Deckers Full Year, Fourth Quarter Sales Surge on Continued UGG Strength

The fourth quarter write-down covered the entire $11.9 million balance of Teva's goodwill as well as the entire $3.5 million balance of TSUBO's goodwill. Deckers said the impairment charges resulted primarily from a significant decrease in its market capitalization, as well as reduced forecasts for Teva. An impairment loss of $5.5 million on Teva's trademarks was also recognized, leaving a balance of $15.3 million as of December 31.

UGG sales for the quarter vaulted 62.0% to $288.0 million, driven by robust consumer demand worldwide.  On a conference call with analysts, Angel Martinez, company president, CEO and chairman, said that retailers told the company that not only did UGG perform well during the holiday season, but it also contributed to full-price selling. He said early indications indicate that most wholesale accounts are planning their UGG business up in 2009.

For 2009, UGG sales are expected to increase 6% to 8%.  Growth will be driven by the opening of two new domestic full-price stores and five overseas. Last year, it added five to close the year with 13 stores in total. UGG is planning to add another 50 shop–in-shops through fall and holiday 2009, including 30 in the U.S. and 20 internationally. UGG's 40 domestic and 29 international shop-in-shops open this past fall drove a 35% to 50% gain in retail sales at those accounts.

At the quarter's end, UGG's inventory increased $40.4 million to $67.9 million with the jump primarily attributable to higher spring orders, coupled with retailer requests for more January deliveries. Growth in its retail and e-commerce businesses also contributed an additional $7.6 million to UGG's inventory gain.

Teva's sales declined 11.1% in the quarter to $12.4 million due to a lower level of pull-forwards on spring product, partially offset by demand for new fall closed-toe product. Due to the economy, Teva is now expected to generate $110 million in sales by 2012, down from a previous goal of $140 million.  For 2009, Teva sales are expected to be down between 2% and 5%. Martinez noted that many of Teva's retailers have reduced their open-to-buy dollars by as much as 20%. Martinez said he was still pleased with Teva's repositioning efforts over the last several years and he noted that retail partners have remarked that Teva “is back to being one of the few core brands in the outdoor space.” He also highlighted that Teva was the only footwear brand nominated by REI for vendor of the year. Teva's inventories at the quarter's end decreased $2.5 million to $17.5 million.

Simple's sales decreased 12.3% to $2.3 million, primarily due to lower re-orders from retailers. Martinez said Simple's 27.4% revenue gain for the full year underscored the brand's success in raising awareness and adding new distribution. In 2009, the Eco Sneaks collection will be expanded with several new styles and introductions will be expanded to four times a year. In March, 200 Journeys locations will roll out the brand. For the first time in over a decade, Simple will also be part of the Nordstrom anniversary event this Summer. Simple inventory increased $1.1 million to $5.4 million at December 31.

TSUBO, which generated sales of $0.9 million in the quarter, is being re-launched in Fall 2009 at better department stores like Macy's West, Nordstrom and Dillard’s, as well as independents in select cities. Sales of TSUBO, acquired last May, are expected to come in between $7 million and $9 million in 2009.

Company-wide, sales for the eCommerce business increased 51.2% in the quarter to $36.1 million, while owned retail sales jumped 103.1% to $24.7 million.

Fourth quarter gross margins eroded to 45.3% of sales from 48.2% due to increased factory costs associated with UGG, and higher closeouts for Teva and Simple.  SG&A was reduced to 17.4% of sales from 18.9% a year ago. SG&A grew in absolute dollars due to higher head count and long term incentive plan expense.

Total wholesale backlog was up approximately 41% at year-end. The year-end inventory increase included $1.9 million from the recently-acquired Ahnu brand. Management said it felt “very comfortable” with overall inventory levels. Ahnu's sales are expected to range between $4 million to $6 million this year.

For 2009, Deckers expects total sales to grow 6% to 9%. EPS is expected to be “flat to slightly down” from 2008. For the first quarter, revenues are forecast to grow 22% over 2008, but earnings to fall 28%.