MRO Magazine

Deckers Brands Reports Third Quarter Fiscal 2016 Financial Results


February 4, 2016
By PRN NewsWire

GOLETA, Calif., Feb. 4, 2016 /PRNewswire/ — Deckers Brands (NYSE: DECK), a global leader in designing, marketing and distributing innovative footwear, apparel and accessories, today announced financial results for the third quarter of fiscal 2016, which ended December 31, 2015.

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Third Quarter Fiscal 2016 Financial Review

— Net sales increased 3.6% on a constant currency basis. On a reported basis, net sales increased 1.4% to a record $795.9 million compared to $784.7 million for the same period last year. — Gross margin was 49.1% compared to 52.9% for the same period last year. — SG&A expense as a percentage of sales was 23.7% compared to 25.6% for the same period last year. — Diluted earnings per share was $4.78 compared to $4.50 for the same period last year, an increase of 6.2%. On a constant currency basis, diluted earnings per share increased 13.6%.

“Our third quarter was more challenging than we expected as warm weather and weak store traffic across retail pressured demand,” commented Angel Martinez, Chief Executive Officer and Chair of the Board of Directors. “While we have made significant progress diversifying our brands and product lines and transforming our organization over the past several years, we recognize the need to accelerate elements of our long-term strategy. To do this, we are streamlining our organization so we can dedicate more resources to our largest market opportunities. We are targeting approximately $35 million in annualized run rate expense savings from office consolidations, realignment of our brand management, and select retail store closings. We plan to invest approximately $10 million of this savings back into the business. We are confident these changes will increase profitability and improve shareholder returns.”

Brand Office Consolidation Deckers is moving the Sanuk(R) brand’s operations to its global headquarters in Goleta to enhance the brand’s growth prospects and is closing the Sanuk office in Irvine, California. Deckers is also closing the Ahnu(R) office outside San Francisco as it seeks strategic alternatives aimed at optimizing the value of the Ahnu brand.

Brand Management Realignment The company is realigning its brands across two groups, Fashion Lifestyle and Performance Lifestyle. The Fashion Lifestyle group will encompass UGG(R) and Koolaburra(R) brands. The Performance Lifestyle group will house Teva(R), Sanuk(R) and HOKA One One(R) brands.

Retail Store Fleet Optimization The company has identified 20 retail stores that are candidates for closure and is engaging a retail consulting firm to assist in assessing and implementing additional retail operational improvements as it continues to strengthen its global store fleet.

Brand Summary

— UGG(R) brand net sales for the third quarter increased 1.0% to $743.2 million compared to $736.0 million for the same period last year. On a constant currency basis, net sales increased approximately 3.3%. The increase in net sales was primarily driven by an increase in global Direct-to-Consumer (DTC) sales and domestic wholesale sales, partially offset by a decrease in international wholesale and distributor sales. — Teva(R) brand net sales for the third quarter increased 3.2% to $14.1 million compared to $13.6 million for the same period last year. On a constant currency basis, net sales increased approximately 4.1%. The increase in net sales was primarily driven by an increase in international distributor sales, partially offset by a decrease in domestic wholesale sales. — Sanuk(R) brand net sales for the third quarter decreased 17.0% to $17.0 million compared to $20.5 million for the same period last year. The decrease in net sales was driven by a decrease in global wholesale and international distributor sales, partially offset by an increase in global DTC sales. — Combined net sales of the Company’s other brands increased 48.4% to $21.6 million compared to $14.6 million for the same period last year. The increase was primarily attributable to a $6.7 million increase in net sales for the HOKA ONE ONE(R) brand compared to the same period last year.

Channel Summary (included in the brand sales numbers above)

— Wholesale and distributor sales for the third quarter decreased 0.1% to $444.6 million compared to $445.1 million for the same period last year. On a constant currency basis, sales increased approximately 2.0%. The decrease in reported sales was driven by a decrease in international wholesale and distributor sales due to foreign currency fluctuations, partially offset by an increase in domestic wholesale sales. — DTC sales for the third quarter increased 3.4% to $351.3 million compared to $339.6 million for the same period last year. On a constant currency basis, sales increased 5.8%. DTC comparable sales decreased 0.9% over the same period last year, primarily driven by a decrease in tourist traffic in the U.S. as a result of the strengthening U.S. dollar.

