Deckers Brands plans to cut costs after a Q3 slowed by warm weather and weak store traffic across retail. On a reported basis, Q3 net sales increased 1.4% to a record $795.9 million compared to $784.7 million for the same period last year.
Domestic sales increased 3.2% in Q3 to $543.3 million compared to $526.3 million for the same period last year. Meanwhile, international sales declined 2.2% to $252.6 million.
In a statement, Deckers Brands CEO and Chairman of the Board of Directors Angel Martinez said, “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 start, Deckers said it is realigning its brands across two groups. The Fashion Lifestyle Group will include Ugg and Koolaburra. The Performance Lifestyle Group will house Teva, Sanuk and Hoka One One. To reduce expenses and improve collaborated efforts, it is moving the Sanuk brand operations to its global headquarters in Goleta, Calif. and is closing the Ahnu office outside San Francisco as it seeks strategic alternatives aimed to improve the value of the brand.
The company revealed it has also identified 20 retail stores that are candidates for closure and is working with a retail consulting firm to implement retail operational improvements.
In total, Martinez said the company is targeting approximately $35 million in expense savings. Approximately $10 million of this savings will be invested back into the business. He added, “We are confident these changes will increase profitability and improve shareholder returns.”
Ugg continued to be the dominate brand in the Deckers Brands portfolio, with sales totaling $743.3 million, a 1% increase from last year. Sales were mostly driven by direct-to-consumer and domestic wholesale sales. Teva’s sales increased 3.2% to $14.1 million thanks in part to an increase in international distributor sales. Sanuk sales dipped 17% due to a decrease in global wholesale and international distributor sales.
Inventories at Dec.31, 2015 increased 26.1% to $370.6 million compared to $293.9 million the year prior. Ugg inventory increased 31.8% to $287.4 million, Teva inventory increased 36.9% to $29.0 million, Sanuk inventory decreased 5.4% to $23.2 million, and the other brands’ inventory increased 2.6% to $31.1 million. The majority of the increased inventory consisted of Ugg styles that are being carried over to next season.
Deckers now expects fiscal 2016 constant currency revenues to be approximately $1.91 billion, reflecting a 5% increase over the twelve month period ended March 31, 2015, down from its original expectation of $2.01 billion. On a reported basis, revenues are expected to be $1.86 billion, or an increase of 2.4%. On a reported basis, earnings per share are expected to be approximately $4.49, or a decrease of 3.6%.