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Deckers Brands Reports Third Quarter Fiscal 2018 Financial Results and Raises Guidance for Full Year Fiscal 2018

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Deckers Brands (NYSE:DECK), a global leader in designing, marketing and
distributing innovative footwear, apparel and accessories, today
announced financial results for the third fiscal quarter ended December
31, 2017.

Throughout this release, references to Non-GAAP financial measures
exclude the impact of certain restructuring and other charges.
Additional information regarding these Non-GAAP financial measures is
set forth under the heading "Non-GAAP Financial Measures" below.

"Our third quarter results, which meaningfully exceeded expectations,
underscore the progress we have made developing a stronger foundation to
support profitable growth," said Dave Powers, President and Chief
Executive Officer. "Our refined product strategies, enhanced consumer
messaging and wholesale account optimization efforts resulted in much
stronger full price selling for our brand portfolio during the key
holiday season. While more favorable weather also contributed to our
year-over-year improvement, hard work by the entire organization enabled
us to capitalize on additional upside opportunities. Looking ahead, I am
confident that the successful execution of our profit improvement plan,
combined with the recently passed tax reform, has Deckers in a great
position to deliver increased value to our shareholders in the years
ahead."

Third Quarter Fiscal 2018 Financial Review

  • Net sales increased 6.6% to $810.5 million compared to $760.3
    million for the same period last year. On a constant currency basis,
    net sales increased 6.3%.
  • Gross margin was 52.2% compared to 50.5% for the same period
    last year.
  • SG&A expenses were $230.3 million compared to $330.3
    million for the same period last year. Non-GAAP SG&A expenses were
    $220.4 million this year compared to $201.4 million last year.
  • Operating income was $193.2 million compared to $53.3 million
    for the same period last year. Non-GAAP operating income was $203.1
    million this year compared to $182.2 million last year.
  • Diluted earnings per share was $2.69 compared to $1.27 for the
    same period last year. Non-GAAP diluted earnings per share was $4.97
    this year compared to $4.11 last year. For this year, non-GAAP diluted
    earnings per share was largely effected by the recently enacted tax
    reform act.

Brand Summary

  • UGG® brand net sales for the third quarter increased 4.3% to $734.7
    million compared to $704.0 million for the same period last year.
  • HOKA ONE ONE® brand net sales for the third quarter increased 65.7% to
    $31.8 million compared to $19.2 million for the same period last year.
  • Teva® brand net sales for the third quarter increased 33.4% to $19.5
    million compared to $14.6 million for the same period last year.
  • Sanuk® brand net sales for the third quarter were flat to last year at
    $13.9 million.

Channel Summary (included in the brand sales numbers above)

  • Wholesale net sales for the third quarter increased 10.3% to $428.8
    million compared to $388.6 million for the same period last year.
  • DTC net sales for the third quarter increased 2.7% to $381.7 million
    compared to $371.7 million for the same period last year. DTC
    comparable sales for the third quarter increased 1.7% over the same
    period last year.

Geographic Summary (included in the brand and channel sales numbers
above)

  • Domestic net sales for the third quarter increased 2.5% to $501.7
    million compared to $489.5 million for the same period last year.
  • International net sales for the third quarter increased 14.0% to
    $308.8 million compared to $270.8 million for the same period last
    year.

Balance Sheet (December 31, 2017 as compared to December 31, 2016)

  • Cash and cash equivalents were $493.0 million compared to $296.4
    million.
  • Inventories were $396.3 million compared to $373.5 million.
  • Outstanding borrowings were $32.2 million compared to $62.4 million.

Stock Repurchase Program and Cash Repatriation

During the third quarter the Company repurchased approximately
361,000 shares of its common stock for a total of $24.7 million. As
of December 31, 2017, the Company had $375.6 million remaining under its
$400.0 million in stock repurchase authorizations. The Company still
intends to repurchase approximately $75 million worth of stock prior to
the end of fiscal year 2018.

The Company intends to repatriate $250.0 million by fiscal year end
2018. This preliminary estimate may be impacted by a number of
additional considerations, including but not limited to clarifications
or changes to the recently passed tax reform act, the issuance of the
final regulations, our ongoing analysis of the new law and our actual
earnings for the fiscal year ended March 31, 2018.

