Retail restructuring, a slow start to Ugg season and a $118 million impairment charge for the Sanuk brand led Deckers Brands Q3 profits to miss Wall Street’s expectations.
On Thursday, the company reported earnings per share of $1.27 compared to $4.78 for Q3 one year ago. According to Nasdaq, analysts expected the company to report profit per share of $4.24 for the quarter. Net sales for Q3 decreased 4.5% to $760.3 million compared to $795.9 million for the same period last year. On a constant currency basis, net sales decreased 3.7%.
Third quarter results included charges of $128.9 million. In addition to the Sanuk impairment charge, Deckers reported that retail related charges were $9 million and other restructuring charges totaled $1.9 million.
Wholesale and distributor net sales for Q3 decreased 12.6% to $388.6 million compared to $444.6 million for the same period last year. Meanwhile, direct-to-consumer net sales increased 5.8% to $371.7 million compared to $351.3 million for the same period last year.
Domestic net sales for the third quarter decreased 9.9% to $489.5 million compared to $543.3 million for the same period last year. International net sales for the third quarter increased 7.2% to $270.8 million compared to $252.6 million for the same period last year.
Sanuk brand net sales for the third quarter decreased 18.4% to $13.9 million compared to $17 million for the same period last year on both a reported and constant currency basis. The decrease in sales was driven by a dip in global wholesale and distributor sales. In a statement, Deckers said Sanuk is an “important brand in the casual canvas and sandal categories,” however it downgraded its expectations for future international and domestic expansion.
Despite a slew of new marketing campaigns, Ugg net sales for Q3 decreased 5.3% to $704 million compared to $743.2 million for the same period last year. The year over year decrease was driven by lower domestic wholesale sales, primarily due to a slower than expected start to the quarter.
“While the slow start to the holiday season limited our reorder opportunities and led to a shortfall in third quarter sales and earnings, sell-through of the Ugg brand accelerated sharply late in the quarter,” said Dave Powers, Deckers Brands President and CEO.
Teva proved to be a bright spot. The sandal brand’s net sales for the third quarter increased 3.9% to $14.6 million compared to $14.1 million last year. Sales were driven by an increase in global DTC sales.
Combined net sales for the third quarter of the company’s other brands increased 28.6% to $27.8 million compared to $21.6 million for the same period last year. The increase was primarily attributable to improved Hoka One One and Koolaburra by Ugg sales. Hoka One One brand net sales grew 18.3% compared to the same period last year.
For the fourth-quarter, Deckers expects net sales to be down approximately 6 percent to 5 percent compared to the same period last year. The company said it also expects fiscal year 2017 net sales to be down approximately 5 percent.
With the accelerated change that we are seeing in the marketplace, we plan to further transform our operating structure in order to grow profitably and become more nimble. On top of approximately $60 million in previously announced SG&A and gross margin improvements, we have identified approximately $90 million of additional savings that we plan to implement over the course of the next two fiscal years, which we anticipate will ultimately more than offset future investments aimed at growing the business,” Powers said. “These new initiatives will better position the Company to succeed in a more competitive and faster paced environment, drive improved profitability, and deliver greater shareholder value.”