Deckers Brands’ third-quarter challenges proved tougher than expected and now CEO Angel Martinez plans to “consolidate offices, realign brand management and close select retail stores,” to cut costs.
Ugg’s parent company reported a net sales increase of 1.4 percent, or 3.6 percent on a currency-neutral basis, to $795.9 million. Although it was an improvement over the comparable quarter’s sales of $784.7 million, it missed market watchers forecast for revenue totaling $832 million.
Net income also improved 3.6 percent to $154.8 million, or $4.78 per diluted share, from $149.4 million, or $4.50 per diluted share in the same year-ago quarter, beating analysts’ expectations for EPS of $4.75.
“Our third quarter was more challenging than we expected as warm weather and weak store traffic across retail pressured demand,” Martinez said in a release. “While we have made significant progress diversifying our brands and product lines and transforming our organization over the past several years, we recognize the need to accelerate elements of our long-term strategy. To do this, we are streamlining our organization so we can dedicate more resources to our largest market opportunities.”
Martinez added, “We are targeting approximately $35 million in annualized run rate expense savings from office consolidations, realignment of our brand management, and select retail store closings. We plan to invest approximately $10 million of this savings back into the business. We are confident these changes will increase profitability and improve shareholder returns.”
Specifically, Deckers said it has identified 20 retail stores that are candidates for closure and is working with a retail consulting firm on operational improvements. The company, which moved its Hoka One One team to the Deckers’ headquarters in Goleta, Calif. back in October 2015, said it is now moving the Sanuk brand’s operations to the company’s headquarters “to enhance the brand’s growth prospects.” Deckers said it is closing both the Sanuk office in Irvine, Calif. and the Ahnu office outside San Francisco.
As for the brand management realignment, Deckers said it would realign its brands across two groups, Fashion Lifestyle and Performance Lifestyle. The Fashion Lifestyle group will consist of Ugg and Koolaburra, which Deckers acquired last summer. The Performance Lifestyle group will encompass Teva, Sanuk and Hoka One One.
The company also lowered its FY16 outlook and now expects constant currency revenues to be approximately $1.91 billion, compared with its prior expectation of $2.01 billion. On a reported basis, revenues are expected to be $1.86 billion, compared with the previous prediction of $1.96 billion. The company expects diluted EPS of $5.15 on a constant currency basis, compared to a prior outlook of $5.73. On a reported basis, EPS is expected to be approximately $4.49, compared with prior estimates of $5.18.
At press time, Deckers share price had declined 8.75 percent in after market trading.