Ugg Parent Sees Major Profit Turnaround, Abandons Plans to Sell Company

Ugg
Ugg Meadow boot
Courtesy of brand

Deckers Brands is making progress.

After several quarters of uneven sales at its hero brand Ugg, the company today reported significantly better-than-expected second-quarter results after the market close. Additionally, the firm said its strategic review process — announced in April — has not resulted in a sale of the company.

The company — which also owns Teva, Hoka One One and Sanuk — said its Q2 profit advanced 37 percent year-over-year to $51.6 million, or $1.54 per diluted share, handily topping analysts’ forecasts for diluted EPS of $1.02.

President and CEO Dave Powers said he was pleased with the firm’s progress on its operating profit improvement plan — particularly the 220-basis-point increase in gross margin and earnings per share that were ahead of expectations.

“Our goal remains to achieve an incremental $100 million of operating profit by the end of our fiscal year 2020, and operating margins of at least 13 percent, by focusing on full-priced selling, driving supply chain efficiencies, implementing process improvements, reducing indirect spend and closing retail stores that do not meet our financial objectives,” he added.

Overall company sales declined 0.7 percent to $482.5 million but far exceeded market watchers’ bets for sales of $438.4 million.

While the other brands in Deckers’ stable experienced double-digit gains, sales at Ugg declined 2.9 percent to $400.4 million during the period.

Hoka One One sales improved 34.4 percent to $40.6 million, Teva advanced 24.9 percent to $21.4 million, and Sanuk gained 19.3 percent to $15.2 million.

In light of its results, Deckers raised its full-year outlook and now expects net sales gains in the range of 1 percent to 2 percent and adjusted EPS in the range of $4.15 to $4.30.

“As we head into the holiday selling season with a stronger product lineup and cleaner channel inventories compared to a year ago, we are confident that Deckers is well-positioned to achieve our near- and medium-term financial targets and deliver increased shareholder value,” Powers said.

In addition to concluding its review of a potential sale of the company, Deckers announced a new $335 million stock repurchase program on top of the $65 million remaining under the company’s current authorization, for a total of $400 million — representing 20 percent of the current market capitalization.

To pursue a potential sale, the company said its board and its advisers contacted 90 potential acquirers, including strategic and financial parties, both domestic and international, but this effort did not result in a transaction.

For several months, activist investor Marcato Capital has been pressuring Deckers to pursue a sale of the company, threatening to nominate a slate of new directors to replace company’s entire board if the strategic review process did not result in a sale. But ahead of today’s announcement from Deckers, Marcato had already nominated a new board in September — although Deckers’ management has not approved those nominations.