Singapore markets close in 6 hours 24 minutes

Deckers (DECK) Q4 Earnings Surpass Estimate, Decline Y/Y

Zacks Equity Research

Deckers Outdoor Corporation DECK came out with fourth-quarter fiscal 2020 results, wherein both the top and bottom lines surpassed the Zacks Consensus Estimate but declined year over year, thanks to the coronavirus outbreak that compelled the company to keep its stores closed. While the impressive performance across HOKA ONE ONE and Teva brands aided the results, UGG and Sanuk brands took the sheen out of the stock.

Nonetheless, this marked the 13th straight quarter of positive sales and earnings surprises. Notably, shares of this Goleta, CA-based company gained 2.3% during the after-market trading session on May 21. We note that shares of this Zacks Rank #4 (Sell) company have fallen 10.4% in the past three months compared with the industry’s decline of 4%.

In mid-March, Deckers temporarily closed its retail stores in North America and Europe. Stores in Japan were also closed due to this biological catastrophe. In the earnings call, the company informed that approximately 20% of stores in North America are open and operating in a limited capacity; about half of stores in EMEA are open; roughly 20% of stores in Japan are open; and all of owned retail stores in China are operational. Also, the company has started operations on a limited capacity across its distribution center in Moreno Valley, California, as well as other third-party distribution facilities.

The company, undoubtedly, remains focused on expanding brand assortments, introducing more innovative line of products, targeting consumers digitally through marketing and sturdy e-commerce, and optimizing omni-channel distribution. All these bode well for the company. However, management did caution that the company’s performance in fiscal 2021 might be impacted depending on the period and brutality of COVID-19.

To address the challenges tied to the pandemic, Deckers remains focused on lowering operating expenses. The company is curbing employee travel, suspending hiring of certain non-essential associates and annual salary increment, switching over to virtual meetings, and eliminating or deferring other discretionary expenditures.

Let’s Delve Deeper

Deckers posted quarterly earnings of 57 cents a share that came miles ahead of the Zacks Consensus Estimate of 3 cents. However, the figure declined significantly from the 85 cents reported in the year-ago period. Lower net sales and higher SG&A expenses hurt the bottom line.

Deckers Outdoor Corporation Price, Consensus and EPS Surprise

Deckers Outdoor Corporation Price, Consensus and EPS Surprise

Deckers Outdoor Corporation price-consensus-eps-surprise-chart | Deckers Outdoor Corporation Quote

Net sales fell 4.9% to $374.9 million during the reported quarter, following an increase of 7.4% in the preceding quarter. However, the metric surpassed the Zacks Consensus Estimate of $346.5 million. On a constant currency basis, net sales decreased 4.5%.

We note that the gross margin contracted 10 basis points to 51.5% during the quarter, driven by gains in performance lifestyle group. The company reported operating income of $16.7 million, down from the year-ago period’s $32.9 million. Again, the operating margin shrunk 390 basis points (bps) to 4.4%.

SG&A expense jumped 3.5% year over year to $176.3 million, while as a percentage of net sales SG&A expense expanded 380 bps to 47%.

Sales by Geography & Channel

The company’s domestic net sales decreased 8.4% to $230.8 million in the reported quarter. Meanwhile, international net sales advanced 1.4% to $144.1 million. Direct-to-Consumer net sales decreased 7.9% to $144.2 million. Direct-to-Consumer comparable sales slid 3.7% year over year. Wholesale net sales in the reported quarter declined 2.9% to $230.7 million.

Brand-wise Discussion

UGG brand net sales decreased 17.9% to $196.3 million in the reported quarter. HOKA ONE ONE brand net sales surged 51.8% to $101.9 million, while Teva brand net sales rose 12.5% to $59.6 million. Net sales for the Sanuk brand, known for its exclusive sandals and shoes, came in at $13.3 million, down 57.8% year over year.

Other Financial Aspects

At the end of the reported quarter, Deckers had cash and cash equivalents of $649.4 million, total short-term borrowings and mortgage payable of $30.9 million and shareholders’ equity of $1,140.1 million. The company had $469.5 million available under its existing revolving credit facilities. During the fiscal fourth quarter, Deckers did not make any share repurchases. As of Mar 31, 2020, the company had $160 million remaining under its share-repurchase program.

Looking for High Performance Stocks

Sprouts Farmers Market SFM has a trailing four-quarter positive average earnings surprise of 37.2% and sports a Zacks Rank #1 (Strong Buy) currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

SpartanNash SPTN, also a Zacks Rank #1 stock, has a positive earnings surprise of 15% for the last reported quarter.

Office Depot ODP has a long-term earnings growth rate of 6.8%. Currently, it carries a Zacks Rank #2 (Buy).

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.

This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.

See their latest picks free >>