The Daily Magic Formula Stock for 02/22/2009 is Deckers Outdoor Corp. According to the Magic Formula Investing Web Site, the ebit yield is 19% and the EBIT ROIC is 50-75%.
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Unless otherwise specifically indicated, all dollar amounts herein are expressed in thousands, except for weighted-average wholesale prices per pair and suggested retail prices for our footwear and accessories.
We are a leading designer, producer and brand manager of innovative, high-quality footwear and the category creator in the sport sandal, luxury sheepskin, and sustainable footwear segments. Our footwear is distinctive and appeals broadly to men, women and children. We sell our products, including accessories such as handbags, headwear, packs and outerwear, through quality domestic retailers and international distributors and directly to end-user consumers through our websites, catalogs, retail concept stores and retail outlet stores. Our primary objective is to build our footwear lines into global lifestyle brands with market leadership positions.
We market our products under three proprietary brands:
TevaÂ®. Teva is our outdoor performance and lifestyle brand and pioneer of the sport sandal market. The Teva brand was founded in the 1980s to serve the demanding footwear needs of the professional river guide. This authentic heritage and commitment to function and performance remain core elements of the Teva brand. The Teva product line has expanded to include casual open-toe and closed-toe footwear, including adventure travel shoes, outdoor cross training shoes, trail running shoes, amphibious footwear, light hikers and other rugged outdoor footwear styles and accessories.
From 1985 until November 2002, we sold our Teva products under a license agreement with the brand's founder, Mark Thatcher. In November 2002, we acquired all of the Teva worldwide assets, including the Teva eCommerce business and all patents, trade names, trademarks and other intellectual property associated with the acquired Teva assets, which we refer to collectively as the Teva Rights. We acquired the Teva Rights from Mr. Thatcher and his wholly-owned corporation, Teva Sport Sandals, Inc.
In recent seasons, we have focused on strengthening Teva's leadership position in the performance sandal market, and broadening that performance platform to include other outdoor activities such as trail running and light hiking. In 2008, we are introducing Teva's first complete line of fall and winter footwear. In the future, we intend to selectively expand our activity in the outdoor performance and lifestyle arenas.
UGGÂ® UGG Australia is our luxury comfort brand and the category creator for luxury sheepskin footwear. The UGG brand has enjoyed several years of strong growth and positive consumer reception, driven by consistent introductions of new styles, introductions of UGG brand products in the fall and spring seasons and geographic distribution expansion. We carefully manage the distribution of our UGG brand products within high-end specialty and department store retailers in order to best reach our target consumers, preserve the UGG brand's retail channel positioning and maintain the UGG brand's position as a mid- to upper-price luxury brand.
The UGG brand gained brand recognition in the U.S. beginning in 1979 and was adopted as a favored brand by the California surf community. We acquired the UGG brand in 1995 and have carefully repositioned the brand as a luxury comfort collection sold through high-end retailers. In recent years, sales of UGG brand products have benefited from significant national media attention and celebrity endorsement through our marketing programs and product placement activities, raising the profile of UGG as a luxury comfort brand. We intend to further support the UGG brand's market positioning by expanding the selection of styles available in order to build consumer interest in our UGG brand collection. We also remain committed to limiting distribution of UGG brand products to high-end retail channels.
SimpleÂ®. Simple Shoes began in 1991 as an alternative to all the over-built, over-priced, and over-hyped products in the marketplace. The brand's legacy was built on its original sneaker design, the Old School Sneaker, and grew to include successful sandal and casual products. In 2005, as a response to the massive amount of waste produced by the footwear industry, the Simple brand launched a new collection of sustainable footwear called Green ToeÂ®. Green Toe represents a revolutionary shift in thinking about footwear by building a shoe from the inside out using sustainable materials and processes. The Simple brand's mission is to be the world leader in sustainable footwear and accessories. We feel that how we make Simple products is just as important as why we make them. That means our goal is to find more sustainable and innovative ways of doing business as well as making products. We are committed to making Simple products 100% sustainable; thus, minimizing the ecological footprint left on the planet.
Through continued innovation, expansion of product offerings, premium distribution and strategic marketing initiatives, we have successfully developed three premier lifestyle brands. Our total net sales increased by 47.5% from $304,423 in 2006 to $448,929 in 2007, and our income from operations increased by 105.2% from $51,442 in 2006, which included a $15,300 impairment loss on our Teva trademarks, to $105,553 in 2007. For 2007, wholesale shipments of Teva, UGG and Simple products aggregated $82,003, $291,908 and $11,163, respectively, and represented 18.3%, 65.0% and 2.5% of our total net sales, respectively. Sales of our brands through our eCommerce division and our retail store division, which are in addition to our wholesale shipments, were $45,473 and $18,382, respectively, representing 10.1% and 4.1%, respectively, of total net sales in 2007.
Deckers was founded by Doug Otto in 1973 as a domestic manufacturer of sandals. We originally manufactured a single line of sandals under the Deckers brand name in a small factory in Carpinteria, California. Since then, we have grown through the development and licensing of proprietary technology, targeted marketing and selective acquisitions. In 1985, we entered into our first license agreement for Teva sport sandals with Teva's founder, Mark Thatcher. In 1986, we developed the Universal Strapping System, establishing Teva as the sport sandal category-creator and generating significant national attention for the Teva brand.
