With the Ugg phenomenon showing little evidence of slowing down, Deckers Outdoor Corp. reported 2010 fourth quarter revenues rose 23.6% to $430.1 million. Net income climbed 31.8% to $89.2 million, or $2.27 a share. Results easily exceeded company guidance that had called for both revenue and EPS to increase approximately 8% over 2009 levels.
Ugg brand sales in the fourth quarter increased 23.8% to $412.8 million, primarily attributable to an increase in full-price selling at company-owned retail stores and on the brand's e-commerce websites, coupled with higher shipments to global distributors. For the full year, Ugg sales grew 22.7% to $873.1 million. On a conference call with analysts, company Chairman and CEO Angel Martinez said Ugg particularly benefited from strong customer responses to a “much larger, more diverse assortment of product this year, including styles from our cold weather, fashion, knits, sport, casual, and slipper collections.”
Teva brand sales for the fourth quarter increased 26.2% to $13.3 million, primarily the result of an increase in distributor sales into the Asia region and an increase in global shipments of the fall line. For the full year, Teva's sales increased 30.5% to $101.3 million.
Other Brands (Simple, Tsubo, Ahnu) decreased 2.3% to $4.1 million although the division increased 11.9% to $26.5 million for the full year.
Retail revenues, included in the brand numbers, increased 55.4% in the quarter to $72.4 million, driven by nine new stores and an 11.6% comps gain. E-commerce revenues, also included in the sales, increased 29.8% to $59.5 million for the quarter. Overall domestic sales for all brands increased 22.2% to $377.1 million while international climbed 34.6% to $53.0 million.
Overall gross margins improved to 54.2% of sales from 49.8% last year due to higher direct-to-consumer sales, as well as increased Ugg wholesale margins. SG&A expense increased to 21.5% of sales from 19.5% due to the nine new stores, international distribution start-up expenses, and increased intellectual property and legal expenses.
Inventories at year-end increased 46.4%, primarily attributable to a larger spring 2011 assortment for the Ugg brand, the growth in spring orders for the Ugg and Teva brands, the warehousing of Spring 2011 inventory supporting the continued conversion from an international distributor model to an international wholesale model, and increased retail stores.
For 2011, Deckers set a revenue growth target of approximately 20%. EPS is expected to increase approximately 10% over 2010. The year's results will include approximately $29 million, or 49 cents per share, in costs pertaining to incremental investments and expenses in 2011 associated with new marketing and advertising programs, increased legal spend related to intellectual property rights protection, and expenses related to the transition to wholesale sales in the United Kingdom, Benelux region and France. Excluding these investments, EPS is expected to rise approximately 21% over 2010.
For the first quarter, revenues are expected to climb 29% over 2010, although EPS is expected to decline approximately 5% due to $11 million, or 19 cents a share, in marketing and international start-up investments. Without these investments, EPS growth would be approximately 36% over 2010.
Looking to 2011, Martinez said he expects the introduction of new products and collections to again drive growth.
For Ugg, the Spring ’11 line includes a more complete offering of boots, slippers, sneakers and sandals, both casual and fashion. Said Martinez, “The early reads on several new styles have us encouraged about the full potential of our spring business as the weather improves and temperatures begin to warm up.”
Fall ‘11 will feature a more expanded men's collection, which will include more rugged boots, sneakers, and casuals. Women's will expand several of its best-performing collections from 2010, such as the equestrian collection, fashion wedge boots, sneakers, wood-bottom clogs, boots and booties. Ugg's addition in 2010 of a sport category, including the Evera sneaker and Rylan slipper styles, “have been very successful at retail” and Ugg's sport fashion and cold weather categories overall were its fastest growing categories in 2010.
Ugg's first-ever Italian-made collection will also debut this fall with price points ranging from $500 to $1,200. Reaction to the launch of Ugg's first in-house handbag line set for Fall 2011 has also “been very good.”
Deckers also has made the strategic decision to double its brand spend to in 2011. The additional expenditures will be divided among a number of programs, including its recently-announced partnership with Tom Brady to promote Ugg men's, additional shop-and-shops and LookBooks sent in-home, and featured online targeting of prospect consumers.
DECK plans to expand Ugg in-store shops to almost 400 by year-end globally, up from 250 currently.
Deckers expects to expand its retail store base more than 50% in 2011, with approximately 15 new full-priced stores opening in 2011, the majority of which will open in China through a joint venture, along with a handful planned for Japan, Europe, Canada, and the U.S.
At Teva, the Spring ‘11 focus is on building on the success in its push into the closed-toe market. Successes have been the $100 Gnarkosi water shoe and the $40 Mush flip flop collections. For Fall ‘11, the brand’s initial foray into freestyle mountain biking footwear collection will be followed by Teva's first-ever insulated winter footwear, featuring the Event waterproof membrane, Thinsulate insulation and the brand's new Ice Grip rubber technology.
“We believe our new product introductions will have broad appeal that is consistent with our strategy, and they are being designed and positioned to target younger, more active consumers,” said Martinez.
