Deckers Outdoor Corporation Q1 2010 Earnings Call Transcript

Deckers Outdoor Corporation Q1 2010 Earnings Call Transcript
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Deckers Outdoor Corporation (DECK)

Q1 2010 Earnings Call Transcript

April 22, 2010 4:30 pm ET

Executives

Angel Martinez – President, Chairman and CEO

Tom George – CFO

Zohar Ziv – COO

Analysts

Jeff Klinefelter – Piper Jaffray

Todd Slater – Lazard Capital Markets

Scott Krasik – BB&T Capital Markets

Mitch Kummetz – Robert W. Baird

Sam Poser – Sterne, Agee & Leach, Inc

Chris Svezia – Susquehanna Financial Group

Andrew Burns – Thomas Weisel Partners

Howard Tubin – RBC Capital Markets

Chi Lee – Morgan Stanley

Presentation

Operator

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Good afternoon ladies and gentlemen, and thank you for standing by. Welcome to the Deckers Outdoor Corporation’s first quarter fiscal 2010 earnings conference call. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. (Operator instructions) I would like to remind everyone this conference call is being recorded.

Before we begin, I would also like to remind everyone of the company’s Safe Harbor language. Please note that some of the information provided in this call will be forward-looking statements within the meaning of the securities laws. These statements concern Deckers plans, expectations and objectives for future operations. The company cautions you that a number of risks and uncertainties, some of which maybe beyond its control, could cause Deckers actual results to differ materially from those described in this call.

Deckers has explained some of these risks and uncertainties in its earnings press release and in its SEC filings, including the Risk Factors section of its annual report on Form 10-K and its other documents filed with the SEC. Among these risks is the fact that the company’s sales are highly sensitive to consumer preference, to general economic conditions, to the weather and the choice of its retailers to carry and promote its products.

Deckers intends that all of its forward-looking statements in this call will be protected by the Safe Harbor provisions of the Securities Exchange Act of 1934, as amended and the Securities Act of 1933 as amended. Deckers is not obligated to update its forward-looking statements to reflect the impact of future events.

I would now turn this conference over to the President, Chairman and Chief Executive Officer, Mr. Angel Martinez. Please go ahead, sir.

Angel Martinez

Thank you operator and welcome to everyone joining us on the call today and listening via web cast. With me are Zohar Ziv, our Chief Operating Officer; and Tom George, our Chief Financial Officer.

As you saw from our press release issued today, after the close the first quarter ended up being stronger than we anticipated. Particularly from an earnings perspective, diluted EPS increased approximately 47% to $1.37. That was also driven by another record first quarter for the UGG brand, with Q1 sales topping $100 million for the first time, combined with a very strong start for the year for the Teva brand.

Our retail stores both domestically and overseas were key drivers of our Q1 results, highlighted by same-store sales growth of 28.2% during the quarter. We witnessed strong consumer demand for the UGG brand spring line, particularly boots like the Lo Pro, the Cardy and the Classics in spring colors. In addition, our new sneaker line led by the Avera [ph] performed extremely well.

The arrival of warmer weather in March coincided with the introduction of UGG sandals and flip-flops in our stores, resulting in healthy sales over the past months. In addition, our eCommerce business was also above plan, and it was the combination of these two high margin businesses that drove the majority of the sales and earnings upside.

Four years ago, as part of our growth strategy we made the decision to expand our retail distribution with our company owned UGG Australia stores. These results demonstrate clear evidence of the strong payback on this strategy. The performance of the UGG brand in our department specialty and independent store base has also been solid. The selection of spring products at our wholesale accounts is broader than a year ago, as retailers are getting more and more confidence with the UGG brand as a year-around brand.

They are accepting a wider selection of styles, including sandals, casuals and our new sneaker collection, which as I mentioned has had a strong debut. We are just completing very extensive market research regarding UGG brand consumers. Our research in the US indicates that we have an expanding, diverse and loyal customer base, showing upside potential in all age groups.

For example, 22% of females surveyed aged 13 to 54 stated they have not yet purchased UGG products, but are considering doing so in the future. Only approximately 20% to 25% of UGG consumers are between the age of 13 and 17. However, at the same time we have very well developed and loyal teen base with room for significant upside as evidenced by 40% of female teens responding that they definitely or probably will buy UGG products in the next 12 months.

Given that once women have converted their purchase, they tend to repeat purchase and wear UGG products more often, our research has enthused us about the future growth opportunities. Building on this brand loyalty will be a key marketing focus in late 2010 and beyond. At the same time, our Teva brand delivered one of its best quarters in several years, as sales increased 21% from a year ago.

Despite some very wet snowy conditions in January and February that negatively impacted early spring sales for much of the industry, the Teva brand experienced solid sales through key retailers such as REI, Nordstrom, and exporting it throughout the quarter with sales accelerating above plan in March.

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