Press Release

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

Company Release - 10/26/2017 4:05 PM ET
  • Second quarter fiscal 2018 sales of $482.5 million and diluted earnings per share of $1.54
  • Gross margin expanded 220 basis points in the quarter
  • Fiscal 2018 sales now anticipated to increase between 1% to 2% over fiscal 2017 and adjusted earnings per share expected to be in the range of $4.15 to $4.30
  • Share repurchase authorization increased to $400 million

GOLETA, Calif.--(BUSINESS WIRE)-- Deckers Brands (NYSE: DECK), a global leader in designing, marketing and distributing innovative footwear, apparel and accessories, today announced financial results for the second fiscal quarter ended September 30, 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.

“I am very pleased with the progress we have made, and continue to make, executing on our operating profit improvement plan. Our goal remains to achieve an incremental $100 million of operating profit by the end of our fiscal year 2020, and operating margins of at least 13% by focusing on full-priced selling, driving supply chain efficiencies, implementing process improvements, reducing indirect spend, and closing retail stores that do not meet our financial objectives,” said Dave Powers, President and Chief Executive Officer. “This quarter is yet another testament to the power of our transformation, as we generated a 220 basis point increase in gross margin and earnings per share that were ahead of expectations. As we head into the holiday selling season with a stronger product lineup and cleaner channel inventories compared to a year ago, we are confident that Deckers is well positioned to achieve our near- and medium-term financial targets and deliver increased shareholder value.”

“In light of our strong results and our confidence in the back half of the fiscal year, we are increasing our outlook for the year. In addition, I am pleased to announce that the board of directors has authorized a new $335 million share repurchase program. Combined with the $65 million remaining under our current authorization, we now have the ability to repurchase a total of $400 million worth of shares, or approximately 20% of our market capitalization. We intend to aggressively repurchase our shares to reward our long-term shareholders with accelerated EPS growth.”

Second Quarter Fiscal 2018 Financial Review

  • Net sales declined 0.7% to $482.5 million compared to $485.9 million for the same period last year. On a constant currency basis, net sales decreased 0.3%.
  • Gross margin was 46.7% compared to 44.5% for the same period last year.
  • SG&A expenses were $157.8 million compared to $162.4 million for the same period last year. Non-GAAP SG&A expenses were $157.3 million.
  • Operating income was $67.4 million compared to $54.0 million for the same period last year. Non-GAAP operating income was $67.8 million.
  • Diluted earnings per share was $1.54 compared to $1.21 for the same period last year. Non-GAAP diluted earnings per share was $1.54.

Brand Summary

  • UGG® brand net sales for the second quarter declined 2.9% to $400.4 million compared to $412.2 million for the same period last year.
  • HOKA ONE ONE® brand net sales for the second quarter increased 34.4% to $40.6 million compared to $30.2 million for the same period last year.
  • Teva® brand net sales for the second quarter increased 24.9% to $21.4 million compared to $17.1 million for the same period last year.
  • Sanuk® brand net sales for the second quarter decreased 19.3% to $15.2 million compared to $18.9 million for the same period last year.

Channel Summary (included in the brand sales numbers above)

  • Wholesale net sales for the second quarter declined 2.2% to $391.2 million compared to $399.9 million for the same period last year.
  • DTC net sales for the second quarter increased 6.2% to $91.3 million compared to $86.0 million for the same period last year. DTC comparable sales for the second quarter increased 3.7% over the same period last year.

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

  • Domestic net sales for the second quarter decreased 3.1% to $302.7 million compared to $312.2 million for the same period last year.
  • International net sales for the second quarter increased 3.5% to $179.8 million compared to $173.7 million for the same period last year.

Balance Sheet (September 30, 2017 as compared to September 30, 2016)

  • Cash and cash equivalents were $230.6 million compared to $110.0 million.
  • Deckers had $165.3 million in outstanding borrowings compared to $310.4 million.
  • Inventories decreased 3.9% to $555.6 million from $578.0 million.

