Business news :Deckers Outdoor's Q3 Hit by Weakness at Ugg

Company Reports Third Quarter Diluted Earnings Per Share of $1.18

 

Company Repurchased 1.8 Million Shares of Stock in Third Quarter

GOLETA, Calif.--(BUSINESS WIRE)--Oct. 25, 2012-- Deckers Outdoor Corporation (NASDAQGS: DECK) today announced financial results for the third quarter ended September 30, 2012.

Hurt by weaker sales of Ugg due to rising prices and warm weather, Deckers Outdoor Corp reported net sales in the third quarter fell 9.2 percent to $376.4 million compared to $414.4 million for the same period last year. Net earnings slumped 32.3 percent to $42.5 million, or $1.18 a share, from $62.8 million, or $1.59, a year earlier.

Among the highlights of the period:

•     Gross margin was 42.3 percent compared to 49.0 percent for the same period last year.
•     Ugg brand sales decreased 11.6 percent to $332.8 million compared to $376.7 million for the same period last year.
•     Teva brand sales increased 22.1 percent to $17.9 million compared to $14.7 million for the same period last year.
•     Sanuk brand sales increased 17.6 percent to $18.3 compared to $15.6 million for the same period last year.
•     Domestic sales decreased 6.1 percent to $242.2 million compared to $257.9 million for the same period last year.
•     International sales decreased 14.2 percent to $134.2 million compared to $156.4 million for the same period last year.
•     Retail sales increased 12.8 percent to $39.1 million compared to $34.7 million for the same period last year; same store sales decreased 13.1 percent for the thirteen weeks ending September 30, 2012 compared to the thirteen weeks ending October 2, 2011.
•     eCommerce sales increased 29.3 percent to $13.3 million compared to $10.3 million for the same period last year.

"Over the past two years, we have raised prices on selective key styles to help mitigate the impact of an 80 percent increase in our sheepskin and raw material costs over this same period," stated Angel Martinez, president, chief executive officer and chair of the board of directors. "We believe that these selective price increases, particularly during a period of one of the warmest years on record, has pushed us above the consumer's price-value expectations for the Ugg brand. We also believe that this has resulted in softer than expected third quarter sell-through trends in our company owned stores, and has pushed back the start of the brand's key selling season at retail this year. However, based on positive consumer feedback, the performance of new product introductions, and market research data, we continue to be confident in the strength and popularity of our brand portfolio and the multiple growth opportunities that still lie ahead."

"We recently negotiated fall 2013 product costs and based upon the decreases in our product costs for Fall 2013, together with the adverse effect of our price increases, we made the decision to adjust our domestic pricing in mid-September on select Classic styles, retroactive to all orders shipped since July 1," continued Mr. Martinez. "To support our loyal retailers and consumers during this challenging sales environment we made the strategic decision to pass along a portion of the upcoming savings immediately. We believe this is in the best interests of the brand and will help drive sell-through during the holiday season. "

Division Summary

Ugg Brand

Ugg brand net sales for the third quarter decreased 11.6 percent to $332.8 million compared to $376.7 million for the same period last year. The decrease in sales was driven by lower domestic and international wholesale sales and a decline in same store sales, partially offset by an increase in sales from new retail store openings and an increase in global eCommerce sales.

Teva Brand

Teva brand net sales for the third quarter increased 22.1 percent to $17.9 million compared to $14.7 million for the same period last year. The sales increase was driven primarily by an increase in international distributor sales, higher international wholesale sales from the brand's launch in Japan and higher domestic sales.

Sanuk Brand

Sanuk brand net sales for the third quarter increased 17.6 percent to $18.3 million compared to $15.6 million for the same period last year. The increase in sales was primarily attributable to higher domestic wholesale and eCommerce sales.

Other Brands

Combined net sales of the company's other brands decreased 1.1 percent to $7.3 million for the third quarter compared to $7.4 million for the same period last year.

Retail Stores

Sales for the retail store business, which are included in the brand sales numbers above, increased 12.8 percent to $39.1 million for the third quarter compared to $34.7 million for the same period last year. This increase was driven by 29 new stores opened after the third quarter of 2011, partially offset by a same store sales decrease of 13.1 percent for the thirteen weeks ending September 30, 2012 compared to the thirteen weeks ending October 2, 2011.

eCommerce

Sales for the eCommerce business, which are included in the brand sales numbers above, increased 29.3 percent to $13.3 million for the third quarter compared to $10.3 million for the same period last year. The sales increase was driven primarily by strong performance of the Sanuk brand, increased global sales for Ugg brand fall styles plus the addition of new international eCommerce websites.

