Joining many other companies that want to use their strong cash better than in capital markets, Deckers Outdoor says it wants to acquire a global lifestyle brand and hopes to find a potential target in the near term.
Deckers performed better than expected in the fourth quarter as revenues continued to be lifted by double-digit growth at its UGG and Teva brands. Much of this growth is being generated by the addition of new products under these brands, and the process will continue this year.
For next autumn, the company will be adding a special premium line of UGG footwear made in Italy, with prices ranging from $500 to $1,200 a pair, that will be sold in its own stores, through some selected retailers and online. It will also launch the first handbag developed in-house.
The U.S. company expects UGG to grow by about 19 percent and Teva above 20 percent in 2011, contributing to an overall sales increase of 20 percent for the year. Ultimately, the company is targeting a doubling in turnover to $2 billion in 2015, with UGG's sales reaching $1.65 billion, Teva $200 million and its other brands $150 million.
The 20 percent rise in revenues expected for this year will be fueled by higher growth abroad than in the U.S. Incremental sales of about $50 million will be generated by the substitution of distributors in the U.K., the Benelux region and France with a direct wholesale operation. A direct presence in the two markets will also enable the company to develop its local e-commerce sales. The shift in distribution will generate a onetime cost of $8 million, largely in the first quarter.
Deckers will also have to support $11 million in additional marketing and advertising costs for the UGG brand and increase its legal budget by $10 million to protect intellectual property and trademark. The expenses will limit growth in diluted earnings per share to around 10 percent this year, while the gross margin is forecast rising more to 51 percent.
In the past financial year, Deckers' revenues rose by 23.1 percent to $1,001 million, breaking the $1 billion barrier for the first time. UGG grew by 22.7 percent to $873.1 million and Teva went up by 30.4 percent to $101.3 million. The gross margin widened to 50.2 percent from 45.6 percent. Net profit increased by 37.2 percent to $160.4 million.
Capital expenditures are set to increase to $55-60 million in 2011 from $23 million last year due to the openings of 15 stores, including six that will be run by a joint venture in China. The group plans to boost the number of shop-in-shops around the world to nearly 400 this year from more than 250 at the end of last year.
In the fourth quarter of 2010, group sales rose by 23.6 percent to $430.1 million, with UGG rising by 23.8 percent to $412.8 million and Teva growing by 26.2 percent to $13.3 million. The revenues of other brands – Simple, Tsubo and Ahnu – slipped by 2.3 percent to $4.1 million. UGG's sales were lifted by an increase in full-price selling at company-owned stores and websites as well as higher shipments abroad. For its part, Teva's growth was driven by rising Asian demand for its products.
The company's total sales outside the U.S. were up by 34.6 percent to $53.0 million, while domestic sales rose by 22.2 percent to $377.1 million. Retail sales increased by 55.4 percent to $72.4 million, lifted by the opening of nine additional stores and an 11.6 percent increase in same store sales. E-commerce revenues increased by 29.8 percent to $59.5 million, supported by demand for UGG products.
Inventories climbed to $125 million at the end of the year, up by 46.4 percent from a year earlier, with UGG's inventory rising by 35.4 percent to $94.7 million and Teva's inventory surging by 144.0 percent to $22.7 million.