.3% year over year. On a constant currency basis, sales were up 23.9%. The increase in net sales was principally attributable to higher HOKA ONE ONE brand net sales that advanced 39%.

Other Financial Aspects

At the end of the quarter, Deckers had cash and cash equivalents of $110 million, short-term borrowings of $278 million and shareholders' equity of $957.3 million. Inventories declined 2.9% year over year to $578 million.

During the quarter, Deckers did not buy back any shares. As of Sep 30, 2016, the company had $77.9 million at its disposal under its $200 million share repurchase authorization announced in Jan 2015.

DECKERS OUTDOOR Price and EPS Surprise

DECKERS OUTDOOR Price and EPS Surprise | DECKERS OUTDOOR Quote

Guidance

Amid a challenging retail environment, management trimmed its fiscal 2017 outlook. Deckers now expects net sales to decline in the band of 1.5-3% and projects earnings between $4.05 and $4.25 per share. The company had earlier forecast net sales to be flat to down 3% and earnings in the range of $4.05−$4.40 for fiscal 2017.

Gross margin for the fiscal year is anticipated to be in the range of 47−47.5%. Further, SG&A expense as a percentage of sales is expected to be nearly 37%.

In the third quarter, net sales are estimated to be flat to down 2%. Management envisions earnings per share in the band of $4.16-$4.28 for the quarter compared with $4.78 delivered in the prior-year period.

The current Zacks Consensus Estimate for the third quarter and fiscal 2017 stands at $4.58 and $4.32, respectively.

Zacks Rank

Deckers carries a Zacks Rank #4 (Sell). Investors interested in the retail space may consider some better-ranked stocks such as American Eagle Outfitters, Inc. AEO , DSW Inc. DSW and Boot Barn Holdings, Inc. BOOT , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

American Eagle Outfitters delivered an average positive earnings surprise of 9.3% over the trailing four quarters and has a long-term earnings growth rate of 11.8%.

DSW delivered an average positive earnings surprise of 24% over the trailing four quarters and has a long-term earnings growth rate of 8.3%.

Boot Barn Holdings has a long-term earnings growth rate of 14.5%.

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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.


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

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