Led by a 15.8 percent gain for Ugg, Deckers Outdoor Corp. reported sales increased 11.7 percent in its three-month transition period ended Mar. 31, to $294.7 million.
The company recently changed its fiscal year from Dec. 31 to Mar. 31, and, as a result, the three-month period ended March 31 is referred to as the transition period.
Deckers showed a loss of $2.7 million, or 8 cents a share, in the period, but it was better than the company's forecast calling for a loss of 16 cents a share. The company had expected a loss to cover ongoing investments in store openings and e-commerce in one of the company’s slowest quarter.
Gross margin for the transition period improved 210 basis points to 48.9 percent due to a decrease in product costs due to lower sheepskin prices; the further integration of UGGpure, its synthetic line; and a greater contribution coming from its direct-to-consumer division.
Total SG&A expense increased 330 basis points to 49.1 percent, primarily attributable to additional retail and e-commerce related expenses, partially offset by an increase in net sales.
On a conference call with analysts, Angel Martinez, president and CEO, noted that the quarter’s performance was highlighted by a 16.9 percent gain in its direct-to-consumer channel, fueled by a 42 percent gain in comparable e-commerce sales. Increases are continuing to be seen in both traffic and conversion.
“We believe our performance reflects the favorable selling conditions for the UGG brand, as well as our enhanced digital marketing initiatives and our improved omni-channel capabilities,” said Martinez.
Overall, Ugg brand sales increased 15.8 percent to $197.6 million. The gains were driven by sales gains across all primary channels, including an increase in global e-commerce sales, the sales contribution from new store openings and an increase in same-store sales, and higher domestic wholesale sales.
Martinez said January and February were strong months for Ugg’s boots and slipper businesses.
“The combination of cold and snowy conditions in many areas of the country and our first dedicated winter marketing campaign drove strong sell-through across our DTC and wholesale channels leading to out-of-stock positions in many core items,” said Martinez. “More recently, demand for spring styles, particularly casual slip-on shoes from our popular Kavar collection, as well as sandals from our new beach category, has picked up with the arrival of more seasonable weather.”
Overall, he believes Ugg is benefiting from its expanded product line and improvements in marketing approaches. Said Martinez, “Building on our success in the cold weather months, we expect these efforts will lead to more consistent revenue growth opportunities for the Ugg brand across all seasons.”
Teva brand sales decreased 9.2 percent to $46.8 million, primarily attributable to lower domestic wholesale sales. Martinez said while sales were down, early reads on its new Originals collection featuring updated styling of the brand's iconic sports sandal have been “very encouraging.” Added Martinez, “With consumers now buying much closer to need, sell-through of our Originals line has accelerated over the past month and we expect our sales momentum to build as we move into summer.”
Sanuk brand sales slipped 0.8 percent to $30.7 million. Lower international distributor sales was partially offset by an increase in domestic wholesale, retail and e-commerce sales.
Sanuk experienced robust sell-through of its popular Yoga Sling women's sandal and a good reaction to several new canvas footwear introductions. Said Martinez, “We've made important progress infusing the product line with more fashion to better insulate the brand's performance from weather, particularly in women's, which is performing above plan despite less than ideal conditions for open-toed footwear.”
He added that Sanuk's pace of business has started to pick up with the establishment of new national accounts, including Urban Outfitters, as well as increased penetration at Journeys, Dillard's, Zumiez and Tilly's. Added Martinez, “We believe this bodes well as we approach the warmer weather across the US for the rest of the summer.”
Combined net sales of the company's Other Brands Hoka One One, Ahnu, Mozo and Tsubo jumped 84.3 percent to $19.6 million, primarily attributable to an $8.2 million increase at Hoka. Martinez said Hoka’s performance was better-than-projected due to “tremendous” demand for the new Conquest shoe.
“The excitement generated by Hoka’s unique product feature, a higher volume, softer density and greater rebounding form than standard running shoes, has led to a significant increase in new accounts within specialty running stores, as well as interest from larger athletic specialty and outdoor retailers,” said Martinez.
To support Hoka’s growth, Leo Manzano, Olympic silver medalist in the 1500 meters, was signed on as Hoka’s brand ambassador. Said Martinez, “It's a great endorsement for the disruptive positioning that we believe the brand has established within the running industry.”
Retail sales increased 26.1 percent to $80.1 million, supported by the opening of 42 stores and a same-store sales gain of 4 percent.
E-commerce sales jumped 45.0 percent to $38.6 million. The gain was fueled by strong domestic and international sales for the Ugg brand, increased domestic sales of Sanuk and Teva, plus the domestic launch of the Hoka website and the addition of new international e-commerce websites. Conversion across websites was up 26 percent versus last year.
By region, Asia-Pacific DTC comps are up 43 percent fueled by strong store trend in both Japan and China and robust year-over-year gains for its e-commerce site in Japan. North America comps rose 15 percent driven by strong e-commerce sales partially offset by weaker store comps. EMEA DTC comps decreased 5 percent as wet weather in the UK created a challenging retail store environment.
Domestic sales increased 8.5 percent to $198.3 million while international sales advanced.
For the first quarter ended June 30, sales are expected to increase 12.0 percent and Deckers expects to report a loss in the period of $1.33 compared to a loss of 85 cents a year earlier. With the quarter representing another lower volume period, Deckers noted that the loss will reflect costs associated with the 28 new stores that were not open until the second half of 2013.
For the full year ended Mar. 31, 2015, revenues are projected to increase 13.0 percent. EPS is expected to climb 13.5 percent. The guidance assumes a gross profit margin of 49.4 percent, SG&A expenses as a percentage of sales at 36.4 percent, and an operating margin of approximately 13.0 percent. Sales for the year are expected to rise 11 percent for Ugg, also 11 percent for Teva, and 15 percent for Sanuk.
Deckers also announced that Zohar Ziv will retire as COO after over 8 years with the company. Ziv is expected to stay until his successor is named.
Deckers will also be transferring its stock listing to the New York Stock Exchange from NASDAQ. The transition is set on or about May 5. The stock symbol will continue to be “DECK”.
