Business context and reporting period
Deckers Outdoor Corporation designs, markets, and distributes footwear, apparel, and accessories under UGG, HOKA, Teva, Sanuk, and Koolaburra. It sells through wholesale and direct-to-consumer (DTC) channels. This 10-K covers the fiscal year ended March 31, 2021, compared with fiscal 2020; the filing also reports the quarter ended March 31, 2021. Dollar figures below are in millions unless stated otherwise.
Financial results and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $2,545.6 | $2,132.7 | +19.4% |
| Gross profit / margin | $1,374.1 / 54.0% | $1,103.7 / 51.8% | +2.2 percentage points |
| Operating income / margin | $504.2 / 19.8% | $338.1 / 15.9% | +49.1% |
| Net income / margin | $382.6 / 15.0% | $276.1 / 12.9% | +38.5% |
| Diluted EPS | $13.47 | $9.62 | +$3.85 |
| Operating cash flow | $596.2 | $286.3 | +$309.9 |
| Capital expenditures | $32.2 | $32.5 | Approximately unchanged |
Sales growth reflected strong DTC and HOKA performance. DTC sales increased 44.8% to $1,066.7 million; wholesale sales rose 6.0% to $1,478.9 million. HOKA total sales increased 62.0% to $571.2 million, while UGG sales rose 12.9% to $1,717.1 million. Sanuk sales fell 18.2%; Teva sales were nearly flat, up 0.6%. US sales increased 25.7% and international sales 7.3%.
Gross margin improved primarily on greater DTC mix, more full-price selling, favorable brand mix, and foreign exchange, partly offset by higher freight costs. SG&A increased to $869.9 million from $765.5 million, including higher performance compensation, digital advertising, DTC-related expenses, and asset impairments. Inventory was $278.2 million, down from $311.6 million; cash and cash equivalents rose to $1,089.4 million from $649.4 million.
There was no outstanding balance under the primary, China, or Japan revolving credit facilities at year-end; available borrowing was approximately $472.3 million in total. The corporate-headquarters mortgage was repaid in full during the year. Operating lease liabilities totaled $223.0 million, and undiscounted operating lease payments were $245.4 million. Net cash used in financing was $129.6 million, including $99.1 million of share repurchases and mortgage repayment.
Quarter ended March 31, 2021
Net sales were $561.2 million versus $374.9 million in the prior-year quarter; gross profit was $298.7 million versus $193.0 million. Operating income was $54.6 million versus $16.7 million, and net income was $33.5 million versus $16.1 million. Diluted EPS was $1.18 versus $0.57.
Material changes and management commentary
- The pandemic accelerated online shopping and constrained store traffic: stores closed or operated with limited capacity, while e-commerce demand was strong. Management cautioned that FY2021’s e-commerce growth rate was not expected to continue at the same pace.
- UGG wholesale sales declined 2.4%, mainly due to weaker international sales and conservative partner buying; HOKA wholesale sales increased 46.2%. Management cited HOKA’s brand awareness, product updates, and market expansion as growth drivers.
- Operating cash flow more than doubled, supported by earnings and working-capital changes, including lower inventory on hand associated with disciplined purchasing.
- The company recorded $14.1 million of retail and other long-lived asset impairments and a $3.5 million impairment of Sanuk’s international trademark. Goodwill and the tested indefinite-lived intangible assets were not impaired.
- The effective tax rate increased to 23.7% from 19.0%, mainly due to income mix, nondeductible executive compensation, and less favorable tax-audit settlements, partly offset by share-based compensation tax benefits.
Outlook, risks, and contingencies
No specific revenue or earnings guidance is provided in the supplied filing text. Management said liquidity was expected to be sufficient for working-capital needs and debt service for at least 12 months. It anticipated FY2022 capital expenditures of approximately $65–70 million, primarily for a new Indiana distribution center, technology and planning systems, and store projects. Management also expected inventory purchases from manufacturers to be significantly higher in FY2022 than in prior years, reflecting demand and potential supply disruption.
Key uncertainties include continuing COVID-19 impacts, store restrictions and shifting consumer behavior; freight, port, distribution-center, and manufacturing capacity constraints; seasonal and weather-sensitive demand; competition and changing fashion preferences; foreign exchange and trade/tariff exposure; and reliance on independent manufacturers and a limited number of sheepskin suppliers. The company sources most sheepskin from two tanneries in China. Product purchase obligations were $566.8 million, commodity purchase commitments $150.6 million, and other purchase commitments $102.3 million as of year-end; the product-obligation amount is an estimate and some orders may be cancellable in specified circumstances.
Management stated that ordinary-course legal proceedings were not expected to have a material adverse effect in aggregate. The Australian Leather appeal challenging the UGG trademark was affirmed in Deckers’ favor on May 7, 2021; a further challenge remained possible. The company also disclosed $25.3 million of gross unrecognized tax benefits and ongoing tax examinations, while stating it did not expect current audits and inquiries to materially affect the financial statements.
Important facts for investors to verify
- Whether DTC growth and higher full-price selling can be sustained as pandemic-related shopping shifts normalize, and whether store traffic recovers.
- HOKA’s growth, UGG’s international wholesale trends, and the performance of weaker Teva and Sanuk businesses.
- Execution and cost of the Indiana distribution center and other planned infrastructure investments, alongside logistics and staffing constraints.
- Inventory levels, returns and allowances, and the company’s ability to manage the substantial product and commodity commitments without excess stock or margin pressure.
- Cash deployment and dilution implications of the expanded repurchase authorization: the board approved an additional $750 million in April 2021; the program is discretionary and may be suspended.