Deckers Brands reported a steep loss in its fiscal first quarter ended June 30 on an 18.4 percent drop in revenues, due largely to the timing of shipments, although results came in above internal guidance. Sales were also impacted by a decrease in direct-to-consumer (DTC) comparable sales, and fewer close-out sales.

“We are encouraged by our start to fiscal 2017, and we remain on track to deliver the sales and profitability targets we established for the year,” commented Dave Powers, president and chief executive officer. “Looking ahead, I am confident that our product lineup and marketing plans for this fall and holiday will help drive sales during our key selling season. I am excited about the progress we are making in this transitional year, and believe we are positioning the company to capitalize on the opportunities in front of us.”

First Quarter Fiscal 2017 Financial Review

Net sales decreased 18.4 percent to $174.4 million compared to $213.8 million for the same period last year. The year-over-year decrease was due to the timing of order shipments between quarters, a decrease in DTC comparable sales and fewer close-out sales. On a constant currency basis, net sales decreased 18.8 percent.

Gross margin was 43.7 percent compared to 40.5 percent for the same period last year.

SG&A expenses as a percentage of sales were 88.6 percent compared to 70.3 percent for the same period last year. Non-GAAP SG&A expenses as a percentage of sales were 87.6 percent.

Operating loss was $78.3 million compared to $63.7 million for the same period last year. Non-GAAP operating loss was $76.6 million.

Diluted loss per share was $1.84 compared to $1.43 for the same period last year. Non-GAAP diluted loss per share was $1.80.

Brand Summary

Ugg brand net sales for the first quarter decreased 19.8 percent to $91.9 million compared to $114.5 million for the same period last year. On a constant currency basis, sales decreased 20 percent. The decrease in sales was driven by a shift in the timing of order shipments between quarters, which impacted global wholesale and distributor sales, a decrease in DTC comparable sales and fewer close-out sales.

Teva brand net sales for the first quarter decreased 17.3 percent to $34.7 million compared to $41.9 million for the same period last year. On a constant currency basis, sales decreased 18.3 percent. The decrease in sales was driven by a decrease in global wholesale sales.

Sanuk brand net sales for the first quarter decreased 20.2 percent to $26.7 million compared to $33.5 million for the same period last year on both a reported and constant currency basis. The decrease in sales was driven by a decrease in global wholesales.

Combined net sales of the company’s other brands decreased 11.6 percent to $21.1 million compared to $23.9 million for the same period last year. On a constant currency basis, sales decreased 11.8 percent. The decrease was primarily attributable to discontinued brands. Hoka One One reported numbers which are included as part of the company’s other brand sales, increased 1.8 percent to $17.6 million compared to the same period last year.

Channel Summary

Wholesale and distributor net sales for the first quarter decreased 24.3 percent to $116.1 million compared to $153.4 million for the same period last year. On a constant currency basis, sales decreased 24.6 percent. The decrease in sales was driven by a shift in the timing of order shipments between quarters and fewer close-out sales.

DTC net sales for the first quarter decreased 3.6 percent to $58.3 million compared to $60.4 million for the same period last year. On a constant currency basis, sales decreased 3.8 percent. DTC comparable sales for the first quarter decreased 7.3 percent over the same period last year.

Geographic Summary

Domestic net sales for the first quarter decreased 18.6 percent to $109.5 million compared to $134.5 million for the same period last year.

International net sales for the first quarter decreased 18.2 percent to $64.9 million compared to $79.3 million for the same period last year. On a constant currency basis, sales decreased 19.1 percent.

Balance Sheet

On June 30, 2016, cash and cash equivalents were $202.3 million compared to $168.7 million at June 30, 2015. The company had $110.6 million in outstanding borrowings under its credit facility at June 30, 2016 compared at $43.4 million on June 30, 2015.

Company-wide inventories at June 30, 2016 increased 25.6 percent to $469.2 million from $373.6 million at June 30, 2015. By brand, Ugg inventory increased 25.5 percent to $385.8 million at June 30, 2016, Teva inventory increased 10.5 percent to $24.9 million at June 30, 2016, Sanuk inventory increased 31.4 percent to $23.5 million at June 30, 2016 and the other brand’s inventory increased 35.0 percent to $35.0 million at June 30, 2016. The elevated levels of inventory were in line with expectations given the unseasonably warm weather experienced in the third quarter of fiscal 2016.

Full Year Fiscal 2017 Outlook for the Twelve-Month Period Ending March 31, 2017

The company continues to expect fiscal year 2017 net sales to be in the range of down (3) percent to flat.
Gross margin for fiscal 2017 is expected to be in the range of 47.0 percent to 47.5 percent.
SG&A expenses as a percentage of sales are projected to be approximately 37 percent.
The company expects fiscal 2017 diluted earnings per share to be in the range of $4.05 to $4.40. This excludes any pretax charges that may occur from any further restructuring charges, which are expected to be in the range of $10-$15 million in fiscal year 2017.
Second Quarter Fiscal 2017 Outlook for the Three Month Period Ending September 30, 2016

The company expects second quarter fiscal 2017 net sales to be up 1 percent to 3 percent versus the same period last year. It also expects diluted earnings per share of approximately $1.12 to $1.22 compared to $1.11 for the same period last year.
As a reminder, a significant amount of operating expenses are fixed and spread evenly on an absolute dollar basis throughout each quarter. They expect the majority of their earnings to increase in fiscal 2017 to come in the third and fourth quarters.

Photo Courtesy Teva/Deckers