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Ugg Sales Hit $1.5 Billion, But Wall Street Is Still Worried About Its Future

Deckers Brands on Thursday delivered fourth-quarter results that pushed past forecasts, thanks to gains at its hero brand, Ugg, which has been showing signs of turnaround success. Still, some market watchers remain skeptical.

The label, which attracted a cult following for its sheepskin boots in the early 2000s, had seen its momentum falter in the years that followed. More recently, management had been working to ramp up style offerings and deseasonalize the business with more spring and summer product.

President and CEO Dave Powers told investors during a conference call Thursday that some of its efforts are starting to reap dividends.

In Q4, the brand saw sales improve 6 percent to $257.5 million — and $1.5 billion for the year — largely due to better-than-expected revenues in the global direct-to-consumer channel at stores and online, Powers said.

“Helping fuel the sales beat was favorable weather late in the season that drove more full-price selling of cold-weather product combined with the strong selling of the spring/summer of 2018 line,” Powers added, referencing the firm’s overall revenues, which topped Wall Street’s forecasts.

Specifically, companywide sales increased 8.4 percent to $400.7 million, upsetting analysts’ bets for sales of $377 million.

Still, Wedbush Securities analyst Christopher Svezia — who remained sidelined on the firm — signaled that the Q4 gains may not be altogether indicative of firm’s turnaround efforts since Ugg has a track record of performing well during cold months.

“[Deckers needs] to invest to further diversify its brand mix and drive more profitable growth in the future that is less weather-dependent,” Svezia wrote. “Ugg dictates the direction of sales and earnings, and if it’s going to be a seasonable winter, Deckers is likely to do well. Despite a solid holiday 2018 selling season, we still believe Ugg lacks a consistent growth catalyst.”

Elsewhere in the Deckers portfolio, gains continued at Hoka One One, where sales were up 34.1 percent to $50.4 million. Teva revenues advanced 7.3 percent to $55 million. Sanuk enjoyed a 10.3 percent bump to $35.6 million during the period.

The company was also able to reverse its losses during the quarter, posting a profit of $20.6 million, or 66 cents per diluted share. On an adjusted basis, diluted earnings per share were 50 cents — blowing past estimates of 19 cents.

Despite the better-than-expected results, management offered a conservative outlook for Ugg in the year ahead — predicting that sales will be down low single digits as growth is offset by the allocation and segmentation of the Classics franchise, more store closures and the ongoing rationalization of its wholesale distribution.

Canaccord Genuity Inc. analyst Camilo Lyon cheered the outlook — which also called for company sales of $1.93 billion to $1.95 billion and adjusted diluted EPS of $6.20 to $6.40 — writing on Thursday that it showed the firm’s management was “in the driver’s seat.”

“The Ugg decline is intentional and signals a level of control and discipline by management not seen in years,” Lyon wrote.

For his part, Susquehanna Financial Group LLLP analyst Sam Poser maintained a sell rating on the stock, citing concerns over inventory levels — which were up 3.3 percent at the end of the fiscal year to $299.6 million — among other things.

“Deckers has made more improvements than we anticipated,” he wrote. “However, the inventory overhang, which management recognizes, and lapping an extremely cold winter will make achieving fiscal year 2019 guidance difficult.”

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