Deckers Brands Inc. reported a slight gain in earnings in its second quarter ended September 30 that arrived at the top end of its guidance. Slightly improved margins and revenue gains at Hoka One One and Sanuk offset declines at Ugg and Teva.

“We are pleased with the results of our second quarter and the progress on our plans for the year,” said Dave Powers, president and chief executive officer. “Despite a challenging consumer environment, we delivered earnings per share results that were higher than last year and at the top end of our expectations. Looking ahead, our teams are prepared for the upcoming selling season, and we are excited about our fall and holiday product and marketing plans.”

Second Quarter Fiscal 2017 Financial Review

  • Net sales decreased 0.2 percent to $485.9 million compared to $486.9 million for the same period last year. On a constant currency basis, net sales increased 0.3 percent.
  • Gross margin was 44.5 percent compared to 44.0 percent for the same period last year.
  • SG&A expenses as a percentage of sales were 33.4 percent compared to 33.5 percent for the same period last year. Non-GAAP SG&A expenses as a percentage of sales were 33.2 percent.
  • Operating income was $54.0 million compared to $51.2 million for the same period last year. Non-GAAP operating income was $54.9 million.
  • Diluted earnings per share was $1.21 compared to $1.11 for the same period last year. Non-GAAP diluted earnings per share was $1.23.

Deckers had forecast EPS between $1.12 to $1.22 with sales increasing between 1 and 3 percent.

Brand Summary

  • Ugg brand net sales for the second quarter decreased 2.1 percent to $412.2 million compared to $421.1 million for the same period last year. On a constant currency basis, sales decreased 1.6 percent. The year over year decrease was driven by lower European combined wholesale and distributor sales, primarily due to a delay in our European shipments now deferred to the third quarter, and a decrease in direct-to-consumer (DTC) comparable sales.
  • Teva brand net sales for the second quarter decreased 4.2 percent to $17.1 million compared to $17.9 million for the same period last year. On a constant currency basis, sales decreased 4.8 percent. The decrease in sales was driven by lower domestic wholesale sales.
  • Sanuk brand net sales for the second quarter increased 9.2 percent to $18.9 million compared to $17.3 million for the same period last year. On a constant currency basis, sales increased 9.0 percent. The increase in sales was driven by an increase in global wholesale and distributor sales.
  • Combined net sales of the company’s other brands increased 23.3 percent to $37.7 million compared to $30.6 million for the same period last year. On a constant currency basis, sales increased 23.9 percent. The increase was primarily attributable to increased Hoka One One sales.Hoka One One brand net sales, which are included as part of the company’s other brand sales, increased 39.0 percent compared to the same period last year.

Channel Summary
The channel summary has been included in the brand sales numbers above.

  • Wholesale and distributor net sales for the second quarter decreased 0.1 percent to $399.9 million compared to $400.3 million for the same period last year. On a constant currency basis, sales increased 0.6 percent.
  • DTC net sales for the second quarter decreased 0.7 percent to $86.0 million compared to $86.6 million for the same period last year. On a constant currency basis, sales decreased 1.0 percent. DTC comparable sales for the second quarter decreased 3.2 percent over the same period last year.

Geographic Summary
The geographic summary has been included in the brand and channel sales numbers above.

  • Domestic net sales for the second quarter increased 3.6 percent to $312.2 million compared to $301.6 million for the same period last year.
  • International net sales for the second quarter decreased 6.3 percent to $173.7 million compared to $185.3 million for the same period last year. On a constant currency basis, sales decreased 5.1 percent.

Balance Sheet
At September 30, 2016, cash and cash equivalents were $110.0 million compared to $99.8 million at September 30, 2015. The company had $310.4 million in outstanding borrowings at September 30, 2016 compared to $349.7 million at September 30, 2015.

Company-wide inventories at September 30, 2016 decreased 2.9 percent to $578.0 million from $595.0 million at September 30, 2015. By brand, Ugg inventory decreased 4.1 percent to $512.4 million at September 30, 2016, Teva inventory decreased 9.1 percent to $17.8 million at September 30, 2016, Sanuk inventory decreased 2.7 percent to $18.6 million at September 30, 2016, and the other brands inventory increased 34.0 percent to $29.2 million at September 30, 2016.

Full Year Fiscal 2017 Outlook

  • The company now expects fiscal year 2017 net sales to be in the range of down 3.0 percent to down 1.5 percent.
  • Gross margin for fiscal 2017 is expected to be in the range of 47.0 percent to 47.5 percent.
  • SG&A expenses as a percentage of sales are projected to be approximately 37 percent.
  • The company expects fiscal 2017 diluted earnings per share to be in the range of $4.05 to $4.25. This excludes any pretax charges that may occur from any further restructuring charges.
  • The effective tax rate is expected to be approximately 27 percent.

Previously, the company said it expected net sales to be in the range of down 3 percent to flat. EPS  was expected between $4.05 to $4.40. The projections for gross margins and SG&A expenses remained the same.

Third Quarter Fiscal 2017 Outlook

  • For the three-month period ending December 31, 2016, the company expects third quarter fiscal 2017 net sales to be in the range of down approximately 2 percent to flat versus same period last year. The company expects diluted earnings per share in the range of $4.16 to $4.28 compared to $4.78 for the same period last year.
  • As a reminder, last year’s third quarter included the reversal of performance based compensation which created an SG&A benefit last year of 38 cents in the third quarter.