Goleta, CA—Shares of Deckers Outdoor Corp. plummeted to new lows today after the UGG-brand owner reported Thursday a weaker-than-expected first quarter earnings and a weak forecast.
At presstime, Deckers stock was down nearly 26% to $51.67 in its biggest percentage decline ever.
For the quarter ended March 31, Deckers reported that net income slid 59% to $7.9 million, or 20 cents a share, from $19.2 million, or 49 cents a share, last year.
Total revenue rose 20% to $246.3 million. Sales of its UGG brand sales increased 6.5% to $158.1 million, mostly through the company’s own stores. Comparable store sales in Asia and the United Kingdom were down, pushing the company’s overall comparable store sales to flat. Online sales fell 7%. Inventories surged 94.6% to $208.5 million as of March 31.
The results missed analysts’ average estimate expecting the company to earn 25 cents a share on revenue of $246.5 million.
“Our first quarter performance was mixed versus our expectations,” said Angel Martinez, chairman/president/ceo. “Sales growth was driven by the addition of the Sanuk brand combined with increased demand for the UGG brand spring line, partially offset by softness in boots due to the unusually warm weather. The difference in the channel mix versus projections, along with some higher closeouts for the Teva brand and non-Classic UGG brand styles, put some additional pressure on overall gross margins on top of the higher product costs we had forecasted.”
Warmer Weather Hampered Sales
Gross margins fell to 46% from 50%, due mostly to rising product costs and higher sales of the lower-priced Teva brand and non-classic UGG brands.
Looking ahead, the company expects a second quarter los of 60 cents a share versus analysts’ estimate for a 39 cent a share loss. For the full year, Deckers said it expects earnings to fall 9% to 10% from 2011, or about $4.56 to $4.61 a share. Gross margin is expected to drop 2.5% percentage points, bigger than the 2 percentage points drop Deckers previously forecast.
That’s well below analysts’ average forecast for earnings of $5.17, one of the reasons for the company’s stock prices to drop today.
But Martinez said the company is encouraged by fall wholesale orders it has received so far for UGG brand footwear “particularly given the mild winter. While we believe that the macroeconomic conditions in Europe have created a difficult selling environment, we remain optimistic about our future prospects throughout the continent.”
Martinez also sought to reassure retail analysts who pointed out the company’s stock is down 55% from its highs last year. “We’re managing this business for the long term,” he said in a conference call, “and I’m very confident that the growth strategies we’ve developed for our brand portfolio are intact.”
Nonetheless, Deckers, one of the footwear darlings of Wall Streets, was being scrutinized, prompting some retail analysts to downgrade Deckers stock.
UGGs: ‘A Mature Business’
“While expectations were low, this was clearly another disappointment over a short period of time, hurting credibility once again,” said Susquehanna analyst Christopher Svezia, noting that the missed earnings and lower forecast was something he hasn’t encountered with Deckers in the past eight years. “Management’s credibility is shot. There will be questions as to whether this is in fact the bottom and there is no longer risk to numbers.”
“Results and lowered guidance highlight a meaningful shift in the avenues for growth available for the UGG brand,” said Credit Suisse analyst Christian Buss. “UGG is now a more mature business. There remains downside risk to earnings estimates near-term.”