By Eric Smith
Revenue growth across the Deckers Brands portfolio—Ugg, Hoka One One, Teva and Sanuk—allowed the Goleta, CA-based footwear company to close fiscal 2018 on a “high note,” said President and CEO Dave Powers.
One look at the company’s brand summary, released Thursday along with Q4 and FY2018 earnings, confirms Powers’ assertion.
- Ugg brand net sales for the fourth quarter increased 6 percent to $257.5 million compared to $243 million for the same period last year. For fiscal 2018, sales increased 3.9 percent to $1.5 billion.
- Hoka One One brand net sales for the fourth quarter increased 34.1 percent to $50.4 million compared to $37.6 million for the same period last year. For fiscal 2018, sales increased 46.7 percent to $153.5 million.
- Teva brand net sales for the fourth quarter increased 7.3 percent to $55 million compared to $51.3 million for the same period last year. For fiscal 2018, sales increased 13.5 percent to $133.6 million.
- Sanuk brand net sales for the fourth quarter increased 10.3 percent to $35.6 million compared to $32.3 million for the same period last year. For fiscal 2018, sales declined 0.9 percent to $90.9 million.
Overall, the company reported fourth-quarter net income of $29.7 million, or adjusted earnings per share of 66 cents, up from last year’s Q4 loss of $12 million, or (49) cents per share. Adjusted EPS of 50 cents topped last year’s adjusted EPS of 11 cents and beat analysts’ estimates by 31 cents per share.
The company reported net sales increased 8.4 percent to $400.7, beating analysts’ estimates by $25.3 million compared to $369.5 million for the same period last year. On a constant currency basis, net sales increased 6.6 percent.
For the fiscal year, diluted EPS was $3.58 compared to 18 cents for the same period last year. Adjusted diluted earnings per share was $5.74 this year compared to $3.82 last year. And net sales increased 6.3 percent to $1.9 billion; on a constant currency basis, net sales increased 6.1 percent.
While all brands performed well, Ugg was the standout performer. The popular brand posted the best revenue growth since Fiscal 2015 thanks to a confluence of factors, starting with favorable cold weather that boded well for certain models.
“Helping fuel the sales beat was favorable weather late in the seasons that drove more full-price selling of cold-weather product combined with a strong selling of the spring summer of 2018 line,” Powers said on Thursday afternoon’s earnings call with analysts.
“Over the past several years, the Ugg team has made progress on de-seasonalizing the business with a focus on the spring and summer product offering,” he added. “As evidence, the initial reaction to the spring-summer 2018 line has been positive, and sell-in is up high single digits to last year, while season-to-date sell-through at our top U.S. wholesale partners is strong.”
Weather wasn’t the only factor driving Ugg to shine in Q4. The line continues to attract year-round wearers and is making a splash in “brand heat,” Powers noted.
“According YouGov, brand impressions in the U.S. with 18 to 34-year-olds is the highest it’s been since the company started tracking Ugg in 2013,” Powers said. “These trends demonstrate the success we’re having engaging consumers through focused and targeted digital marketing. They are also the result of delivering compelling products that resonate with younger consumers.”
Analysts took note of Ugg’s elevated sales growth and brand positioning.
Jonathan Komp of Baird, whose Q4 recap was cleverly titled “Nothing UGGly About These Results/Outlook,” wrote that Ugg’s sales growth signals “efforts to improve product (seeing strength across men’s, sandals/sneakers, slippers) and marketing (utilizing more effective messaging and digital-led/influencer strategies) are delivering results. With channel inventories clean, DECK is planning strategic actions to better segment classics within U.S. wholesale, while staying committed to closing underperforming stores; these actions should further strengthen the brand positioning.”
And Sam Poser of Susquehanna Financial Group LLLP noted that the firm’s “skepticism about Deckers’ decisions regarding the UGG brand have been unfounded to this point,” though he does remain concerned about the brand’s inventory levels and its standing within certain retailers.
“We believe that DECK’s decision to better segment Ugg product and restrict allocation of Ugg Classics is a positive development,” Poser wrote in a note to investors. “Ultimately, we hope the strategy will help DECK rightsize inventory levels by lowering the level of product DECK needs to take in (i.e., a decrease in DECK’s receipts) to support the business.
“Although management indicated its relationship with Macy’s has been good during its first year of business with the retailer, we believe opening up distribution to Macy’s will ultimately prove to be a misstep,” Poser continued. “Macy’s has historically shown little regard for the sanctity of brands. We believe the cordial relationship DECK has had with Macy’s is likely a result of Macy’s success with UGG this past winter due to the favorable cold weather. If the weather returns to more mild temperatures next winter, we foresee Macy’s quickly canceling orders and marking down product, and souring the relationship.”
Looking deeper into Deckers’ earnings, the company not only achieved balance across the company’s portfolio, but even within channel distribution and sales by geography. Wholesale net sales for the fourth quarter increased 1.8 percent to $223.1 million, and for fiscal 2018, wholesale sales increased 5.7 percent to $1.2 billion. Direct-to-consumer net sales for the fourth quarter increased 18.1 percent to $177.6 million (and Q4 comps increased 15 percent over the same period last year) and for fiscal 2018, DTC sales increased 7.4 percent to $715.7 million (Q4 comparable sales increased 7 percent).
Q4 domestic net sales increased 8.3 percent to $249 million, and for fiscal 2018, domestic sales increased 2.9 percent to $1.2 billion. Q4 international net sales increased 8.7 percent to $151.7 million, and for fiscal 2018, international sales increased 12.4 percent to $729.3 million.
For Fiscal 2019, the company now expects net sales to be in the range of $1.93 billion to $1.95 billion and adjusted EPS to be in the range of $6.20 to $6.40. For Q1, the company expects net sales to be in the range of $225 million to $235 million and adjusted EPS to be a loss in the range of ($1.50) to ($1.41).
Specifically, Ugg is expected to be down in the low single digits, “as growth is being offset by the allocation and segmentation of the classics franchise that will be implemented for fall 2018, the continued rationalization of the wholesale account base and further store closures,” Powers said. “The anticipated impact of these decisions is approximately $50 million.”
Powers summed up the rest of the brands as follows: The company expects Hoka to grow in the mid-20 percent range, “fueled by both U.S. and international expansion;” Teva to see a high single-digit sales decline, “largely due to the cleanup of international distribution as Deckers converts its EMEA business to a distributor model” and “Sanuk to be flat to last year as the brand continues to drive ASPs and a higher proportion of full price sale.”
“We have made some strategic decisions that better positions the company to compete in today’s marketplace and build the organization for the future,” he added. “While these will create some topline headwinds in the current year, we still expect to achieve overall revenue growth.”
Photo courtesy Ugg