Deckers beat all analyst expectations in the second quarter of 2004, exceeding the upper end of previously issued guidance by roughly 17%, while diluted earnings per share were 26.5% above company expectations.
Gross margin contraction in the quarter was due in part to the significant increase in UGG sales during the quarter, which generally carries a lower gross margin than Teva, and an increased impact of closeout sales. DECK said that the increase in closeouts was the result of an attempt to move inventory earlier in the season.
SG&A expenses decreased to 23.8% of sales compared to 31.4% in Q2 last year. DECK said this was largely due to the continued leverage of operating costs on the increased sales volume and a decrease in bad debt and marketing costs during the quarter.
Internet and catalog sales were $4.9 million for all brands, up 218% from $1.5 million last year.
International sales for all brands increased 49% to $4.5 million in the second quarter compared to $3.0 million LY.
Domestic sales increased 69% to $36 million compared to $21.3 million last year. ASP for Q2 was $20.73 versus $20.59 in Q2 LY. Unit sales at wholesale were 1.7 million pairs, up 54.5% over last years 1.1 million pair.
For the Teva brand, Otto said that they will continue to focus their efforts on “owning whitewater and canyon sports.” The continued focus on closed-toe footwear in the Teva brand has transformed the seasonality of the company, and according to Otto, the back half is now much more significant.
“We are now addressing the entire $2 billion rugged footwear market,” he told analysts. “A market that is over seven times the size of our sport sandal market.”
The Simple brand is showing sales increases again, with its new emphasis on the old-school sneaker and classic clogs. The new Simple Sheep program was described as “doing very well.” Otto said the he feels they have “finally turned the corner with Simple.”
Based on strong second quarter performance for all three brands, DECK is increasing both sales and earnings guidance for 2004.
The company now expects sales for 2004 to be $182 million to $190 million, and EPS to be approximately $1.70 to $1.75 per diluted share, up from our previous guidance of $1.42 to $1.51 a share. DECK sees third quarter sales in the $45 million to $49 million range and EPS at 33 cents to 36 cents per diluted share.
DECK boosted Teva full year sales guidance to $87 million to $89 million, UGG sales guidance to $86 million to $90 million, and maintained 2004 Simple sales guidance at $9 million to $11 million.
