Deckers Brands reported earnings in the company’s second quarter ended September 30 that arrived far ahead of company guidance due to improving gross margins and lower-than-planned SG&A expenses. Among brands, Hoka One One delivered another quarter of robust sell-throughs while Ugg primed for strong holiday selling.

In the quarter, earnings jumped 50.1 percent to $74.4 million, or $2.48. Non-GAAP diluted earnings rose 44.2 percent to $71.5 million, or $2.38. Results were well above guidance calling for non-GAAP EPS in the range of $1.60 to $1.70.

Sales increased 4.0 percent to $501.9 million and expanded 3.3 percent on a constant-currency basis. Guidance called for sales in the range of $485.0 million to $495.0 million

On a conference call with analysts, Dave Powers, president and CEO, said each of the company’s key growth drivers, Hoka One, One, Ugg Men’s and Ugg Women’s spring/summer and transitional product, ”continued to gain positive traction in the marketplace and contributed to our success over the past three months.”

But the strong earnings beat reflected improved gross margins, lower-than-planned SG&A expenses and the repurchase of $125 million of stock in the quarter.

Gross margin was up 350 basis points to 50.2 percent. The improvement largely came from its domestic wholesale business, driven by tight management of airfreight cost, better full-price selling and favorable mix of products sold. Also helping was lower material input costs and improved gross margins in its growing DTC business.

Non-GAAP SG&A expense came in at $161 million, up 2 percent to last year but lower than expected due in part to savings in logistics and warehouse expenses due to a regional mix of sales shift in the quarter. Some marketing expense was also pushed to the second half of fiscal 2019 and savings were achieved in Deckers’ shared service function.

Among the company’s brands, Ugg’s sales for the quarter slipped 1.0 percent to $396.3 million due to a previously-announced shift to a classic allocation and product segmentation strategy in the U.S. for the fall season. Said Powers, “While this impacted a portion of the sell-in this quarter, we believe this change in distribution strategy has the ability to drive a pull model, leading to better sell-through and less promotional activity in the brand’s largest market.”

For the second quarter, Ugg’s global wholesale sales were in line with expectations, as strength in the U.S. and Asia-Pacific offset some weakness in Europe. At the same time, the brand delivered solid DTC performance led by e-commerce with brick-and-mortar results coming in as expected.

One priority for Ugg will be focusing on the initial release of certain new products exclusively in the brand’s DTC channel. The launch of the Fluff Yeah Slide, a year-round transitional product, at the DTC level quickly became a top seller on ugg.com. DTC success and digital marketing efforts led to strong sell-through in reorders with Ugg’s wholesale partners.

The fall/winter 2018’s marketing campaign focuses on the brand’s 40th anniversary. Other priorities for Ugg include developing compelling product, leveraging DTC infrastructure for speed to market, creating a deep relationship with consumers and attracting new and younger consumer. Said Powers, “This fall/winter season shows progress on that front as we have successfully launched new compelling product, including the Fluff Yeah Slide and Neutra Sneaker, both non-classic products which are experiencing strong sell-through”

Ugg is reaching out to new and younger consumers by partnering with new accounts including Urban Outfitters, SIX:02, JD Sports and Foot Locker and through social media efforts. Added Powers, “According to YouGov, brand impression in the U.S. is up 59 percent with 18-to-34-year-old women in our fiscal 2019 to-date. I believe this, along with clean channel inventory and the classics allocation and product segmentation strategy, position the brand well for successful holiday season.”

Hoka One One’s sales for the quarter jumped 28.4 percent to $52.1 million. The growth was helped by successful updates to the Clifton and Bondi franchises. The Hupana, which has been out for a few seasons, achieved triple-digit growth over last year and landed among Hoka’s top-10 styles for the first time.

“The success of the Hupana is a great example of the brand’s depth and further demonstrates that Hoka can continue to grow through category expansion and product innovation,” said Powers. ”On that front, I think it’s important to stress the fact that we are growing the Hoka brand through a strategy centered on focused and disciplined growth. All the product and distribution decisions are being made to increase brand awareness, drive brand heat and create long-lasting relationships with our consumers, all with an eye on product quality and performance. This is driving strong full-price selling and increased e-commerce penetration as well as providing the brand a long runway for future growth.”

Teva’s sales for the quarter inched up 0.6 percent to $21.5 million. Results were driven by domestic DTC and international wholesale, as favorable summer weather predominantly in Europe and Japan aided performance. These are partially offset by the reduction in legacy Ahnu U.S. wholesale sales, as the Ahnu brand was rolled into Teva at the beginning of calendar 2017. Core Teva U.S. wholesale sales were up mid-single-digits year-over-year. On the product side, the Ember Moc, which was initially released last year in limited quantities, became a top five product for Teva globally during the quarter.

Sanuk’s sales for the quarter decreased 9.4 percent to $13.8 million.

By channel, wholesale sales for the quarter increased 4.3 percent to $408.0 million. DTC sales expanded 2.8 percent to $93.9 million as comparable sales increased 4.8 percent. Domestic sales grew 2.9 percent to $311.6 million while international sales advanced 5.9 percent to $190.3 million.

Inventories were $514.9 million compared to $555.6 million.

Looking ahead, sales for the full fiscal year are now expected to be in the range of $1.935 billion to $1.96 billion, up from $1.93 billion to $1.96 billion previously. Ugg sales are till expected to be down low single-digit; Hoka is now expected to be up in the mid to high 30 percent range; Teva is now expected to be down low single-digit, and Sanuk is now expected to be down mid-single digits.

Non-GAAP EPS is now expected to be in the range of $6.65 to $6.85. Previously, non-GAAP EPS was expected to be in the range of $6.25 to $6.45. In the prior fiscal year, non-GAAP earnings were $5.74 on sales of $1.9 billion.

For the third quarter ended December 31, sales are expected to be in the range of $805.0 million to $825.0 million. Non-GAAP EPS is expected to be in the range of $5.10 to $5.25. In the year-ago quarter, non-GAAP EPS was $4.97 on sales of $810.5 million.

Shares of Deckers were up $6.29, or 5.8 percent, to $115.23 Friday in mid-afternoon trading.

Photo courtesy Ugg