Deckers Brands Reports Third Quarter Fiscal 2016 Financial Results

Third Quarter Net Sales Increased 3.6% on a Constant Currency Basis; Up 1.4% on a Reported Basis

Third Quarter Diluted Earnings per Share Improved to $4.78

Company Announces Cost Savings Initiatives and Brand Management Realignment

Feb 04, 2016, 16:05 ET from Deckers Brands

GOLETA, Calif., Feb. 4, 2016 /PRNewswire/ -- Deckers Brands (NYSE: DECK), a global leader in designing, marketing and distributing innovative footwear, apparel and accessories, today announced financial results for the third quarter of fiscal 2016, which ended December 31, 2015.

Third Quarter Fiscal 2016 Financial Review

  • Net sales increased 3.6% on a constant currency basis. On a reported basis, net sales increased 1.4% to a record $795.9 million compared to $784.7 million for the same period last year.
  • Gross margin was 49.1% compared to 52.9% for the same period last year.
  • SG&A expense as a percentage of sales was 23.7% compared to 25.6% for the same period last year.
  • Diluted earnings per share was $4.78 compared to $4.50 for the same period last year, an increase of 6.2%. On a constant currency basis, diluted earnings per share increased 13.6%.

"Our third quarter was more challenging than we expected as warm weather and weak store traffic across retail pressured demand," commented Angel Martinez, Chief Executive Officer and Chair of the Board of Directors. "While we have made significant progress diversifying our brands and product lines and transforming our organization over the past several years, we recognize the need to accelerate elements of our long-term strategy.  To do this, we are streamlining our organization so we can dedicate more resources to our largest market opportunities. We are targeting approximately $35 million in annualized run rate expense savings from office consolidations, realignment of our brand management, and select retail store closings. We plan to invest approximately $10 million of this savings back into the business. We are confident these changes will increase profitability and improve shareholder returns."

Brand Office Consolidation Deckers is moving the Sanuk® brand's operations to its global headquarters in Goleta to enhance the brand's growth prospects and is closing the Sanuk office in Irvine, California. Deckers is also closing the Ahnu® office outside San Francisco as it seeks strategic alternatives aimed at optimizing the value of the Ahnu brand.

Brand Management Realignment The company is realigning its brands across two groups, Fashion Lifestyle and Performance Lifestyle.  The Fashion Lifestyle group will encompass UGG® and Koolaburra® brands. The Performance Lifestyle group will house Teva®, Sanuk® and HOKA One One® brands.

Retail Store Fleet Optimization The company has identified 20 retail stores that are candidates for closure and is engaging a retail consulting firm to assist in assessing and implementing additional retail operational improvements as it continues to strengthen its global store fleet.

Brand Summary

  • UGG® brand net sales for the third quarter increased 1.0% to $743.2 million compared to $736.0 million for the same period last year. On a constant currency basis, net sales increased approximately 3.3%. The increase in net sales was primarily driven by an increase in global Direct-to-Consumer (DTC) sales and domestic wholesale sales, partially offset by a decrease in international wholesale and distributor sales.
  • Teva® brand net sales for the third quarter increased 3.2% to $14.1 million compared to $13.6 million for the same period last year. On a constant currency basis, net sales increased approximately 4.1%. The increase in net sales was primarily driven by an increase in international distributor sales, partially offset by a decrease in domestic wholesale sales.
  • Sanuk® brand net sales for the third quarter decreased 17.0% to $17.0 million compared to $20.5 million for the same period last year. The decrease in net sales was driven by a decrease in global wholesale and international distributor sales, partially offset by an increase in global DTC sales.
  • Combined net sales of the Company's other brands increased 48.4% to $21.6 million compared to $14.6 million for the same period last year. The increase was primarily attributable to a $6.7 million increase in net sales for the HOKA ONE ONE® brand compared to the same period last year.

