By Thomas J. Ryan

Deckers Brands (NYSE:DECK) became the latest active lifestyle company to lower its sales guidance, hurt by lower wholesale orders following last year’s warm winter.

For Deckers, the seasonal woes came particularly from its powerhouse Ugg, which accounted for 85 percent of its sales during the quarter. But on an October 27 conference call with analysts, company officials were generally upbeat about the upcoming holiday selling season.

“As we move into our busiest sell-through period, we continue to be confident that this inner strength of our fall collections and the updates we made to the iconic (Ugg) Classic franchise,” said Deckers President and CEO Dave Powers on the call. However, similar to several other firms, he noted that as the year has progressed retailers have become more conservative with orders. “The impact from last year’s warm winter, combined with the sales compression caused by the buy-now, wear-now trend, has caused retailers to be cautious about committing to future orders,” Powers said. “Therefore, we have lowered the top end of our guidance range to reflect what we believe will be a slightly weaker reorder environment.”

The company now expects sales for its fiscal year ending March 2017 to be in the range of down 1.5 percent to down 3 percent. Previously, sales were projected to be in the range of flat to down 3 percent. EPS is now expected to range between $4.05 and $4.25, versus $4.05 to $4.40 previously.

Earnings in the second quarter rose 8 percent to $37.6 million, or $1.21 a share, reaching the high end of the company’s forecast calling for earnings in the range of $1.12 to $1.22.

Deckers’ sales decreased 0.2 percent to $485.9 million and were off 0.3 percent on a currency-neutral basis. Sales were slightly below guidance calling for an increase between 1 and 3 percent, but it was primarily due to approximately $6 million in orders delayed in shipping as a result of a recent transition to new European third-party logistics. Those sales are expected to be made up during the company’s fiscal third quarter.

Powers noted that inventory at the end of September was down 3 percent compared to last year. The company managed last year’s excess inventory by reducing future buys, packing and holding products and using it to fulfill its orders this season. Said Powers, “We delivered on our plan, and going forward we expect to manage inventory in line with sales.”

Among its brands, Ugg’s sales decreased 2.1 percent in the quarter to $412.2 million and were down 1.6 percent on a currency-neutral basis. The year-over-year decrease was driven by lower European combined wholesale and distributor sales, primarily due to a delay in European shipments now deferred to the third quarter, and a decrease in direct-to-consumer (DTC) comparable sales.

In its Fashion Lifestyle Group, Powers also noted that Koolaburra is now selling at wholesale accounts, including Kohl’s, Shoe Carnival, DSW and Amazon, and officials are “closely monitoring” the opportunity.

Hoka One One was again the top performer in its Performance Lifestyle Group, with sales ahead 39 percent. The gains were fueled in part by a successful launch of the Clifton 3. “We are beginning to see the strong word-of-mouth marketing that has fueled Hoka’s domestic growth spread outside the U.S., which is timely as we are stepping up our efforts to capitalize on the brand’s international prospects,” Powers said.

Combined net sales of the company’s other brands, which include Hoka as well as the discontinued Ahnu line, increased 23.3 percent to $37.7 million and grew 23.9 percent on a currency-neutral basis.

Teva and Sanuk both performed in line with expectations for the quarter. Teva’s sales slid 4.2 percent to $17.1 million. Sales on a currency-neutral basis were down 4.8 percent, driven by lower domestic wholesale sales. Powers said Teva remains “focused on developing the right product for the modern outdoor consumer.” Sanuk’s sales expanded 9.2 percent to $18.9 million and grew 9 percent on a currency-neutral basis. The increase was driven by an increase in global wholesale and distributor sales.

Powers said Sanuk “continues to establish itself” as it transitions from its prior headquarters in Irvine, CA to Deckers Brands’ offices up north in Goleta, CA. A new leadership team is in place and the brand “is looking ahead and is focused on returning to its core product and marketing strengths.”

By channel, wholesale and distributor sales for the quarter eased 0.1 percent to $399.9 million. On a currency-neutral basis, sales increased 0.6 percent. DTC sales slipped 0.7 percent to $86 million and were down 1 percent on a currency-neutral basis. DTC comps fell 3.2 percent. By region, domestic sales climbed 3.6 percent to $312.2 million. International sales sunk 6.3 percent to $301.6 million and were off 5.1 percent on a currency-neutral basis due to the transition to a new 3PL.

Gross margin improved to 44.5 percent compared to 44.0 percent for the same period last year. SG&A expenses were reduced to 33.4 percent of sales compared to 33.5 percent for the same period last year.

For the company’s current fiscal third quarter, sales are expected to be in the range of flat to down 2 percent versus the same period last year. EPS is expected in the range of $4.16 to $4.28. It earned $4.78 in the year-ago period, although that included a benefit of 38 cents a share from the reversal of performance-based compensation.

Powers said that since succeeding Angel Martinez as CEO on May 31, he remains “in the process of looking at the whole organization” for efficiencies across the supply chain, as well as with marketing and expense management. But he said he’s “energized” by the early response to the Classic II and stepped-up marketing efforts, including digital with more of an educational component to support the launch, makes him bullish on holiday prospects.

“I believe that we have the most compelling product assortment in the history of the Ugg brand with a full franchise of Classics, a robust assortment of weather product, great fashion in casual boots, as well as a more versatile slipper offering,” said Powers. “While there are challenges in the marketplace, I am confident we will be able to execute on our plans for the season.”

Photo courtesy Ugg