Deckers Outdoor Corporation (DECK), the maker of sheepskin boots and slippers, recently delivered better-than-expected first-quarter 2011 results on the heels of strong demand for the product lines under the UGG and Teva brands. Consequently, the company raised its full year outlook but hinted at delivering a loss in the second quarter.
The quarterly earnings of 49 cents a share beat the Zacks Consensus Estimate of 47 cents, and rose 6.5% from 46 cents earned in the prior-year quarter.
Let’s Dig Deep
Deckers said that total net sales jumped to $204.9 million, up 31.4% from the prior-year quarter, and came ahead of the Zacks Consensus Estimate of $201 million. The company’s sustained focus on new product introductions and geographic expansion have helped achieve robust growth.
Domestic sales for the quarter surged 26.6% to $148.1 million, whereas international sales soared 45.8% to $56.7 million. International sales now represent 27.7% of total sales up from 25% in the year-ago quarter.
The international markets provide a significant growth opportunity, and we remain optimistic about the company’s incremental sales and earnings potential. Internationally, the company distributes its products throughout Europe, Asia Pacific, Canada and Latin America.
UGG brand net sales surged 42.2% to $148.4 million and Teva brand net sales grew 16.8% to $50.4 million. Combined net sales of Deckers’ other brands for the quarter dropped 28.3% to $6 million.
Sales for the retail store business jumped 52.8% to $35.4 million, propelled by same-store sales growth of 2.6%, and the opening of 9 new stores. Deckers plans to open 15 new full-priced stores in fiscal 2011 with the majority outside the U.S.
Sales for the company’s eCommerce business climbed 27.3% to $23.5 million, reflecting a rise in demand for the UGG brand.
Despite a 31.2% increase in cost of goods sold, gross profit jumped 31.5% to $102.5 million during the quarter, reflecting double-digit growth registered in the top-line, whereas gross profit margin remained flat at 50%.
With the transition to a wholesale model Deckers now manages the distribution of UGG, Teva and Simple brands in the U.K. and the UGG and Simple brands in the Benelux region. This will help capture incremental sales by selling directly to wholesale customers.
Other Financial Aspects
Deckers also portrays a healthy debt-free balance sheet with a significant cash and cash equivalents balance of $437.9 million and shareholders’ equity of $671.9 million, excluding a non-controlling interest of $3.3 million. This provides ample liquidity to capitalize on future growth opportunities.
During the quarter, Deckers did not buy back any shares. The company still has approximately $20 million at its disposal under its $50 million share repurchase authorization announced in June 2009. Capital expenditures for the quarter were $5 million.
Walking through Guidance
Management now forecasts a total revenue growth of 21% and earnings per share increase of 13% in fiscal 2011. Earlier, Deckers had projected total revenue to increase by 20% and earnings per share to rise by 10%.
For second-quarter 2011, Deckers projected revenue growth of 4% but expects to post a loss per share of 25 cents due to a shift in incremental sales of $50 million to the third quarter from the second quarter on account of transition to a wholesale business model from a distributor business model, and higher fixed overhead expenses.
The current Zacks Consensus Estimate for second-quarter 2011 is 6 cents a share. Following the company’s recent guidance of loss per share, a negative sentiment may be palpable among the analysts following the stock, and we could witness a fall in the Zacks Consensus Estimate in the coming days with analysts tweaking their estimates to better align with the company’s projection.
Management predicts capital expenditures between $55 million and $60 million for the year.
Currently, we have a long-term Outperform rating on the stock. However, Deckers, which competes with Nike Inc. (NKE) and Timberland Co. (TBL), holds a Zacks #3 Rank, which translates into a short-term Hold recommendation.
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