Deckers experienced a period of rapid growth during the late 1980s and completed our initial public offering in 1993. As our sales grew, we terminated our manufacturing operations in the U.S., Mexico and Costa Rica, and today independent manufacturers in China and New Zealand manufacture all of our footwear products for us. We maintain our own offices in China and Macau to monitor the operations of our manufacturers in China.
In order to diversify our sales, and leverage our product development and sourcing capabilities, we completed the acquisition of the Simple brand from its founder in a series of transactions between 1993 and 1996. In 1995, we acquired the UGG brand from its founders, after which we initiated a repositioning of the line, focusing on comfort, luxury and premium distribution channels and developing products that appeal to consumers in a variety of climates.
We seek to differentiate our brands by offering diverse lines that emphasize authenticity, functionality, quality and comfort and products tailored to a variety of activities, seasons and demographic groups. Key elements of our business strategies are:
Building Leading Global Brands. Our mission is to build niche footwear lines into global brands with market leadership positions. Our Teva, UGG and Simple brands began as footwear lines appealing to a narrow core enthusiast market. We have since built these lines into substantial global lifestyle brands with potential for further growth and line extensions. Across our brands, our styles remain true to the brands' heritage but have been selectively extended over time to broaden their appeal to men, women and children seeking high quality, comfortable styles for everyday use. Furthermore, we actively manage our brands to ensure that we reach brand appropriate retail distribution channels. We believe that building our brand image is best accomplished through a decentralized management structure that empowers a single brand manager for each brand to coordinate all aspects of brand image, from product development to marketing and retail channel management.
Sustaining Brand Authenticity. We believe our ability to increase sales, sustain strong gross margins, and maintain market share results, in part, from the appeal of our brand heritage. We believe that Teva footwear consumers are passionate and serious about the outdoors. Our Teva brand marketing programs focus on performance of our products, and feature national advertising in outdoor-oriented media as well as sponsorship of outdoor events and professional athletes. These efforts reinforce the Teva brand's heritage and positioning as a highly technical, performance-oriented outdoor footwear brand. Our UGG brand marketing strategy positions our products as a premium, luxury collection but also as functional footwear; UGG brand products are primarily marketed through national print advertising in major magazines and through our retailers and their catalogs and advertising. Historically, our marketing for UGG brand products has been focused on women, but with the recent introduction of innovative men's styles, we are increasing our marketing appeal to men through advertisements in national men's magazines with a continued focus on lifestyle and comfort. We promote our Simple brand by emphasizing that we make fun, casual, comfortable and sustainable footwear. Our goal for the Simple brand is to create a dialogue with the consumer through all communication vehicles and to show people that sustainability is an emerging lifestyle for everyone, not just environmentally conscious individuals. Our print advertising campaigns for our Simple brand include national publications and alternative weekly publications in select cities around the world. We also have an online advertising campaign that reaches consumers through websites that focus on sustainability as well as pop culture. In 2007, we also sponsored environmental-themed concerts, film festivals, and green expos to showcase and tell the sustainable lifestyle brand story.
Driving Demand Through Innovation and Technical Leadership. We believe our reputation for innovation and technical leadership distinguishes our products from those of our competitors and provides us with significant competitive advantages. Just as our proprietary Universal Strapping System set the performance standard for sport sandals in the mid-1980s, more recent technical advances like our Spider RubberÂ® and our Teva WraptorÂ®, Wraptor-LiteÂ®, and Drain Frameâ„˘ which we introduced in 2007, all provide uncompromised performance for the new outdoor athlete. We also continue to develop innovative styles, products and product categories for our UGG collection in order to support the UGG brand's positioning as a functional lifestyle brand, which can be worn in a variety of climates and weather conditions. The UGG brand has benefited from our continuing expansion into non-boot casuals, sheepskin-trimmed footwear and styles combining sheepskin with fine-grade suede and leathers, all designed to expand our market share in new categories and increase our sales in both the fall and spring selling seasons. The goal of the Simple brand is to revolutionize the footwear industry by producing 100% sustainable products. We believe that consumers are increasingly interested in living an environmentally friendly lifestyle and seeking out sustainable products. We are at the forefront of the industry in using new sustainable materials, such as bamboo, organic cotton, natural latex and cork combinations, recycled car tires, and recycled PET (from plastic water bottles) throughout our product line. The Simple brand will continue to innovate with the goal of achieving 100% sustainability in design, development, and material applications.
Maintaining Efficient Development and Production Processes. We believe our product development processes enable us to produce leading edge products on a timely and a cost effective basis. We design our products domestically. We maintain on-site supervisory offices in Pan Yu City, China and Macau that serve as local links to our independent manufacturers in China. This enables us to carefully monitor the production process, from receipt of the design brief to production of interim and final samples to shipment of finished product. We believe this local presence provides greater predictability of material availability, product flow and adherence to final design specifications than we could otherwise achieve through an agency arrangement.
