Deckers Outdoor Corporation Q2 2010 Earnings Call Transcript
Good afternoon ladies and gentlemen, and thank you for standing by. Welcome to the Deckers Outdoor Corporation's second quarter fiscal 2010 earnings conference call. At this time all participants are in a listen only mode. Following the presentation we will conduct a question and answer session. (Operator instructions) I would like to remind everyone this conference call is being recorded.
Before we begin, I would also like to remind uggs on sale everyone of the company's Safe Harbor language. Please note that some of the information provided in this call will be forward looking statements within the meaning of the securities laws. These statements concern Deckers plans, expectations and objectives for future operations. The company cautions you that a number of risks and uncertainties, some of which maybe beyond its control, could cause Deckers actual results to differ materially from those described in this call.
Deckers has explained some of these risks and uncertainties in its earnings press release and in its SEC filings, including the Risk Factors section of its annual report on Form 10 K and its other documents filed with the SEC. Among these risks is the fact that the company's sales are highly sensitive to consumer preference, to general economic conditions, the weather and the choice of its retailers to carry and promote its products.
Deckers intends that all of its forward looking statements in this call will be protected by the Safe Harbor provisions of the Securities Exchange Act of 1934, as amended and the Securities Cheap UGG Boots On Sale Act of 1933 as amended. Deckers is not obligated to update its forward looking statements to reflect the impact of future events.
I would now turn this conference over to the President, Chairman and Chief Executive Officer, Mr. Angel Martinez. Please go ahead, sir.
Thank you operator and welcome to everyone joining us on the call today and listening via web cast. With me are Zohar Ziv, Chief Operating Officer; and Tom George, our Chief Financial Officer.
We reported another great quarter with financial results that once again exceeded our projections. I'm going through the numbers in a moment. But before that, let me highlight a few key themes. As you know several years ago, we detailed our long term sales goals for the company and since that time we've been executing growth strategies that have us moving towards successfully achieving those objectives.
If you look at the evolution of our business, I think it's clear that our sustained efforts to build a balance business in terms of seasonality, distribution channels, geographies and brands are working.
First seasonality, with the growth of the UGGS On Sale UGG spring line and thus launch in 2005 combined with the resurgence of the Teva brand, we now have a much more meaningful business in the first half of uggs on sale for women in clearance fox fur the year. Sales of our products have achieved the compound annual growth rate of approximately 20% for the last five years and represent roughly 30 of our total revenues, which is close to our goal of having our spring season make up roughly 35% of the business in the next few years.
Second, looking at sales by channel. We have become much more diverse in terms of wholesale, retail and eCommerce. Wholesale, our largest channel has continued to grow steadily and was up in the first half of the year driven by strong sell in and sell through for both our UGG and Teva spring lines.
For the UGG brand this was true across our account base, of better department stores, specialty chains and key independents, all of which carried a much broader assortment of spring product this year.
Similarly, Teva brand sales were consistently higher at key retailers such as REI, Dicks, EMS and Sports Tula (ph). While at the same time, the brand has generated renewed interest from some non traditional accounts such as Nordstrom, Dillard's, Von Maur and Zappos, as we have broaden the product line.
Entering the back half of the year, we're well positioned to capitalize on this momentum with 140 additional UGG brand Shop in Shops for a total of approximately 290 worldwide and much more complete offering of fall product from the Teva brand. Our retail business has been performing exceptionally well. Same store sales were up 19.2% in the second quarter and have increased 25.6% year to date over last year, this combined with the five new stores we opened last year, fueled strong double digit growth for our retail segment during the first half of 2010.
We're very excited about these results, particularly if we prepare for our most aggressive period of expansion by opening nine stores this year. After opening our store in Shenyang, China in late June, we will open eight additional stores over the next five months. We'll be opening our third New York City store, which would be located on Madison Avenue at 58th Street and finally, the remaining two stores will be in Shanghai, China. All stores except for Orlando will be full price retail stores.
