Deckers is continuing its recovery, exceeding its projections for the second consecutive quarter, after a period of mixed results in the past few years. Its better-than-expected performance in its third quarter, ended Dec. 31, led the company to raise its full-year outlook by approximately $500 million. It now expects sales for the year ending March 31, 2018 to be in the range of $1,873 million to $1,878 million, up by between 4.5 and 5 percent from the previous year.
The strong results also led the management to exclude a potential sale of the company, following the completion of a strategic review, and to reinvest part of its profits to buy back $100 million worth of its own shares by the end of March.
The group's revenues for the quarter improved by 6.6 percent from the year-ago period to $810.5 million, above the guidance in the range of $735 million and $745 million. On a constant-currency basis, they increased by 6.3 percent. In addition, net income more than doubled to reach $86.3 million.
The management attributed the strong increase to efforts to improve sales of products at full price and drive sustained profitable growth for the group's brands. It added that the company benefited from an improved retail environment and more favorable weather compared with last year.
In addition, the group implemented measures last year to heighten the brand positioning of Ugg Classics, as well as efforts to reach younger customers and men in general, while expanding its year-round offerings. Ugg's sales for the quarter went up by 4.3 percent to $734.7 million, led by strong sales at full price. The brand also benefited from the exceptionally cold weather in many parts of the U.S. in late December. Product-wise, the classic mini, ankle boots, slippers and Neumel, which are all geared towards the younger consumer, were the best performers.
Meanwhile, Hoka One One's sales rocketed by 65.7 percent to $31.8 million, with strong wholesale reorders and higher direct-to-consumer revenues. Teva advanced by 33.4 percent to $19.5 million and Sanuk's sales remained flat at $13.9 million.
Hoka is benefitting from its ongoing deployment in the running specialty segment, where its sales in the U.S. grew by 47 percent in the first nine months of Deckers' financial year. By contrast, the sales of specialty running shops fell by 5 percent over the same period, according to NPD.
Across the group, wholesale revenues rose by 10.3 percent to $428.8 million. Direct-to-consumer (DTC) sales improved by 2.7 percent to $381.7 million, or by 1.7 percent on a comparable basis, driven by stronger-than-expected e-commerce results and better trends in retail store comparables. DTC also benefited from more exclusives and successful digital marketing initiatives.
By region, total sales were up by 2.5 percent in the U.S. and by 14 percent elsewhere. Germany continued to be a major growth driver through the expansion of the Ugg range, China is finding success due to enhanced brand awareness, and Canada benefited from a switch to direct distribution.
Overall, the gross margin gained 1.8 percentage points to reach a comfortable level of 52.2 percent, while the operating margin jumped by 16.8 percentage points to 23.8 percent.
The new tax reform in the U.S. will lead Deckers to repatriate some $250 million in cash. The management said that some of that liquidity will be reinvested in Hoka.
Moving forward, Deckers' management stands by its commitment to achieve and exceed its long-term target of two billion dollars in annual sales and an operating margin of at least 13 percent by the fiscal year ending in March 2020.