Deckers Outdoor Corporation — Form 10-Q Summary
Reporting period: Second fiscal quarter ended September 30, 2023; comparisons are with the quarter and six months ended September 30, 2022. Amounts below are in U.S. dollars; financial statement amounts are rounded to millions where shown.
Business context and financial performance
Deckers 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. The business remains seasonal, particularly for UGG, though management says HOKA’s growth and broader year-round assortments are reducing seasonality over time.
| Metric | Three months ended Sep. 30, 2023 | Six months ended Sep. 30, 2023 |
|---|---|---|
| Net sales | $1,091.9 million; up 24.7% | $1,767.7 million; up 18.6% |
| Gross margin | 53.4%, versus 48.2% | 52.6%, versus 48.1% |
| Operating income | $224.6 million; up 75.7% | $295.4 million; up 60.4% |
| Net income | $178.5 million; versus $101.5 million | $242.1 million; versus $146.4 million |
| Diluted EPS | $6.82; versus $3.80 | $9.22; versus $5.46 |
| Operating cash flow | Not presented separately for the quarter | $121.5 million, versus cash used of $236.8 million |
Quarterly sales growth was led by UGG, up 28.1%, and HOKA, up 27.3%; Teva declined 28.4% and Sanuk declined 28.5%. DTC sales rose 38.8% for the quarter and 37.2% year to date; wholesale sales rose 19.4% and 11.2%, respectively. For the six months, HOKA sales increased 27.4% and UGG increased 17.8%.
Gross-margin improvement reflected lower freight costs, favorable brand/product and channel mix, and stronger full-price UGG selling in the quarter. SG&A rose with payroll, marketing, warehouse and occupancy, IT, and other operating costs. Higher interest income from invested cash also contributed to earnings growth.
Financial position, liquidity, and cash flow
At September 30, 2023, cash and cash equivalents were $823.1 million, down from $981.8 million at March 31, 2023. Current assets were $2,179.9 million and current liabilities were $759.4 million. Inventory was $726.3 million, up from $532.9 million at fiscal year-end, consistent with seasonal working-capital needs. The company had no borrowings under its revolving credit facilities and said it was compliant with all financial covenants. Operating lease liabilities totaled $251.1 million, current and long term combined.
For the six-month period, investing cash outflow was $57.4 million, primarily reflecting capital expenditures, and financing cash outflow was $217.1 million, primarily reflecting share repurchases. Operating cash flow improved substantially year over year, with management citing favorable working-capital changes and higher earnings. The company stated that cash, operating cash flow, and available credit should meet requirements for at least the next 12 months.
Material changes, outlook, and risks
- Management intends to divest the Sanuk brand, announced in October 2023, as part of its resource-allocation priorities. The filing does not provide clear terms or timing for the divestiture.
- Management emphasized continued investment in warehouses, distribution centers, third-party logistics, and manufacturing diversification to support growth; those investments may increase costs.
- No specific numerical earnings or sales guidance is provided in the filing. Management’s outlook is subject to seasonality, weather, consumer demand and preferences, supply-chain and labor constraints, inflation, foreign exchange, interest rates, and broader economic conditions.
- All products are made by independent third-party manufacturers, with production concentrated among a limited number of factories, primarily in Asia. Most sheepskin used in certain UGG products is sourced through two tanneries in China.
- Two customers represented 24.0% of net trade receivables at September 30, 2023; no customer represented 10% or more at fiscal year-end. This presents customer-credit concentration to monitor.
- Management said ordinary-course legal matters were not expected to result in a material adverse effect, and reported no material changes to the risk factors in its 2023 annual report.
- The filing corrected an immaterial prior-period supplemental cash-flow disclosure for operating lease payments; management said no other financial statements were changed and the correction was not material.
Important facts for investors to verify
- Whether DTC and HOKA growth, as well as improved gross margins, persist beyond the seasonal quarter.
- Inventory levels, receivable collections, and the concentration of receivables among two customers as seasonal sales progress.
- The terms, timing, and financial effects of the planned Sanuk divestiture.
- Capital spending and infrastructure costs, alongside the pace of share repurchases: the company repurchased $210.9 million of shares during the six months.
- Exposure to foreign exchange, supply-chain concentration, consumer-demand shifts, and the effects of seasonality and weather on results and liquidity.