Ugg Pure, a new type of fabric entirely made with wool and used in some of the linings and footbeds of Deckers Outdoor's Ugg shoes, has been well received as an alternative to table grade sheepskin, and the company intends to extend its usage throughout the line and to other product categories.
The management stressed that Ugg Pure will not replace the premium twin-face sheepskin used in other parts of Ugg's shoes, which constitutes more than half of the total amount of sheepskin used by the company in the course of the year. On the other hand, Ugg Pure should replace next year 25 percent of the total amount of sheepskin used by Ugg, compared with 10 percent in 2003, driving production costs down considerably.
Coupled with a reduction of 10 percent in the cost of sheepskin based on negotiations with suppliers, this should lead to an improvement of about one percentage point in the gross margin next year. Already in the third quarter ended Sept. 30, at 43.2 percent of sales, the group's gross margin was 0.9 percentage points better than a year ago thanks to increases in revenues from the group's retail stores and through e-commerce of 34.5 percent and 12.2 percent, respectively.
Most of Deckers' direct retail sales go through its Ugg stores. On a comparable-store basis, retail sales were up in the high teens in China. They had a low double-digit increase in Japan and a low single-digit increase in Europe, but they were down by a low single digit in the U.S.
At Ugg, total sales inched up by 1.3 percent to $337.0 million because of higher global sales made directly to consumers following the opening of new concept stores and the launch of new e-commerce websites. At wholesale, the brand was down by a high single digit in the U.S. and largely flat in the Asia-Pacific territory, but was up by less than 5 percent in Europe in terms of dollars.
Sales grew by 0.6 percent for Teva, by 0.5 percent for Sanuk and by 81.3 percent in the Other Brands segment. The big jump was due to the acquisition of a French-based brand of trail running shoes called Hoka One One, which we have amply covered through another publication of ours, The Outdoor Industry Compass.
All in all, Deckers Outdoor posted a sales increase of 2.7 percent to $386.7 million for the quarter, and while U.S. sales were off by 1.4 percent to $238.8 million, they grew by 10.3 percent to $147.9 million in the rest of the world, reaching $147.9 million.
Exceeding analysts' projections and sending up its value on the stock exchange, the company's net income fell by 23 percent to $33.1 million. The management is projecting a increase of about 10 percent in earnings per share for the full year on an overall sales increase of around 8 percent, assuming that they will grow in the fourth quarter by 32 percent and 14.5 percent, respectively.