Stock Repurchase Program
During the third quarter of 2012, the company repurchased approximately 1,833,000 shares of its common stock under its stock repurchase program for a total of $84.7 million. This brings the company's total stock repurchases over the past year to $184.7 million. As of September 30, 2012, the company had $115.3 million authorized repurchase funds remaining under its $200.0 million stock repurchase program announced in July 2012. Depending on market conditions and other factors, such repurchases may be commenced or suspended at any time without prior notice.

Balance Sheet
At September 30, 2012, cash and cash equivalents were $61.6 million compared to $90.4 million at September 30, 2011. At September 30, 2012, the company had $275.0 million in outstanding borrowings under its credit facility compared to $45.0 million at September 30, 2011. The decrease in cash and cash equivalents and the increase in outstanding borrowings are primarily attributable to $184.7 million of cash payments for stock repurchases and $76.1 million of cash payments for capital assets, which includes $28.6 million for retail expansion, $27.9 million for the new headquarters facility, $12.0 million for IT infrastructure, and $7.6 million for other capital expenditures.

Inventories at September 30, 2012 increased 36.2 percent to $486.2 million from $356.9 million at September 30, 2011. By brand, Ugg inventory increased $127.8 million to $451.8 million at September 30, 2012, Teva inventory increased $2.2 million to $19.1 million at September 30, 2012, Sanuk inventory decreased $0.6 million to $8.6 million at September 30, 2012, and the other brands' inventory decreased $0.1 million to $6.7 million at September 30, 2012.

Full-Year 2012 Outlook
Based on third quarter results combined with reduced sales projections, the company is revising its full year outlook.

The company now expects 2012 sales to increase approximately 5 percent over 2011 levels, compared to previous guidance of approximately 14 percent.

The company now expects 2012 diluted earnings per share to decrease approximately 33 percent from 2011 levels, compared to previous guidance for diluted earnings per share to decrease approximately 9 percent to 10 percent.

This guidance assumes a gross profit margin decline of approximately 430 basis points from 2011 levels compared to previous guidance which assumed a decline of 250 basis points. The year over year decline is due primarily to an increase in cost of goods sold driven by higher sheepskin costs and lower European margins, partially offset by increased contribution from retail sales, and the addition of the Sanuk brand for the full year.

This guidance also assumes SG&A as a percentage of sales of approximately 32 percent versus prior guidance of approximately 30 percent due to the lower sales projections partially offset by lower compensation expense. Fiscal 2012 guidance includes $16 million, or $0.30 per diluted share associated with amortization and accretion expenses related to the Sanuk brand acquisition.

Ugg brand sales are expected to be flat with 2011 levels compared to previous guidance of a 10 percent increase. Teva brand sales are expected to be slightly down and Sanuk brand sales are still expected to be approximately $95 million. The company acquired Sanuk in July 2011. Combined sales of other brands are expected to be down approximately 10 percent to approximately $22 million, driven by the closure of the Simple brand at the end of 2011.

Fourth Quarter Outlook
The company now expects fourth quarter 2012 revenue to increase approximately 6 percent over 2011 levels, compared to its previous guidance of approximately 19 percent.

The company now expects fourth quarter 2012 diluted earnings per share to decrease approximately 14 percent from 2011 levels, compared to its previous guidance for an increase of approximately 22 percent

Martinez concluded, "As we make adjustments to our near-term strategies, including the adjusted pricing and continued focus on the optimal distribution of the Ugg products, and to focus on the best interests for the Ugg brand in the long term, we believe it is prudent to adopt a more cautious outlook for the fourth quarter. Long-term, the global growth strategies we have put in place remain intact and on course. This is also true of the previous measures we've taken to help mitigate the risks to the business. These include supply chain initiatives to reduce our exposure to sheepskin, product diversification to lessen our dependency on Classics and cold weather, and our acquisition of the Sanuk brand, which has helped to balance the seasonality of our business and improve margins. We also remain committed to enhancing shareholder value, evidenced by our aggressive stock repurchase activity over the past several quarters."

( SportsOneSource Media )