Channel Summary (included in the brand sales numbers above)

  • Wholesale and distributor sales for the third quarter decreased 0.1% to $444.6 million compared to $445.1 million for the same period last year. On a constant currency basis, sales increased approximately 2.0%. The decrease in reported sales was driven by a decrease in international wholesale and distributor sales due to foreign currency fluctuations, partially offset by an increase in domestic wholesale sales.
  • DTC sales for the third quarter increased 3.4% to $351.3 million compared to $339.6 million for the same period last year. On a constant currency basis, sales increased 5.8%. DTC comparable sales decreased 0.9% over the same period last year, primarily driven by a decrease in tourist traffic in the U.S. as a result of the strengthening U.S. dollar.

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

  • Domestic sales for the third quarter increased 3.2% to $543.3 million compared to $526.3 million for the same period last year.
  • International sales for the third quarter decreased 2.2% to $252.6 million compared to $258.4 million for the same period last year. On a constant currency basis, sales increased 4.5%.

Gross Margin Gross margin was 49.1% in the third quarter compared to 52.9% for the same period last year. The decline in gross margin was driven by greater than planned promotional activity and a 110 basis point impact from foreign exchange headwinds caused by the strengthening of the U.S. Dollar.

Balance Sheet At December 31, 2015, cash and cash equivalents were $263.0 million compared to $369.4 million at December 31, 2014. The Company had $23.5 million in outstanding borrowings at December 31, 2015 compared to $5.4 million at December 31, 2014. The change in cash and cash equivalents and outstanding borrowings is primarily attributable to cash used for share repurchases, inventory and capital investments, partially offset by cash provided by operating activities.

Inventories at December 31, 2015 increased 26.1% to $370.6 million compared to $293.9 million at December 31, 2014. By brand, at December 31, 2015, UGG inventory increased 31.8% to $287.4 million, Teva inventory increased 36.9% to $29.0 million, Sanuk inventory decreased 5.4% to $23.2 million, and the other brands' inventory increased 2.6% to $31.1 million. The majority of the increased inventory consisted of UGG styles that are being carried over to next season.

Full Fiscal 2016 Outlook for the Twelve Month Period Ending March 31, 2016

  • The Company now expects fiscal 2016 constant currency revenues to be approximately $1.91 billion, reflecting a 5.0% increase over the twelve month period ended March 31, 2015. On a reported basis, revenues are expected to be $1.86 billion, or an increase of 2.4%.
  • Gross margin for fiscal 2016 is expected to be approximately 46%, down 230 basis points from fiscal 2015 as a result of a stronger U.S. dollar and higher than expected promotional activity, partially offset by lower sheepskin costs and favorable changes in the Company's channel mix. The foreign exchange headwind on gross margin is expected to be approximately 140 basis points.
  • SG&A expense as a percentage of sales is projected to be approximately 35.7% on a reported basis, compared to 36.0% in fiscal 2015.
  • The Company expects fiscal 2016 diluted earnings per share to be approximately $5.15 on a constant currency basis, reflecting an increase of 10.5% over the twelve month period ended March 31, 2015. On a reported basis, earnings per share are expected to be approximately $4.49, or a decrease of 3.6%. This guidance excludes any potential charges for the reorganization and store restructuring.

Fourth Quarter Fiscal 2016 Outlook for the Three Month Period Ending March 31, 2016

  • The Company now expects fourth quarter fiscal 2016 constant currency revenues to be up approximately 7.9% over the same period last year and up approximately 7.2% on a reported basis.  Diluted earnings per share are expected to be $0.07 on a reported basis compared to diluted earnings per share of $0.04 for the same period last year.  This guidance excludes any potential charges for the reorganization and store restructuring.
  • The Company projects fourth quarter fiscal 2016 gross margin to be 45.5% compared to 44.7% for the same period last year, and SG&A as a percent of sales to be 44.4% compared to 44.5% for the same period last year.

