Deckers Brands announced today that its Board of Directors has authorized a new $335 million stock repurchase program, in addition to the $65 million remaining under Deckers’ current authorization, for a total of $400 million.
This represents approximately 20 percent of the current market capitalization. Deckers also announced the completion of its review of a potential sale of the company. The Board remains open to considering strategic and financial alternatives as part of its ongoing efforts to enhance stockholder value, but will not actively pursue a sale of the entire company at this time.
With the assistance of its advisors, Moelis & Company LLC and Wilson Sonsini Goodrich & Rosati, Professional Corporation, the Board of Directors undertook a thorough and wide-ranging process to consider potential interest in an acquisition of Deckers. As part of that process, Deckers and its advisors contacted 90 potential acquirers, including strategic and financial parties, both domestic and international, but this effort did not result in a transaction.
“Beginning in April, our Board of Directors conducted a comprehensive process to understand the level of interest in an acquisition of the company. Although we are no longer actively pursuing a sale of Deckers, we remain open to considering strategic alternatives that would drive stockholder value,” said John Gibbons, chairman of the Board.
Gibbons added, “We are continuing to focus on the execution of Deckers’ long-term business optimization plan. We stand fully behind Deckers’ strategic plan, portfolio of iconic brands, ongoing cost improvement initiatives, and leadership team. The Board is focused on enhancing stockholder value and approaches that objective with an open mind. To that end, today we are announcing an increase in our total stock repurchase authorization to $400 million. This increased authorization is aligned with our long-range profit improvement plan. We expect to complete the full $400 million of repurchases by year-end fiscal 2020. Further, we are targeting completing approximately $100 million worth of repurchases prior to the end of March 2018. The strength of our balance sheet and our conviction in our future prospects makes this an appropriate time to repurchase stock and return capital to stockholders.”
As previously announced, Deckers is executing on a focused strategy to drive enhancements in its business through streamlining its cost structure. The company continues to aggressively move forward with its $100 million operating profit improvement plan: in fiscal year 2018, Deckers expects to improve profitability by over $20 million, and is targeting progressive improvements in profitability each year through fiscal year 2020. To achieve this, Deckers is taking a number of actions to improve its gross profit margins, as well as its corporate overhead expense structure.
Dave Powers, president and chief executive officer, commented, “Our strategic initiatives position us well to achieve the operating profit targets established for fiscal 2018 and longer-term. We continue to focus on driving improvements in the business through streamlining our cost structure. Our aim is to repurchase stock while continuing to improve our operating profit, which simultaneously returns capital to stockholders and positions Deckers for long-term growth.”
The stock repurchases will be funded through domestic cash flows, and supplemented by modest incremental leverage. The Board believes that the business can conservatively support a debt to EBITDA ratio of 1x, while also providing significant flexibility to support Deckers’ growth initiatives and seasonal working capital needs. The stock repurchase program will accelerate Deckers’ EPS growth while the $100 million operating profit improvement plan is implemented.
The timing of the purchases and the amount of stock repurchased will depend on market and business conditions, stock price, applicable legal requirements and other factors. Purchases may be affected through one or more open market transactions, transactions structured through investment banking institutions, or a combination of the foregoing. Deckers is not obligated under the program to acquire any particular amount of stock and can suspend or terminate the program at any time.
Deckers owns Ugg, Hoka One One, Sanuk and Teva.
Photo courtesy Ugg