Despite hitting its estimates for sales and earnings for first quarter, Deckers Outdoor Corporation saw its shares plunge more than 25% last week after the company started to show some weakness in its core Teva business. Analysts may also be spooked a bit by the reliance placed on the UGG brand to achieve full year sales and earnings targets. DECK is shifting its guidance for the year, expecting the second quarter to see flat sales to the year-ago period, while earnings will fall far short of Q2 last year and analysts’ estimates.

Analysts looked immediately to newly appointed president and CEO Angel Martinez, who willingly obliged by explaining a number of things he saw wrong with the business and what he was already doing in the first week to turn around the product gaps, particularly in closed-toe footwear and women’s product. He described Deckers as a “building of well-kept secrets.”

Deckers is now forecasting that second quarter EPS will be in the 28 cents to 30 cents per share range on sales between $40 million and $41 million. The company posted earnings of 43 cents per share in the second quarter last year on sales of $40.5 million. Analysts, on average, were looking for 44 cents per share on sales approaching $45 million.

Company chairman Doug Otto did his best on a very rough call with analysts to assure the market that they will achieve the full year forecast, which calls for earnings in the $2.45 to $2.55 per share range on sales between $250 million and $265 million. The concerns are clearly centered around the company’s need to backfill the year with heavier shipments of UGG products, while Teva brand sales run about 30 days behind last year.

Teva brand sales for 2005 are now expected to be in the $92 million to $95 million range, about $5 million less than the year-end forecast. Simple sales are seen in the $13 million to $15 million range, a decline of $3 million from the previous forecast. UGG brand sales are now seen delivering between $148 million and $153 million in revenues for the company, and making up the $8 million shortfall for the other brands.

The Teva division is getting pressure from other brands like Keen, Merrell, and Chaco just as sandals take a hit from a later Spring this year and a Winter that doesn’t want to go away in some key outdoor markets in the U.S. Based on comments made by management, Teva has not moved quickly enough on the shift to more closed-toe product as fast as it needs to compete as a four quarter brand. Keen has moved much faster to be a “footwear brand” rather than a “sandal brand”, a reality that must have been at least part of the thinking when Martinez was tapped to take the reins.

The other issue for the company is the International business, an area that Martinez also sees as undeveloped. Otto said they will rely on Angel’s experience in the International market to help fuel growth there.

For the quarter, domestic sales increased nearly 57% to $49.2 million. International grew about 17% to $15.1 million. Direct sales through the Internet and catalog businesses rose approximately 38% to $5.0 million. UGG sales accounted for more than 75%, or $3.8 million, of the consumer direct sales, while Teva contributed about 19% and Simple delivered the rest. It appears that nearly 17% of total UGG sales were done through consumer direct.

Management said the strong UGG showing in the quarter was due primarily to carryover shipments of 2004 Fall and Holiday product, coupled with initial deliveries of the brand’s first Spring line. Otto said they saw “strong double-digit sell-through” on Simple sneakers for Spring and are getting “good bookings” for Fall. Look for Angel to take this brand by the hand and lead it to new opportunities. He said he was surprised by the brand, that it was “so fully evolved and complete.”

The large jump in inventories at quarter-end can be directly tied to last year’s struggle to fill UGG orders. But Teva inventory was up nearly 46% to $16.9 million at the end of the period, a reality that must have spooked more than one investor, especially given the fact that Teva Q2 sales are expected to be sluggish. UGG sales for Q2 are expected to be flat as well, but backlog at quarter-end was said to be “up significantly” for the brand. Otto hinted that it was well in line with the expected sales increase for the back half.


>>> Looks like some were surprised at the notion that this thing was broken. Now Angel is expected to fix everything fast…

>>> Looking out a year, if DECK ships all the UGG orders for Fall/Holiday, won’t they have a tough time trying to anniversary this Q1???