Deckers' Q4 Earnings Top Estimates; Projects Wider Q1 Loss - Analyst Blog

Deckers Outdoor Corporation DECK posted fourth-quarter fiscal 2015 earnings of 4 cents a share that fared better than the Zacks Consensus Estimate of a breakeven as well as a loss of 8 cents reported in the year-ago quarter. The better-than-expected bottom-line performance was backed by higher net sales, partially offset by subdued gross margin.

The company’s net sales came in at $340.6 million, ahead of the Zacks Consensus Estimate of $321 million. Also, the top line rose 15.6% from the year-ago quarter, buoyed by the strong performance of its UGG, Teva, Sanuk and HOKA ONE ONE brands. It is to be noted that despite currency headwinds the sales growth rate surpassed the company’s forecast of 10%. On a constant currency basis, net sales jumped 19.1%.

We are encouraged by this Zacks Rank #3 (Hold) stock’s fourth-quarter performance. However, the company’s projection of a wider loss for the first quarter of fiscal 2016 compared with the Zacks Consensus Estimate and the year-ago quarter figure makes us cautious.

Nevertheless, sales trends remained sturdy across the Direct-to-Consumer division, while Omni-Channel initiatives boosted consumer experience. Stellar eCommerce performance also contributed to sales growth. The company is focused on opening smaller concept omni-channel outlets and expanding programs such as Retail Inventory Online; Infinite UGG; Buy Online, Return In Store; and Click and Collect to enhance customers’ shopping experience. Alongside, the company is making new additions to its portfolio, as evident from its latest acquisition of Koolaburra, a footwear brand.

On the international front, the company is targeting underpenetrated markets, enhancing eCommerce capabilities in Asia, and transitioning to direct distribution in Germany.

During the reported quarter, the company’s domestic sales grew 9.8% to $217.7 million, while international sales increased 27.5% to $122.9 million. Direct-to-Consumer sales jumped 14.1% to $135.5 million. Direct-to-Consumer comparable sales, comprising worldwide retail comparable-store sales (comps) and eCommerce sales, rose 4.7%.

Retail Stores sales advanced 7.7% to $86.3 million, propelled by the opening of 30 new stores after Mar 31, 2014, partly offset by a 6.5% decline in comps. E-commerce sales surged 27.4% to $49.2 million, reflecting robust demand of the UGG brand globally.

Gross profit climbed 5.6% to $152.3 million from the prior-year quarter. However, gross margin contracted 420 basis points (bps) to 44.7% due to unfavorable currency fluctuations, higher closeout sales and increase in air freight charges.

Brand-wise Discussion

The UGG brand’s net sales rose 9.7% to $216.8 million, primarily on an increase in worldwide wholesale and distributor sales, surge in global eCommerce sales, contribution from new retail outlets, partially offset by a decrease in comps.

The Teva brand’s net sales grew 13.4% to $53.1 million, reflecting an increase in international wholesale and distributor sales, partly offset by a decline in domestic wholesale revenues.

Sales for the Sanuk brand, known for its exclusive sandals and shoes, were $39.2 million, up 27.9% from the year-ago quarter. The increase is attributable to higher domestic wholesale revenues and international distributor sales.

Combined net sales of Deckers’ Other brands for the quarter were $31.5 million that surged 60.9% year over year, primarily on the back of the company’s HOKA ONE ONE brand.

Store Update

Deckers, the designer, producer and brand manager of footwear and accessories, aims to open 16 new outlets during fiscal 2016 compared with 30 stores opened in fiscal 2015. There are currently 142 company-owned retail stores.

Other Financial Aspects

Deckers, which competes with Wolverine World Wide Inc. WWW, ended the quarter with cash and cash equivalents of $225.1 million, short-term borrowings of $5.4 million, and shareholders’ equity of $937 million. Inventories jumped 12.9% year over year to $238.9 million.

During the quarter, Deckers bought back approximately 1.3 million shares at a price of $73.45 per share, aggregating $93.9 million. As of Mar 31, 2015, the company had exhausted its share repurchase authorization of $200 million, announced in Jul 2012. However, the company still had $172.1 million remaining under its $200 million stock repurchase authorization announced in Jan 2015.

Management projects capital expenditures in the band of $65–$70 million for fiscal 2016.

Guidance

Management now projects total revenue growth of 10.5%, on a constant currency basis, to $2.01 billion for fiscal 2016. On a reported basis, revenue is expected to increase 8% to $1.96 billion.

The company anticipates sales growth of 9% at the Teva brand, 11% at the Sanuk brand, 74% at the HOKA ONE ONE brand, and 5%–6% at the UGG brand. In constant currency, Deckers estimates sales growth of 8%–9% at the UGG brand.

Gross margin for fiscal 2016 is expected to contract 30 bps to approximately 48% on account of strong U.S. dollar, partly offset by a fall in input costs and higher penetration of Direct-to-Consumer channels.

Management now projects earnings for fiscal 2016 to rise 20%, on a constant currency basis, to $5.60 per share, while on a reported basis, earnings per share are expected to be $5.09, reflecting an increase of 9%. The current Zacks Consensus Estimate for fiscal 2016 stands at $5.06.

For the first quarter of fiscal 2016, Deckers envisions revenue to increase marginally on a constant currency basis, but expects it to remain flat on a reported basis.

Management now projects loss per share of about $1.52 on both a constant currency and reported basis for the first quarter, compared with loss per share of $1.07 in the year-ago period. The current Zacks Consensus Estimate for the quarter is pegged at a loss of $1.17.

Stocks that Warrant a Look

Better-ranked stocks in the retail sector include Carter's, Inc. CRI and Nike, Inc. NKE both carrying a Zacks Rank #2 (Buy).

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