Deckers Outdoor Corporation Reports Second Quarter Financial Results

Deckers Outdoor Corporation (NASDAQGS:DECK) today announced financial results for the second quarter ended June 30, 2009.

Second Quarter Highlights

• Net sales increased 12.5% to $102.5 million versus $91.1 million for the same period last year.
• Diluted EPS was $0.22 compared to ($0.29) a year ago. Excluding non-cash, pre-tax tradename/trademark write-downs in each period of $1.0 million (the TSUBO® brand in 2009) and $14.9 million (the Teva® brand in 2008), non-GAAP* diluted EPS decreased 33.3% to $0.26 from $0.39 a year ago.
• International sales increased 36.8% to $46.5 million compared to $34.0 million for the same period last year.
• UGG® brand sales increased 22.9% to $74.4 million versus $60.6 million for the same period last year.

* See the Reconciliation of Non-GAAP Measures in the tables to follow.

Angel Martinez, President, Chief Executive Officer and Chairman of the Board of Directors, stated: "Our solid performance throughout this challenging economic period highlights the desirability of our brands and underscores our disciplined distribution strategy and ability to control expenses. Our second quarter earnings were ahead of our guidance primarily due to lower than projected operating expenses, a shift in certain marketing expenses to the second half of the year, and to a lesser extent, higher sales. The UGG brand delivered strong second quarter results, fueled primarily by shipments of fall product to our international distributors. In addition, our spring line of sandals, flip flops, fashion wedges and boots continued to retail well, an indication of the progress we have made evolving the UGG brand into a year-round brand. While our Teva brand has not been immune to the difficult market conditions, our strategy of developing broader lines of open and closed toe footwear with more compelling price points is resonating with consumers and allowing us to capture market share. Simple® brand sales continue to be driven by increased awareness of ecoSNEAKS® and greater distribution for the collection with accounts such as Nordstrom and Journeys. We remain optimistic about our near and long-term growth prospects and approach the second half of the year having improved our cash, cash equivalents and short-term investments position by over $50 million to over $175 million compared to nearly $125 million as of June 30, 2008.”

Division Summary

UGG® Brand

UGG brand net sales for the second quarter increased 22.9% to $74.4 million compared to $60.6 million for the same period last year. The sales gain was primarily attributable to an increase in global shipments of fall product versus the same period a year ago.

Teva® Brand

Teva brand net sales decreased 10.6% to $22.6 million for the second quarter compared to $25.2 million for the same period last year. The decline in sales was the result of lower reorders in the second quarter compared with the year ago period combined with lower closeout sales due to an improved inventory position versus last year.

Simple® Brand

Simple brand net sales for the second quarter decreased 25.2% to $3.5 million compared to $4.7 million for the same period last year. Simple brand sales were higher in the second quarter of 2008 in part due to the launch of Planet Walkers®, and a lower than normal rate of reorder business in the second quarter of 2009.

Other Brands

Combined net sales of the Company’s other brands, TSUBO® and Ahnu®, were $2.1 million for the second quarter of 2009 compared to $0.7 million in TSUBO brand sales for the same period last year. The Company acquired the TSUBO brand in the second quarter of 2008 and the Ahnu brand in the first quarter of 2009. Accordingly, 2008 only reflects a partial quarter of TSUBO brand sales activity. As of June 30, 2009, the Company conducted an impairment evaluation of the TSUBO brand trademarks included in intangible assets on its condensed consolidated balance sheet. Based on the results of the evaluation, the Company wrote down the value of the trademarks and recorded a non-cash, pre-tax charge of $1.0 million for the second quarter ended June 30, 2009.

eCommerce

Sales for the eCommerce business, which are included in the brand sales numbers above, decreased 18.1% to $5.3 million for the second quarter compared to $6.4 million for the same period a year ago. The decrease in sales resulted from more first quarter backorders carried into and shipped in the second quarter of 2008 than 2009 for the UGG brand, a decline in our conversion rates for all brands and lower average selling prices for Teva and Simple brand products.

Retail Stores

Sales for the retail store business, which are included in the brand sales numbers above, increased 100.0% to $6.1 million for the second quarter compared to $3.1 million for the same period a year ago, primarily as a result of more store locations in 2009. For those stores that were open during the full three months ended June 30, 2008 and 2009, same store sales grew by 8.4%.

Inventories

At June 30, 2009, inventories increased 29.1% to $145.6 million versus $112.8 million for the same period a year ago. By brand, the UGG brand increased by $39.7 million to $130.3 million compared to $90.6 million for the same period last year, the Teva brand decreased by $6.3 million to $7.9 million compared to $14.1 million for the same period last year and the Simple brand decreased by $3.1 million to $3.8 million compared to $6.9 million for the same period last year. TSUBO and Ahnu brand inventory totaled $3.7 million at June 30, 2009. It is important to note that the majority of the UGG brand’s business is pre-booked and the increase in the UGG brand’s inventory is necessary to fulfill the volume of orders currently on the books. In addition, $6.8 million of the increase in UGG brand inventory was from the Company’s retail store inventory, due in part to the Company’s additional retail stores at June 30, 2009 compared to a year ago.

