Deckers Outdoor (DECK)

Q3 2011 Earnings Call

October 27, 2011 4:30 pm ET

Executives

Thomas A. George - Chief Financial Officer and Principal Accounting Officer

Angel R. Martinez - Chairman of the Board, Chief Executive Officer and President

Analysts

Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division

Christian Buss - Thomas Weisel

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Jessica Schoen - Barclays Capital, Research Division

Scott D. Krasik - BB&T Capital Markets, Research Division

Howard Tubin - RBC Capital Markets, LLC, Research Division

Jeffrey P. Klinefelter - Piper Jaffray Companies, Research Division

Jim Duffy - Stifel, Nicolaus & Co., Inc., Research Division

Diana Katz - Lazard Capital Markets LLC, Research Division

Taposh Bari - Jefferies & Company, Inc., Research Division

Presentation

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Deckers Outdoor Corporation Third Quarter Fiscal 2011 Earnings Conference. [Operator Instructions] I would like to remind everyone that this conference call is being recorded.

Before we begin, I would also like to remind everyone of the company's Safe Harbor policy. Please note that certain statements made on this call regarding our expectations, beliefs and views about our future financial performance are forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. These statements relate to the company's anticipated revenues, expenses, earnings, gross margin and capital expenditures and the outlook for the company's markets and the demand for its products.

The forward-looking statements made on this call regarding our future financial performance are based on currently available information. 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. 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. Listeners are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. The company undertakes no obligation to publicly release or update the results of any revisions to forward-looking statements.

I would now like to turn the conference over to the President, Chief Executive Officer and Chair of the Board of Directors, Mr. Angel Martinez. Please go ahead, sir.

Angel R. Martinez

Well, thanks for joining us today. With me on the call as always, are Zohar Ziv and Tom George. I'm going to begin with a review of the main drivers of our record third quarter performance. And then, Tom will go through the numbers and outline our guidance. I'll then return and provide some commentary on the upcoming holiday season and our long-term outlook. And after that, we'll be happy to take questions.

As you saw from our press release issued earlier, we had a great quarter. Sales increased 49% to $414 million, and diluted EPS increased 49% to $1.59, both third quarter records for the company. Our recent performance was driven by strong demand for the UGG brand across our multiple distribution channels and geographic regions.

From a product standpoint, sales were very broad-based for the UGG brand, consisting of multiple boot collections and a growing assortment of casual footwear, this year's women's fall line is our most diverse ever. Boots included equestrian, cold weather, fashion, classics led by the Sparkle and the Bailey Button Triplet and wood-button styles. Casuals included clogs, slippers and sneakers, which have also looked very well. The introduction of our Italian handcrafted UGG collection was also well received.

Our men's business had a strong quarter too. September was highlighted by the debut of our new ad campaign featuring Tom Brady. In addition to the TV spot that first ran during the Patriot season opener on Monday Night Football, we targeted male customers through several mediums including print, billboards, kiosks, digital and the Web. We've recently seen a meaningful pickup in the demand for our expanded line of men's sneakers, casuals, boots and slippers.

Our UGG brand domestic wholesale business increased double-digits for the fourth consecutive quarter. I think it's important to point out that the growth of our U.S. wholesale business continues to come from higher door productivity versus new door growth. Our strategy of keeping distribution tight and going after more shelf space within our account base of better department stores, especially footwear retailers and kid independence is clearly working.

Through the ongoing evolution of our UGG line, we've succeeded in significantly increasing the average SKU count per door over the past several years, and now command more retail real estate including more than 350 shop-in-shops. In Europe, we've made good progress growing our wholesale business with distributors and more recently, through our subsidiaries. This quarter marked our first fall season selling directly to retailers in the U.K. Orders were up significantly on both the unit and dollar basis, and were noticeably more diverse than a year ago.

The transition to a wholesale model has also -- has allowed us to capitalize on the demand generated by our former distributor, and accelerate the UGG brand evolution beyond its classic roots to establish it as a luxury comfort brand. Much like we've been doing in the U.S., we've identified the right group of retailers to partner with us on this strategy, and made the decision to narrow U.K. distribution. Now this will help ensure that consumers are presented with a broader selection of merchandise, while also educating the population on just how deep the product line has become.

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