Deckers Outdoor said it is no longer actively pursuing a sale of the entire company while reporting second-quarter results that came in well ahead of guidance.
The sales review was promoted by Marcato Capital Management, an activist investor that has been pushing for the sale of the company.
In a statement, Deckers said its board, along with some financial advisors, contacted 90 potential acquirers, including strategic and financial parties, both domestic and international, but the effort did not result in a transaction.
John Gibbons, chairman of the board, in a statement said that beginning in April, the board conducted a “comprehensive process to understand the level of interest in an acquisition of the company, and remains open to “strategic alternatives that would drive stockholder value.”
But Gibbons said the board fully supports Deckers’ long-term business optimization plan.
“We stand fully behind Deckers’ strategic plan, portfolio of iconic brands, ongoing cost improvement initiatives, and leadership team,” said Gibbons. “The Board is focused on enhancing stockholder value and approaches that objective with an open mind.”
The board also announced that it was increasing its total stock repurchase authorization to $400 million. The company had $65 million remaining under its current authorization. Approximately $100 million worth of repurchases are expected to be completed prior to the end of March 2018. Said Gibbons, “The strength of our balance sheet and our conviction in our future prospects makes this an appropriate time to repurchase stock and return capital to stockholders.”
In June, Marcato Capital, which owns approximately 6 percent of Deckers’ shares, said that if the ongoing review by Deckers’ strategic review process did not culminate in a sale, Marcato would nominate a slate of director candidates to replace the entire Board. In September, Marcato nominated 10 director candidates to force Deckers not to delay its annual meeting and also eliminate change-of-control penalties that would be assessed to the company should Marcato’s board choices get nominated.
Deckers has nominated its own group of directors and the annual meeting is scheduled to take place on December 14, 2017
Under pressure from Marcato, Deckers in May updated on its cost-savings plan, telling investors that $150 million in cumulative savings coming from cost of sales improvements and reductions in SG&A expenses should drive an operating profit improvement of $100 million by the end of fiscal 2020 and operating margins of at least 13 percent. The program focuses on focusing on full-priced selling, driving supply chain efficiencies, implementing process improvements, reducing indirect spend, and closing retail stores that do not meet financial objectives.
Dave Powers, president and CEO, said in a statement, “Our strategic initiatives position us well to achieve the operating profit targets established for fiscal 2018 and longer-term. We continue to focus on driving improvements in the business through streamlining our cost structure. Our aim is to repurchase stock while continuing to improve our operating profit, which simultaneously returns capital to stockholders and positions Deckers for long-term growth.”
The decision comes as Deckers reported second-quarter earnings jumped 26.1 percent in its second quarter ended September 30, to $49.6 million, or $1.54 a share. Results were far above the company’s guidance calling for EPS in the range of $1.00 to $1.05.
Revenues eased 0.7 percent to $482.5 million. The company had expected sales to drop approximately 10 percent, primarily as a result of store closures, and the earlier than planned shipments in the first quarter.
“This quarter is yet another testament to the power of our transformation, as we generated a 220 basis point increase in gross margin and earnings per share that were ahead of expectations,” said Powers. “As we head into the holiday selling season with a stronger product lineup and cleaner channel inventories compared to a year ago, we are confident that Deckers is well positioned to achieve our near- and medium-term financial targets and deliver increased shareholder value.”
On a constant currency basis, net sales decreased 0.3 percent. Ugg’s sales for the quarter declined 2.9 percent to $400.4 million, Hoka jumped 34.4 percent to $40.6 million, and Teva’s sales increased 24.9 percent to $21.4 million. Sanuk’s sales decreased 19.3 percent to $15.2 million.
Wholesale sales slid 2.2 percent to $391.2 million. DTC sales increased 6.2 percent to $91.3 million. DTC comps expanded increased 3.7 percent. Domestic sales fell 3.1 percent to $302.7 million while international sales grew 3.5 percent to $179.8 million.
For the full year, sales are now expected to be in the range of up approximately 1 percent to up 2 percent versus last year. Gross margin is expected to be approximately 47.5 percent. SG&A expenses as a percentage of sales are projected to be approximately 37 percent. Non-GAAP diluted EPS are expected to be in the range of $4.15 to $4.30.
Previously, Deckers expected EPS in the range of $3.95 to $4.15 a share. Sale were expected to be in the range of down 2 percent to flat.
For the third quarter, Deckers expects sales to be in the range of $735 million to $745 million, which compares with $760.4 million last year. Non-GAAP EPS is expected in the range of $3.65 to $3.75, which would be down from $4.11 a year ago. Wall Street’s consensus guidance had been $4.10.
Photo courtesy Ugg