Geographic Summary (included in the brand and channel sales numbers above)

— Domestic sales for the third quarter increased 3.2% to $543.3 million compared to $526.3 million for the same period last year. — International sales for the third quarter decreased 2.2% to $252.6 million compared to $258.4 million for the same period last year. On a constant currency basis, sales increased 4.5%.

Gross MarginGross margin was 49.1% in the third quarter compared to 52.9% for the same period last year. The decline in gross margin was driven by greater than planned promotional activity and a 110 basis point impact from foreign exchange headwinds caused by the strengthening of the U.S. Dollar.

Balance SheetAt December 31, 2015, cash and cash equivalents were $263.0 million compared to $369.4 million at December 31, 2014. The Company had $23.5 million in outstanding borrowings at December 31, 2015 compared to $5.4 million at December 31, 2014. The change in cash and cash equivalents and outstanding borrowings is primarily attributable to cash used for share repurchases, inventory and capital investments, partially offset by cash provided by operating activities.

Inventories at December 31, 2015 increased 26.1% to $370.6 million compared to $293.9 million at December 31, 2014. By brand, at December 31, 2015, UGG inventory increased 31.8% to $287.4 million, Teva inventory increased 36.9% to $29.0 million, Sanuk inventory decreased 5.4% to $23.2 million, and the other brands’ inventory increased 2.6% to $31.1 million. The majority of the increased inventory consisted of UGG styles that are being carried over to next season.

Full Fiscal 2016 Outlook for the Twelve Month Period Ending March 31, 2016

— The Company now expects fiscal 2016 constant currency revenues to be approximately $1.91 billion, reflecting a 5.0% increase over the twelve month period ended March 31, 2015. On a reported basis, revenues are expected to be $1.86 billion, or an increase of 2.4%. — Gross margin for fiscal 2016 is expected to be approximately 46%, down 230 basis points from fiscal 2015 as a result of a stronger U.S. dollar and higher than expected promotional activity, partially offset by lower sheepskin costs and favorable changes in the Company’s channel mix. The foreign exchange headwind on gross margin is expected to be approximately 140 basis points. — SG&A expense as a percentage of sales is projected to be approximately 35.7% on a reported basis, compared to 36.0% in fiscal 2015. — The Company expects fiscal 2016 diluted earnings per share to be approximately $5.15 on a constant currency basis, reflecting an increase of 10.5% over the twelve month period ended March 31, 2015. On a reported basis, earnings per share are expected to be approximately $4.49, or a decrease of 3.6%. This guidance excludes any potential charges for the reorganization and store restructuring.

Fourth Quarter Fiscal 2016 Outlook for the Three Month Period Ending March 31, 2016

— The Company now expects fourth quarter fiscal 2016 constant currency revenues to be up approximately 7.9% over the same period last year and up approximately 7.2% on a reported basis. Diluted earnings per share are expected to be $0.07 on a reported basis compared to diluted earnings per share of $0.04 for the same period last year. This guidance excludes any potential charges for the reorganization and store restructuring. — The Company projects fourth quarter fiscal 2016 gross margin to be 45.5% compared to 44.7% for the same period last year, and SG&A as a percent of sales to be 44.4% compared to 44.5% for the same period last year.

Conference Call InformationThe Company’s conference call to review the results for the third quarter fiscal 2016 will be broadcast live today, Thursday, February 4, 2016 at 4:30 pm Eastern Time and hosted at www.deckers.com. You can access the broadcast by clicking on the “Investor Information” tab and then clicking on the microphone icon at the top of the page.

About Deckers BrandsDeckers Brands is a global leader in designing, marketing and distributing innovative footwear, apparel and accessories developed for both everyday casual lifestyle use and high performance activities. The Company’s portfolio of brands includes UGG(R), Teva(R), Sanuk(R), Ahnu(R), HOKA ONE ONE(R), and KOOLABURRA(R). Deckers Brands products are sold in more than 50 countries and territories through select department and specialty stores, Company-owned and operated retail stores, and select online stores, including Company-owned websites. Deckers Brands has a 40-year history of building niche footwear brands into lifestyle market leaders attracting millions of loyal consumers globally. For more information, please visit www.deckers.com.

