Deckers Beats on Q1 Earnings, Raises FY25 Guidance

Deckers Outdoor Corporation DECK witnessed a 10.2% jump in its share price during the after-market trading session on Jul 25. This rally was in response to the company's outstanding first-quarter performance and an upbeat fiscal 2025 forecast. The strong quarterly results were underpinned by the exceptional performance of the HOKA ONE ONE and UGG brands.

Deckers has shown robust growth through its strategic focus on expanding its brand presence and strengthening direct-to-consumer channels. This approach, along with a commitment to innovation in product development and a keen focus on international market expansion, has positioned the company for continued success.

Shares of this Goleta, CA-based company have advanced 17.7% in the past six months compared with the industry's 3.6% growth.

Let's Delve Deeper

Deckers delivered quarterly earnings of $4.52 per share, which surpassed the Zacks Consensus Estimate of $3.59 per share. The reported figure increased substantially from the prior-year quarter's tally of $2.41 per share.

Net sales of this Zacks Rank #2 (Buy) company increased 22.1% year over year to $825.3 million and outpaced the consensus estimate of $805 million. On a constant-currency basis, net sales grew 23%.

The gross margin in the first quarter expanded to 56.9% from 51.3% in the year-ago period and also significantly surpassed our expectation of 53.7%. This improvement can be attributed to several factors, including favorable brand and product mix, higher levels of full-price selling and lower freight rates.

SG&A expenses climbed 22.3% year over year to $337.2 million. As a percentage of net sales, SG&A stood at 40.9%, 10 basis points higher than the last year. We had anticipated a year-over-year increase of 20.4% in the metric.

The company's operating income came in at $132.8 million, up from $70.7 million in the year-ago quarter. The operating margin increased to 16.1% from 10.5% in the prior-year period. We had projected the operating margin to be 12.2%.

Brand-Wise Discussion

The HOKA brand maintained its impressive performance, achieving a 29.7% increase in sales, reaching $545.2 million, which exceeded our projected figure of $528.7 million.

The UGG brand exhibited remarkable growth of 14% in net sales of $223 million, which surpassed our estimate of $214.5 million.

Teva brand faced continued challenges, experiencing a 4.3% decline in net sales, amounting to $46.3 million, almost in line with our estimate.

The Sanuk brand's dismal performance persisted, resulting in a 28.4% decrease in net sales to $6.9 million, which was lower than our estimated figure of $8.9 million. After the quarter ended, Deckers finalized an agreement to sell off the Sanuk brand, with the transaction anticipated to be completed by August 2024.

Meanwhile, net sales for Other brands, primarily comprising Koolaburra, surged 123.5% to $4 million, exceeding our estimate of $1.8 million.

Channel & Geography-Wise Discussion

Wholesale net sales increased 21% year over year to $514.8 million. DTC net sales advanced 24% to $310.6 million, while DTC comparable net sales surged 21.9%.

Domestic net sales jumped 23% to $515.9 million, while International net sales rose 20.8% to $309.5 million.

Other Financial Aspects

Cash and cash equivalents stood at $1,438.4 million as of Jun 30, 2024. The company ended the quarter with a total stockholders' equity of $2,074.5 million. There were no outstanding borrowings.

During the quarter, Deckers repurchased about 177 thousand shares for $152 million. As of Jun 30, 2024, the company had $789.7 million remaining under its share repurchase authorization.

A Sneak Peek Into Outlook

Deckers continues to expect a 10% increase in fiscal 2025 net sales, reaching $4.7 billion, with HOKA anticipated to grow by around 20% and UGG by mid-single digits.

The fiscal 2025 gross margin is now expected to be approximately 54%, up from the earlier projection of 53.5%. The current view suggests a contraction of 160 basis points from the last year due to a more normalized promotional environment and higher freight costs.

SG&A expenses, as a percentage of net sales, are anticipated in the band of 34-34.5%. The operating margin is projected between 19.5% and 20%, down from 21.6% reported a year ago.

Management foresees fiscal 2025 earnings in the range of $29.75-$30.65 per share, up from $29.16 reported last year. Deckers had earlier guided earnings between $29.50 and $30.00 per share.

Other Stocks Looking Hot

Here, we have highlighted three more top-ranked stocks, namely Abercrombie & Fitch Co. ANF, The Gap, Inc. GPS and Urban Outfitters, Inc. URBN.

Abercrombie & Fitch, an omnichannel specialty retailer of apparel and accessories for men, women and kids, sports a Zacks Rank #1 (Strong Buy).

The Zacks Consensus Estimate for Abercrombie & Fitch's current financial-year revenues and earnings calls for growth of 10.4% and 47.3%, respectively, from the year-ago reported figures. Abercrombie & Fitch has a trailing four-quarter earnings surprise of 210.3%, on average.

Gap, the largest specialty apparel company in the United States and a house of iconic brands, including Old Navy, Gap, Banana Republic and Athleta, sports a Zacks Rank #1.

The Zacks Consensus Estimate for Gap's current financial-year revenues and earnings suggests growth of 0.2% and 22.4%, respectively, from the year-ago reported figures. GAP has a trailing four-quarter earnings surprise of 202.7%, on average.

Urban Outfitters, a leading lifestyle products and services company, operates a portfolio of global consumer brands, including Anthropologie, Free People, FP Movement, Urban Outfitters and Nuuly. The company carries a Zacks Rank #2.

The Zacks Consensus Estimate for Urban Outfitters' current financial-year revenues and earnings suggests growth of 5.8% and 9.9%, respectively, from the year-ago reported figures. URBN has a trailing four-quarter earnings surprise of 16.9%, on average.

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