Full Year Fiscal 2018 Outlook for the Twelve Month Period Ending
March 31, 2018

Deckers now expects fiscal year 2018 results to be:

  • Net sales are expected to be in the range of $1,873 million to $1,878
    million.
  • Gross margin is expected to be approximately 49%.
  • SG&A expenses as a percentage of sales are projected to be
    approximately 37%.
  • Effective tax rate of approximately 22.5%.
  • Non-GAAP diluted earnings per share are expected to be in the range of
    $5.37 to $5.42. This excludes any charges that may occur from
    additional store closures, restructuring and other charges.
  • The earnings per share guidance does not assume any impact of
    additional share repurchases.

Fourth Quarter Fiscal 2018 Outlook for the Three Month Period Ending
March 31, 2018

  • Net sales are expected to be in the range of $370 million to $375
    million.
  • Effective tax rate of approximately 32%.
  • Non-GAAP diluted earnings per share are expected to be in the range of
    $0.15 to $0.20. This excludes any charges that may occur from
    additional store closures, restructuring and other charges.
  • The earnings per share guidance does not assume any impact of
    additional share repurchases.

Non-GAAP Financial Measures

We present certain Non-GAAP financial measures in this press release,
including constant currency, Non-GAAP SG&A expenses, Non-GAAP operating
income and Non-GAAP diluted earnings per share, to provide information
that may assist investors in understanding our financial results and
assessing our prospects for future performance. We believe these
Non-GAAP financial measures are important indicators of our operating
performance because they exclude items that are unrelated to, and may
not be indicative of, our core operating results, such as restructuring
charges relating to retail store closures and office consolidations, and
other charges relating to inventory write-downs, severance and asset
impairments. In particular, we believe that the exclusion of certain
costs and charges allows for a more meaningful comparison of our results
from period to period. These Non-GAAP measures, as we calculate them,
may not necessarily be comparable to similarly titled measures of other
companies and may not be appropriate measures for comparing the
performance of other companies relative to Deckers. For example, in
order to calculate our constant currency information, we calculate the
current period financial information using the foreign currency exchange
rates that were in effect during the previous comparable period,
excluding the effects of foreign currency exchange rate hedges and
re-measurements in the condensed consolidated balance sheets. These
Non-GAAP financial results are not intended to represent, and should not
be considered to be more meaningful measures than, or alternatives to,
measures of operating performance as determined in accordance with GAAP.
To the extent we utilize such Non-GAAP financial measures in the future,
we expect to calculate them using a consistent method from period to
period. A reconciliation of each of the financial measures to the most
directly comparable GAAP measures has been provided under the heading
"Reconciliation of GAAP Financial Measures to Non-GAAP Financial
Measures" in the financial statement tables included below.

Conference Call Information

The Company's conference call to review the results for the third
quarter 2018 will be broadcast live today, Thursday, February 1, 2018 at
4:30 pm Eastern Time and hosted at www.deckers.com.
You can access the broadcast by clicking on the "Investor Information"
tab and then clicking on the microphone icon at the top of the page.

About Deckers Brands

Deckers Brands is a global leader in designing, marketing and
distributing innovative footwear, apparel and accessories developed for
both everyday casual lifestyle use and high performance activities. The
Company's portfolio of brands includes UGG®, Koolaburra®, HOKA ONE ONE®,
Teva® and Sanuk®. Deckers Brands products are sold in more than 50
countries and territories through select department and specialty
stores, Company-owned and operated retail stores, and select online
stores, including Company-owned websites. Deckers Brands has a 40-year
history of building niche footwear brands into lifestyle market leaders
attracting millions of loyal consumers globally. For more information,
please visit www.deckers.com.

Forward Looking Statements

This press release contains "forward-looking statements" within the
meaning of the safe harbor provisions of the U.S. Private Securities
Litigation Reform Act of 1995, which statements are subject to
considerable risks and uncertainties. Forward-looking statements include
all statements other than statements of historical fact contained in
this press release, including statements regarding our anticipated
financial performance, including our projected net sales, margins,
expenses and earnings per share, as well as statements regarding our
cost savings initiatives, product and brand strategies, and marketing
and distribution plans. We have attempted to identify forward-looking
statements by using words such as "anticipate," "believe," "could,"
"estimate," "expected," "intend," "may," "plan," "predict," "project,"
"should," "will," or "would," and similar expressions or the negative of
these expressions.