Conference Call Information The Company's conference call to review the results for the third quarter fiscal 2016 will be broadcast live today, Thursday, February 4, 2016 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®, Teva®, Sanuk®, Ahnu®, HOKA ONE ONE®, and KOOLABURRA®. 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 federal securities laws, which statements are subject to considerable risks and uncertainties.  These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995.  Forward-looking statements include all statements other than statements of historical fact contained in this press release, including statements regarding our future or assumed financial results (on an actual basis and constant currency basis) , including revenues, gross margins, expenses, and earnings per share; the timing and impact of our strategic decisions and business transformation plans, including brand consolidations, brand management realignment, and retail store fleet optimization; and the expansion of our product offerings. We have attempted to identify forward-looking statements by using words such as "anticipate", "believe", "could", "estimate", "expect", "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, 2015, as well as in our other filings with the Securities and Exchange Commission.  Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. 

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.

(Tables to follow)

 

DECKERS OUTDOOR CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

(Amounts in thousands)

December 31,

March 31,

Assets

2015

2015

Current assets:

Cash and cash equivalents

$

263,009

225,143

Trade accounts receivable, net

195,323

143,105

Inventories

370,608

238,911

Prepaid expenses

17,783

15,141

Other current assets

56,096

35,057

Income taxes receivable

-

15,170

Deferred tax assets

8,556

14,066

Total current assets

911,375

686,593

Property and equipment, net

245,400

232,317

Goodwill

127,934

127,934

Other intangible assets, net

85,220

87,743

Deferred tax assets

15,105

15,017

Other assets

23,117

20,329

Total assets

$

1,408,151

1,169,933

Liabilities and Stockholders' Equity

Current liabilities:

Short-term borrowings

$

23,544

5,383

Trade accounts payable

192,244

85,714

Accrued payroll

14,330

27,300

Other accrued expenses

58,297

41,066

Income taxes payable

15,596

6,858

Value added tax (VAT) payable

15,898

1,221

Total current liabilities

319,909

167,542

Long-term liabilities:

Mortgage payable

32,770

33,154

Income tax liability

6,204

5,087

Deferred rent obligations

16,612

15,663

Other long-term liabilities

14,148

11,475

Total long-term liabilities

69,734

65,379

Stockholders' equity:

Deckers Outdoor Corporation stockholders' equity:

Common stock

324

333

Additional paid-in capital

164,413

158,777

Retained earnings

875,151

798,370

Accumulated other comprehensive loss

(21,380)

(20,468)

Total stockholders' equity

1,018,508

937,012

Total liabilities and equity

$

1,408,151

1,169,933

 

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,

2015

2014

2015

2014

Net sales

$

795,902

784,678

$

1,496,562

1,476,420

Cost of sales

404,885

369,539

804,836

750,636

Gross profit

391,017

415,139

691,726

725,784

Selling, general and administrative expenses

188,517

200,558

501,721

502,102

Income from operations

202,500

214,581

190,005

223,682

Other expense, net

1,842

1,265

4,187

3,494

Income before income taxes

200,658

213,316

185,818

220,188

Income tax expense

43,737

56,610

39,847

59,814

Net income

156,921

156,706

145,971

160,374

Other comprehensive (loss) income, net of tax

Unrealized gain (loss) on foreign currency hedging

1,417

(682)

981

759

Foreign currency translation adjustment

(3,568)

(6,647)

(1,893)

(11,147)

Total other comprehensive (loss) income

(2,151)

(7,329)

(912)

(10,388)

Comprehensive income

$

154,770

149,377

$

145,059

149,986

Net income per share:

Basic

$

4.85

4.54

$

4.47

4.64

Diluted

$

4.78

4.50

$

4.40

4.59

Weighted-average common shares outstanding: 

Basic 

32,341

34,537

32,655

34,598

Diluted

32,843

34,853

33,157

34,912

 

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SOURCE Deckers Brands



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