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 up approximately 1% to up 2% versus last year.
  • Gross margin is expected to be approximately 47.5%.
  • SG&A expenses as a percentage of sales are projected to be approximately 37%.
  • Non-GAAP diluted earnings per share are expected to be in the range of $4.15 to $4.30. This excludes any charges that may occur from additional store closures, restructuring and other charges.
  • The earnings per share guidance does not assume any future share repurchase.

Third Quarter Fiscal 2018 Outlook for the Three Month Period Ending December 31, 2017

  • The Company expects third quarter fiscal 2018 net sales to be in the range of $735.0 million to $745.0 million.
  • Non-GAAP diluted earnings per share are expected to be in the range of $3.65 to $3.75. This excludes any charges that may occur from additional store closures, restructuring and other charges.
  • The earnings per share guidance does not assume any future share repurchase.

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 second quarter 2018 will be broadcast live today, Thursday, October 26, 2017 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 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 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," "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, 2017, as well as in our other filings with the Securities and Exchange Commission.

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 (Loss)
(Unaudited)
(Amounts in thousands, except for per share data)
   
 
Three-month period ended Six-month period ended
September 30, September 30,
2017   2016   2017     2016  
 
Net sales $ 482,460 $ 485,944 $ 692,177 $ 660,337
Cost of sales 257,343   269,519   376,435     367,660  
Gross profit 225,117 216,425 315,742 292,677
 
Selling, general and administrative expenses 157,762   162,402   304,643     316,973  
Income (loss) from operations 67,355 54,023 11,099 (24,296 )
 
Other expense, net 1,034   1,551   1,365     2,113  
Income (loss) before income taxes 66,321 52,472 9,734 (26,409 )
 
Income tax expense (benefit) 16,762   13,167   2,296     (6,796 )
Net income (loss) 49,559 39,305 7,438 (19,613 )
 
Other comprehensive income (loss), net of tax
Unrealized (loss) gain on foreign currency hedging (911 ) (890 ) (4,683 ) 2,019
Foreign currency translation adjustment 2,968   (856 ) 4,518     2,843  
Total other comprehensive income (loss) 2,057   (1,746 ) (165 )   4,862  
Comprehensive income (loss) $ 51,616   $ 37,559   $ 7,273   $ (14,751 )
 
Net income (loss) per share:
Basic $ 1.55 $ 1.23 $ 0.23 $ (0.61 )
Diluted $ 1.54 $ 1.21 $ 0.23 $ (0.61 )
 
Weighted-average common shares outstanding:
Basic 32,015 32,057 32,003 32,041
Diluted 32,272 32,422 32,256 32,041
 

Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
         
DECKERS BRANDS - GAAP to Non-GAAP Reconciliation
For the Three Months Ended September 30, 2017 and September 30, 2016
(Amounts in thousands, except for per share data)
(Unaudited)
 
             
Three-month period ended September 30, 2017
Non-GAAP
GAAP Measures Measures
(As Reported) Other Charges (1) (Excluding Items) (2)
Net sales $ 482,460 $ 482,460
Cost of sales 257,343   257,343
Gross profit 225,117 225,117
 
Selling, general and administrative expenses 157,762 (464 ) 157,298
Income from operations 67,355 464 67,819
 
Other expense, net 1,034   1,034
Income before income taxes 66,321 66,785
 
Income tax expense 16,762   17,084
Net income $ 49,559   $ 49,701
 
Net income per share:
Basic $ 1.55 $ 1.55
Diluted $ 1.54 $ 1.54
 
Weighted-average common shares outstanding:
Basic 32,015 32,015
Diluted 32,272 32,272
 
(1) Amounts as of September 30, 2017 reflect other charges related to organizational changes, the strategic review process and the contested annual meeting.
(2) The tax rate applied to the Non-GAAP measures is 25.6% for the fiscal quarter ended September 30, 2017.
 
