Deckers Brands’ results for the third-quarter ended December 31 handily topped guidance, prompting the company to again significantly hike its guidance for the year.

Net sales in the quarter increased 6.6 percent to $810.5 million and grew 6.3 percent on a constant-currency basis. When it reported second-quarter results in October, Deckers said it expected third-quarter revenues in the range of $735.0 million and $745.0 million,

Gross margin was 52.2 percent compared to 50.5 percent for the same period last year while SG&A expenses were slashed to $230.3 million compared to $330.3 million for the same period last year. Non-GAAP SG&A expenses were $220.4 million, or 27.2 percent of sales, this year compared to $201.4 million, or 26.5 percent, last year.

Net income slightly more than doubled to $86.3 million, or $2.69 a share, from $41.0 million, or $1.27, a year ago. Non-GAAP earnings came in at $4.97 a share this year compared to $4.11 last year. Deckers had guided non-GAAP earnings to be in the range of $3.65 to $3.75.

“Our third quarter performance meaningfully surpassed our expectations as our efforts increase full-price selling for our products and drive sustained profitable growth for our brands continued to gain traction,” said David Powers, president and CEO, on a conference call with analysts. “On top of great execution by our teams and improved retail environment and more favorable weather compared with last year also aided our results.”

Powers added that despite issues with timing, “our recent results are further validation that the improvements we’ve made and continue to make at the business are paying off.”

The steps include efforts launched last year to heighten brand positioning efforts of Ugg Classics, as well as efforts with Ugg to reach younger customers and men in general, and expand its year-round offerings.

Overall, Ugg’s sales for the quarter increased 4.3 percent to $734.7 million, led by strong full-price selling.

Wholesale benefited from cleaner inventories versus the year-ago period that “allowed our partners to capitalize on their full-price inventory positions and capture demand as the appetite for Ugg product grew throughout the quarter,” said Powers.

As the weather turned “exceptionally cold in many parts of the US” later in December, reorders arrived to catch up with strong demand and increased full-price selling and less closeouts were seen.

Companywide, the sales beat versus sales guidance in part reflected approximately $30 million due to net reorders with the help of  favorable weather conditions. Another $20 million from the sales beat represented orders due for the fourth quarter, but  requested sooner by retailers due to strong demand. A final $10 million was due to a better-than-expected DTC performance.

Product-wise, success for Ugg was seen in with the classic mini, ankle boots, slippers and Neumel, “all geared towards the younger consumer and supporting a great entry point into the brand and cold weather and waterproof products,” specifically the Adirondack.

Also helping was the rationalization of Ugg’s wholesale distribution channel and better inventory management, driving significant selling and sell-through with new accounts such as Footaction domestically and ASOS internationally. Marketing campaigns are enhanced to target younger consumers, and an elevated DTC experience helped drive appeal across head-to-toe offerings.

Powers said Ugg closed “some sizable accounts” but also successful opened up Macy’s and Amazon with enhanced segmentation efforts helping. Said Powers, “I think you’ll see the segmentation have a bigger impact starting this fall as part of development teams catch up to the segmentation plans, and we start creating a specific product for each of those channels, better segmenting them, better storytelling around specific customers and key accounts.”

Performance of its DTC channel was strong, with a positive 1.7 percent comp versus guidance of a negative low single digits comp. The positive result was driven by stronger-than-expected e-commerce results and better trends in retail store comps. DTC benefited from more exclusives and successful digital marketing initiatives.

By region for Ugg, the U.S. “saw a number of improvements from last year, including better composition in quality of inventory ending in the quarter, strong early full-price sell-through, less overall promotional activity and robust holiday sales filled in part by cold weather late in the quarter,” said Powers.

On the international side, Germany continues to be a major growth driver as the Ugg range is expanded, China is finding success due to increases in brand awareness, and Canada benefited from a switch to direct distribution.

In the Performance Lifestyle group, sales grew a combined 37 percent in the quarter.

The gains were led by Hoka One One, which catapulted 65.7 percent to $31.8 million. Powers said Hoka continues to exceed its growth targets as the brand continues to increase awareness and customers respond to new product. Powers said, “The improvement year-over-year was broad-based with DTC sales up significantly and wholesale, the brand’s largest channel continuing to grow meaningfully.”

According to point-of-sale data, Hoka’s sell-through at U.S. retail were up 47 percent for the 12 months ended November 30 while overall sales in the run specialty category were down five percent. Powers added that the addition of the Arahi and Gaviota enabled Hoka to enter the stability category and increase its shelf space alongside its best-sellers, the Clifton and Bondi.

For Teva and Sanuk, Powers said he was “extremely impressed with how quickly the teams have driven significant gross margin and operating margin improvements in their respective businesses. They’ve done this by executing on a focused plan to drive skill efficiencies, optimize their distribution strategies and implemen operational changes through right-sized fixed overhead.”

Teva’s sales in the quarter jumped 33.4 percent to $19.5 million, partially driven by an extended standard selling season that drove more full-price sales later into the year. Teva is also seeing “significant success” in closed-toe footwear, with products including the Arrowood collection, Powers said.

Sanuk’s sales in the quarter were flat to last year at $13.9 million, surpassing expectations. Said Powers, “Sanuk recently launched the Chiba Quest for both men and women, which is an extension to the Sidewalk Surfer franchise. The initial offering was exclusive to our DTC channel and will be available through our wholesale partners in our fourth quarter. The design and distribution plan for the Chiba Quest is focused around the core center consumer and we’re very encouraged with the initial feedback.”

Inventories were $396.3 million compared to $373.5 million, up 6.1 percent..

For its fiscal year ended March 31, net sales are now expected to be in the range of $1.873 billion to $1.878 billion, up from $1.79 billion in the prior year. Previously, sales were expected in the range of $1.8 billion and $1.83 billion. Non-GAAP EPS is now expected to be in the range of $5.37 to $5.42, up from guidance of $4.15 to $4.30 previously.

For its fourth quarter, sales are expected to come in the range of $370 million to $375 million, which compares with $369.5 million a year ago. Non-GAAP EPS is expected to be in the range of 15 cents to 20 cents, which compares with non-GAAP EPS of 11 cents in the same period a year ago.

Powers concluded by stating management is committed to achieving and exceeding its long term target of $2 billion in sales and at least 13 percent operating margin by fiscal year ended 2020. He added, “Our third quarter results and updated fiscal year 2018 guidance further reaffirms our confidence in achieving the plan.”

Photo courtesy Hoka