Finally, with our eCommerce business UGG brand sales were up double digit in the second quarter driven by heightened demand for the spring line. However, this was offset by lower sales from our other brands, which were up against difficult comparisons because of high close out level in the prior year, which we didn't have this year.
Third, let's talk about geographies. The spread between our domestic and international sales has also become more balance in recent years and we're tracking to achieve our goal for 2012 of having approximately 30% of our annual sales come from outside the United States.
In the second quarter, international sales were up 55% and rose 41% for the first half of the year, due to a number of growth drivers. First, we're seeing more distributors achieving success with a greater selection of product from the spring and fall lines. As retailers in our foreign markets are seeing the benefit of supporting broader width of collections rather than relying on a small number of (inaudible). We're continuing to evaluate the new markets and we're working with our partners to secure the right distribution, establish a (inaudible) of lifestyle position and attract our target consumers.
For example in Russia, our partners are taking off the brand by opening an UGG Australia store in one of the most notable locations in Moscow, Red Square. We believe the Russian market, with its long winters and quality and fashion conscious consumers present a great opportunity for the UGG brand. And we're also benefiting from our decision to convert from a distributor to a wholesale business model, the UGG brand in Japan at the start of 2009 and a Teva brand in the Benelux region earlier this year.
Japan is a large market for luxury goods and presents another great growth opportunity that wasn't fully realized by our previous distribution partner. Under our storage ship, the UGG brand has added key points of distribution within the country's retail network, increase shell space in the country's finest department stores and begun delivering a consistent, cohesive brand message to the consumers.
Situation with the Teva brand is different in the Benelux region. As this market for many years has been one of Teva's strongest markets. That said, in addition to the incremental sales and margins that Going Direct brings with it. We're finding opportunities to expand that business within the region and next door in France especially as we develop more year round product lines. and get ready to add the UGG and Simple brands for our current wholesale platform in the Benelux region. These regions represent our two largest markets behind the United States. retail stores. based on recent studies that indicate that the UGG brand is still under penetrated from a demographic standpoint as well as from a geographic standpoint most notably in the Southeast region. At the same time, we continue to evolve the Teva product line to include more multifunctional footwear. We're confident we can capture an important share of this much larger segment of the outdoor market.
The Teva brand has one of its best spring season's ever. As our efforts to develop a more comprehensive line of open and closed toe footwear is resonating with consumers. The 2010 product line included some of our most innovative and commercially appealing styles including the Sunkosi 2, the Itunda, the Tirra, the Tanza (ph) and the lighted flip flop, the Illum. We've taken our technical expertise and leadership position in sports (inaudible) and are successfully establishing the Teva brand within the broader outdoor performance oriented category. As a result, we're much less dependent on whether than we were just a few years ago and we're now closer to having more meaningful year round presence at retail.
The UGG brand also had a very strong first half, highlighted by sales surpassing a $100 million for the first time in both Q1 and Q2. This was achieved by a very positive reaction to our spring line, which featured expanded assortment of sandals, casuals, spring boots and a sneaker collection and all of which performed very well. Growth of our spring business is evidence that the retailers are comfortable with the UGG brand as a year round brand and we're confident that consumers demand for the spring line (inaudible) greater interest in our expanded fall assortments as well.
We're seeing a much greater diversity in the ordering patterns for our wholesale accounts with the majority taking a much wider selection of boots across our multiple collections, classic knit, casual fashion and cold weather, in addition to more slippers and sneakers for fall 2010.
So, as you can see our UGG business is about so much more than one category, one season or one market. With the turnaround ugg classic short sparkles blue for women of the Teva business, we're about more than just one brand. As we get into the fall season and move in to 2011, we expect this growth trends to continue and our business to become even more diversified. and Benelux region should put us in a better position to address rising manufacturing and materials cost, which for 2011 appear to be in the 5 to 10% range consistent with others in the footwear industry.
