Shares Rally as Deckers' Loss Narrows - Analyst Blog

Shares of Deckers Outdoor Corporation DECK rose nearly 7% in the after-hours trading session as the company posted narrower-than-expected loss for the three-month transition period ended Mar 31, 2014.

Deckers has changed its fiscal year from Dec 31 to Mar 31. As part of the process, the company has referred to the three month period ended Mar 31, 2014 as the transition period. The results of the transition period are compared with the results for the first quarter of fiscal 2013 ended Mar 31, 2013. Also, the company is transferring its listing from Nasdaq to NYSE and will begin trading on NYSE on May 5, 2014 under the current symbol DECK.

The company posted a loss of 8 cents per share as against the Zacks Consensus Estimate of loss of 16 cents and earnings of 3 cents reported in first-quarter 2013.

Deckers' net sales jumped 11.7% year over year to $294.7 million and came ahead of the Zacks Consensus Estimate of $285 million. The quarterly performance was aided by robust sales of UGG and HOKA ONE ONEâ brands as well as stellar comps and e-Commerce growth.

Deckers continues to focus on developing its Omni-channel capability to further improve sales.

During the quarter, the company's domestic sales grew 8.5% year over year to $198.3 million while international sales increased 18.9% to $96.4 million. Direct-to-Consumer comparable sales, comprising worldwide retail comparable-store sales (comps) and e-Commerce sales, rose 16.9%.

Gross profit climbed 16.8% to $144.3 million from the comparable prior-year quarter, while gross margin rose 210 basis points to 48.9%. Deckers reported an operating loss of $408 million, as against operating income of $2,652 million in the prior-year quarter.  

Segment Discussion

UGG brand net sales rose 15.8% to $197.6 million, primarily due to sales generation from new retail outlets, comps growth, rise in global e-Commerce sales and increase in domestic wholesale sales.

Teva brand net sales fell 9.2% to $46.8 million, reflecting a fall in domestic wholesale sales.

Sales for the Sanuk brand, known for its exclusive sandals and shoes, were $30.7 million, down 0.8% from the year-ago quarter, reflecting lower international distributor sales, partly offset by rise in domestic wholesale, retail and E-Commerce sales.

Combined net sales of Deckers' Other brands for the quarter were $19.6 million that surged 84.3% year over year on the back of HOKA ONE ONEâ brand.

Retail Stores sales increased 26.1% to $80.1 million, propelled by the opening of 42 new stores after first-quarter 2013 and comps growth of 4.0%. Deckers witnessed comps growth of 43% in Asia-Pacific and 15% in North America, partly offset by a 5% comps decline in Europe, Middle East and Africa (EMEA).

e-Commerce sales surged 45.0% to $38.6 million, reflecting robust demand of the UGG brand globally, higher domestic sales of Sanuk and Teva brands along with new international e-Commerce websites and HOKA ONE ONEâ brand domestic website.

Store Update

Deckers plans to open 30–35 stores during fiscal 2015, up from earlier expectation of 25 stores. The company currently operates 120 company-owned retail stores. Deckers remains optimistic about achieving the target of 200 stores in the long run.

Other Financial Aspects

Deckers, which competes with Iconix Brand Group, Inc. ICON, ended the quarter with cash and cash equivalents of $245.0 million. Shareholders' equity was $888.8 million at the end of the quarter. Inventories declined 17.7% year over year to $211.5 million.

Guidance for Fiscal 2015

This Zacks Rank #3 (Hold) stock now projects total revenue growth of 13% for fiscal 2015, anticipating sales growth of 11% in UGG brand, 11% in Teva brand, 15% in Sanuk brand and sales worth $82 million from other brands. Management now envisions a 13.5% rise in 2015 earnings per share.

Deckers forecasts 12.0% revenue growth but anticipates a loss of $1.33 a share for the first quarter of 2015.

Management anticipates capital expenditures of $100 million for fiscal 2015, comprising of $37 million for IT and infrastructure improvement, $30 million for new outlets and $26 million for building a new distribution center.

Other Stocks to Consider

Investors interested in the same sector could consider stocks like Skechers USA Inc. SKX and Brown Shoe Co. Inc. BWS. While Skechers sports a Zacks Rank #1 (Strong Buy), Brown Shoe has a Zacks Rank #2 (Buy).