Deckers (DECK) Tops Q4 Earnings, Stock Falls On Weak View

Deckers Outdoor Corporation (NYSE:DECK) reported better-than-expected financial numbers for the fourth quarter of fiscal 2016. However, the company provided a lackluster outlook for the first quarter and full-year fiscal 2017. In response, the company’s shares fell about 2.5% in the after-hours trading session on May 26.

Deckers posted earnings of 11 cents per share that exceeded the Zacks Consensus Estimate of 6 cents and soared 175% year over year. The bottom line was mainly driven by an increase in revenues.

Net sales of $378.6 million surpassed the Zacks Consensus Estimate of $363 million. Additionally, net sales rose 11.2% year over year and 12.4% on a currency-neutral basis.

Brand-wise, the company was supported by robust performance of its UGG, Teva and HOKA ONE ONE brands, offset by sluggish performance at the Sanuk brand.

Further, the company’s domestic sales grew 10.4% to $240.4 million in the reported quarter. Also, international sales jumped 12.4% to $138.2 million, and grew 15.8% on a constant currency basis.

Direct-to-Consumer (DTC) sales rose 7.7% to $145.9 million, while on a constant currency basis, sales improved 9.7%. Direct-to-Consumer comparable sales inched up 2.6% year over year largely due to robust performance in eCommerce. The upside, however, was limited by the fall in the company’s retail stores sales.

On the other hand, Wholesale and distributor net sales in the reported quarter climbed 13.4% to $232.7 million, while on a constant currency basis sales improved 14.2%.

Adjusted gross margin expanded 140 basis points (bps) to 42.3%, primarily due to increase in the proportion of closeout sales.

Brand-wise Discussion

UGG brand net sales were up 13.3% to $245.6 million. On a constant currency basis, sales jumped 15.2%. Sales grew on account of higher global wholesale sales and DTC sales.

Teva brand net sales rose 11.3% to $59.1 million, on both reported and constant currency basis. The improvement was driven by global wholesale sales.

Sales for the Sanuk brand, known for its exclusive sandals and shoes, dipped 1.9% year over year to $38.5 million. The decline in sales was attributable to lower domestic wholesale sales.

Combined net sales of Deckers’ Other brands came in at $35.4 million for the quarter. The reported figure grew 12.4% year over year, primarily due to sales growth of 43.3% in the company’s HOKA ONE ONE brand.

Other Financial Aspects

As of Mar 31, 2016, Deckers had cash and cash equivalents of $246 million, short-term borrowings of $67.5 million, and shareholders’ equity of $1,018.5 million. Inventories grew 25.5% year over year to $299.9 million.

During the quarter, Deckers repurchased 441,000 shares for $25 million. As of Mar 31, 2016, the company had $77.9 million remaining under its $200 million stock repurchase authorization announced in Jan 2015.

Guidance

For fiscal 2017, the company projects revenues in the range of negative 3% to flat.

Gross margin for fiscal 2017 is expected to be in the range of 47% to 47.5%, which reflects an improvement of roughly 200 bps from previous year's pro forma gross margin. Further, SG&A expense as a percentage of sales is expected to be nearly 37% due to lack of revenue growth as well as increased compensation expenses.

On a reported basis, earnings per share for fiscal 2017 are expected to be in the range of $4.05 to $4.40.

For the first quarter of fiscal 2017, Deckers envisions revenues to decrease in range of 20% to 25%. Management also expects loss of approximately $2.10–$2.20 per share for the quarter. In the first quarter of fiscal 2016, the company had reported loss per share of $1.43.

The Zacks Consensus Estimate for full year and first-quarter fiscal 2017 is currently pegged at $4.47 and a loss of $1.50, respectively.

Zacks Rank

Deckers currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the retail sector include Central Garden & Pet Company (NASDAQ:CENT) , Carter's, Inc. (NYSE:CRI) and Sequential Brands Group, Inc. (NASDAQ:SQBG) . Central Garden & Pet sports a Zacks Rank #1 (Strong Buy), while both Carter's and Sequential Brands Group hold a Zacks Rank #2 (Buy).