Costs, Markdowns Hit Deckers’ Q4 Profit

UGGsGoleta, CA—A rise in cost pressures as well as higher markdowns took a toll on Deckers Outdoors Corp.’s fourth quarter profit. The footwear company, best known for its UGG brand, reported Thursday that its fourth quarter earnings were down 12.9% to $2.77 a share from $3.18 in the previous year. Still, the earnings were ahead of analysts’ estimate for $2.62 a share.

Total net sales inched up 2.2% to $617.3 million but missed analysts’ estimate for $632 million. A 37% gain in its retail division and a 31% increase in e-commerce helped offset about an 11% decrease in UGG wholesale sales.

“There are several aspects of our fourth quarter performance that we believe underscore the health and relevancy of the UGG brand,” said Angel Martinez, president/ceo.”We experienced strong sales for the UGG brand on our e-commerce websites while at the same time it was widely reported that ‘UGG’ was one of the most searched terms on the internet during the holiday season. Our fourth quarter retail store performance improved versus third quarter trends, while at the same time, weekly sell-through in our domestic wholesale channel accelerated as the fourth quarter progressed culminating in a period of robust full-price selling in late December 2012. While cancellations were higher as a result of the late start to the season, we believe the improved trends we witnessed as temperatures got colder helped our customer account base with improved inventory levels versus a year ago.”

Alternatives to Rising Sheepskin Costs

To help UGG, Deckers instituted a price adjustment in selected classic styles that were shipped since July 1, 2012. Moreover, in order to safeguard against rising sheepskin costs (up some 80%) and other raw materials, Deckers has undertaken certain long term programs, which include increasing the mix of non-sheepskin merchandises, new casual footwear materials less prone to weather, and innovative production technologies. The new “UGG Pure” is a substitute for sheepskin and reported to be softer and more consistent than shearling.

Sales at the Sanuk brand rose 39.2% to $15.3 million thanks to increased domestic wholesale and e-commerce sales. Teva brand net sales plunged 29.5% to $13.7 million as the quarter lacked reorders resulting in lower distributor sales internationally.

Combined net sales of Deckers’ other brands were $3.5 million, down 29.6% since the company stopped the distribution of Simple brand.

Deckers opened 30 stores in 2012 and expects to open another 30 this year.

The company issued its fiscal full year 2013 earnings estimate for $3.62 a share on sales forecast of $1.51 billion, about a 7% increase from 2012. Analysts’ consensus expects $3.70 a share on sales of $1.48 million.

 

 

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