Deckers Brands reported earnings rose 30.5 percent in the second quarter ended September 30 on a 15 percent revenue gain. Results came in well above Wall Street’s targets. Ugg’s sales grew 2.5 percent while Hoka One One’s catapulted 83.2 percent.
“Deckers’ record second-quarter performance was the result of our powerful brands, dedicated teams, innovative product launches, and ability to capture demand online,” said Dave Powers, President and CEO. “We are thrilled by the resilience of our organization to deliver strong results in the first half of fiscal year 2021. Our brands are operating from a position of strength, and while we continue to navigate the challenges of a global pandemic, the demand for our brands combined with our strong operating model and healthy balance sheet leaves Deckers well-positioned for the long-term.”
Second Quarter Fiscal 2021 Financial Review
- Net sales increased 15.0 percent to $623.5 million compared to $542.2 million for the same period last year. Wall Street’s consensus estimate had been $553.62 million. On a constant currency basis, net sales increased 14.1 percent;
- Gross margin was 51.2 percent compared to 50.4 percent for the same period last year;
- SG&A expenses were $190.4 million compared to $175.9 million for the same period last year;
- Income from operations was $128.6 million compared to $97.1 million for the same period last year;
- Income tax expense was $26.4 million compared to $19.4 million for the same period last year; and
- Net earnings rose 30.5 percent to $101.6 million, or $3.58, from $77.8 million, or $2.71, a year ago. Wall Street’s consensus estimate had been $2.68.
- Ugg brand net sales for the second quarter increased 2.5 percent to $415.1 million compared to $404.9 million for the same period last year.
- Hoka One One brand net sales for the second quarter increased 83.2 percent to $143.1 million compared to $78.1 million for the same period last year.
- Teva brand net sales for the second quarter increased 20.5 percent to $27.7 million compared to $23.0 million for the same period last year.
- Sanuk brand net sales for the second quarter decreased 11.4 percent to $9.5 million compared to $10.7 million for the same period last year.
(included in the brand net sales numbers above)
- Wholesale net sales for the second quarter increased 1.8 percent to $451.6 million compared to $443.5 million for the same period last year; and
- DTC net sales for the second quarter increased 74.2 percent to $171.9 million compared to $98.7 million for the same period last year. DTC comparable sales increased 86.2 percent over the same period last year.
(included in the brand and channel net sales numbers above)
- Domestic net sales for the second quarter increased 19.4 percent to $427.4 million compared to $358.0 million for the same period last year; and
- International net sales for the second quarter increased 6.4 percent to $196.1 million compared to $184.2 million for the same period last year.
(September 30, 2020 as compared to September 30, 2019)
- Cash and cash equivalents were $626.4 million compared to $177.7 million;
- Inventories were $484.1 million compared to $558.9 million; and
- Outstanding borrowings were $39.9 million compared to $44.2 million.
Stock Repurchase Program
During the second quarter, the company did not repurchase any shares of its common stock. As of September 30, 2020, the company had $160 million remaining under its stock repurchase authorizations.
Given the ongoing and fluid economic environment related to the COVID-19 pandemic, the company will not be providing full-year guidance for fiscal year 2021.
The company continues to modify and evolve its operations in response to COVID-19. The company will continue to review expert agency guidelines as well as information from health officials and local authorities while assessing and evolving the appropriate scope of operations and allocation of resources necessary to navigate this dynamic and unprecedented environment.
As of September 30, 2020, the company had a liquidity position of approximately $1.1 billion dollars, which included $626.4 million in cash and cash equivalents and $462.6 million available under its existing revolving credit facilities.
Approximately 95 percent of the company’s global stores were open for the entire second quarter. Stores continue to operate with limited capacity due to enhanced health and safety protocols. Given the ongoing and uncertain pandemic conditions, which include meaningful local and regional differences in restrictions imposed on retail store operations, the company expects some retail store closures within the EMEA region for at least a portion of the third quarter and anticipates that additional retail stores could be subject to closures or further operating limitations based on expert agency guidance and local authority mandates.
The company’s distribution center in Moreno Valley, CA, as well as other third-party distribution facilities that the company leverages to service its operations, are currently in operation and supporting ongoing logistics; however, these facilities may continue to operate at limited capacity due to the enhanced health and safety measures now in place. The company anticipates operational challenges related to capacity constraints, including higher levels of eCommerce shipments during peak wholesale volume periods, as well as increased costs associated with warehouse employee safety and payroll expense. Its third-party logistics providers are also experiencing capacity constraints which are having an adverse effect on its operations. These include inbound ocean and air transportation, port congestion, as well as outbound truck,s and parcel transportation.
The company maintains a network of strategic sourcing partners which includes material vendors and third-party manufacturers. The company continued to experience certain capacity constraints within its sourcing network during the second quarter, in addition to disruptions related to travel restrictions between country borders and production facilities. While the effects of these disruptions have been mitigated thus far, it is possible that there will be disruptions in the future.
Photo courtesy Deckers Brands/Hoka One One