What Are Deckers Outdoor's Strategies For Long-term Growth?

Shares of Deckers Outdoor Corporation DECK are riding high on optimistic fiscal 2018 view, management's focus on enhancing omni-channel capabilities, innovative line of products and expanding brand assortments. In the past six months, the company's shares have gained 26.9%, outperforming the industry's growth of 11.7%. However, soft third-quarter projections are a concern in the short run. Let's delve deeper.

Hidden Catalyst

Deckers is targeting profitable and underpenetrated markets, and remains focused on product innovations, store expansion and enhancing e-commerce capabilities. The company's focus on expanding brand assortments, bringing more innovative line of products, targeting consumers digitally and optimizing omni-channel distribution bode well.

In keeping with the changing trends, Deckers has been constantly developing e-commerce portal to capitalize on incremental sales. The company has made substantial investments to strengthen online presence and improve shopping experience for customers. The company is focused on opening smaller concept omni-channel outlets and expanding programs such as Retail Inventory Online; Infinite UGG; Buy Online, Return In Store; and Click and Collect to improve customers' shopping experience.

Moreover, the company has undertaken strategic initiatives in an effort to drive long-term growth. Its store-fleet optimization plan focuses on striking the right balance between digital and physical stores. Also, Deckers expects cost savings of about $150 million on the back of improvement in cost of goods sold and SG&A savings, which includes consolidation of retail outlets and process improvement efficiencies. This will help realize $100-million operating profit improvement by fiscal 2020. Management had earlier informed that it anticipates total sales of about $2 billion with operating margin of 13% by fiscal 2020.

For fiscal 2018, the Zacks Rank #3 (Hold) company has set operating margin goal of 10.5%. Management now expects net sales to be up approximately 1-2% from last year and envisions adjusted earnings between $4.15 and $4.30 per share, up from $3.82 reported last year. Gross margin for the fiscal year is anticipated to be 47.5%.

Concerns

Following the second-quarter results, management raised fiscal 2018 view but provided a soft third-quarter outlook. In the third quarter, net sales are estimated to be in the range of $735-$745 million down from $760.3 million reported in the year-ago period. The year-over-year fall in sales is due to the timing of orders from the third quarter into the second. Further, the company now envisions earnings in the range of $3.65-$3.75 compared with $4.11 per share delivered in the prior-year quarter. The year-over-year decline in earnings is attributable to higher operating expenses on account of performance-based compensation.

Further, management expects DTC comps to be down low-single digits to up low-single digits for the fiscal year. Domestic wholesale revenue is expected to decline in low-to-mid single digits.

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