Following several quarters of mixed results, Deckers Brands posted a solid quarter that topped analysts' expectations. This led the company to raise its full-year outlook. It now expects sales for the year ending March 31, 2018 to go up in a range of one to two percent as compared with the previous year - instead of a previous forecast that they will be flat or down by up to two percent.
It 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 an extra $100 million worth of its own shares by the end of March.
The group's revenues for its second fiscal quarter to Sept. 30 declined by 0.7 percent from the year-ago quarter to $482.5 million, but they far exceeded Wall Street's consensus for sales of $438.4 million. On a constant-currency basis, they decreased 0.3 percent. In addition, net income advanced by 26.1 percent to $49.5 million.
The strong results were partly due to double-digit gains for two of the group's brands and an emphasis on full-price sales. At Ugg, sales decreased by 2.9 percent to $400.4 million, a level that was $7 million higher than what Deckers predicted. Hoka One One's sales jumped by 34.4 percent to $40.6 million with strong wholesale reorders and higher DTC revenues. While Teva advanced by 24.9 percent to $21.4 million, Sanuk fell by 19.3 percent to $15.2 million.
Overall, the gross margin gained 2.2 percentage points to 46.7 percent, which the company attributed to supply chain initiatives, the implementation of process improvement efficiencies, indirect reductions in spending and retail store closures. The operating margin jumped by 3.9 percentage points to 14.0 percent.
Moving forward, Deckers' management stands by its commitment to achieve an incremental $100 million in operating profit by the end of its fiscal year 2020, and operating margins of at least 13 percent, by focusing on full-priced selling and continuing with the same initiatives.
Discussing the proxy fight threatened by activist investors led by Marcato Capital Management, which has been pushing the company to sell all its brands except Ugg, the company said its board of directors and its advisers contacted 90 potential investors to pursue a potential sale, including strategic and financial parties, both domestic and international, but this effort did not result in a transaction.
The board is urging its shareholders to back its entire slate of directors at the company's annual meeting in December, instead of voting for the slate proposed by Marcato.