Deckers trounced every Wall Street forecast for the fourth quarter, due in most part to greater-than-expected deliveries in December, a very strong showing from its UGG brand, higher direct Internet sales, and less close-out business. The company posted net sales of $74.2 million for the period, compared to $35.7 million in Q4 last year, which was nearly 12% higher than the rosiest of analysts estimates. Likewise with earnings, which came in at $9.2 million, or 72 cents per share, up about 275% from net income of $2.5 million, or 19 cents per diluted share, in the year-ago period. Earnings also topped analysts top EPS estimate of 54 cents per share.
The Domestic business was up 110% for the quarter to $62.9 million, compared to $29.9 million in fourth quarter last year. For the year, Domestic sales increased 78% to $175.4 million, compared to $98.7 million in the prior year. International sales increased 76% to $39.4 million from $22.3 million in 2003.
UGG brand sales jumped nearly 191% to $60.2 million in the fourth quarter, compared to $20.7 million in the year-ago period. Management said that UGG is now poised to move beyond its traditional shearling product to more product made of leather and suede and lined with sheepskin. For Fall 05, the company is bullish on their opportunities in cold weather boots, introducing their first Gore-Tex models at recent shows. The addition of the Gore product is expected to help grow the mens end of the business for UGG.
Management said that while the business in California grew substantially in 2004 to end the year at approximately $30 million, growth outside of their home state grew at a higher rate. The International business grew to roughly $13 million in 2004 from less than $1 million in sales in the prior year. Total UGG sales for 2005 are forecast to grow between 20% and 25% to a range of $140 million to $145 million for the year.
Teva brand sales declined 11.3% to $11.8 million in Q4 from $13.3 million in Q4 last year. Most of the impact to the sales line here was due to fewer close-out sales during the period. But that reality also had an impact on the bottom line as Teva gross margin jumped 600 basis points to 43.3% of sales in 2004, compared to 37.3% of sales in 2003. The Hurricanes in the third quarter were also cited for impacting sandal sales.
Looking ahead, management said that sandals were selling earlier this year. The brand is also broadening distribution a bit, moving into The Finish Line with a 300-store program in March and a 30-store test in Champs this spring. The FINL program is primarily $40 and under product with fixturing and self-service racks. They are also expected to have some higher-end product in a few stores.
Teva brand sales are forecasted to grow 10% to 13% in 2005 to range between $97 million and $100 million.
Simple brand sales increased approximately 33% to $2.3 million, compared to $1.7 million in the prior year period. The Simple Sheep program did not retail as expected, according to management, but overall they feel the brand is re-focused and on track, delivering a slightly positive contribution in operating profit for the year. For 2005, DECK sees Simple sales in the $13 million to $15 million range and once again contributing to profitability.
Internet and catalog sales, which are included in the brand numbers, increased about 163% to $6.0 million from $2.3 million in Q4 2003. For the year, Internet and catalog sales jumped 206% to $19.9 million, or 9.3% of total company sales, compared $6.5 million, or 5.4% of sales, in 2003. Margins in this direct business were said to be running up to 70% and more.
Gross margin for the total business improved 30 basis points to 38.9% of sales in the quarter. Management attributed the gain to increased high-margin direct sales, $500,000 in net license revenue from UGG, and a reduced impact of close-out sales. Upside in those areas were partially offset by increased air freight costs associated with flying in UGG goods to service demand, and also the lower inherent margins in the UGG business, which made up a larger piece of the total revenue pie in fourth quarter.
Deckers increased its guidance for 2005, now expecting EPS in the $2.45 to $2.55 per diluted share range on sales between $250 million and $260 million. For first quarter, EPS is expected in the 68 cents to 70 cents per diluted share range on sales ranging between $63 million and $65 million.
>>> Better growth planning for 2005 is expected to reduce air freight costs, which will certainly have a margin and bottom-line impact…
