Deckers Brands Raises Full-Year Outlook On Accelerated Momentum At Hoka

Deckers Brands raised its full-year guidance after reporting both earnings and sales for the second quarter topped company guidance due to strength at Hoka One One. Hoka delivered a 49.9 percent year-over-year gain in the quarter. Ugg’s sales grew 2.2 percent while Teva’s moved up 6.7 percent.

“We continue to see positive momentum in the fiscal year, and we are raising our full year outlook to reflect the acceleration we are seeing in the Hoka brand, while at the same time maintaining expectations for the UGG brand heading into the peak selling season,” said Dave Powers, president and chief executive officer. “As we move into the third quarter, the teams are intently focused on our key strategies and are committed to building excitement around new product offerings through planned targeted marketing investments that will be visible in the coming months.”

Second Quarter Fiscal 2020 Financial Review

• Net sales increased 8.0 percent to $542.2 million compared to $501.9 million for the same period last year. On a constant currency basis, net sales increased 9.5 percent.
• Gross margin was 50.4 percent compared to 50.2 percent for the same period last year.
• SG&A expenses were $175.9 million compared to GAAP SG&A expenses last year of $161.5 million and Non-GAAP SG&A expenses last year of $161.2 million.
• Operating income was $97.1 million compared to GAAP operating income of $90.4 million for the same period last year and Non-GAAP operating income of $90.7 million for the same period last year.
• Income tax expense was $19.4 million compared to GAAP income tax expense of $15.4 million for the same period last year and Non-GAAP income tax expense of $19.0 million for the same period last year.
• Diluted earnings per share was $2.71 compared to the GAAP diluted earnings per share of $2.48 for the same period last year and the Non-GAAP diluted earnings per share of $2.38 for the same period last year.

Deckers had expected sales to arrive in the range of $515 million to $525 million. Non-GAAP EPS is expected to be in the range of $2.15 to $2.25.

Brand Summary

• UGG brand net sales for the second quarter increased 2.2 percent to $404.9 million compared to $396.3 million for the same period last year.
• HOKA ONE ONE brand net sales for the second quarter increased 49.9 percent to $78.1 million compared to $52.1 million for the same period last year.
• Teva brand net sales for the second quarter increased 6.7 percent to $23.0 million compared to $21.5 million for the same period last year.
• Sanuk brand net sales for the second quarter decreased 22.4 percent to $10.7 million compared to $13.8 million for the same period last year.

Channel Summary (included in the brand sales numbers above)

• Wholesale net sales for the second quarter increased 8.7 percent to $443.5 million compared to $408.0 million for the same period last year.
• DTC net sales for the second quarter increased 5.1 percent to $98.7 million compared to $93.9 million for the same period last year. DTC comparable sales increased 7.2 percent over the same period last year.

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

• Domestic net sales for the second quarter increased 14.9 percent to $358.0 million compared to $311.6 million for the same period last year.
• International net sales for the second quarter decreased 3.2 percent to $184.2 million compared to $190.3 million for the same period last year. On a constant currency basis, international net sales decreased by 0.5 percent.

Balance Sheet (September 30, 2019 as compared to September 30, 2018)

• Cash and cash equivalents were $177.7 million compared to $182.2 million.
• Inventories were $558.9 million compared to $514.9 million.
• Outstanding borrowings were $44.2 million compared to $102.7 million.

Stock Repurchase Program

During the second quarter, the company repurchased approximately 1.1 million shares of its common stock for a total of $155 million at an average price of $145.31. As of September 30, 2019, the company had $160 million remaining under its stock repurchase authorizations.

Full Year Fiscal 2020 Outlook for the Twelve Month Period Ending March 31, 2020

• Net sales are now expected to be in the range of $2.115 billion to $2.140 billion.
• Gross margin is now expected to be approximately 50.8 percent.
• SG&A expenses as a percentage of sales are projected to be slightly lower than 36.0 percent.
• Operating margin is now expected to be approximately 15.0 percent.
• Effective tax rate expected to be approximately 20.5 percent.
• Diluted earnings per share now expected to be in the range of $8.90 to $9.05.
• The earnings per share guidance excludes any impact from additional share repurchases.

Third Quarter Fiscal 2020 Outlook for the Three Month Period Ending December 31, 2019

• Net sales are expected to be in the range of $885 million to $900 million.
• Diluted earnings per share are expected to be in the range of $6.30 to $6.40.
• The earnings per share guidance excludes any impact from additional share repurchases.

Board of Directors Announcement

Effective today, our Board of Directors has appointed Mike Devine as our Chairman of the Board. Devine has served as a member of our Board since 2011. He succeeds John Gibbons, who has served as our Chairman since September 2017 and as a director since 2000, during which time he also served as our Lead Independent Director. Mr. Gibbons will continue to serve on our Board and we thank Mr. Gibbons for his dedicated service as our Chairman during which time he led us through an important transition. We are excited to welcome Mr. Devine into his new role as Chairman.