Deckers Outdoor Corporation (DECK)

Q2 2010 Earnings Conference Call

July 22, 2010 4:30 PM ET


Angel Martinez – President, Chairman and CEO

Tom George – CFO

Zohar Ziv – COO


Todd Slater – Lazard Capital Markets

Mitch Kummetz – Robert W. Baird

Sam Poser – Sterne, Agee & Leach, Inc

Chris Svezia – Susquehanna Financial Group

Jim Duffy – Stifel Nicolaus

Chi Lee – Morgan Stanley

Scott Krasik – BB&T Capital Markets

Maggie Gilliam – Gilliam & Co.

Howard Tubin – RBC Capital Markets

Sean Naughton – Piper Jaffray



Good afternoon ladies and gentlemen, and thank you for standing by. Welcome to the Deckers Outdoor Corporation's second 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, 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, Chief Operating Officer; and Tom George, our Chief Financial Officer.

We reported another great quarter with financial results that once again exceeded our projections. I'm going through the numbers in a moment. But before that, let me highlight a few key themes. As you know several years ago, we detailed our long-term sales goals for the company and since that time we've been executing growth strategies that have us moving towards successfully achieving those objectives.

If you look at the evolution of our business, I think it's clear that our sustained efforts to build a balance business in terms of seasonality, distribution channels, geographies and brands are working.

First seasonality, with the growth of the UGG spring line and thus launch in 2005 combined with the resurgence of the Teva brand, we now have a much more meaningful business in the first half of the year. Sales of our products have achieved the compound annual growth rate of approximately 20% for the last five years and represent roughly 30 of our total revenues, which is close to our goal of having our spring season make up roughly 35% of the business in the next few years.

Second, looking at sales by channel. We have become much more diverse in terms of wholesale, retail and eCommerce. Wholesale, our largest channel has continued to grow steadily and was up in the first half of the year driven by strong sell in and sell through for both our UGG and Teva spring lines.

For the UGG brand this was true across our account base, of better department stores, specialty chains and key independents, all of which carried a much broader assortment of spring product this year.

Similarly, Teva brand sales were consistently higher at key retailers such as REI, Dicks, EMS and Sports Tula (ph). While at the same time, the brand has generated renewed interest from some non-traditional accounts such as Nordstrom, Dillard's, Von Maur and Zappos, as we have broaden the product line.

Entering the back half of the year, we're well positioned to capitalize on this momentum with 140 additional UGG brand Shop-in-Shops for a total of approximately 290 worldwide and much more complete offering of fall product from the Teva brand. Our retail business has been performing exceptionally well. Same store sales were up 19.2% in the second quarter and have increased 25.6% year-to-date over last year, this combined with the five new stores we opened last year, fueled strong double digit growth for our retail segment during the first half of 2010.

We're very excited about these results, particularly if we prepare for our most aggressive period of expansion by opening nine stores this year. After opening our store in Shenyang, China in late June, we will open eight additional stores over the next five months. Six of the eight new stores will be in the U.S. with locations in Miami, Washington D.C., Los Angeles, Las Vegas and Orlando. We'll be opening our third New York City store, which would be located on Madison Avenue at 58 th Street and finally, the remaining two stores will be in Shanghai, China. All stores except for Orlando will be full price retail stores.

Finally, with our eCommerce business UGG brand sales were up double digit in the second quarter driven by heightened demand for the spring line. However, this was offset by lower sales from our other brands, which were up against difficult comparisons because of high close out level in the prior year, which we didn't have this year.

Third, let's talk about geographies. The spread between our domestic and international sales has also become more balance in recent years and we're tracking to achieve our goal for 2012 of having approximately 30% of our annual sales come from outside the United States.

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