Deckers Brands widened its loss in its first quarter due to higher expenses but stronger-than-planned performances by Teva and Hoka One One helped management slightly raise its outlook for the year.
The net loss reached $47.3 million, or $1.43 a share, against a loss of $37.1 million, or $1.07, a year ago.
The quarter is Deckers’ smallest quarter with a focus on the sell-through of its spring collections and the start of shipping early fall orders. Consequently, a hike in SG&A expenses to 70.3 percent of sales compared to 64.9 percent a year ago particularly weighed on the bottom line.
The year-over-year increase in expenses was due to additional stores opened this year, increased marketing expense, operating expenses to set up infrastructure in Germany, and expenses related to transitioning to a new distribution center.
Gross margins eroded to 40.5 percent from 41.0 percent last year with the decline attributed to FX headwinds from the strengthening of the U.S. dollar, which amounted 200 basis points. This was partially offset by a higher proportion of DTC sales.
Sales inched up 1.1 percent to $213.8 million and grew 4.5 percent on a currency-neutral basis.
On a conference call with analysts, Angel Martinez, CEO, said the quarter performed in line with expectations.
“We are pleased with the start of the year, and that the results continue to support our long-term strategy of driving diversified revenue growth across our channels, across our brands, and our region,” said Martinez. “During the first quarter, each of our brands showcased their most robust and diverse spring collections ever. Our focus has been on further evolving the lifestyle nature of our brands, in order to broaden their commercial appeal, and selectively open new distributions.”
Ugg’s sales decreased 7.2 percent to $114.5 million, in line with expectations. On a currency-neutral basis, sales decreased 3.0 percent. The decrease in sales was driven by foreign currency pressure that caused a decrease in international distributor sales and a decrease in global direct-to-consumer (D2C) sales, primarily due to lower tourist traffic, partially offset by an increase in global wholesale sales.
Martinez said that during the quarter, Ugg’s spring product delivered a “strong performance,” further helping diversify the business and reduce its seasonality. Strong year over year growth was seen in Ugg’s women's spring casuals, with particular strength in sandals. In men’s, sales were fueled by its expanded twin sole offering, offering an interchangeable option of Ugg Pure or leather insoles. Men’s sales were also driven by the introduction of its lightweight Treadlite collection.
Teva’s sales increased 6.8 percent to $41.9 million. On a currency-neutral basis, sales increased 12.0 percent, driven by an increase in global wholesale and distributor sales and global DTC sales.
Martinez said Teva continues to attract new and former consumers to the brand, with its focus on its Original sports sandal. He said the brand sold in a bigger collection of Originals, and Original derivatives into expanded distribution that includes key lifestyle retailers.
“Their response has been very positive, with particular excitement generated by the Teva Flatform,” said Martinez. “On top of this, the derivatives and high profile collaborations have added to the brand's relevancy, with more fashion-conscious consumers and retailers.”
He added, “Our efforts to reposition the brand from an outdoor brand into a lifestyle brand has expanded Teva's potential audience, which is leading to expanded distribution, and increasing the long-term growth prospect for the brand.”
Expanded distribution is helping Teva grow the brand's domestic footprint, which includes specialty retailers and national accounts like Urban Outfitters, Nordstrom, Gap and Madewell. The new direction is also benefiting Teva's international growth, where the brand is focusing on key cities like London, Paris, Tokyo and Seoul.
Sanuk’s sales declined 7.0 percent to $33.5 million, below plan. The decline was driven by a decrease in global wholesale and distributor sales, partially offset by an increase in global DTC sales.
Martinez said Sanuk was impacted by industry headwinds in the core action sports specialty channel.
“While we are not pleased with these results, the brand performed well at its national accounts, which includes an expanded door count of department stores and footwear retailers,” said Martinez.
Martinez said the focus has been on growing penetration at national accounts Tilly's, Journeys and Dillards to bring more diverse consumers into the franchise. He added, “The success this spring with our national accounts positions the brand well for these accounts to continue to devote more open to buy dollars to their growing business with Sanuk.”
Sanuk also made progress on its long-term strategy to move a higher proportion of the brand into women's due in large part to the growing demand for the Yoga Sling collection.
Combined sales of the company's Other Brands segment (Hoka One One and Ahnu) increased 85.6 percent to $23.9 million, primarily driven by Hoka.
Hoka’s revenues jumped 135 percent on a currency-neutral basis. Said Martinez, “The rapid growth continues, as the brand has grown from a niche brand for ultra marathon runners into a brand for all types of runners.”
Hoka’s spring performance was driven by a strong response to updates to its popular Clifton and Bondi running shoes, which are both becoming strong franchise models.
“We are extremely excited with how Hoka has penetrated the highly competitive running market in a short period of time,” said Martinez. “The brand's consumers are fanatical about the products, and the combination of our amazing product targeted marketing efforts, and more mainstream distribution is making Hoka one of the most exciting brands to ever enter the running market.”
Looking ahead, Deckers continues to expect sales on a currency-neutral basis to be approximately $2.01 billion, reflecting a 10.5 percent increase. On a reported basis, revenues are expected to be $1.96 billion, or an increase of 8.0 percent.
Deckers raised its EPS estimate for the year on a currency-neutral basis to $5.68 a share, reflecting an increase of 22 percent. On a reported basis, Deckers now expects earnings to be $5.15, or an increase of 10.5 percent. It had expected $5.60 on a currency-neutral basis and $5.09 on a reported basis.
The company expects second quarter constant currency revenues to be up approximately 5.0 percent over the same period last year and up approximately 1.0 percent on a reported basis. EPS is expected to reach $1.05 on a reported basis compared to $1.17 for the same period last year. On a constant currency basis, EPS is expected to be $1.41, representing growth of 20 percent.