             
Three-month period ended September 30, 2016
Non-GAAP
GAAP Measures Restructuring Measures
(As Reported) Charges (1) (Excluding Items) (2)
Net sales $ 485,944 $ 485,944
Cost of sales 269,519   269,519
Gross profit 216,425 216,425
 
Selling, general and administrative expenses 162,402 (900 ) 161,502
Income from operations 54,023 900 54,923
 
Other expense, net 1,551   1,551
Income before income taxes 52,472 53,372
 
Income tax expense 13,167   13,394
Net income $ 39,305   $ 39,978
 
Net income per share:
Basic $ 1.23 $ 1.25
Diluted $ 1.21 $ 1.23
 
Weighted-average common shares outstanding:
Basic 32,057 32,057
Diluted 32,422 32,422
 
(1) Amounts as of September 30, 2016 reflect charges related to restructuring costs as a result of retail store closures and office consolidations.
(2) The tax rate applied to the Non-GAAP measures is 25.1%, which is the same as the GAAP tax rate for the three-month period ended September 30, 2016.
 

Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
     
DECKERS BRANDS - GAAP to Non-GAAP Reconciliation
For the Six Months Ended September 30, 2017 and September 30, 2016
(Amounts in thousands, except for per share data)
(Unaudited)
 
         
Six-month period ended September 30, 2017
Non-GAAP
GAAP Measures Restructuring and Measures
(As Reported) Other Charges (1) (Excluding Items) (2)
Net sales $ 692,177 $ 692,177
Cost of sales 376,435     376,435  
Gross profit 315,742 315,742
 
Selling, general and administrative expenses 304,643   (2,408 ) 302,235  
Income from operations 11,099 2,408 13,507
 
Other expense, net 1,365     1,365  
Income before income taxes 9,734 12,142
 
Income tax expense 2,296     3,357  
Net income $ 7,438     $ 8,785  
 
Net income per share:
Basic $ 0.23 $ 0.27
Diluted $ 0.23 $ 0.27
 
Weighted-average common shares outstanding:
Basic 32,003 32,003
Diluted 32,256 32,256
 
(1) Amounts as of September 30, 2017 reflect other charges related to organizational changes, the strategic review process and the contested annual meeting.
(2) The tax rate applied to the Non-GAAP measures is 27.6% for the six months ended September 30, 2017.
 
         
Six-month period ended September 30, 2016
Non-GAAP
GAAP Measures Restructuring Measures
(As Reported) Charges (1) (Excluding Items) (2)
Net sales $ 660,337 $ 660,337
Cost of sales 367,660     367,660  
Gross profit 292,677 292,677
 
Selling, general and administrative expenses 316,973   (2,632 ) 314,341  
Loss from operations (24,296 ) 2,632 (21,664 )
 
Other expense, net 2,113     2,113  
Loss before income taxes (26,409 ) (23,777 )
 
Income tax benefit (6,796 )   (6,118 )
Net loss $ (19,613 )   $ (17,659 )
 
Net loss per share:
Basic $ (0.61 ) $ (0.55 )
Diluted $ (0.61 ) $ (0.55 )
 
Weighted-average common shares outstanding:
Basic 32,041 32,041
Diluted 32,041 32,041
 
(1) Amounts as of September 30, 2016 reflect charges related to restructuring costs as a result of retail store closures and office consolidations.
(2) The tax rate applied to the Non-GAAP measures is 25.7%, which is the same as the GAAP tax rate for the six-month period ended September 30, 2016.

DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands)
         
 
September 30, March 31,
Assets 2017 2017
 
Current assets:
Cash and cash equivalents $ 230,586 $ 291,764
Trade accounts receivable, net 306,573 158,643
Inventories, net 555,560 298,851
Other current assets 60,192 71,563
Total current assets 1,152,911 820,821
 
Property and equipment, net 216,980 225,531
Other noncurrent assets 150,397 145,428
 
Total assets $ 1,520,288 $ 1,191,780
 
Liabilities and Stockholders' Equity
 
Current liabilities:
Short-term borrowings $ 133,474 $ 549
Trade accounts payable 244,846 95,893
Other current liabilities 95,727 62,609
Total current liabilities 474,047 159,051
 
Long-term liabilities:
Mortgage payable 31,803 32,082
Other liabilities 45,612 46,392
Total long-term liabilities 77,415 78,474
 
Total stockholders' equity 968,826 954,255
 
Total liabilities and stockholders' equity $ 1,520,288 $ 1,191,780
 

Deckers Brands
Investor Contact:
Steve Fasching | VP, Strategy & Investor Relations
805.967.7611

Source: Deckers Brands

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