Last week, we spelled out Deckers' first-quarter numbers in our Fool by Numbers feature. The quick version is that Deckers' first-quarter profit dropped 36%, while sales fell 13%. Margins also dropped. (In a bright spot, though, Deckers' cash and equivalents skyrocketed 270.5%.)
In case you're new to this Motley Fool Hidden Gems selection, Teva sandals and UGG sheepskin boots are Deckers' claims to fame. (Last November, UGGs got additional pop culture appeal when Oprah Winfrey featured them on her "favorite things" episode, giving UGGs a boost for the holiday season.) Of course, judging by the description of sheepskin boots and sandals, I'm sure you can see why I mentioned "seasonality" at the beginning of this article.
Sales of both Tevas and UGGs dropped on a year-over-year basis. Meanwhile, Deckers knows full well it has its work cut out for it in terms of transitioning these brands into year-round offerings. The company has begun offering closed-toe Tevas and all-terrain running shoes, working to leverage its expertise in outdoorsy product offerings. It's also got a spring and a fall line of UGGs.
One element that jumped out at me was Deckers' Simple line -- that brand's sales leapt almost 50%. Simple, which has the tag "a nice little shoe company," has broad, year-round appeal built in -- not to mention the fact that the concept segues well into current consumer trends.
Simple, which started out making sneakers, then moved onto clogs and other simple shoes, markets itself as a rather socially aware footwear brand; a case in point is its Green Toe line, shoes made of "sustainable and organic materials." In its conference call, Deckers said that it sees opportunity in the health and wellness category, and is placing Simple footwear in organic and natural stores, including five Whole Foods Market
I can't help but think that Deckers has its work cut out for it in terms of transitioning its better-known Teva and UGG lines for year-round consumption. Although I can see the logic in positioning Teva as an active brand that means more than sandals, the brand has plenty of competition in function and style from companies like Timberland
Although Deckers increased its full-year guidance, it forecast lower second-quarter earnings of $0.03 to $0.05 per share, because of a change in sales mix and moving some expenses to the second quarter from the first. Despite some bright spots (I'd count Simple as one), given the second-quarter guidance and the work it has to do in repositioning its best-known brands, a wait-and-see approach may be in order.
Alyce Lomax does not own shares of any of the companies mentioned.