Good afternoon ladies and gentlemen, and thank you for standing by. Welcome to the Deckers Outdoor Corporation's second quarter fiscal 2010 earnings conference call. At this time all participants are in a listen only mode. Following the presentation we will conduct a question and answer session. (Operator instructions) I would like to remind everyone this conference call is being recorded.
Before we begin, I would also like to remind uggs on sale everyone of the company's Safe Harbor language. Please note that some of the information provided in this call will be forward looking statements within the meaning of the securities laws. These statements concern Deckers plans, expectations and objectives for future operations. The company cautions you that a number of risks and uncertainties, some of which maybe beyond its control, could cause Deckers actual results to differ materially from those described in this call.
Deckers has explained some of these risks and uncertainties in its earnings press release and in its SEC filings, including the Risk Factors section of its annual report on Form 10 K and its other documents filed with the SEC. Among these risks is the fact that the company's sales are highly sensitive to consumer preference, to general economic conditions, the weather and the choice of its retailers to carry and promote its products.
Deckers intends that all of its forward looking statements in this call will be protected by the Safe Harbor provisions of the Securities Exchange Act of 1934, as amended and the Securities Cheap UGG Boots On Sale Act of 1933 as amended. Deckers is not obligated to update its forward looking statements to reflect the impact of future events.
I would now turn this conference over to the President, Chairman and Chief Executive Officer, Mr. Angel Martinez. Please go ahead, sir.
Thank you operator and welcome to everyone joining us on the call today and listening via web cast. With me are Zohar Ziv, Chief Operating Officer; and Tom George, our Chief Financial Officer.
We reported another great quarter with financial results that once again exceeded our projections. I'm going through the numbers in a moment. But before that, let me highlight a few key themes. As you know several years ago, we detailed our long term sales goals for the company and since that time we've been executing growth strategies that have us moving towards successfully achieving those objectives.
If you look at the evolution of our business, I think it's clear that our sustained efforts to build a balance business in terms of seasonality, distribution channels, geographies and brands are working.
First seasonality, with the growth of the UGGS On Sale UGG spring line and thus launch in 2005 combined with the resurgence of the Teva brand, we now have a much more meaningful business in the first half of uggs on sale for women in clearance fox fur the year. Sales of our products have achieved the compound annual growth rate of approximately 20% for the last five years and represent roughly 30 of our total revenues, which is close to our goal of having our spring season make up roughly 35% of the business in the next few years.
Second, looking at sales by channel. We have become much more diverse in terms of wholesale, retail and eCommerce. Wholesale, our largest channel has continued to grow steadily and was up in the first half of the year driven by strong sell in and sell through for both our UGG and Teva spring lines.
For the UGG brand this was true across our account base, of better department stores, specialty chains and key independents, all of which carried a much broader assortment of spring product this year.
Similarly, Teva brand sales were consistently higher at key retailers such as REI, Dicks, EMS and Sports Tula (ph). While at the same time, the brand has generated renewed interest from some non traditional accounts such as Nordstrom, Dillard's, Von Maur and Zappos, as we have broaden the product line.
Entering the back half of the year, we're well positioned to capitalize on this momentum with 140 additional UGG brand Shop in Shops for a total of approximately 290 worldwide and much more complete offering of fall product from the Teva brand. Our retail business has been performing exceptionally well. Same store sales were up 19.2% in the second quarter and have increased 25.6% year to date over last year, this combined with the five new stores we opened last year, fueled strong double digit growth for our retail segment during the first half of 2010.
We're very excited about these results, particularly if we prepare for our most aggressive period of expansion by opening nine stores this year. After opening our store in Shenyang, China in late June, we will open eight additional stores over the next five months. We'll be opening our third New York City store, which would be located on Madison Avenue at 58th Street and finally, the remaining two stores will be in Shanghai, China. All stores except for Orlando will be full price retail stores.
