Deckers Outdoor Corporation (DECK: 48.65 +1.04 +2.18%), the maker of sheepskin boots and slippers, recently delivered better-than-expected second quarter results on the heels of strong demand for the product lines under the UGG and Teva brands.
Quarterly Discussion
The quarterly earnings of 23 cents a share outpaced the Zacks Consensus Estimate of 10 cents, and rose more than twofold from 9 cents which was posted in the prior-year quarter.
Deckers breezed past the Zacks Consensus Estimate by 130%. The company’s earnings surprise history compared to the Zacks Consensus Estimate for the preceding four quarters, varies between 16.2% and 400% with the average being 122.6%.
Deckers, which compete with Skechers USA Inc. (SKX: 33.61 -1.49 -4.25%), said that total net sales jumped to $137.1 million, up 33.7% from the prior-year quarter, comfortably surpassing the Zacks Consensus Revenue Estimate of $127 million. The company’s sustained focus on new product introductions and geographic expansion has helped achieve a robust growth.
Domestic sales for the quarter rose from 16.2% to $65.2 million, whereas international sales soared from 54.8% to $71.8 million. International sales now represent 52.4% of total sales up from 45.3% 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. Management targets to generate 30% of the total annual sales, internationally, by 2012.
UGG brand net sales grew 34.6% to $100.2 million and Teva brand net sales surged 38.4% to $31.2 million. Combined net sales of Deckers’ other brands for the quarter were $5.6 million, flat compared with the year-ago quarter.Sales for the retail store business surged 63.1% to $10 million, fuelled by the opening of 5 new stores last year and rise in same-store sales by 19.2%. The company plans to open 9 stores this year, 6 of which will be in the U.S. and 3 in China. The company has already opened one store in China in the month of June, 2010.
However, sales for the company’s eCommerce business dropped to $5.2 million, compared with $5.3 million in the prior-year quarter. The double-digit increase in UGG brand sales was offset by a fall in sales from other brands.
However, sales for the company’s eCommerce business dropped to $5.2 million, compared with $5.3 million in the prior-year quarter. The double-digit increase in UGG brand sales was offset by a fall in sales from other brands.
Gross margin expanded 450 basis points to 44.3% in the quarter under review, reflecting margin improvement across Teva and other brands, and fewer close outs.
Financial Aspects
Deckers also portrays a healthy balance sheet with a significant cash and cash equivalents balance of $333.7 million and no debt at the end of second-quarter 2010, which provides it with ample liquidity to capitalize on future growth opportunities.
Guidance
Riding on the back of robust results, Deckers raised its fiscal 2010 outlook. Management now expects total revenues to increase by 14% compared to 13% predicted earlier. Earnings per share are expected to rise by 16% versus 11% previously forecasted, on a gross profit margin of 49% and SG&A as a percentage of sales of 26%. Management expects capital expenditure between $25 million and $30 million for fiscal 2010.
For third-quarter 2010, Deckers now expects revenue and earnings per share to increase 15% and 4%, respectively, on a gross profit margin of 46% and SG&
For fourth-quarter 2010, the company forecasts an 8% growth in both revenue and earnings per share, on a gross profit margin of 52% and SG&A of 21% based on sales.
60%, 
40%, | Analysts' Targets | |
| RBC Capital Markets | $58 |
| Sector Perform | |
| Friday, July 23, 2010 | |
| Piper Jaffray | $144 |
| Buy | |
| Monday, April 12, 2010 | |
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