Deckers Brands' share price tumbled by 19.7 percent after the company published lower than expected financial results for the third quarter ended Dec. 31 and reduced its own expectations for the full financial year. The stronger dollar and soft sales of Classic Ugg styles in October and November were cited as major factors.
The group's total sales increased by 6.6 percent to $784.7 million in the latest quarter, compared with previously forecast growth of 10 percent, and they are now predicted to go up by 13.5 percent for the full year, instead of rising by 15 percent as previous expected, with Ugg going up by 11 percent. The group's operating margin is seen revolving around 12.5 percent for the year, down from previous guidance of 15 percent of sales.
The group's gross margin improved by 1.8 percentage points to 52.9 percent in the latest quarter, but operating expenses climbed faster and Deckers ended up with quarterly net income of $149.4 million, 7.5 percent higher than in the year-ago period. The management predicts that it will run into a net loss on 10 percent higher revenues during the current fourth quarter.
Deckers' biggest brand, Ugg, raised its quarterly sales by 6.5 percent to $736.0 million. Declines in same-store sales at company-owned Ugg stores and in wholesale revenues in the U.S. were offset by higher revenues from abroad, in spite of the dollar's appreciation, by higher e-commerce revenues and by new store openings.
Across the group, retail sales moved up by 8.3 percent to $192.7 million in the quarter thanks to the opening of 29 new stores. Sales over the internet grew by 25.2 percent to $146.9 million.
Apparently, the management underestimated the potential of the diversification of Ugg's product line in the casual boots and “weather boots” segments, which rose sharply and sold out in the stores last autumn. These two lines are now expected to represent 15 and 10 percent of orders for next autumn from wholesale customers in the U.S. and Europe.
Two other brands of the group, Teva and Sanuk, recorded sales declines in the quarter, particularly outside the U.S. Tevas's sales fell by 12.1 percent to $13.6 million. Those of Sanuk declined by 7.9 percent to $20.5 million, but the brand entered three important new markets: Australia, Brazil and Japan.
Other brands generated sales of $14.6 million in the quarter, up by 96.5 percent from the year-ago period. The jump was primarily attributed to a big $7.2 million increase at Hoka One One, the recently acquired brand of running shoes. Deckers is looking at strategic alternatives for two other minor brands in its portfolio, Mozo and Tsubo.