Deckers Brands' net profit for the third quarter ended Dec. 31 sank by 73.9 percent from the same period a year earlier, down to $41 million, due to lower sales and extraordinary charges of $128.9 million related to a write-down of the Sanuk brand's goodwill and intangible assets, retail impairments and other restructuring charges.
The group's total revenues decreased by 4.5 percent to $760.3 million, or by 3.7 percent on a constant-currency basis, weighed down by a slow start to the holiday season. The company's main brand, Ugg, was faced with a 5.3 percent drop to $704 million, largely due to lower domestic wholesale sales caused by a slower-than-expected start to the quarter. In terms of local currencies, the brand's sales were down by 4.4 percent.
Teva's sales gained 3.9 percent to $14.6 million during the third quarter, driven by an increase in global direct-to-consumer (DTC) sales. On a constant currency basis, they went up by 2.0 percent.
On the other hand, revenues from the Sanuk brand of casual footwear and sandals dropped by 18.4 percent to $13.9 million on both a reported and a constant currency basis, weighed down by a drop in global wholesale and distributor sales. The management said the brand has reduced costs and improved product design and market under its new leadership.
Combined net sales for the company's other brands went up by 28.6 percent to $27.8 million, or by 27.9 percent in constant currencies, reflecting increased sales of Hoka One One and the addition of Koolaburra by Ugg.
Hoka One One alone booked a sales increase of 18.3 percent, and the management said the brand has “just begun to scratch the surface” in international markets. It reaped more than 20 awards last year, including an Editor's Choice mention in Runner's World, and got more than 2.2 million impressions in global media.
Across the group, revenues from the U.S. were down by 9.9 percent to $489.5 million, while sales in other countries jumped by 7.2 percent to $270.8 million, or by 11.7 percent on a currency-neutral basis. Foreign sales to third parties would have been even higher without the delayed deliveries from the company's new European distribution center, which caused the company to miss some reorders.
The gross margin of the group gained 1.4 percentage points to 50.5 percent, but the operating margin dropped by 18.4 percentage points to 7.0 percent, mainly due to charges of $128.9 million related to the write-down of Sanuk's goodwill and intangible assets
In addition to about $60 million in previously announced savings in selling, general and administrative expenses and gross margin improvements, Deckers said it has identified some $90 million more savings that it plans to implement over the course of the next two fiscal years.
The company now expects sales for the fourth quarter ending March 31 to be down by between 5.0 and 6.0 compared with the year-ago period. It also anticipates that sales in the full fiscal year 2017 will be down by around five percent, with a gross margin of around 47 percent.
Dave Powers, president and chief executive of Deckers, said the company wants to react to the accelerating changes in the marketplace by transforming its operating structure in order to ”grow profitably and become more nimble.”
The changes at Deckers may be far-reaching. Noting that it now holds 6 percent of the company's shares, one of its major shareholders, Marcato Capital Management, said it will engage in discussions with directors and officers of Deckers about “strategic alternatives” including a potential sale of the company or of some of its businesses or assets. More in Shoe Intelligence