Deckers Outdoor Corporation net sales increased 39% to a record of $35.7 million for the 2003 fourth quarter versus $25.8 million in the same period last year. Net earnings for the quarter rose 81% to $2,464,000, compared to net earnings of $1,363,000 last year, and diluted earnings per share increased 46% to $0.19, versus diluted earnings per share of $0.13 in the fourth quarter of 2002.
As previously reported, on January 1, 2002, the Company implemented Statement of Financial Accounting Standards No. 142 (“SFAS 142”), Goodwill and Other Intangible Assets, which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized to earnings but instead be reviewed periodically for impairment. The implementation of SFAS 142 resulted in a goodwill impairment charge of approximately $9.0 million during 2002 (or $0.92 per diluted share), which was recorded as a cumulative effect of change in accounting principle, presented net of its tax impact.
Chief Executive Officer, Doug Otto, stated, “We are very pleased with our fourth quarter performance, driven primarily by strong demand for Ugg(R) and Teva(R) coupled with further improvements in gross margin and continued leverage of our operating expenses. These results contributed to record annual operating income in 2003 and highlight a strong ending to a great year.”
“Fiscal 2003 was an important year for Deckers strategically, operationally and financially,” Mr. Otto continued. “From a brand perspective we were able to leverage the acquisition of Teva to further build our leadership position in the market and create new opportunities for growth. In addition, Ugg continued to experience a significant increase in demand and exposure across the country and we successfully repositioned Simple for the future. During the year we significantly improved our balance sheet and further enhanced our operating platform. Our efforts did not go unnoticed as UGG was named 2003 Brand of the Year by Footwear News.”
Teva sales for the year increased 17.5% to $76.5 million compared to $65.1 million last year. Ugg sales for the year increased 54.9% to a record level of $36.9 million from $23.8 million, and Simple sales were $7.7 million compared to $10.2 million for the same period last year. These sales are inclusive of sales generated by our catalog and internet segment, which we acquired in November 2002.
Mr. Otto further stated, “Our traditional sandal business performed very well during the spring and summer months and the strong momentum continued into the fall. Late last year, we signed a number of licensing agreements for Teva and look forward to further leveraging our strong brand name into outdoor apparel, headwear, eyewear and watches. Ugg recorded its sixth consecutive year of double-digit growth and enjoyed unprecedented press coverage throughout the year, especially during the holiday season. We also recently announced a licensing partnership for Ugg handbags and small leather goods and we will selectively pursue similar deals as we look to drive the brand's lifestyle message to a broader audience. Finally, we worked hard throughout the year to get Simple(R) back on track and focused on expanding the core product offering. Included in the new Simple line is a moderately priced shearling boot line, which has received very good response. As we look ahead into 2004 and beyond we remain enthusiastic about the potential of our strong portfolio of niche brands and our unique position in the marketplace.”
During the fourth quarter of 2003, the Company repurchased all of the $5.5 million of preferred stock and repaid $2 million of its 16.75% subordinated notes. In connection with the repurchase and pursuant to the terms of the preferred stock, the Company paid Mr. Thatcher a premium of approximately $0.4 million, which was treated as a capital transaction and accordingly had no impact on net earnings for 2003. In addition, in connection with the repayment of the subordinated debt in December, we incurred approximately $0.2 million of expenses related to the write-off of financing costs.
After year-end, the Company continued to reduce the outstanding 16.75% subordinated notes, repaying an additional $3 million in January 2004. With this most recent repayment, the Company has now repaid $7 million of the original $14 million of 16.75% subordinated notes and repurchased all of the $5.5 million of preferred stock, both of which were incurred in order to finance the Teva acquisition in November 2002.
The Company also restructured its international operations, which resulted in a reduced income tax rate to 34.0% in the fourth quarter of 2003, compared to 40.0% for the first nine months of 2003 and 38.5% for all of 2003. The Company believes this restructuring should yield an annual effective tax rate of approximately 36.5% in 2004.
Deckers also increased its guidance for 2004. The Company now expects sales to range from $153 million to $162 million and diluted earnings per share to range from $1.25 to $1.35, up from the previous guidance of $1.02 to $1.06 per diluted share. The Company currently expects annual sales in 2004 to be approximately $84 to $86 million for Teva, $9 – $11 million for Simple and $60 – $65 million for Ugg. For the first quarter ending March 31, 2004, the Company currently expects sales to range from $40 million to $42 million and diluted earnings per share to range from $0.44 to $0.45.
Mr. Otto concluded, “While we have achieved much over the last year, our sights are firmly set on the future and we believe the prospects for Deckers have never been brighter, as evidenced by our heightened outlook for fiscal 2004. We move forward with a compelling platform for growth and remain committed to fully capitalizing on the many opportunities that still lie ahead.”
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Three-month period ended Year Ended
December 31, December 31,
------------------------ ------------------------
2003 2002 2003 2002
----------- ----------- ------------ -----------
Net sales $35,717,000 25,752,000 121,055,000 99,107,000
Cost of sales 21,946,000 16,105,000 69,710,000 57,577,000
----------- ----------- ------------ -----------
Gross profit 13,771,000 9,647,000 51,345,000 41,530,000
Selling, general and
administrative
expenses 8,880,000 7,098,000 31,907,000 34,954,000
Litigation charge --- (290,000) --- 3,228,000
----------- ----------- ------------ -----------
Earnings from
operations 4,891,000 2,839,000 19,438,000 3,348,000
Other expense
(income):
Interest, net 1,145,000 464,000 4,557,000 406,000
Other 12,000 25,000 (3,000) 98,000
----------- ----------- ------------ -----------
Income before income
taxes and
cumulative
effect of
accounting change 3,734,000 2,350,000 14,884,000 2,844,000
Income taxes 1,270,000 987,000 5,730,000 1,224,000
----------- ----------- ------------ -----------
Income before
cumulative effect
of accounting
change 2,464,000 1,363,000 9,154,000 1,620,000
Cumulative effect of
accounting change,
net of
$843,000 income tax
benefit --- --- --- (8,973,000)
----------- ----------- ------------ -----------
Net income (loss) 2,464,000 1,363,000 9,154,000 (7,353,000)
Preferred stock
redemption (438,000) --- (438,000) ---
----------- ----------- ------------ -----------
Net income (loss)
available for
common
stockholders $ 2,026,000 1,363,000 8,716,000 (7,353,000)
=========== =========== ============ ===========
Basic income per
common share before
cumulative effect
of accounting
change $ 0.21 0.15 0.91 0.17
Cumulative effect of
accounting change --- --- --- (0.96)
----------- ----------- ------------ -----------
Basic net income
(loss) per common
share $ 0.21 0.15 0.91 (0.79)
