Carried by continued momentum by its Ugg blockbuster brand as well as an encouraging recovery at Teva, Deckers Outdoor Corp. posted strong double-digit growth in third-quarter earnings and revenues. The company again hiked its guidance for the year.
“Our third quarter was better than expected across the board, with sales, gross margin and earnings all coming in ahead of projections,” said company President, CEO and Chairman Angel Martinez on a conference call with analysts.
“The upside was primarily driven by better-than-expected sell-through of the Ugg fall line at our company-owned retail stores, coupled with higher-than-anticipated international demand for the brand. Teva sales also contributed nicely, with growth across all channels and regions, leading to the brand's strongest third quarter in several years.”
Ugg brand sales jumped 20.2% to $255.8 million due to increased global shipments of fall product coupled with strong sales of the fall line at company-owned stores. Ugg is particularly benefiting from its extension into non-boot styles such as sneakers and sandals.
“Consumers who were introduced to the brand through their first pair of classics have followed that up with pair of slippers,” said Martinez. “Those same consumers are now buying our cold weather product and replacing their traditional calf high leather boots with a pair from our fashion collection.” Martinez also said Ugg is broadening its appeal to “an increasingly sophisticated consumer audience.” Decker's research indicates that 77% of Ugg's female consumers are 18- to 54-years-old. Of that, 47% are 18 to 34, and 30% are 35 to 54 year of age.
Ugg now has 100 shop-in-shops, up from 74 last fall, while its new stores “continue to perform at high levels with strong four-wall contributions and quick pay backs,” he added.
Teva sales increased 51.7% to $13.7 million in Q3, driven by higher reorders of the expanded spring line of open and closed toe footwear in the quarter, an increase in domestic shipments of the fall line, but also got a boost from DECK assuming control of direct distribution of the brand in the Benelux region. Healthy sell-throughs of its light hikers and technical sandals fueled Teva's strongest spring season in more than a decade.
“For fall, we supplemented our closed-toe offering with additional multisport products at $100-plus price points that are selling very well,” said Martinez. “Our women's lifestyle products, most notably boots, are also off to a very good start at retail. What we're seeing speaks to the success we've had many targeting a younger, more active consumer, and repositioning the Teva brand as a year-round brand.”
Other Brands including Simple, Ahnu and Tsubo grew 26.5% to $8.4 million due to increased domestic shipments. Martinez said that although all three are “still small brands,” each is gaining shelf space at retail and he was “excited” about their prospects.
Domestic sales for all brands increased 14.3% to $204.7 million while international sales increased 48.2% to $73.2 million. Overseas, Ugg is seeing a good response in Europe and Japan to Ugg's new looks. Early sell-through of Ugg's first four stores in China have been encouraging.
Sales for the retail store business, included in the brand sales figures, surged 63.3% to $20.2 million, driven by eight new stores opened since Q3 2009 and a 17.9% same-store increase. E-commerce sales increased 3.8% to $8.7 million with comparisons hampered with large closeouts for Teva and Other Brands in the prior year.
Gross margins grew 420 basis points to 47.1% of sales due to greater retail sales, the Teva distribution shift in the Benelux region, duty refunds, reduced closeouts, and overall improved margins for all brands. However, SG&A grew to 23.3% of sales from 19.6% primarily due to increased payroll expenses due store openings, operating expenses tied to Teva's Benelux region change, and international distribution start-up expenses.
Looking ahead, full-year revenues are now expected to increase 16% (vs. 14% previously). Ugg is projected to grow 15% (vs. 13% previously). Teva is expected to rise 30% (vs. high 20s previously) and reach $100 million in annual sales for the first time. EPS is expected to increase 22% to $2.98 versus previous guidance of 16% growth. Revenues and EPS are both projected to increase 8% for Q4.
Looking to 2011, Martinez said Deckers is looking to accelerate retail expansion, increasing the number of annual store openings beyond the nine planned additions for 2010 and is also plotting new marketing and sales initiatives to accelerate Teva's growth and increase awareness for Tsubo. On a larger scale, he believes there's still “significant growth opportunities” to reach men with the Ugg brand as well as reach more women.