Forward-looking statements represent our management's current
expectations and predictions about trends affecting our business and
industry and are based on information available as of the time such
statements are made. Although we do not make forward-looking statements
unless we believe we have a reasonable basis for doing so, we cannot
guarantee their accuracy or completeness. Forward-looking statements
involve numerous known and unknown risks, uncertainties and other
factors that may cause our actual results, performance or achievements
to be materially different from any future results, performance or
achievements predicted, assumed or implied by the forward-looking
statements. Some of the risks and uncertainties that may cause our
actual results to materially differ from those expressed or implied by
these forward-looking statements are described in the section entitled
"Risk Factors" in our Annual Report on Form 10-K for the fiscal year
ended March 31, 2017, as well as in our other filings with the
Securities and Exchange Commission.

Any forward-looking statement made by us in this press release is based
only on information currently available to us and speaks only as of the
date on which it is made. Except as required by applicable law or the
listing rules of the New York Stock Exchange, we expressly disclaim any
intent or obligation to update any forward-looking statements, or to
update the reasons actual results could differ materially from those
expressed or implied by these forward-looking statements, whether to
conform such statements to actual results or changes in our
expectations, or as a result of the availability of new information.

 

DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(Amounts in thousands, except for per share data)
 
 
    Three-month period ended   Nine-month period ended
December 31, December 31,
2017 2016   2017   2016  
 

Net sales

$ 810,478 $ 760,345 $ 1,502,655 $ 1,420,682
Cost of sales 387,007 376,711   763,442   744,371  
Gross profit 423,471 383,634 739,213 676,311
 
Selling, general and administrative expenses 230,280 330,384   534,923   647,357  
Income from operations 193,191 53,250 204,290 28,954
 
Other expense, net 138 2,363   1,503   4,476  
Income before income taxes 193,053 50,887 202,787 24,478
 
Income tax expense 106,712 9,860   109,008   3,064  
Net income 86,341 41,027 93,779 21,414
 
Other comprehensive income (loss), net of tax
Unrealized gain (loss) on foreign currency hedging 2,509 (1,399 ) (2,174 ) 620
Foreign currency translation adjustment 2,037 (13,067 ) 6,555   (10,224 )
Total other comprehensive income (loss) 4,546 (14,466 ) 4,381   (9,604 )
Comprehensive income $ 90,887 $ 26,561   $ 98,160   $ 11,810  
 
Net income per share:
Basic $ 2.71 $ 1.28 $ 2.93 $ 0.67
Diluted $ 2.69 $ 1.27 $ 2.91 $ 0.66
 
Weighted-average common shares outstanding:
Basic 31,863 31,973 31,956 32,018
Diluted 32,041 32,309 32,186 32,377
 
 

Reconciliation of GAAP Financial Measures
to Non-GAAP Financial Measures

 
DECKERS BRANDS - GAAP to Non-GAAP Reconciliation  
For the Three Months Ended December 31, 2017 and December 31, 2016
(Amounts in thousands, except for per share data)  
(Unaudited)
 
         
Three-month period ended December 31, 2017
Non-GAAP
GAAP Measures Restructuring and Measures
(As Reported) Other Charges (1) (Excluding Items) (2)
Net sales $ 810,478 $ 810,478
Cost of sales 387,007   387,007

Gross profit

423,471 423,471
 
Selling, general and administrative expenses 230,280 (9,870 ) 220,410
Income from operations 193,191 9,870 203,061
 
Other expense, net 138   138
Income before income taxes 193,053 202,923
 
Income tax expense 106,712   43,728
Net income $ 86,341   $ 159,195
 
Net income per share:
Basic $ 2.71 $ 5.00
Diluted $ 2.69 $ 4.97
 
Weighted-average common shares outstanding:
Basic 31,863 31,863
Diluted 32,041 32,041
 

(1)

Amounts as of December 31, 2017 reflect restructuring, other
charges related to organizational changes and the strategic review
process.

(2)

The difference in GAAP and non-GAAP tax expense is primarily due
to the recently enacted tax reform and subsequent deferred tax
asset charge associated with the new lower domestic federal tax
rate. The tax rate applied to the Non-GAAP measures is 21.5% for
the fiscal quarter ended December 31, 2017.

 

 
    Three-month period ended December 31, 2016
  Non-GAAP
GAAP Measures Restructuring and Measures
(As Reported) Other Charges (1) (Excluding Items) (2)
Net sales $ 760,345 $ 760,345
Cost of sales 376,711   376,711
Gross profit 383,634 383,634
 
Selling, general and administrative expenses 330,384 (128,935 ) 201,449
Income from operations 53,250 128,935 182,185
 
Other expense, net 2,363   2,363
Income before income taxes 50,887 179,822
 
Income tax expense 9,860   47,092
Net income $ 41,027   $ 132,730
 
Net income per share:
Basic $ 1.28 $ 4.15
Diluted $ 1.27 $ 4.11
 
Weighted-average common shares outstanding:
Basic 31,973 31,973
Diluted 32,309 32,309
 

(1)

Amounts as of December 31, 2016 reflect charges related to
restructuring costs as a result of retail store closures, office
consolidations and the impairment of goodwill and patents related
to the Sanuk brand.

