Deckers Ups Full Year Guidance on Strong Q1, but Second Quarter Earnings Will Slide…

Deckers Outdoor Corp. is apparently starting to see some early positive results from its revamped Teva product line and UGG spring offering, even though the weather has not helped the effort much this spring. The strong start to the year has led the company to up their sales and earnings forecast for the year, but second quarter earnings are expected to suffer from fixed quarterly costs in the smallest quarter of the year.

For the year, Deckers now sees revenues increasing approximately 25%, compared to previous estimates for 15% annual growth. UGG and Simple sales are expected to grow approximately 30%, while Teva growth is seen in the mid-teens for the year.

Diluted EPS is now expected to increase 15% for the year, up from the previous expectation of 5% growth. For the second quarter, revenues are expected to increase 15% versus the prior-year quarter, but diluted EPS is expected to fall 80% versus Q2 last year. Management said they also had some reserves planned for Q2 in case the weather doesn’t cooperate for Teva. Back half growth expectations are more in-line with the total year forecast.

Simple is also starting to gain a foothold with its Green Toe program that sets the tone for the summer release of the Eco Sneaks range that is expected to have much more consumer appeal, while still addressing the environmental initiatives set forth by the company. The brand continues to expand its presence at Whole Foods and has opened Urban Outfitters, Bloomies, David Z and Kitson. Simple is also getting a boost from Hollywood types that have picked up on the brand’s environmentally–friendly message.

All three brands under the Deckers umbrella posted double-digit gains for the first quarter, a performance that was bolstered by significant growth in the company’s direct-to-consumer programs. The consumer direct business, which was up 69.7% to $11.1 million for the period versus just $6.5 million in Q1 last year, saw growth fueled by gains in both the Internet and catalog businesses, as well as the addition of three new retail stores.

Company President & CEO Angel Martinez said the UGG flagship store in New York City continues to outperform expectations. DECK has another UGG store opening in Chicago later this year and the UGG distributor in Canada is also opening a store there later in the year. Mr. Martinez said they are looking at London, Paris and Milan for future owned-retail expansion, but Japan is also a target. On the outlet front, a new store is expected to open in the fall at Woodbury Commons, north of New York City.

International sales were up 37.1% to $16.9 million for the quarter, compared to $12.3 million in the year-ago period. The growth was led by a strong 226% sales increase in the U.K. Domestic sales increased 27.5% to $55.6 million for Q1 from $$43.7 million in the 2006 quarter.

Gross margin increased 210 basis points to 46.2% of sales, compared to 44.1% of sales for the year-ago period, due primarily to an “improved sales mix and lower closeouts for UGG,” as well as lower inventory write-downs for all brands. The upside was partially offset by higher international sales, which deliver tighter margins. SG&A expenses were said to be up for the quarter due to ongoing investments in infrastructure, but still improved 350 basis points as a percent of sales on leveraging of revenue growth.