Forward Looking Statements This press release contains “forward-looking statements” within the meaning of the federal securities laws, which statements are subject to considerable risks and uncertainties. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements other than statements of historical fact contained in this press release, including statements regarding our future or assumed financial results (on an actual basis and constant currency basis) , including revenues, gross margins, expenses, and earnings per share; the timing and impact of our strategic decisions and business transformation plans, including brand consolidations, brand management realignment, and retail store fleet optimization; and the expansion of our product offerings. We have attempted to identify forward-looking statements by using words such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “should”, “will”, or “would”, and similar expressions or the negative of these expressions.

Forward-looking statements represent our management’s current expectations and predictions about trends affecting our business and industry and are based on information available as of the time such statements are made. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy or completeness. Forward-looking statements involve numerous known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements predicted, assumed or implied by the forward-looking statements. Some of the risks and uncertainties that may cause our actual results to materially differ from those expressed or implied by these forward-looking statements are described in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2015, as well as in our other filings with the Securities and Exchange Commission. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements.

Except as required by applicable law or the listing rules of the New York Stock Exchange, we expressly disclaim any intent or obligation to update any forward-looking statements, or to update the reasons actual results could differ materially from those expressed or implied by these forward-looking statements, whether to conform such statements to actual results or changes in our expectations, or as a result of the availability of new information.

(Tables to follow)

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) (Amounts in thousands) December 31, March 31, Assets 2015 2015 —- —- Current assets: Cash and cash equivalents $263,009 225,143 Trade accounts receivable, net 195,323 143,105 Inventories 370,608 238,911 Prepaid expenses 17,783 15,141 Other current assets 56,096 35,057 Income taxes receivable – 15,170 Deferred tax assets 8,556 14,066 Total current assets 911,375 686,593 Property and equipment, net 245,400 232,317 Goodwill 127,934 127,934 Other intangible assets, net 85,220 87,743 Deferred tax assets 15,105 15,017 Other assets 23,117 20,329 —— —— Total assets $1,408,151 1,169,933 ========== ========= Liabilities and Stockholders’ Equity Current liabilities: Short-term borrowings $23,544 5,383 Trade accounts payable 192,244 85,714 Accrued payroll 14,330 27,300 Other accrued expenses 58,297 41,066 Income taxes payable 15,596 6,858 Value added tax (VAT) payable 15,898 1,221 Total current liabilities 319,909 167,542 Long-term liabilities: Mortgage payable 32,770 33,154 Income tax liability 6,204 5,087 Deferred rent obligations 16,612 15,663 Other long-term liabilities 14,148 11,475 Total long-term liabilities 69,734 65,379 Stockholders’ equity: Deckers Outdoor Corporation stockholders’ equity: Common stock 324 333 Additional paid-in capital 164,413 158,777 Retained earnings 875,151 798,370 Accumulated other comprehensive loss (21,380) (20,468) ——- Total stockholders’ equity 1,018,508 937,012 ——— ——- Total liabilities and equity $1,408,151 1,169,933 ========== =========

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income (Unaudited) (Amounts in thousands, except for per share data) Three-month period ended Nine-month period ended December 31, December 31, 2015 2014 2015 2014 —- —- —- —- Net sales $795,902 784,678 $1,496,562 1,476,420 Cost of sales 404,885 369,539 804,836 750,636 Gross profit 391,017 415,139 691,726 725,784 Selling, general and administrative expenses 188,517 200,558 501,721 502,102 Income from operations 202,500 214,581 190,005 223,682 Other expense, net 1,842 1,265 4,187 3,494 —– —– —– —– Income before income taxes 200,658 213,316 185,818 220,188 Income tax expense 43,737 56,610 39,847 59,814 —— —— —— —— Net income 156,921 156,706 145,971 160,374 Other comprehensive (loss) income, net of tax Unrealized gain (loss) on foreign currency hedging 1,417 (682) 981 759 Foreign currency translation adjustment (3,568) (6,647) (1,893) (11,147) Total other comprehensive (loss) income (2,151) (7,329) (912) (10,388) —— —— —- ——- Comprehensive income $154,770 149,377 $145,059 149,986 Net income per share: Basic $4.85 4.54 $4.47 4.64 Diluted $4.78 4.50 $4.40 4.59 Weighted-average common shares outstanding: Basic 32,341 34,537 32,655 34,598 Diluted 32,843 34,853 33,157 34,912

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CONTACT: Investors, Steve Fasching | Vice President Strategy & InvestorRelations | 805.967.7611, Brendon Frey | ICR | 203.682.8200

Web site: http://www.deckers.com/