Finally, with our eCommerce business UGG brand sales were up double digit in the second quarter driven by heightened demand for the spring line. However, this was offset by lower sales from our other brands, which were up against difficult comparisons because of high close out level in the prior year, which we didn't have this year.
Third, let's talk about geographies. The spread between our domestic and international sales has also become more balance in recent years and we're tracking to achieve our goal for 2012 of having approximately 30% of our annual sales come from outside the United States.
In the second quarter, international sales were up 55% and rose 41% for the first half of the year, due to a number of growth drivers. First, we're seeing more distributors achieving success with a greater selection of product from the spring and fall lines. As retailers in our foreign markets are seeing the benefit of supporting broader width of collections rather than relying on a small number of (inaudible). We're continuing to evaluate the new markets and we're working with our partners to secure the right distribution, establish a (inaudible) of lifestyle position and attract our target consumers.
For example in Russia, our partners are taking off the brand by opening an UGG Australia store in one of the most notable locations in Moscow, Red Square. We believe the Russian market, with its long winters and quality and fashion conscious consumers present a great opportunity for the UGG brand. And we're also benefiting from our decision to convert from a distributor to a wholesale business model, the UGG brand in Japan at the start of 2009 and a Teva brand in the Benelux region earlier this year.
Japan is a large market for luxury goods and presents another great growth opportunity that wasn't fully realized by our previous distribution partner. Under our storage ship, the UGG brand has added key points of distribution within the country's retail network, increase shell space in the country's finest department stores and begun delivering a consistent, cohesive brand message to the consumers.
Situation with the Teva brand is different in the Benelux region. As this market for many years has been one of Teva's strongest markets. That said, in addition to the incremental sales and margins that Going Direct brings with it. We're finding opportunities to expand that business within the region and next door in France especially as we develop more year round product lines. and get ready to add the UGG and Simple brands for our current wholesale platform in the Benelux region. These regions represent our two largest markets behind the United States. retail stores. based on recent studies that indicate that the UGG brand is still under penetrated from a demographic standpoint as well as from a geographic standpoint most notably in the Southeast region. At the same time, we continue to evolve the Teva product line to include more multifunctional footwear. We're confident we can capture an important share of this much larger segment of the outdoor market.
The Teva brand has one of its best spring season's ever. As our efforts to develop a more comprehensive line of open and closed toe footwear is resonating with consumers. The 2010 product line included some of our most innovative and commercially appealing styles including the Sunkosi 2, the Itunda, the Tirra, the Tanza (ph) and the lighted flip flop, the Illum. We've taken our technical expertise and leadership position in sports (inaudible) and are successfully establishing the Teva brand within the broader outdoor performance oriented category. As a result, we're much less dependent on whether than we were just a few years ago and we're now closer to having more meaningful year round presence at retail.
The UGG brand also had a very strong first half, highlighted by sales surpassing a $100 million for the first time in both Q1 and Q2. This was achieved by a very positive reaction to our spring line, which featured expanded assortment of sandals, casuals, spring boots and a sneaker collection and all of which performed very well. Growth of our spring business is evidence that the retailers are comfortable with the UGG brand as a year round brand and we're confident that consumers demand for the spring line (inaudible) greater interest in our expanded fall assortments as well.
We're seeing a much greater diversity in the ordering patterns for our wholesale accounts with the majority taking a much wider selection of boots across our multiple collections, classic knit, casual fashion and cold weather, in addition to more slippers and sneakers for fall 2010.
So, as you can see our UGG business is about so much more than one category, one season or one market. With the turnaround ugg classic short sparkles blue for women of the Teva business, we're about more than just one brand. As we get into the fall season and move in to 2011, we expect this growth trends to continue and our business to become even more diversified. and Benelux region should put us in a better position to address rising manufacturing and materials cost, which for 2011 appear to be in the 5 to 10% range consistent with others in the footwear industry.