Deckers Brands Q3 Profits Soar Past Guidance

Deckers Brands sharply increased its guidance for its fiscal year after results for the third-quarter ended December 31 handily topped guidance.

“Our third quarter results, which meaningfully exceeded expectations, underscore the progress we have made developing a stronger foundation to support profitable growth,” said Dave Powers, president and chief executive officer. “Our refined product strategies, enhanced consumer messaging and wholesale account optimization efforts resulted in much stronger full price selling for our brand portfolio during the key holiday season. While more favorable weather also contributed to our year-over-year improvement, hard work by the entire organization enabled us to capitalize on additional upside opportunities. Looking ahead, I am confident that the successful execution of our profit improvement plan, combined with the recently passed tax reform, has Deckers in a great position to deliver increased value to our shareholders in the years ahead.”

Third Quarter Fiscal 2018 Financial Review

• Net sales increased 6.6 percent to $810.5 million compared to $760.3 million for the same period last year. On a constant currency basis, net sales increased 6.3 percent.
• Gross margin was 52.2 percent compared to 50.5 percent for the same period last year.
• SG&A expenses were $230.3 million compared to $330.3 million for the same period last year. Non-GAAP SG&A expenses were $220.4 million this year compared to $201.4 million last year.
• Operating income was $193.2 million compared to $53.3 million for the same period last year. Non-GAAP operating income was $203.1 million this year compared to $182.2 million last year.
• Diluted earnings per share was $2.69 compared to $1.27 for the same period last year. Non-GAAP diluted earnings per share was $4.97 this year compared to $4.11 last year. For this year, non-GAAP diluted earnings per share was largely effected by the recently enacted tax reform act.

When it reported second-quarter results in October, Deckers said it expected third quarter revenues in the range of $735.0 million to $745.0 million, and non-GAAP diluted earnings per share are expected to be in the range of $3.65 to $3.75.

Brand Summary

• Ugg brand net sales for the third quarter increased 4.3 percent to $734.7 million compared to $704.0 million for the same period last year.
• Hoka One One net sales for the third quarter increased 65.7 percent to $31.8 million compared to $19.2 million for the same period last year.
• Teva brand net sales for the third quarter increased 33.4 percent to $19.5 million compared to $14.6 million for the same period last year.
• Sanuk brand net sales for the third quarter were flat to last year at $13.9 million.

Channel Summary (included in the brand sales numbers above)

• Wholesale net sales for the third quarter increased 10.3 percent to $428.8 million compared to $388.6 million for the same period last year.
• DTC net sales for the third quarter increased 2.7 percent to $381.7 million compared to $371.7 million for the same period last year. DTC comparable sales for the third quarter increased 1.7 percent over the same period last year.

Geographic Summary (included in the brand and channel sales numbers above)

• Domestic net sales for the third quarter increased 2.5 percent to $501.7 million compared to $489.5 million for the same period last year.
• International net sales for the third quarter increased 14.0 percent to $308.8 million compared to $270.8 million for the same period last year.

Balance Sheet (December 31, 2017 as compared to December 31, 2016)

• Cash and cash equivalents were $493.0 million compared to $296.4 million.
• Inventories were $396.3 million compared to $373.5 million.
• Outstanding borrowings were $32.2 million compared to $62.4 million.

Stock Repurchase Program and Cash Repatriation

During the third quarter the company repurchased approximately 361,000 shares of its common stock for a total of $24.7 million. As of December 31, 2017, the company had $375.6 million remaining under its $400.0 million in stock repurchase authorizations. The company still intends to repurchase approximately $75 million worth of stock prior to the end of fiscal year 2018.

The company intends to repatriate $250.0 million by fiscal year end 2018. This preliminary estimate may be impacted by a number of additional considerations, including but not limited to clarifications or changes to the recently passed tax reform act, the issuance of the final regulations, our ongoing analysis of the new law and our actual earnings for the fiscal year ended March 31, 2018.

Full Year Fiscal 2018 Outlook for the Twelve-Month Period Ending March 31, 2018

Deckers now expects fiscal year 2018 results to be:

• Net sales are expected to be in the range of $1,873 million to $1,878 million.
• Gross margin is expected to be approximately 49 percent.
• SG&A expenses as a percentage of sales are projected to be approximately 37 percent.
• Effective tax rate of approximately 22.5 percent.
• Non-GAAP diluted earnings per share are expected to be in the range of $5.37 to $5.42. This excludes any charges that may occur from additional store closures, restructuring and other charges.
• The earnings per share guidance does not assume any impact of additional share repurchases.

When it reported second-quarter results in October, Deckers forecast net sales would be in the range of up approximately one percent to up two percent versus last year, gross margin  to be approximately 47.5 percent, SG&A expenses as a percentage of sales to be approximately 37 percent and non-GAAP diluted earnings per share are expected to be in the range of $4.15 to $4.30.

Fourth-Quarter Fiscal 2018 Outlook for the Three-Month Period Ending March 31, 2018

• Net sales are expected to be in the range of $370 million to $375 million.
• Effective tax rate of approximately 32 percent.
• Non-GAAP diluted earnings per share are expected to be in the range of $0.15 to $0.20. This excludes any charges that may occur from additional store closures, restructuring and other charges.
• The earnings per share guidance does not assume any impact of additional share repurchases.

Photo courtesy Uggs