Helped in part by a turnaround at Teva and robust double-digit comps at its owned-retail stores, Deckers Outdoor Corp. reported Q2 earnings jumped slightly more than three-fold. Sales jumped 33.7% to $137.1 million while gross margin improved 450 basis points.
By brand, UGG sales jumped 34.6% to $100.2 million, primarily attributable to an increase in global shipments of Fall product, combined with solid sales of the Spring line at company owned-retail stores. Teva's sales climbed 38.4% to $31.2 million, driven by higher reorders of the expanded spring line of open- and closed-toe footwear, as well as from the company assuming control of direct distribution in the Benelux region. Revenues of Other Brands (Simple, Ahnu and Tsubo) reached $5.6 million, flat with the year-ago period.
E-commerce sales included in the brand figures – were $5.2 million, slightly down from $5.3 million the year-ago period. Deckers officials on a conference call with analysts said its e-commerce business faced difficult comparisons as prior-year sales included larger closeouts for the Other Brands. UGG e-commerce sales increased 19% for the latest quarter. Sales at owned-retail stores — also included in the brand numbers — vaulted 63.1% to $10.0 million, driven by five new stores and a same-store sales jump of 19.2%.
Domestic sales for all brands increased 16.2% to $65.2 million while International sales advanced 54.8% to $71.8 million.
On the call, Deckers Chairman and CEO Angel Martinez noted that due to the expansion of the UGG Spring line since its launch in 2005- combined with the resurgence of the Teva brand-roughly 30% of the company's business was done in the first half of the year, nearing its goal of having the spring season represent 35% of the business in the next few years. He said wholesale sales were up in the first half of the year driven by strong sell-in and sell-through for both the UGG and Teva Spring lines. Better department stores, specialty chains, and key independents all carried “a much broader assortment” of UGG spring product.
Teva is selling “consistently higher” at key retailers such as REI, Dick's, EMS, and Sport Chalet while generating renewed interest from some non-traditional accounts such as Nordstrom, Dillards, Von Maur, and Zappos as the line has been broadened.
“Entering the back half of the year, we're well positioned to capitalize on this momentum with 140 additional UGG brand shop-in-shops for a total of approximately 290 worldwide and a much more complete offering of fall product from the Teva brand,” said Martinez.
Martinez added that while International will grow at a faster pace in coming years, Deckers still sees “a lot of opportunity here in the U.S. based on recent studies that indicate that the UGG brand is still underpenetrated from a demographic standpoint, as well as from a geographic standpoint, most notably in the southeast region.” He also said expanded assortments this spring of sandals, casuals, spring boots, a new sneaker collection “all of which performed very well.”
Martinez said that this diversity, along with the expansion of its consumer direct division, plus the upcoming conversion to a wholesale model in the U.K. and Benelux region, “should put us in a better position to address rising manufacturing and materials costs, which for 2011, appear to be in the 5% to 10% range consistent with others in the footwear industry.”
Martinez said Teva should benefit as it continues to evolve to include more multi-functional footwear.
“The Teva brand had one of its best spring seasons ever,” said Martinez. “Our UGG business is about so much more than one category, one season, or one market. And with the turnaround of the Teva business, we're about more than just one brand,” said Martinez.
Regarding retail, Martinez said DECK is undertaking its “most aggressive period of expansion.” After opening a store in Shenyang, China in late June, it will open eight more over the next five months. Six are in the U.S., with locations in Miami, Washington D.C., Los Angeles, Las Vegas, and Orlando. A third New York City store will open as well as two stores in Shanghai. All stores except for Orlando will be full-priced retail stores.
The gross margin improvement was driven by improved margins for Teva and the other brands and lower closeouts and write-downs for the other brands. Teva's margins benefited from being a direct subsidiary in the Benelux. Deckers also received $3.1 million in duty refunds in Q2 that it doesn't expect to recur at these levels in the future.
DECK now expects full-year revenue to increase approximately 14% over 2009 levels, compared to previous guidance of approximately 13%. EPS is expected to increase approximately 16% versus previous guidance of approximately 11%. The guidance assumes a gross profit margin of approximately 49% and SG&A of approximately 26% of sales.
