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Ugg Sales Down at Deckers as Tariff Threat Looms

The Deckers Outdoor Corporation revealed its full-year and fourth quarter financial results prior to the opening bell on Friday, beating sales and earnings expectations and sending its stock up 4.2 percent in early trading.

In a Nutshell: Despite a strong performance from some Deckers brands in FY19, the corporation offered what seemed to be a more dismal outlook for the next fiscal year. After boasting a 6.2 percent sales increase in its FY19 report, its best expectation for FY20 is modest, predicting sales growth between 3.5 percent to 5 percent.

Trade is in part to blame for the trepidation as the threat of more footwear tariffs looms, the company noted. Steve Fasching, the CFO for Deckers, said the company is “aware of” the possibility of negative impacts associated with tariffs and that the executive team is working closely with the company’s supply chain to identify areas it could decrease exposure. According to Fasching, this could include the adjustment of shipping timing, an action that “could have abnormal effects on the timing of inventory level.”

Deckers also said it had already begun shifting production out of China, with only 20 percent of its total global production at risk of new tariffs.

Additionally, outside of any industry headwinds, the corporation is having difficulty with some of its biggest brands. Sales for Uggs, Teva and Sanuk footwear were all down in the fourth quarter of FY19.

To get Uggs back on track, Deckers said it has been working to “de-seasonalize” its largest and most successful brand and that its weak sales in the fourth quarter may be a result of this repositioning. As proof of the strategy’s merit, Deckers said sales of women’s shoes and sandals for the brand were up by more than 25 percent in the quarter.

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Sales: Revenue for the final quarter of Deckers’ FY19 totaled 394.1 million, compared to $400.7 million in Q4 of last year, a decrease of 1.6 percent. At the same time, gross margins were up to 51.6 percent for the group, compared to 48 percent in the comparable period.

Ugg brand sales were down 7.2 percent to $239 million in the fourth quarter, despite full-year growth of 1.7 percent in sales at $1.533 billion. Sanuk brand sales were also down 11.7 percent in Q4 on $31.5 million in sales—with Teva brand footwear following suit thanks to a revenue decrease of 3.8 percent, equaling out to $52.9 million in sales for the quarter.

Full-year totals were much healthier for the group, up 6.2 percent to $2.02 billion from $1.903 billion in FY18. Hoka One One sales were a standout for Deckers during 2018 and early 2019. The brand saw 45.4 percent sales growth during the year to total $223.1 million in revenue, placing it firmly in second place behind Ugg in terms of annual sales for Deckers brands.

Despite Hoka One One’s success, Deckers had difficulty pulling in both international and DTC business throughout the year. DTC net sales were down 11.8 percent in the fourth quarter and down 0.1 percent for the full year at $715 million. International sales were also down 6.3 percent in the fourth quarter at $142.1 million compared to $151.7 million in the comparable time period, although international revenue increased moderately by 1.8 percent to $742.1 million for the full year.

Earnings: Deckers surpassed earnings expectations in the fourth quarter, leading to a bump in share price and likely fewer questions regarding its brand weakness from investors. The corporation pulled in 85 cents per share, compared to the paltry 10 cents expected by analysts—and well above the 50 cents pulled in during FY17’s fourth quarter. Full-year earnings were no different at $8.84, compared to the $3.58 EPS pulled in last year.

However, Deckers expects the next quarter to be particularly difficult for its brands, warning investors to expect a loss of between $1.25 to $1.15 per share in the first quarter of its FY19. The company still expects its full-year totals to be healthy, predicting EPS of $8.20 to $8.40 in FY20.

CEO’s Take: Amid the chaos, Deckers passed an important milestone, earning $2 billion in annual revenue for the first time in its history. CEO and president Dave Powers said this puts the company’s long-term goals within reach.

“Fiscal 2019 represented another successful year for the Deckers organization, surpassing the milestone of $2.0 billion in revenue and doing so with exceptional levels of profitability, while achieving our long-range targets a year ahead of schedule,” Powers said. “As we move forward in our strategic plan, we will maintain focus on positioning our brands for the future by enhancing our relationship with consumers, continuing to deliver innovative product solutions, and building brand awareness and strength across global markets.”