Deckers Outdoor Corp posted a surprise second quarter profit, helped by cost controls and, to a lesser extent, higher sales. Although the company slightly raised its sales estimate for the year due to better-than-expected outlook for UGG, it maintained its earlier earnings forecast because many costs originally expected in the second quarter merely shifted to the back half of the year. It also lowered its sales guidance for both Teva and Simple.
Sales for the second quarter increased 12.5%, driven by shipments of the UGG Fall line to its international distributors and domestic retailers, combined with in-season deliveries of UGG and Teva spring products. International sales for all brands increased 36.8% to $46.5 million while domestic sales decreased 1.9% to $56 million.
The net profit reached $2.9 million, or 22 cents a share, compared with a loss of $3.8 million, or 29 cents, a year ago. Excluding pre-tax tradename/trademark write-downs of $1.0 million related to the TSUBO brand in 2009 and $14.9 million for the Teva brand in 2008, non-GAAP diluted EPS decreased 33.3% to 26 cents a share from 39 cents a year ago.
The company in April had forecasted a second quarter loss of 10 cents to 15 cents per share due to a shift in marketing expenses. However, a decision to delay some personnel hires until the back half of the year, combined with a shift in the timing of some marketing projects, positively impacted its expenses by roughly $5 million in the quarter.
On a conference call with analysts, Angel Martinez, company chairman, CEO and president, said the company was pleased with second quarter results given the recessionary conditions and the unseasonable spring weather in several areas of the country. He said that while Deckers has not been immune to the slowdown, “we still have been able to outpace expectation through the first six months of the year, highlighting the desirability of its brands, its disciplined distribution strategy and the successful execution of its business plan.”
UGG brand sales increased 22.9% to $74.4 million. Martinez said the first half of 2009 was highlighted by the “strong demand” for its much expanded UGG brand Spring line. Pre-bookings for Fall, which will feature over 135 styles of boots, slippers and casual footwear, have been strong. UGG also accelerated Fall 2009 shipments from the third quarter to the second quarter. “While most accounts are now just beginning to set their shelves for fall, early reads on sell-through have been solid,” said Martinez.
Teva sales decreased 10.6% to $22.6 million. Martinez said Teva continues to perform well compared to the overall outdoor industry, and efforts over the past few years to evolve Teva into an outdoor performance-oriented brand “are gaining traction.” Teva's Spring '09 line “is resonating with consumers and allowing us to capture key market share,” according to Martinez. He noted that according to recent point of sale data compiled by SportScanINFO, Teva increased its leading positions in the water and terrain sandal categories by approximately 40% and 6%, respectively, over its Spring 2008 and now hold approximately a 33% share of both of these markets.
Martinez also pointed to gains being made by its closed-toe styles. Led by the Omnium, its share of the hybrid water shoe category increased 100% to over 12% versus last year, while the men's Tamur and women's Westwater have helped move the Teva brand into the top three of the outdoor casual market behind Keen and Merrell with a 4.5% market share, up from under 1% a year ago.
Operationally, Teva has significantly improved its inventory control, which is helping reduce closeout sales, preserve margins and enhancing profitability-even with a decline in revenue.
At Simple, sales decreased 25.2% to $3.5 million. Martinez noted that Simple was up against tough year-ago comparisons due to the launch of Planet Walkers. He also said that like many smaller brands, Simple has been hurt by retailers' reluctance to make significant inventory commitments and, to a lesser extent, a higher-than-normal level of cancellations.
Combined Q2 net sales of TSUBO and Ahnu, acquired in May 2008 and March 2009, respectively, were $2.1 million. Sports Executive Weekly has learned that TSUBO has been moved under Jim Van Dines Ahnu umbrella in Alameda, CA.
E-commerce sales across all DECK brands fell 18.1% to $5.3 million due in part to a large volume of 2008 Q1 UGG back orders that shipped in Q2 last year, making comps difficult. E-commerce also saw a decline in its conversion rates for all brands and lower average selling prices for Teva and Simple products.
Retail sales doubled to $6.1 million from $3.1 million in Q2 last year. Same-store sales were up 21.7%. Internationally, Europe continues to be its strongest region, led by the UK, followed by the Benelux, Germany and Italy.
By brand, UGG inventory increased 43.8% to $130.3 million while Teva decreased 44.3% to $7.9 million, and Simple inventories were down 45.1% to $3.8 million.
DECK now expects revenues to increase approximately 9% to 10% in 2009, up from its previous guidance of approximately 7% to 9% growth. UGG's sales are expected to increase approximately 12% to 13%, up from its previous range of 8% to 10%. Teva is expected to be down approximately 11% to 12% compared to its previous expectation of down approximately 4% to 7%. Simple is expected to decrease approximately 5% to 8%, down from its previous expectation for sales to increase approximately 5% to 10%.
Deckers reiterated its previously issued EPS outlook, calling flat to slightly higher earnings as expenses slated for the second quarter shift to the back half of the year. For Q309, revenues and EPS are now expected to increase approximately 14% and 10%, respectively. For Q409, revenues are forecast to decrease slightly and EPS to decline approximately 4%.
