For Deckers Outdoor Corp., the third quarter was again all about UGG. Quarterly sales for the boot brand catapulted 57.1% to $178.7 million, driven by increased orders for the expanded fall line from domestic retailers, coupled with higher shipments to international distributors. Company-wide, DECK domestic sales soared 40.9% to $162.3 million while international sales jumped 147% to $35 million. The sales gain drove the 35% climb in earnings.
Based upon the better-than-expected quarter results and continued strong bookings for UGG worldwide, Deckers now expects revenues for the current year to increase 52%, up from previous guidance of 43% growth. Full year EPS is expected to increase 40% versus previous guidance of 34% for the year.
The outlook includes the impact of the non-cash charge related to the second quarter write-down of the Teva trademarks. For the fourth quarter, revenues are expected to grow 52% and EPS is seen growing 44%, up from its previous revenue and EPS growth targets of 45% and 42%, respectively.
Gross margins in the quarter eroded 210 basis points due to material cost increases in 2008 and higher percentage of international sales for the UGG and Teva brands in Q308 versus Q307. That margin erosion was partially offset by an increased margins at Simple.
For 2008, Deckers still expects full-year gross margin to be approximately 45% versus 46.2% in 2007. SG&A expense was reduced 30 basis points as the added sales leverage offset increased stock compensation related to a long-term incentive plan, higher costs tied to a distribution center expansion, increased bad debt reserves, and higher marketing costs.
Regarding UGG, Deckers now expects the brands sales to grow 64% for the full year, up from its previous guidance of 53%. Company President, Chairman and CEO Angel Martinez said that they are seeing “very high and favorable reaction” to an ” expanded forward offering” and are benefiting from increased floor and shelf space within the existing account base.
He noted that retailers scheduled fall shipments earlier than previous years “as the UGG brand continues to evolve to a true year-round brand.” Strong sales were seen in all regions of the country and in many instances out of stocks on key items arrived much sooner into the season than the brand has historically seen.
Many of its UGG best sellers continue to come from the Classic and Metropolitan collections, but Martinez noted that UGG is experiencing “very nice traction” from expanded surf and cold weather collections.
Overseas, the company said UGG is seeing similar demand for fall lines in established markets like the U.K. and Benelux that saw “strong year over year growth” in the third quarter. Newer territories, such as Scandinavia and Germany, “are off to very solid starts with the brand.” Canada is “also very strong.” Martinez said that sales outside the U.S. are up 91.9% year-to-date and DECK is e forecasting another robust holiday season in the foreign markets.
Martinez said Tevas market “is by far the most competitive” of all of the Deckers brands.
Particularly strong performance for Teva in the quarter came in its mens Tamur, women’s Cape, and the Mountains Scuff slip-on casual collection for men, women, and children. The Teva fall line was also introduced in select overseas markets, with results comparable to the U.S. Said Martinez, “Many of our retailers continue to be pleased with the new direction of Teva and have expressed confidence that the brand can be relevant on a year round basis.”
Simple posted its fourth consecutive quarter of strong double-digit growth, driven by an increase in consumer brand awareness and strong sell through from the fall 2008 ecoSNEAKS collection. Core styles, such as the women’s Satire and Carat, “are experiencing solid and consistent weekly sell through rates” at key accounts such as Nordstrom, Journeys and Dillard’s.
The Simple franchise was also expanded with the debut of Planet Walkers into “influential independent retail partners” this past August. The line is reportedly experiencing low double-digit weekly sell through rates in many of these accounts.
At the same time, its Simple.com Internet business and other external eCommerce sites like Zappos.com and Endless.com remain very strong. Said Martinez, “The success that Simple continues to experience within the Internet channel of distribution further validates that the consumer is actively seeking out the brand. This is also a good indication that Simple’s products will benefit from increased points of distribution at retail which continues to be a top priority for the brand.”
