Deckers Outdoor Corp. reported sales rose 14.7% to $348.0 million in the fourth quarter on strength of its direct and international business. While UGG continue to be its star performer, the company expects Teva to grow in double-digits this year.
- UGG brand sales increased 15.7% in the quarter to $333.3 million, helped by an increase in full-price selling at company-owned stores and e-commerce sites, coupled with higher shipments to international distributors.
- Teva brand sales decreased 14.8% to $10.5 million in the quarter, reflecting lower closeout sales.
- Simple sales increased 17.9% to $2.7 million, primarily due to an increase in average selling prices.
- Sales of Other Brands (Ahnu and TSUBO) were $1.5 million and $9.6 million for the quarter and full year, respectively.
E-commerce sales increased 27.0% to $45.9 million in Q4, due primarily to increased demands for all UGG products, including the Bailey Button, Cardy, slippers, kids, and cold weather. The gain also reflected increased advertising, and a favorable inventory position versus the prior year. Sales in the owned-retail business jumped 88.7% to $46.6 million, driven by five new UGG stores and a 29.7% comp sales gain.
Fourth quarter domestic sales for all brands increased 8.9% to $308.6 million while international sales jumped 96.0% to $39.3 million.
Gross margin improved 450 basis points to 49.8% of sales due to higher sales from its global retail and e-commerce businesses which carry higher gross margins than the wholesale business. SG&A expense grew to 19.5% of sales from 17.4% in the prior year quarter due to planned increases in payroll, marketing, and other selling expenses, as well as the new stores. Net earnings increased 28.9% to $67.7 million, or $5.22 a share, in Q4 from $54.4 million, or $4.05 a in Q4 2008, which excludes an impairment charge on intangible assets.
On a conference call with analysts, Deckers Chairman, President and CEO Angel Martinez said UGGs primary focus remains on increasing productivity within its existing accounts.
DECK commenced selling directly to Teva brand wholesale customers in France and the Benelux region on January 1. In January 2011, Deckers will assume control of distributing the UGG, Teva and Simple brands in the U.K. and the UGG and Simple brands in Benelux and France. As part of the transition, the company plans to incur incremental expenses in 2010 and will experience a shift in sales from 2010 to 2011. The net impact of this transition in 2010 on pre-tax earnings is estimated to be approximately $8.0 million.
Looking ahead, DECK suggested Q1 sales are expected to grow 7% versus 2009, but EPS will be down approximately 6% due to incremental investments associated with the distribution transitions. For the full year, sales are expected to grow 11% and EPS is forecast to increase 5% for the year.
While the pre-book process is still ongoing, weve been encouraged by the reaction from our accounts to date, and based on current trends we expect domestic wholesale sales to be up mid-single digits this year, explained Martinez.
UGG will be open an additional 40 shop-in-shops in the U.S. for a total of 110. Internationally, in excess of 100 shop-in-shops will be added for a total of 170 at year-end.
UGG will also be opening five to six stores in 2010 in the U.S., with potential locations in Los Angeles and a second New York City location. Overseas, UGG plans to open two to three new stores in Asia, with Japan and China being its primary focus in the region.
Teva is expected to increase sales in the low 20% range in 2010, with record spring pre-books, as the brands repositioning efforts seem have turned a corner, said Martinez. 2009 was highlighted by very good full-priced selling across all distribution channels and the spring line consists of a broader core assortment that extends over several categories, with multiple price points.
Simple experienced strong sell-through in 2009 with the ecoSNEAKS product line, but suffered from the reluctance of buyers to make significant inventory commitments during the downturn. The initial reaction to 2010 product has been very favorable with its womens assortment expanding at Nordstrom and distribution gains also coming from Journeys, Delias and Dillards.
Martinez said Ahnus efforts to improve its quality and consistency during the past year has led to better distribution in 2010. At the same time, Martinez said TSUBO is benefiting from its decision to combine TSUBO and Ahnu under one management team.
Both brands remain an integral part of our long-term growth strategy, said Martinez.
