Deckers Brands Inc. reported earnings on an adjusted basis were off 35.3 percent as sales slid 4.9 percent.  A 51.8 percent hike in Hoka One One was unable to offset a 17.9 percent decline at Ugg tied to store closures.

The company also provided an update regarding its response to COVID-19.

“Fiscal year 2020 performance was driven by the strength of our brand portfolio, fueled by targeted investments in our key initiatives, coupled with disciplined financial management,” said Dave Powers, president and chief executive officer. “We expect fiscal year 2021 results to be impacted depending on the duration and severity of the COVID-19 pandemic, but our in-demand brands, omnichannel capabilities, and healthy balance sheet position us well to weather this challenging environment.”

Fourth Quarter Fiscal 2020 Financial Review

  • Net sales decreased 4.9 percent to $374.9 million compared to $394.1 million for the same period last year. On a constant currency basis, net sales decreased 4.5 percent.
  • Gross margin was 51.5 percent compared to 51.6 percent for the same period last year.
  • SG&A expenses were $176.3 million compared to GAAP SG&A expenses last year of $171.7 million and Non-GAAP SG&A expenses last year of $170.4 million.
  • Operating income was $16.7 million compared to GAAP operating income of $31.6 million for the same period last year and Non-GAAP operating income of $32.9 million for the same period last year.
  • Income tax expense was $0.6 million compared to GAAP income tax expense of $9.6 million for the same period last year and Non-GAAP income tax expense of $9.9 million for the same period last year.
  • Earnings were $16.1 million, or 57 cents a share, down from $24.0 million, or 82 cents. On an adjusted basis, earnings were down 35.3 percent from $24.9 million, or 85 cents, for the same period last year.

Full Year Fiscal 2020 Financial Review

  • Net sales increased 5.6 percent to $2.133 billion compared to $2.020 billion for the same period last year. On a constant currency basis, net sales increased 6.5 percent.
  • Gross margin was 51.8 percent compared to 51.5 percent for the same period last year.
  • SG&A expenses were $765.5 million compared to GAAP SG&A expenses last year of $712.9 million for and Non-GAAP SG&A expenses last year of $713.3 million.
  • Operating income was $338.1 million compared to GAAP operating income of $327.3 million for the same period last year and Non-GAAP operating income of $327.0 million for the same period last year.
  • Income tax expense was $64.7 million compared to GAAP and Non-GAAP income tax expense of $64.6 million for the same period last year.
  • Diluted earnings per share were $9.62 compared to GAAP and Non-GAAP diluted earnings per share of $8.84 for the same period last year.

Brand Summary

  • Ugg brand net sales for the fourth quarter decreased 17.9 percent to $196.3 million compared to $239.0 million for the same period last year. For fiscal year 2020, net sales decreased 0.8 percent to $1.521 billion.
  • Hoka One One brand net sales for the fourth quarter increased 51.8 percent to $101.9 million compared to $67.1 million for the same period last year. For fiscal year 2020, net sales increased 58.0 percent to $352.6 million.
  • Teva brand net sales for the fourth quarter increased 12.5 percent to $59.6 million compared to $52.9 million for the same period last year. For fiscal year 2020, net sales increased 0.4 percent to $138.0 million.
  • Sanuk brand net sales for the fourth quarter decreased 57.8 percent to $13.3 million compared to $31.5 million for the same period last year. For fiscal year 2020, net sales decreased 38.1 percent to $51.2 million.

Channel Summary (included in the brand sales numbers above)

  • Wholesale net sales for the fourth quarter decreased 2.9 percent to $230.7 million compared to $237.5 million for the same period last year. For fiscal year 2020, wholesale net sales increased 6.9 percent to $1.396 billion.
  • DTC net sales for the fourth quarter decreased 7.9 percent to $144.2 million compared to $156.6 million for the same period last year. DTC comparable sales in the fourth quarter decreased 3.7 percent versus the prior year, which excludes the final two weeks of retail store sales due to COVID-19 impacts. For fiscal year 2020, DTC net sales increased 3.1 percent to $736.9 million and DTC comparable sales increased 5.0 percent over the same period last year.

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

  • Domestic net sales for the fourth quarter decreased 8.4 percent to $230.8 million compared to $252.0 million for the same period last year. For fiscal year 2020, domestic net sales increased 9.6 percent to $1.402 billion.
  • International net sales for the fourth quarter increased 1.4 percent to $144.1 million compared to $142.1 million for the same period last year. For fiscal year 2020, international net sales decreased 1.5 percent to $731.0 million.

Balance Sheet (March 31, 2020, as compared to March 31, 2019)

  • Cash and cash equivalents were $649.4 million compared to $589.7 million.
  • Inventories were $311.6 million compared to $278.8 million.
  • Outstanding borrowings were $30.9 million compared to $31.5 million. The full amount of outstanding borrowings relate to the mortgage on the company’s corporate headquarters.

Stock Repurchase Program
During the fourth quarter, the company did not repurchase any shares of its common stock. As of March 31, 2020, the company had $160 million remaining under its stock repurchase authorizations. The company has paused share repurchase activity for the time being but retains the discretion to commence share repurchase activity in future periods.

Financial Outlook
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.

COVID-19 Update
The company continues to modify and evolve its operations in response to the COVID-19 pandemic. The company will continue to review expert agency guidelines, as well as information from health officials and local authorities while assessing the appropriate scope of operations and allocation of resources necessary to navigate this dynamic and unprecedented environment.

Company Liquidity
As of March 31, 2020, the company had a liquidity position of over $1 billion dollars, which included $649.4 million in cash and cash equivalents and $469.5 million available under its existing revolving credit facilities.

As of fiscal year-end, the company did not have any outstanding borrowings under any of its existing revolving credit facilities.

Retail Stores
On March 17, 2020, the company announced a temporary closure of its retail stores in North America and Europe. Subsequently, store locations in Japan were also temporarily closed. These temporary closures largely remain in effect across many locations at this point in time. Due to the extended closure for many of these store locations, the company has furloughed a portion of its retail employees. As stores begin to reopen, they will do so with modified operations including enhanced health and safety protocols. Additionally, some stores that have recently reopened are operating at a limited capacity as they continue to adapt to new and evolving challenges related to COVID-19.

Supply Chain
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 maintains a network of strategic sourcing partners which includes material vendors and production factories. The company experienced certain disruptions to sourcing with its third-party manufacturers during the fourth quarter of fiscal year 2020. While these disruptions have since been mitigated, it is possible that there will be disruptions in the future.

Operating Expense Plans
To mitigate the adverse impact the COVID-19 pandemic may have on its business and operations, the company has reduced planned levels of operating expense for the upcoming fiscal year and has implemented a number of temporary measures to reduce operating expense, including restricting employee travel, suspending hiring of certain non-essential employees, suspending annual salary increases, canceling or postponing certain events, converting in-person meetings to virtual platforms, eliminating or deferring other discretionary expenditures, and in certain cases seeking payment accommodations or deferrals.