Thanks to continued profitability gains by Ugg and top-line growth by Hoka One One, Deckers Brands raised its guidance for the full year through next March, budgeting higher earnings on sales that should reach a range of $1,935 million to $1,960 million.
The group's net earnings for its second fiscal quarter ended on Sept. 30 jumped by 50.1 percent from the year-ago quarter to $74.4 million. The management pointed out that, beyond planned long-term improvements, profits were boosted in the quarter by one-time savings, tight management of airfreight cost, better full-price selling and a favorable mix of products sold in the wholesale channel. As a result, Deckers' gross margin improved by 3.5 percentage points to 50.2 percent.
The company's revenues also exceeded expectations, expanding by 4.0 percent to $501.9 million, led by a 28.4 percent gain for Hoka One One. On a constant currency basis, sales increased by 3.3 percent.
The Ugg brand's sales decreased by 1.0 percent to $396.3 million in the quarter, partly because the brand was implementing a classic allocation and product segmentation strategy in the U.S. for the autumn season. While this impacted a portion of the sell-in in the latest quarter, the management noted that this change in distribution strategy should have the ability to drive a pull model, leading to better sell-through and less promotional activity in the brand's largest market.
For the second quarter, Ugg's global wholesale sales were in line with expectations on the strengths of the sales in the U.S. and Asia-Pacific, offset by some weakness in Europe. At the same time, the brand delivered a solid direct-to-consumer (DTC) performance, led by e-commerce with brick-and-mortar results coming in as expected.
Meanwhile, Teva's sales inched up by 0.6 percent to $21.5 million, while those of the Sanuk brand continued to decline, falling by 9.4 percent to $13.8 million. This was in line with Deckers' expectations that Sanuk's sales would be impacted by the continued weakness in the U.S. surf specialty channel, as well as a strategic pullback from certain international markets to focus on the U.S.
By region, total sales were up by 2.9 percent to $311.6 million in the U.S. Elsewhere, they rose by 5.9 percent to $190.3 million. The group's positive results in the international market were partially offset by continued weakness in the U.K., largely within Ugg's wholesale channel. The management said that the British marketplace remains challenging because of weak consumer demand for apparel and footwear, along with macroeconomic uncertainty around the outcome of Brexit negotiations.
Across the group, wholesale revenues reached $408 million, up by 4.0 percent from the same quarter of last year. They were driven by double-digit growth with Ugg's wholesale partners and distributors in the Asia-Pacific region and by Hoka's global wholesale performance. Outside the U.S., Hoka's wholesale growth was strong across both Europe and Asia-Pacific. Also contributing to the wholesale growth in the second quarter was Koolaburra, as this new brand in Deckers' portfolio raised its sales by over 250 percent.
DTC sales in the quarter improved by 3 percent to $94 million and by 4.8 percent on a comparable basis, led by the strength of Ugg in the U.S. and of Hoka's and Teva's global e-commerce business. The group's own websites continued to drive the overall growth. The management noted that it continues to allocate marketing dollars to its digital operations, while launching DTC-exclusive and early product releases.