Oct 24 (Reuters) - Deckers Outdoor Corp reported third-quarter profit well ahead of analysts’ estimates as the use of a lower cost sheepskin substitute in its popular UGG boots boosted gross margins.
Shares of the Goleta, California-based company rose as much as 14 percent to $66.20 in after-market trade.
“UGG Pure has had an immediate impact on enhancing our product line and will result in reduced costs going forward,” Chief Executive Angel Martinez said.
UGG Pure is wool woven into a durable backing that is being used as a substitute for pricier sheepskin in the lining and footbeds of some of the company’s shoes.
Analyst Erinn Murphy of Piper Jaffray said she expects lower costs for sheepskin, Decker’s most important raw material, to improve gross margins in the current quarter.
Total sheepskin costs will drop 10 percent in 2014, thanks to a drop in prices of the raw material as well as the increased use of Ugg Pure, Murphy added.
“The benefits of UGG Pure will also extend beyond the brand’s core footwear business into adjacent categories like home and allow us to target new consumers, particularly in China,” Martinez said.
Sales of UGG products, which accounted for 87 percent of Decker’s third-quarter revenue, rose 1.3 percent to $337 million.
Gross margin improved to 43.2 percent from 42.3 percent in the year-ago quarter.
Third-quarter profit was $34.2 million, or 95 cents per share, compared with $42.5 million, or $1.18 per share, a year ago.
The company, which competes with Skechers USA Inc and VF Corp’s Timberland, said net sales rose about 3 percent to $386.7 million.
Analysts on average had forecast a profit of 72 cents per share on revenue of $386 million, according to Thomson Reuters I/B/E/S. (Reporting by Aditi Shrivastava; Editing by Richard Chang)