Driven by double-digit growth at both UGG and Teva, Deckers Outdoor Corp.’s profits jumped in the first quarter on a 16.2% revenue gain. EPS of $1.37 a share came in well above Wall Street’s consensus estimate of 91 cents a share, and the company is forecast second quarter revenue to increase about 25% over the prior-year period.
On a conference call with analysts, company Chairman, President and CEO Angel Martinez said the earnings lift was largely due to the retail stores and e-commerce, which he indicated is more difficult to predict than the pre-booked wholesale business since many stores are just rolling out. “Our retail stores continue to perform exceptionally well, with quick cash paybacks and extremely high internal rates of return, in addition to, doing a fantastic job presenting the brand and highlighting the lifestyle nature of the brand,” said Martinez.
UGG brand sales in the quarter increased 14.2% to $104.4 million, reflecting strong sell-through of the spring line at company-owned stores, coupled with increased shipments of spring product to domestic wholesale accounts. Teva sales increased 21.4% to $43.2 million, fueled by sales of an expanded spring line of open- and closed-toe styles, as well as from the company assuming control of direct distribution in the Benelux region. Other brands in the portfolio – Simple, Ahnu and TSUBO – reached $8.4 million in sales, up from $7.3 million for the same period last year.
Retail sales, included in the brand figures, catapulted 66.1% to $23.1 million, driven by five new stores and a comp increase of 28.2%. E-commerce, also included in the brand figures, increased 13.8% to $18.4 million. By region, domestic sales for all brands increased 14.7% to $117 million; international sales jumped 20.8% to $38.9 million.
The bottom line also benefited from a 610 basis point improvement in gross margins due to higher sales from its consumer-direct businesses as well as improved product margins, including Teva’s international margins resulting from being direct in the Benelux region.
On the call, Martinez said UGG’s strong results were particularly helped by its success in opening UGG Australia locations. UGG will increase its owned-retail locations by almost 50% with the opening of nine new stores this year. Six are planned in the US, with all but one in new cities. Martinez also described UGG’s department store, specialty and independent store base as “solid.”
UGG continues to gain better placement inside major accounts and will have more than 110 shop-in-shops at key independents in the U.S., up from 70 last year. Fall pre-bookings for UGG are up across broad mix of product. Internationally, UGG is seeing “good success” with its core product line throughout parts of Europe and Asia, as well as in Canada.
It’s preparing for the roll out of the wholesale distribution model next year in the U.K. and Benelux, the brand’s top two international markets,Teva delivered one of its best quarters in several years, according to Martinez. Although wet, snowy conditions in January and February negatively impacted early spring sales for much of the industry, Teva experienced solid sales through key retailers-such as REI, Nordstrom and Dick’s SG-throughout the quarter with sales accelerating above plan in March.
Martinez said progress has been achieved through a commitment to evolve the Teva brand beyond its authentic roots in the sports sandal category and to lessen the brand’s dependence on weather.
Martinez also said Spring 10 represented Teva’s most comprehensive collection of open- and closed-toe styles at a variety of price points.
With improved pricing seen last fall, Fall 10 backlogs are also up. Top sellers for Fall ‘10 are expected to be its Reva line for men’s and Dahlia for women. Martinez also said Teva’s new MXT, or Mountain Cross Training Collection, is drawing “a lot of excitement” and “we believe the potential exists to expand this category into a sizable year-round contributor to the Teva brand’s results.”
In Europe, Teva was “up nicely” on the strength of an expanded line of men’s and women’s closed toe footwear and the benefit realized from assuming distribution of the product in the Benelux.
Regarding its Other Brands segment, domestic fall bookings for Simple are up 37.6% due to improved styling, and spring selling has been solid at several key accounts, including Zappos.com, Nordstrom and Journey’s. Ahnu, which targets active women in their mid-30s, is gaining solid placement in several key catalogs, including Garnet Hill, Acacia and Eddie Bauer. Martinez also said retailers like REI and Zappos.com are responding to Ahnu’s improvements in quality and fit since Deckers acquired the brand in 2009.