Deckers Outdoor Corp. reported net sales increased 12.5 percent in the second quarter to $154.2 million from $137.1 million in the year-ago quarter and raised its outlook for the year. But the company reported a loss due to the additional costs associated with the transition to wholesale operations in the U.K. and Benelux, 11 new retail stores, and other infrastructure investments.

The loss of $7.3 million, or 19 cents a share, compared with earnings of $9.0 million, or 23 cents in the 2010 second quarter.
  
Highlights of the quarter included:


  • Gross margin was 42.7 percent compared to 44.3 percent last year.
  • UGG brand sales increased 8.0 percent to $108.3 million compared to $100.2 million last year.
  • Teva brand sales increased 29.1 percent to $40.3 million compared to $31.2 million last year.
  • Domestic sales increased 26.9 percent to $82.8 million compared to $65.2 million last year.
  • Retail sales increased 102.2 percent to $20.1 million compared to $10.0 million last year; same store sales rose 23.6 percent.
  • eCommerce sales increased 10.3 percent to $5.7 million compared to $5.2 million last year.
“We had a productive second quarter highlighted by year-over-year sales increases in our domestic and international wholesale channels as well as our consumer direct channels,” commented Angel Martinez, President, Chief Executive Officer and Chair of the Board of Directors. “The growth of our domestic business was primarily driven by strong sell through of the UGG brand spring line. We also experienced increased demand for the Teva brand light hiking and multi-sport footwear. Overseas, higher sales of the Teva brand spring collection and an increase in the UGG brand fall product shipments to distributors helped offset the shift of UGG brand revenues that occurred from our conversion to wholesale operations in the United Kingdom, Benelux, and France. While our bottom line declined year over year due primarily to the additional costs associated with the transition to wholesale operations in the U.K. and Benelux, eleven new retail stores, and other infrastructure investments, we were able to leverage our higher than planned sales to generate a net loss that was better than originally expected. As we start the second half of the year, we are excited about the pace of our business and future prospects. We have taken important steps that we believe will broaden the companys growth opportunities and expand our earnings potential, including diversifying our merchandise offering, reassuming distribution rights in key geographic regions, accelerating our retail store openings, and acquiring the authentic, innovative Sanuk® brand. We have also strengthened our eCommerce operating platform and believe we have the right pieces in place to successfully execute our strategic plan and achieve our near and long-term objectives.”

Division Summary

UGG Brand

UGG brand net sales for the second quarter increased 8.0 percent to $108.3 million compared to $100.2 million for the same period last year. The sales gain was primarily attributable to an increase in sales of the spring line at company-owned retail stores, higher domestic spring wholesale sales, and an increase in global shipments of fall product to international distributors in regions where we continue with the distributor model. This increase was partially offset by a decrease in fall product distributor sales in the United Kingdom and Benelux, which will shift into the third quarter as the result of the conversion to wholesale operations in certain European markets.

Teva Brand

Teva brand net sales increased 29.1 percent to $40.3 million for the second quarter compared to $31.2 million for the same period last year. The sales improvement was driven by an increase in global shipments of spring product, including higher sales of closed toe footwear, partially offset by lower reorders of sandals in the United States. The second quarter of 2011 also benefited from the conversion to a wholesale business model in the United Kingdom.

Other Brands

Combined net sales of the companys other brands were $5.7 million for the second quarter compared to $5.6 million for the same period last year.

Retail Stores

Sales for the retail store business, which are included in the brand sales numbers above, increased 102.2 percent to $20.1 million for the second quarter compared to $10.0 million for the same period last year, driven by eleven new stores and a same store sales increase of 23.6 percent for those stores that were open for the full three-month periods ended June 30, 2010 and 2011.

eCommerce

Sales for the eCommerce business, which are included in the brand sales numbers above, increased 10.3 percent to $5.7 million for the second quarter compared to $5.2 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 brands United Kingdom website.

Balance Sheet

At June 30, 2011, cash and cash equivalents decreased 2.6 percent to $325.2 million, which does not reflect cash payments of $126.6 million associated with the acquisition of substantially all of the assets related to the Sanuk brand that closed on July 1, 2011, compared to $333.7 million at June 30, 2010. Inventories at June 30, 2011 increased 74.4 percent to $210.0 million compared to $120.5 million at June 30, 2010. By brand, UGG inventory increased $74.9 million to $178.7 million at June 30, 2011, Teva inventory increased $11.0 million to $22.3 million at June 30, 2011, and our other brands inventory increased $3.6 million to $9.0 million at June 30, 2011. The increase in inventory at June 30, 2011 was primarily attributable to the growth in fall orders for the UGG brand, the warehousing of fall 2011 inventory supporting the new wholesale United Kingdom and Benelux business that was previously fulfilled by international distributors, and the increase in retail stores.

Full-Year 2011 Outlook

Based on better than expected second quarter results and an improved outlook, the company is raising its full-year outlook. This guidance includes the impact of the Sanuk brand which was acquired on July 1, 2011.

The company now expects its full-year revenue to increase approximately 26 percent over 2010 levels, compared to previous guidance of approximately 21 percent. UGG brand sales are expected to increase approximately 25 percent, compared to previous guidance of 21 percent. Teva brand sales are expected to increase in the low 20 percent range, while other brand sales are expected to remain flat compared to prior year. The newly acquired Sanuk brand is expected to generate sales in the low $20 million range in the second half of the year.

The company now expects its full-year diluted earnings per share to increase approximately 17 percent over 2010, compared to previous guidance of approximately 13 percent. This guidance assumes a gross profit margin between 50 percent and 51 percent and SG&A as a percentage of sales of approximately 29 percent.

Fiscal 2011 guidance includes estimates of approximately $34.5 million, or 60 cents 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.

Third and Fourth Quarter Outlook

The company currently expects third quarter 2011 revenue to increase approximately 38 percent and diluted earnings per share to increase approximately 22 percent over 2010 levels.

The company currently expects fourth quarter 2011 revenue to increase approximately 22 percent and diluted earnings per share to increase approximately 36 percent over 2010 levels.








































































































































































































































































































































































































































































DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(Amounts in thousands, except for per share data)
   

 

 
 

 













 






Three-month period ended
Six-month period ended

 



June 30,


June 30,






2011
2010

2011
2010













 
Net sales
$ 154,222

137,059
$ 359,073

292,986
Cost of sales

88,310  
76,316

190,683  
154,336  

Gross profit

65,912

60,743

168,390

138,650













 
Selling, general and administrative expenses

76,710  
47,527

150,993  
96,613  

(Loss) income from operations

(10,798 )
13,216

17,397

42,037













 
Other income, net:

43  
497

181  
562  
(Loss) income before income taxes

(10,755 )
13,713

17,578

42,599













 
Income tax (benefit) expense

(3,227 )
4,803

5,273  
15,549  













 
Net (loss) income

(7,528 )
8,910

12,305

27,050

Net loss (income) attributable to the noncontrolling interest


189  
56

(466 )
(189 )

 










Net (loss) income attributable to Deckers Outdoor Corporation

$ (7,339 )
8,966
$ 11,839  
26,861  













 
Net (loss) income per share attributable to Deckers








Outdoor Corporation common stockholders:









Basic

$ (0.19 )
0.23
$ 0.31

0.69

Diluted
$ (0.19 )
0.23
$ 0.30  
0.69  













 
Weighted-average common shares outstanding:









Basic

38,670

38,667

38,640

38,649

Diluted

38,670  
39,081

39,304  
39,081