Deckers Brands handily exceeded the company’s guidance in the first quarter with monster gains from Ugg and Hoka One One. But shares slid on Friday as much of the upside was attributed to earlier-than anticipated shipments and the company only slightly lifted EPS guidance for the year.

Shares of Deckers were trading down about 8 percent in early-afternoon trading on Friday after the results came out.

The quarter ended June 30 is by far the smallest quarter of the year for the company with its focus of the Ugg brand making the company highly reliant on the cold-weather quarters.

The net loss in the quarter narrowed to $30.4 million, or $1.00, from $42.1 million, or 1.32, a year ago. On an adjusted basis, the loss came to 98 cents against a loss of $1.28 last year. The company had projected a non-GAAP net loss in the range of $1.50 to $1.41.

Net sales increased 19.5 percent to $250.6 million and grew 17.6 percent on a constant-currency basis. Sales were projected by the company to land between $225.0 million and $235.0 million.

On a conference call with analysts, Dave Powers, president and CEO, said the sales beat largely reflected about $10 million from earlier-than-planned shipments to both domestic and international Ugg customers and approximately $4 million in Teva wholesale reorders that came in higher than expected.

In the Fashion Lifestyle group, Ugg’s sales jumped 18.9 percent to $136.5 million, predominantly from the growth in the global wholesale channel followed by a positive contribution from the DTC channel.

Powers said Ugg’s spring/summer product offering gains were driven by double-digit increases in women’s sneaker and sandal categories. Reorders also drove upside both in the U.S. and internationally with strong sell-through at top accounts. Ugg ranked as a top 10 spring/summer footwear brand at Nordstrom for the first time ever.

“The Ugg Spring Summer business also experienced improved full-price selling during the first quarter compared to years past, driving higher sales as well as gross margin gains,” said Powers. The Ugg Spring Summer business also experienced improved full-price selling during the quarter, driving higher sales as well as gross margin gains. Strong interest was specially seen with spring/summer styles such as the Poppy, Holly, and Joan sandals.

Said Powers, “The strength of Ugg’s Spring Summer business in this past quarter demonstrates that our efforts on evolving the product offering and reaching new consumers is paying off, and I’m optimistic that this signals our strategy of developing Ugg into a year-round brand is working.”

In the Performance Lifestyle group, Hoka One One remained the star with sales running ahead 53.1 percent to $47.0 million. International, a recent push for the running shoe brand, was “up significantly year-over-year” while domestic sales also increased “substantially” as Hoka continues to take shelf space and market share while benefiting from a more-frequent replenishment cycle.

Among Hoka’s introductions in the quarter, the Clifton 5 launch was a “significant as a driver of a year-over-year growth with sell-through very strong for both men and women.” The Torrent, a new trail shoe at Hoka’s most price accessible within the trail category, saw positive initial feedback. The Bondi 6 launched in July also delivered strong sell-in.

At Outdoor Retailer Summer Market, Hoka earned a Gear of the Year award from Outside Magazine for the Mach road shoe. The Mach is part of the Fly Collection, a collection geared toward both the runner and fitness enthusiast that’s bringing new consumers to the brand.

Said Powers, “As we continue to build the Hoka brand, the first quarter results are an indication that the product is resonating, we have partnered with the right retailers and our digital marketing efforts are paying off with continued DTC gains. I am confident that Hoka is well-positioned to continue its growth trajectory, and we have the right team in place to execute our long-term plans.”

Teva’s sales in the quarter increased 6.2 percent to $40.0 million. Sales accelerated in May and June to drive re-orders above expectations and produce strong gross margins gains over last year. Said Powers, “The Hurricane XLT2 and Original Sandals performed well and drove the bulk of the volume. The brand continues to resonate with the younger consumer, and according to the market research firm YouGov, Teva brand impression in the U.S. with 18 to 34 year olds is up 21 percent in Q1 versus a year ago.”

Sanuk’s revenues decreased 6.6 percent to $24.4 million, in line with expectations given continued weakness in the U.S. surf specialty channel as well as the strategic pullback in certain international markets. Said Powers, “That being said, the brand saw success with the new colorway offerings under the Yoga Sling franchise as well as the new Yoga Sling Cruz, the first closed-toe offering in the franchise, which is off to a strong start in our DTC channel.”

By channel, companywide wholesale sales jumped 22.9 percent to $177.6 million. Strong reorders across Ugg, Hoka and Teva, along with $10 million of earlier-than-planned shipments, buoyed performance.

DTC sales advanced 12.0 percent to $73.0 million and increased 6.2 percent on a same-store basis. The gains were led by strong performance from the e-commerce channel, where both Ugg and Hoka contributed materially to the total growth.

Domestic sales increased 17.4 percent to $141.7 million while international sales gained 22.3 percent to $108.9 million.

Gross margins improved to 45.9 percent from 43.2 percent for the same period last year. SG&A expenses grew slightly to $154.4 million compared to $146.9 million for the same period last year, but were reduced as a percent of sales on a non-GAAP basis to 61.4 percent from 69.1 percent a year ago. The operating loss was $39.4 million compared to an operating loss of $56.3 million for the same period last year.

Net inventories were $435.6 million compared to $441.6 million.

For the full year, sales are now expected in the range of $1.93 billion to $1.96 billion. Previously, Deckers expected sales in the range of $1.925 billion to $1.95 billion. Non-GAAP EPS is now expected to be in the range of $6.25 to $6.45, a 5-cent-a-share adjustment from the range of $6.20 to $6.40 previously provided.

For the second quarter, sales are expected to be in the range of $485.0 million to $495.0 million and non-GAAP EPS to come in the range of $1.60 to $1.70. In the same period last year earnings were $1.54 on sales of $482.5 million.

At Stifel, Jim Duffy raised his 12-month price target on DECK shares from $120 to $123 but downgraded the stock from “Buy” to “Hold” “reflecting our concern that further meaningful upside may prove limited.”

Duffy noted that the first quarter reflected improved execution from Deckers’ management, including the early benefits of retail rationalization on expenses as well as strength from Hoka and improving spring/summer relevance for Ugg. But he noted that 87 percent of the company’s annual revenue for the year remains in the three quarters ahead and the momentum seen in the first quarter may not be indicative of the performance during the rest of the year.

Duffy added in the note, “Considering the weather dependence of the Ugg brand, weather remains an external variable to be considered. In our view, this risk needs to be discounted in either estimates or the multiple.”

Sam Poser at Susquehanna Financial Group, who has a “Negative” rating on Deckers’ shares with a price target of $89, wrote in a note that despite strong results in Deckers’ smallest quarter of the year, the outlook for the balance of the year “remains cloudy.”

He similarly estimated that 90 to 93 percent of Ugg’s sales will arrive in the remaining three quarters, and Ugg made up 79 percent of the company’s sales in fiscal 2018.,

“Visibility into Ugg, the biggest component of DECK’s revenue, remains unclear. In 2H19, UGG will be lapping the exceptionally favorable weather conditions of last year’s winter” as well as initial sell-in to Amazon and Macy’s, which Poser said are likely two of top-five wholesale accounts for Ugg. He also said inventory levels “while improving, remain elevated” and likewise noted that Ugg faces weather-related risks.

Photo courtesy Ugg