Full-Year 2009 Outlook

• Based upon the UGG brand’s second quarter performance coupled with increased visibility into the second half of the year, the Company is raising its full year revenue outlook. The Company now expects its full year revenue to increase approximately 9% to 10% over 2008, compared to previous guidance of approximately 7% to 9%.
• The Company reiterated its previous outlook for full year non-GAAP diluted earnings per share to be flat to up slightly over the $7.27 non-GAAP diluted EPS in 2008, which excludes pre-tax impairment charges of $1.0 million for 2009 and $35.8 million for 2008 as described in our earnings release for the fourth quarter ended December 31, 2008. This guidance assumes a gross profit margin of approximately 44.5% compared to its previous expectation of approximately 45.0% and SG&A as a percentage of sales of approximately 24.5% compared to its previous expectation of approximately 25.0%.

Third and Fourth Quarter Outlook

• The Company currently expects third quarter 2009 revenue and diluted earnings per share to increase approximately 14.0% and 10.0%, respectively, over 2008 levels. This guidance assumes a gross profit margin of approximately 43.0% and SG&A as a percentage of sales of approximately 22.5%.
• The Company currently expects fourth quarter 2009 revenue to decrease slightly and non-GAAP diluted earnings per share to decrease approximately 4% from 2008 levels, which excludes pre-tax impairment charges of $20.9 million for the fourth quarter ended December 31, 2008 as described in our earnings release for that period. The projected sales and earnings decline for the fourth quarter is being driven by a shift of sales to the third quarter to accommodate customer requests for early deliveries of the UGG brand. This guidance assumes a gross profit margin of approximately 47.5% and SG&A as a percentage of sales of approximately 20.0%.

The Company’s conference call to review second quarter fiscal 2009 results will be broadcast live over the internet today, Thursday, July 23, 2009 at 4:30 pm Eastern Time. The broadcast will be hosted at www.deckers.com and www.earnings.com.

Deckers Outdoor Corporation strives to be a premier lifestyle marketer that builds niche brands into global market leaders by designing and marketing innovative, functional and fashion-oriented footwear developed for both high performance outdoor activities and everyday casual lifestyle use. UGG® Australia, Teva®, Simple® Shoes, TSUBO®, Ahnu® and Deckers® Brand are registered trademarks of Deckers Outdoor Corporation.

This news release contains statements regarding our expectations, beliefs and views about our future financial performance which are "forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements can be identified by the use of words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," "project," or future or conditional verbs such as "will," "would," "should," "could," or "may" or by the fact that such statements relate to future, and not just historical, events or circumstances, including statements related to anticipated revenues, expenses, earnings, operating cash flows, the outlook for the Company's markets and the demand for its products. The forward-looking statements in this news release regarding our future financial performance are based on currently available information as of the date of this release, and because our business is subject to a number of risks and uncertainties, some of which may be beyond our control, actual operating results in the future may differ materially from the future financial performance expected at the current time. Those risks and uncertainties include, among others: the continued decline of the global economy; our ability to anticipate fashion trends; consumer demand or inventory needs; whether the UGG brand will continue to grow at the same rate it has experienced in the past; impairment charges related to our brands’ intangible assets if our product sales or operating performance decline to a point that the fair value of our brands’ intangible assets do not exceed their carrying values; shortages or price fluctuations of raw materials that could interrupt product manufacturing and increase product costs; increased costs of manufacturing in China and actions by the Chinese government; currency fluctuations; our ability to implement our growth strategy; the success of our customers, their ability to perform in an adverse economic environment and the risk of losing one or more of our key customers; our ability to develop and protect our brands and intellectual property; the risk that counterfeiting can harm our sales or our brand image; our dependence on independent manufacturers to supply our products; the risk that retailers could postpone or cancel existing orders; unpredictable events and circumstances and currency risks related to our international operations; a downturn in key market economies; volatile credit markets; liquidity and market risks for our cash equivalents and short-term investments; the risk of losing key personnel; a delay or interruption in the delivery of merchandise to our customers; and the sensitivity of our sales to seasonal and weather conditions. Certain of these risks and uncertainties, as well as others, are more fully described under the heading "Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, which we filed with the Securities and Exchange Commission on March 2, 2009, and under "Risk Factors” in any subsequent filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on forward-looking statements contained in this news release, which speak only as of the date of this release. The Company undertakes no obligation to publicly release or update the results of any revisions to forward-looking statements, which may be made to reflect new information, events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The risks and uncertainties highlighted herein should not be assumed to be the only items that could affect the future performance or valuation of the Company.