Deckers Q2 Losses Widen, Reiterates Full-Year Outlook

“With more than half the year behind us, I am pleased with how our organization has navigated through this difficult operating environment,” continued Martinez. “We remain confident about the strength of our brands and their respective long-term growth prospects. This sentiment was underscored by the Board of Directors’ recent decision to authorize a new $200 million stock repurchase program, which comes on top of the $100 million stock repurchase program announced in February 2012 and completed during the second quarter of 2012.”

Division Summary

UGG Brand

UGG brand net sales for the second quarter decreased 0.3 percent to $107.9 million compared to $108.3 million for the same period last year. Increases in domestic wholesale sales and global direct to consumer sales were offset by lower international wholesale and distributor sales.

Teva Brand

Teva brand net sales for the second quarter decreased 15.4 percent to $34.1 million compared to $40.3 million for the same period last year. Record domestic wholesale sales and growth in domestic eCommerce sales were offset by a decline in international wholesale and distributor sales.

Sanuk Brand

Sanuk brand net sales were $28.0 million for the second quarter of 2012. The Company’s financial results include the Sanuk operations beginning July 1, 2011, the date that the Company acquired the Sanuk brand.

Other Brands

Combined net sales of the Company’s other brands decreased 21.2 percent to $4.5 million for the second quarter compared to $5.7 million for the same period last year. Second quarter 2011 results included the Simple® brand, for which distribution ceased at the end of 2011.

Retail Stores

Sales for the retail store business, which are included in the brand sales numbers above, increased 25.0 percent to $25.2 million for the second quarter compared to $20.1 million for the same period last year. This increase was driven by 21 new stores opened after the second quarter of 2011 and a same store sales increase of 6.8 percent for the thirteen weeks ending July 1, 2012 compared to the thirteen weeks ending July 3, 2011.

eCommerce

Sales for the eCommerce business, which are included in the brand sales numbers above, increased 40.1 percent to $8.0 million for the second quarter compared to $5.7 million for the same period last year. The sales increase was driven primarily by strong global demand of UGG brand spring styles and the addition of the Sanuk brand.

Balance Sheet

At June 30, 2012, cash and cash equivalents were $114.4 million compared to $325.2 million at June 30, 2011. The decrease in cash and cash equivalents is attributable to $153.5 million of cash payments associated with the Sanuk brand acquisition and $100.0 million of cash payments for stock repurchases.

Inventories at June 30, 2012 increased 64.8 percent to $346.3 million from $210.0 million at June 30, 2011. By brand, UGG inventory increased $130.1 million to $308.9 million at June 30, 2012, Teva inventory decreased $1.1 million to $21.1 million at June 30, 2012, and the other brands’ inventory decreased $2.0 million to $7.0 million at June 30, 2012. Sanuk brand inventories were $9.3 million at June 30, 2012. The increase in inventory from a year ago is primarily due to the growth of fall 2012 UGG brand inventory which includes the growth of the consumer direct division, carryover product from the 2011 holiday period which is planned to be utilized to fulfill orders during 2012, an increase in product costs, and the addition of the Sanuk brand.

Goodwill and net intangible assets increased to $210.2 million at June 30, 2012 compared to $23.9 million at June 30, 2011, primarily due to the acquisition of the Sanuk brand.

Stock Repurchase Program

During the second quarter of 2012, the Company repurchased approximately 1,475,000 shares of its common stock under its stock repurchase program for a total of $80.0 million. As of June 30, 2012, the Company had completed its $100.0 million stock repurchase program announced in February 2012.

The Company also announced the Board of Directors’ approval to repurchase up to an additional $200 million of the Company’s common stock in the open market or in privately negotiated transactions, in compliance with the Securities and Exchange Commission Rule 10b-18, from time to time, subject to market conditions, applicable legal requirements and other factors. The program does not obligate the Company to acquire any particular amount of common stock and the program may be suspended at any time at the Company’s discretion. The purchases will be funded from available cash and cash equivalents and borrowings under the Company’s credit facility.

Full-Year 2012 Outlook

The Company is reiterating the current full year outlook —

    2012 revenues are expected to increase approximately 14 percent over 2011 levels and diluted earnings per share to decrease between 9 percent and 10 percent.
    UGG brand sales are expected to increase approximately 10 percent over 2011 levels. Teva brand sales are now expected to be flat to slightly down compared to previous guidance of growth in the low to mid single digit range. Sanuk brand sales are now expected to be approximately $95 million, up from previous guidance of $90 million. Combined sales of other brands are expected to be down approximately 15 percent to approximately $21 million, driven by the closure of the Simple brand at the end of 2011.
    The guidance is still based on a full year gross margin decline of approximately 250 basis points from 2011 levels and SG&A as a percentage of sales of approximately 30 percent.
    Given a higher expected mix of domestic pre-tax income, the tax rate is now forecasted to increase to 32 percent, up from previous guidance of approximately 31 percent.
    Fiscal 2012 guidance includes $17 million, or $0.30 per diluted share associated with amortization and accretion expenses related to the Sanuk brand acquisition, up from previous guidance of $13 million, or $0.23 per diluted share.

Third and Fourth Quarter Outlook