Deckers Outdoor Q3 Revenues Catapults 49 Percent

Deckers Outdoor Corp. reported third-quarter revenues catapulted 49.1 percent to $414.4 million compared to $277.9 million in the prior year. The gains were led by a 47.3 percent jump for its Ugg brand. Earnings rose 48.3 percent to $62.5 million, or $1.59 a share.

Other highlights in the quarter:

• Gross margin increased 1.9 percentage points to 49.0 percent compared to 47.1 percent last year.
• International sales increased 113.8 percent to $156.4 million compared to $73.2 last year.
• Domestic sales increased 26.0 percent to $257.9 million compared to $204.7 million last year.
• Retail sales increased 72.1 percent to $34.7 million compared to $20.2 million last year.
• Same store sales rose 15.4 percent.
• E-commerce sales increased 18.3 percent to $10.3 million compared to $8.7 million last year.

“The third quarter was an exceptionally strong period of sales and earnings growth for our company led by the Ugg brand,” stated Angel Martinez, President, chief executive officer and chair of the board of Directors. “We experienced higher domestic wholesale demand for the Ugg brand fall line versus a year ago driven by the introduction of several new styles and new collections, including a broader assortment of men’s product. At the same time, our international sales more than doubled fueled by the growth in wholesale unit volumes in the United Kingdom and Benelux, coupled with an increase in sales resulting from our conversion to wholesale operations in these regions. Our retail stores, which now total 37 worldwide, performed very well during the third quarter highlighted by a 15.4 percent same store sales increase. The growth of the spring line earlier this year combined with the solid start to fall has created strong momentum for the UGG brand as we head into the holidays.”

eCommerce

Sales for the eCommerce business, which are included in the brand sales numbers above, increased 18.3 percent to $10.3 million for the third quarter compared to $8.7 million for the same period last year. This increase was primarily attributable to higher demand for the Ugg brand driven by new product introductions and enhanced marketing efforts combined with the launch of the Ugg brand’s United Kingdom website.

Inventories at Sept. 30, 2011 increased 80.9 percent to $356.9 million compared to $197.3 million at September 30, 2010. By brand, Ugg inventory increased $143.7 million to $324.0 million, Teva inventory increased $5.7 million to $16.9 million, and our other brands’ inventory increased $1.0 million to $6.8 million. Sanuk brand inventories were $9.2 million. The increase in inventory was primarily attributable to the growth in fourth quarter orders for the Ugg brand, the warehousing of fourth quarter 2011 inventory supporting the new wholesale United Kingdom and Benelux business that was fulfilled by international distributors last year, the increase in retail stores, and the additional inventory associated with the Sanuk brand.

Full-Year 2011 Outlook

Based on better than expected third quarter results the company is raising its full-year outlook as follows:

• The company now expects its full-year revenue to increase approximately 33 percent over 2010 levels, compared to previous guidance of approximately 26 percent. Ugg brand sales are expected to increase approximately 32 percent, compared to previous guidance of 25 percent. Teva brand sales are expected to increase by approximately 20 percent, while other brand sales are expected to be down by approximately 10 percent. The newly acquired Sanuk brand is expected to generate sales in the high $20 million range.
• The company now expects its full-year diluted earnings per share to increase approximately 22 percent over 2010, compared to previous guidance of approximately 17 percent. This guidance assumes a gross profit margin of approximately 50 percent and SG&A as a percentage of sales of approximately 29 percent.
• Fiscal 2011 guidance includes estimates of approximately $31.6 million, or $0.56 per diluted share, pertaining to incremental investments and expenses in 2011 associated with new marketing and advertising programs, increased legal spend related to intellectual property rights protection, expenses related to the transition to a wholesale business model in Europe, and due diligence, audit, and transaction fees associated with the acquisition of the Sanuk brand.
• Fiscal 2011 guidance also includes approximately $4.9 million of amortization expense related to Sanuk brand intangible assets and approximately $2.8 million of accretion expense related to estimated contingent payments for the acquisition of the Sanuk brand. The $4.9 million of amortization expense and $2.8 million of accretion expense related to the Sanuk brand acquisition is subject to purchase price allocation adjustments.

Fourth Quarter Outlook

The company now expects fourth quarter 2011 revenue to increase approximately 29 percent over 2010 levels, compared to previous guidance of approximately 22 percent, and diluted earnings per share to increase approximately 33 percent over 2010 levels, compared to previous guidance of approximately 36 percent. The fourth quarter 2011 now includes approximately $2.0 million of additional expenses that were previously budgeted for the third quarter of 2011.