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Deckers Posts UGG-ly 3Q Results

UGG-maker Deckers Outdoors (DECK) announced financial results for the quarter ended Dec. 31 that disappointed on both the top and bottom lines.

Net sales increased 6.6% to a record $784.7 million but fell short of analyst estimates of $811 million. Although full-price sales of UGG footwear were higher than expected, the brand suffered from sluggishness in October and November. A strong U.S. dollar and higher wholesale order cancellations also weighed upon the company’s top-line performance. On a constant currency basis, sales jumped 8.2%.

Sales performance varied greatly by brand. UGG brand sales increased 6.5% to $736.0 million, while Teva brand sales decreased 12.1% to $13.6 million and Sanuk brand sales decreased 7.9% to $20.5 million. Sales of other brands almost doubled to $14.6 million, driven by a $7.2 million increase in sales for the Hoka One One athletic footwear brand.

Direct-to-consumer comparable sales, which include worldwide comparable retail store sales and worldwide comparable e-commerce sales, increased 7.6% over the same period last year. Retail sales increased 8.3% to $192.7 million compared to the prior year period, helped by the opening of 29 new stores and partially offset by a same store sales decrease of 7.2% for the 13 weeks ended Dec. 2014. E-commerce sales increased 25.2% to $146.9 million, driven primarily by an increase in global UGG brand sales. Domestic sales increased 3.1% to $526.3 million, while international sales increased 14.6% to $258.4 million.

Gross margin increased 180 basis points to 52.9% compared to 51.1% for the same period last year. SG&A expenses as a percent of net sales were 25.6% compared to 23.7% for the same period last year.

Diluted earnings per share increased 11.4% to $4.50 compared to $4.04 for the same period last year. Analyst consensus estimates were calling for $4.52.

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“Our third quarter performance represents an important inflection point in the evolution of the UGG brand product line,” said Angel Martinez, Deckers president, CEO and chair of the board of directors. “Full price selling of casual boots, weather boots, and specialty classics exceeded expectations and in some cases outpaced our inventory investments. At the same time, demand for core Classic collection accelerated as the quarter.”

The company now expects fiscal year 2015 revenues to be approximately $1.8 billion or 13.5% over the 12-month period ended March 31, 2014, down from the previous guidance of approximately $1.825 billion or 15 percent, due primarily to a reduced sales growth estimate for the UGG brand from 14 to 11 percent.

The company now expects its fourth quarter to be break-even, and fiscal year 2015 diluted earnings per share to increase 12.6% to $4.58 from 2014, lower than the previous guidance for growth of approximately 15.8%. This assumes a gross profit margin of approximately 49 percent and an operating margin of approximately 12.5%, a slight reduction compared to previous guidance.

Despite the reduced guidance, Martinez remained optimistic about the company’s outlook. “Our recent results indicate that our strategic initiatives aimed at diversifying the business are working.  Consumers are adopting our new footwear collections faster than we anticipated while also shifting more of their purchases to our digital channel driven by our successful global Omni-Channel initiatives.  We are making investments to increase our demand planning accuracy, as well as continuing to improve our product lines to ensure that we have a healthy and balanced business across our global network of wholesale partners, retail stores and E-Commerce websites.”