Benefiting from earlier-than-expected shipments and strong reorders for both its Ugg and Hoka One One brands, Deckers Brands reported first-quarter earnings and sales that came in well above targets.

Sales in the quarter ended June 30 jumped 20.3 percent to $209.7 million while the company had forecast sales to be up low-single digits.

On a conference call with analysts, Dave Powers, president and CEO, said the sale beat was driven in part because the company shipped approximately $20 million of wholesale orders earlier than expected to optimize marketplace opportunities. Second, stronger than expected global reorders were seen for Ugg, Hoka and Teva spring product due to healthy consumer demand for key items. Third, double digit e-commerce growth led to a 12.7 percent increase in DTC comparable sales.

The combination of higher sales and a decline in SG&A expenses of $7.9 million, driven by its cost savings plan, resulted in a non-GAAP loss per share of $1.28, a significant improvement over the loss of $1.80 same quarter last year. The net results were also well above its guidance calling for a loss between $1.70 and $1.65.

Powers noted that that the performance builds on positive momentum seen in the fourth quarter and reflects the early payback from steps taken over the last twelve months since he took over as CEO to create “a more nimble, efficient and profitable company.” The steps include the formulation of its $100 million operating profit improvement plan; implementation of marketplace transformation with a focus on elevating the consumer experience; Ugg’s progress in diversifying its spring and summer line-up; enhancing its omni-channel capabilities; and launching new products and categories, including the Ugg Classic II and new Hoka styles. Said Powers, “Our results are beginning to show the progress we are making.”

In its Fashion Lifestyle group, Ugg’s sales jumped 24.9 percent to $114.7 million. On a constant currency basis, sales increased 26.6 percent. While the lowest revenue quarter for the brand, Powers said the gain showed the success Ugg is having developing a compelling spring and summer product. The gain was fueled by growth in the spring and summer product line, combined with some earlier than planned fall shipment.

Ugg’s spring/summer collection “continues to make great strides,” especially in the sneaker and sandal category, which was up 20 percent year over year. Strong sellers included the Tye and Sammy sneakers and Kari sandals. Said Powers, “This performance gives us confidence that our focus on developing compelling spring and summer product is resonating with our consumers and gaining traction in the marketplace. Initial reaction for spring/summer 2018 is very positive and it’s contributing to the changing perception of Ugg as a spring and summer brand.”

Powers also noted e-commerce sales for Ugg continued to benefit from its omni-channel capabilities and digital marketing efforts, such as ship-from-store, click-and-collect, and Infinite Ugg. Powers added, “These capabilities provide the consumer more flexible ways to shop while also allowing us to manage DTC inventory levels more efficiently.”

In the Performance Lifestyle group, Hoka revenues grew 74.2 percent to $30.7 million and continued to exceed expectations. The gains were fueled by a 77.7 percent hike in domestic wholesale sales along with solid gains in the international wholesale business. Included in the wholesale beat was a robust reorder business across all regions, reflecting share gains in the run specialty channel.

Accomplishments for Hoka include the Challenger ATR 3 winning Runner’s World Editor’s Choice for the Best Trail Shoe, the Hupana listed as one of the best new running shoes by Women’s Health, and the Speedgoat 2 receiving Best New Update from Competitor Magazine. Powers said, “This recognition validates the team’s effort towards building brand awareness across product categories and regions centered on delivering compelling product with exceptional technical performance.”

Teva’s sales were up 8.6 percent in the quarter to $37.7 million. The better-than-expected results were due to global wholesale sales and strong global reorders. Powers stated, “We also saw meaningful gross margin improvement with the Teva brand, and we expect margin improvement across the remainder of the year.”

Sanuk’s sales of $26.2 million were slightly down to last year, largely due to rationalizing its international distribution and a retail store transfer. Domestic wholesale performed better than expected with year-over-year growth and improved gross margins. Added Powers on both Teva and Sanuk, “I’m encouraged by the marketing and product initiatives these two brands are implementing, as well as their focus on driving efficiencies in their respective businesses.”

By channels, the 12.7 percent DTC comp  increase was its largest gain in several quarters. The double-digit positive comp was due to the strength in global e-commerce sales across both the Fashion and Performance Lifestyle groups and slightly better than expected retail performance. Said Powers, “As our consumers continue to migrate their purchasing online, the digital infrastructure we put in place over the last few years is driving significant growth with all regions posting double-digit increases in the quarter.”

Wholesale exceeded expectations with 24.5 percent growth year-over-year. Domestic wholesale was up 8.6 percent to $83.2 million and was primarily driven by strong demand for Hoka. International wholesale catapulted 55.2 percent to $61.4 million, with its EMEA business up over 80 percent and APAC up over 45 percent. The strong international performance was due to solid reorders of Ugg, Hoka and Teva.

Gross margin of 43.2 percent was slightly better than expectations and compared to 43.7 percent last year. Changes in foreign currency negatively impacted gross margin by 80 basis points.

Non-GAAP SG&A expense was down 5.2 percent to $144.9 million, representing 69.1 of sales versus 87.6 percent a year ago. The reduction was traced to savings from the implementation of its operating profit improvement plan. In the first quarter, $1.9 million in restructuring and other charges were recorded related to organizational changes and its strategic review process.

Inventories at the close of the quarter were down 5.9 percent to $441.6 million.

Providing an update on its transformation efforts, Powers said Deckers is “making significant progress in improving on our gross profit profile” through consolidating its factory base, moving production to more cost-effective locations and optimizing its material usage. Overhead is being addressed through a streamlining of its organizational structure, reducing inefficiencies in its corporate spend and optimizing its retail footprint. These actions are expected to result in an operating margin target of 10.5 percent in fiscal year 2018.

Broadly, Powers said retail traffic “continues to be pressured and consumers are shifting their purchasing from brick-and-mortar to online, as well as migrating to a buy-now-wear-now model, and there are no indications that these are subsiding.”

He added, ”To that extent, our path forward will not be without hurdles but the focus will remain on the customer, our brands and products and achieving a level of profitability that will drive shareholder value. For that reason, coupled with the strong performance in the quarter, we believe we are well-positioned to address these challenges with our $100 million operating profit improvement plan.”

Photo courtesy Ugg