(2)

The tax rate applied to the Non-GAAP measures is 26.2% for the
fiscal quarter ended December 31, 2016. The difference from the
GAAP tax rate is a result of the jurisdictional tax rates applied
to the restructuring charges.

 

 

Reconciliation of GAAP Financial Measures
to Non-GAAP Financial Measures

 
DECKERS BRANDS - GAAP to Non-GAAP Reconciliation
For the Nine Months Ended December 31, 2017 and December 31, 2016  
(Amounts in thousands, except for per share data)    
(Unaudited)
 
         
Nine-month period ended December 31, 2017
Non-GAAP
GAAP Measures Restructuring and Measures
(As Reported) Other Charges (1) (Excluding Items) (2)
Net sales $ 1,502,655 $ 1,502,655
Cost of sales 763,442   763,442
Gross profit 739,213 739,213
 
Selling, general and administrative expenses 534,923 (12,278 ) 522,645
Income from operations 204,290 12,278 216,568
 
Other expense, net 1,503   1,503
Income before income taxes 202,787 215,065
 
Income tax expense 109,008   47,085
Net income $ 93,779   $ 167,980
 
Net income per share:
Basic $ 2.93 $ 5.26
Diluted $ 2.91 $ 5.22
 
Weighted-average common shares outstanding:
Basic 31,956 31,956
Diluted 32,186 32,186
 

(1)

Amounts as of December 31, 2017 reflect charges related to
restructuring costs, other charges related to organizational
changes and the strategic review process.

(2)

The difference in GAAP and non-GAAP tax expense is primarily due
to the recently enacted tax reform and subsequent deferred tax
asset charge associated with the new lower domestic federal tax
rate. The tax rate applied to the Non-GAAP measures is 21.9% for
the nine months ended December 31, 2017.

 

 
Nine-month period ended December 31, 2016
  Non-GAAP
GAAP Measures Restructuring and Measures
(As Reported) Other Charges (1) (Excluding Items) (2)
Net sales     $ 1,420,682 $ 1,420,682
Cost of sales 744,371   744,371
Gross profit 676,311 676,311
 
Selling, general and administrative expenses 647,357 (131,570 ) 515,787
Income from operations 28,954 131,570 160,524
 
Other expense, net 4,476   4,476
Income before income taxes 24,478 156,048
 
Income tax expense 3,064   40,960
Net income $ 21,414   $ 115,088
 
Net income per share:
Basic $ 0.67 $ 3.59
Diluted $ 0.66 $ 3.55
 
Weighted-average common shares outstanding:
Basic 32,018 32,018
Diluted 32,377 32,377
 

(1)

Amounts as of December 31, 2016 reflect charges related to
restructuring costs as a result of retail store closures, office
consolidations and the impairment of goodwill and patents related
to the Sanuk brand.

(2)

The tax rate applied to the Non-GAAP measures is 26.2% for the
nine months ended December 31, 2016. The difference from the GAAP
tax rate is a result of the jurisdictional tax rates applied to
the restructuring charges.

 

 
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands)
 
   
December 31, March 31,
  Assets 2017 2017
 
Current assets:
Cash and cash equivalents $ 493,002 $ 291,764
Trade accounts receivable, net 232,594 158,643
Inventories, net 396,309 298,851
Other current assets 62,994 71,563
Total current assets 1,184,899 820,821
 
Property and equipment, net 215,847 225,531
Other noncurrent assets 130,217 145,428
 
Total assets $ 1,530,963 $ 1,191,780
 
Liabilities and Stockholders' Equity
 
Current liabilities:
Short-term borrowings $ 571 $ 549
Trade accounts payable 199,320 95,893
Other current liabilities 164,918 62,609
Total current liabilities 364,809 159,051
 
Long-term liabilities:
Mortgage payable 31,656 32,082
Other liabilities 101,629 46,392
Total long-term liabilities 133,285 78,474
 
Total stockholders' equity 1,032,869 954,255
 
Total liabilities and stockholders' equity $ 1,530,963 $ 1,191,780
 

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