Deckers Outdoor (DECK) Q1 2012 Earnings Call April 26, 2012 4:30 pm ET Executives Angel R. Martinez - Chairman, Chief Executive Officer and President Zohar Ziv - Chief Operating Officer Thomas A. George - Chief Financial Officer and Principal Accounting Officer Analysts Robert S. Drbul - Barclays Capital, Research Division Omar Saad - ISI Group Inc., Research Division Taposh Bari - Jefferies & Company, Inc., Research Division Jeffrey P. Klinefelter - Piper Jaffray Companies, Research Division Diana Katz - Lazard Capital Markets LLC, Research Division Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division Howard Tubin - RBC Capital Markets, LLC, Research Division Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division Scott D. Krasik - BB&T Capital Markets, Research Division Jim Duffy - Stifel, Nicolaus & Co., Inc., Research Division Christian Buss - Crédit Suisse AG, Research Division Presentation Operator
The Sanuk brand, the newest addition to our portfolio, started the year off very well. Strong sell end of the spring line has been followed by equally strong sell-through at retail in March and April. At the same time, wholesale orders for the UGG brand spring styles were up meaningfully versus a year ago as was sell-through in our Domestic Stores. Sales of the Teva brand expanded close -- Teva brand expanded close sale offering, also delivered solid gains. Unfortunately, very mild temperatures, along with a tough comparison created by the cold and snowy conditions across much of the U.S. at the same time last year, had a noticeable impact on boot sales during the first quarter. Despite these challenging conditions, we believe that we've done a good job managing inventory and adjusting our purchase orders. We expect to enter the fall selling season in good shape with relatively clean channels.In terms of our bottom line performance, earnings were down approximately 59% versus a year ago, which is primarily attributable to the increase in sheepskin prices, together with the increase in operating expense from our growing retail organization. As we have previously indicated, sheepskin prices are up 40% in 2012 from 2011. Zohar will speak more specifically about the outlook for sheepskin prices in a moment, but they do appear to be coming down from their historic highs, which should provide relief beginning in 2013. And we do expect to get better leverage on our retail expense over the full year driven by the fourth quarter when that channel typically generates more than 50% of its annual revenue and more than 90% of its operating income. So let's look at each brand's performance in more detail. For the UGG brand, as I mentioned, we believe that the extended period of warm weather throughout the first quarter has adversely impacted cold-weather UGG brand boot sales. However, we also believe that the UGG brand continues to make important inroads, developing a more meaningful spring season business. I think it's helpful to look at the Q1 performance of our casual spring footwear in boots separately from our cold-weather boots as there was a meaningful difference between the 2 categories. Our expanded spring line of sandals, sneakers, wedges, fabric boots and Mini Bailey Button did very well across each of our channels including wholesale where our spring styles were up close to 20% and have continued to gain important shelf space.
Speaking specifically about the domestic wholesale channel, the growth in spring styles and men's was offset by a decline in cold-weather boot sales. January and February are typically big boot month at retail, but as a result of the mild temperatures in many parts of the country, boot orders were down year-over-year. With regard to fall, we are close to completing the pre-book period, and overall, we are pleased with the current level of commitments from our domestic wholesale accounts. Slippers, classics, fashion, casual boots, sneakers and casuals all booked well. Coming off of warm winter, retailers, in general, typically take a cautious approach to next season at this point in the year. So while the open-to-buy dollar pool has contracted a bit. Based on conversations with our retailers, we believe the UGG brands percentage of the total open-to-buy dollar pool has not diminished and that the brand, especially in the back half of the year, remains as important, if not more important, to the retailers with whom we do business.Read the rest of this transcript for free on seekingalpha.com