Deckers Outdoor Corporation recorded a 26.4% increase in second quater net sales to $52.7 million from $41.7 million last year. Net income, however, slipped 6.7% to $2.5 million from $2.7 million in the year-ago period. Diluted EPS was 20 cents; ahead of previous guidance of approximately 4 cents, but down from last year's 21 cents. UGG Brand sales increased 65.2% to $26.3 million compared to $15.9 million a year ago. Teva Brand sales increased 5.6% to $24.1 million compared to $22.8 million a year ago. Total international sales increased 100% to $14.7 million compared to $7.3 million last year.

Angel Martinez, president and CEO, stated, “We are pleased with our results for the second quarter which helped complete a strong first half of fiscal 2007 for our company. UGG Brand sales once again outpaced expectations driven by robust demand for the brand both domestically and overseas. Importantly, this momentum continues as our pre-books for fall are coming in better than previously anticipated. During the quarter we also witnessed solid improvement for the Teva Brand despite some unseasonable weather. We were particularly encouraged by the sell-through of several new, higher price point models which gives us confidence that the Teva Brand continues to evolve into an outdoor, performance oriented brand and is regaining important traction at retail. We move ahead excited about the pace of our business and more optimistic about our growth prospects for the remainder of the year, and committed to ensuring that the company has all the necessary internal and disclosure controls.”

Segment Summary


UGG Brand net sales for the second quarter increased 65.2% to $26.3 million compared to $15.9 million in the second quarter of 2006. The year-over-year improvement in sales was attributable to strong sell-through of spring products as well as a strong reorder business. At the same time, initial shipments of fall styles to international markets were up significantly compared with a year ago.


Teva Brand net sales for the second quarter increased 5.6% to $24.1 million compared to $22.8 million for the same period last year. Sales were driven by worldwide demand for new products, partially offset by a lower than anticipated level of domestic reorders.


Simple Brand net sales were $2.4 million for the second quarter compared to $3.0 million for the same period last year. While Green Toe continued its success at retail, the Simple Brands performance was negatively affected by a delayed start to the spring selling season, which affected reorder business, as well as a shift of international shipments to the third quarter this year compared to the second quarter last year.

Consumer Direct

Sales for the Consumer Direct business, which are included in the brand sales numbers above, increased 54.0% to $6.1 million compared to $4.0 million for the same period a year ago, mostly due to an increase in UGG Brand internet sales. In addition, results for the second quarter of 2007 included sales from the company's new UGG Brand flagship store in New York City and new retail outlet store in Riverhead, New York, which were not in operation in the second quarter of 2006.

Full-Year 2007 Outlook

The company increased its full year revenue growth target to approximately 35% over 2006, up from previous guidance of approximately 25%. The company increased its full year diluted earnings per share growth target to approximately 25% over 2006 before the impairment charge, up from previous guidance of approximately 15%. Fiscal 2007 guidance includes approximately $5.1 million of stock compensation expense, an increase of $3.0 million over 2006.

Third Quarter Outlook

The company currently expects third quarter 2007 revenue to increase approximately 45% and diluted earnings per share to increase approximately 45% compared to 2006.

Exhibit A

The company has discovered that employee payroll declarations and certain tax payments made by certain of the company's foreign subsidiaries in foreign jurisdictions have been underreported and underpaid. Management advised the Audit Committee of the Board of Directors of the matter and as a result the Audit Committee has engaged special outside counsel to undertake an internal review of this matter.

Based upon the investigation to date, the company believes that the inadequate declarations and underpayments did not exceed $500,000 in any given year and $2.7 million in the aggregate. However, the internal review is not yet complete, and there can be no assurance that the final amount will not be materially different. Though the internal review is not sufficiently complete for the company to determine whether, or in what amounts, the underpayments will result in any government action or whether any past due interest, fines or other penalties will be required, the company currently believes that interest and penalties with respect thereto could range from $3.3 million to $15.4 million. Certain of the company's historical financial statements may be required to be restated.

The company has voluntarily advised the staff of the U.S. Securities and Exchange Commission that the company's Audit Committee has engaged outside counsel to undertake the review described above. We have not yet advised governmental authorities in the foreign jurisdictions of the internal review but intend to do so.

Condensed Consolidated Statements of Income
(Amounts in thousands, except for per share data)

Three-month period Six-month period
ended ended
June 30, June 30,
----------------- -----------------
2007 2006 2007 2006
--------- ------- --------- -------

Net sales $ 52,730 41,721 $125,305 97,725
Cost of sales 30,924 22,680 69,978 53,984
--------- ------- --------- -------
Gross profit 21,806 19,041 55,327 43,741

Selling, general and
administrative expenses 18,825 15,033 37,170 30,819
--------- ------- --------- -------
Income from operations 2,981 4,008 18,157 12,922

Other income:
Interest, net (1,435) (687) (2,424) (1,267)
Other (3) (17) (2) (17)
--------- ------- --------- -------
Income before income taxes 4,419 4,712 20,583 14,206

Income taxes 1,870 1,981 8,336 5,826
--------- ------- --------- -------

Net income $ 2,549 2,731 $ 12,247 8,380
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Net income per share:
Basic $ 0.20 0.22 $ 0.97 0.67
Diluted 0.20 0.21 0.94 0.65
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Weighted-average shares:
Basic 12,787 12,510 12,691 12,516
Diluted 13,018 12,806 13,014 12,815
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