Deckers (DECK) Surges On Q4 Earnings Beat, Optimistic View

Further, the company’s domestic net sales declined 4.3% to $230 million in the reported quarter. On the contrary, international net sales jumped 0.9% to $139.5 million, while on a constant currency basis, the same climbed 4.1%.

Direct-to-consumer ("DTC") net sales advanced 3% to $150.4 million, while on a constant currency basis, sales increased 4.3%. DTC comparable sales remained flat year over year. Wholesale net sales in the reported quarter decreased 5.8% to $219.1 million, while on a constant currency basis, sales fell 5.2%.

Gross margin expanded 130 basis points to 46.7% due to improved input costs and supply chain optimization, partly offset by foreign currency headwinds.

Deckers is focused on expanding brand assortments, introducing a more innovative line of products, targeting consumers digitally via marketing and sturdy eCommerce along with optimizing omnichannel distribution. The company’s omnichannel endeavors include Click & Collect, Infinite UGG and new UGG Rewards loyalty program.

Moreover, management expects cost savings of about $150 million on the back of improvement in cost of goods sold and SG&A savings, which includes consolidation of retail outlets and process improvement efficiencies. This will help realize $100 million operating profit improvement by fiscal 2020. Management anticipates total sales of about $2 billion with operating margin of 13% by fiscal 2020.

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With respect to the store fleet optimization plan that focuses on striking the right balance between digital and physical stores, Deckers plans to close approximately 30 to 40 outlets over the next two years. By fiscal 2020, Deckers expects company-owned fleet of approximately 125 stores worldwide.

Brand-wise Discussion

UGG brand net sales went down 1.1% to $243 million in the reported quarter. On a constant currency basis, sales improved 0.2%. Sales fell owing to lower domestic wholesale sales, partly offset by higher international wholesale and DTC sales.

Teva brand net sales plunged 13.3% to $51.3 million, while on a constant currency basis, the same declined 13.2%. Sales tumbled due to fall in wholesale sales worldwide, partly offset by higher DTC sales.

Net sales for the Sanuk brand, known for its exclusive sandals and shoes, dropped 16.1% year over year to $32.3 million on both a reported and constant currency basis. The decline in sales came on account of lower global wholesale and DTC sales.

Combined net sales of Deckers’ Other brands came in at $42.9 million in the quarter, surging 21.2% year over year. On a constant currency basis, sales were up 22%. The increase in net sales was principally attributable to higher HOKA ONE ONE brand net sales that advanced 32.7%.

Other Financial Aspects

At the end of the quarter, Deckers had cash and cash equivalents of $291.8 million, short-term borrowings of $549,000 and shareholders’ equity of $954.3 million. Inventories edged down 0.4% year over year to $298.9 million. Management projects capital expenditures of approximately $45 million for fiscal 2018 and expects to generate free cash flow of about $150 million.

Guidance

Deckers now expects fiscal 2018 net sales to be flat to down 2% and projects adjusted earnings between $3.95 and $4.15 per share. Gross margin for the fiscal year is anticipated to be 47.5%. Further, SG&A expense as a percentage of sales is anticipated to be nearly 37%.

Management expects UGG brand sales to be down 1–3%; HOKA brand sales to be up approximately 20–25%; Teva brand sales to be up 1–5%, Sanuk brand sales to be down 5–10%, and Koolaburra brand sales to be approximately between $13 million and $16 million.

In the first quarter, net sales are estimated to up low single digits. Management envisions loss per share of approximately $1.70–$1.65 compared with loss of $1.80 delivered in the year-ago period.

Zacks Rank

Deckers carries a Zacks Rank #3 (Hold). Investors may consider better-ranked stocks such as Best Buy Co., Inc. (NYSE:BBY) , Burlington Stores, Inc. (NYSE:BURL) and PVH Corp. (NYSE:PVH) . All three of them carrying a Zacks Rank #2 (Buy). You can see .

Best Buy delivered an average positive earnings surprise of 33.8% in the trailing four quarters and has a long-term earnings growth rate of 10.8%.

Burlington Stores delivered an average positive earnings surprise of 22.6% in the trailing four quarters and has a long-term earnings growth rate of 15.9%.

PVH Corp. delivered an average positive earnings surprise of 6.5% in the trailing four quarters and has a long-term earnings growth rate of 10.7%.

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