Our growth will depend upon our broadening of the products offered under each brand, expanding domestic and international distribution, licensing our brand names and developing or acquiring new brands. Specifically, we intend to:
Introduce New Categories and Styles under Existing Brands. We intend to increase our sales by developing and introducing additional footwear products under our existing brands that meet our high standards of performance, practicality, authenticity, comfort and quality. We have expanded the open-toe footwear category under our Teva brand by launching new casual and performance styles, as well as several new sandal styles that provide increased foot coverage and protection. We have also introduced several closed-toe performance styles and collections, including amphibious footwear, light hikers, trail runners and outdoor cross trainers. We plan to further expand into the casual outdoor footwear market, which, in the aggregate, is considerably larger than the market for the Teva brand's core sport sandals. We have expanded our UGG product collection to incorporate additional styles and fabrications in order to further penetrate the fall, spring and winter seasons. We have expanded our men's and kids' product line and have introduced a cold-weather series featuring sheepskin, waterproof eVent uppers and Vibram outsoles. Our UGG brand has enhanced its Spring 2008 collection by introducing new fashion comfort categories for men, women and children. In response to the positive market reaction to espadrilles that our UGG brand introduced in 2007, we expanded that category as well with new styles and new heel heights.
As the sustainability lifestyle movement is reaching the mainstream market, our goal for the Simple brand is to lead the industry through new product innovations and pursue new solutions to make our business practices more sustainable. The influence of our Green Toe collection, products made primarily from sustainable materials, is seen throughout the entire Simple product line, especially in our sneaker segment with the introduction of ecoSNEAKSâ„˘ in 2007. We also expanded our kids' and infants' collection with Green Piggiesâ„˘. This collection of products follows the same guidelines as Green Toe. We round out the entire lifestyle of the Simple brand with our bag collection, which we launched in the 2006 holiday season and expanded in 2007. By introducing new categories under our brands, in particular, the closed-toe footwear under our Teva brand and the spring product offerings under our UGG brand, we believe we will expand the selling seasons for our brands with the goal of increasing sales and creating a more balanced year round business for each of these brands.
Expand Domestic Distribution. We believe that we have significant opportunities to increase our sales by expanding domestic distribution of our products. Our Teva brand has historically been distributed through the outdoor specialty, sporting goods and department store retail channels. In addition, we see the potential for expansion into the athletic specialty and running specialty sales channels, with strategic and focused product and marketing programs. The UGG brand originally realized a substantial portion of its sales in California. Today, we have a more balanced business, increasing our business significantly in the Midwest and North East. For our Simple line, we are focusing distribution on specialty independent retailers, department stores, outdoor retailers, and surf shops for our broad product offering, as well as the introduction into the health and wellness retail channel through our Green Toe offering of ecologically friendly footwear. We also plan to expand through internet sales, as consumers have continued to increase their reliance on the internet for footwear and other purchases. Further, we currently plan to open one additional retail outlet store and two additional UGG brand concept stores in major metropolitan areas by the end of 2008.
Expand International Distribution. In 2007, our international net sales totaled $62,336, representing approximately 13.9% of total net sales, an increase of 62.6% compared to 2006. The majority of our international sales occurred in Europe, with the remainder primarily in Asia, Canada and Latin America. In addition to our existing European regional office in London, during 2007 we opened a regional office in Hong Kong. To ensure we continue to drive growth and effectively implement our international strategies, we also strengthened our international team with a primary focus on sales and marketing, as well as sales operations and customer service.
We intend to further strengthen our international infrastructure to ensure optimum results with both short and long-term goals in mind. We will continue to work closely with our distributors on the effective management of our business objectives and brand strategies. In addition to our existing retail distribution, we plan to explore additional avenues to make our products available to international consumers, including the expansion of our business through internet sales and the potential opening of stand-alone brand stores as appropriate opportunities arise, particularly in the case of UGG Australia.
Pursue Licensing of Brands in Complementary Product Lines. We are actively pursuing selective licensing of our brand names in product categories beyond footwear. Previously, we introduced UGG brand licensed handbags, outerwear, and cold weather accessories for the domestic market and expanded into select international markets, beginning with handbags. In 2006, we launched our cold weather accessories and outerwear licenses internationally. We also restructured our domestic Teva product licensing program, which currently consists of headwear, bags and packs. In December 2007, we entered into our first licensing agreement for our Simple brand as a licensee for the Collegiate Licensing Company. Our Simple brand will be licensing the Collegiate Licensing Company trademarks on its Toe Foo and Retire footwear styles to select U.S. universities. We intend to introduce these licensed products to the market in Fall 2008. We are developing additional licensing programs carefully to ensure that licensed goods remain consistent with our brands' heritage and image. Because this licensing strategy is in its early stages, and due to the lead times required to bring the products to market, we have only recently begun to recognize license revenues, and we do not expect significant incremental net sales and profits from licensing in the near future.
Build New Brands. We continue to explore ways to expand the number of brands that we manage. We have been successful previously in identifying entrepreneurial concepts for innovative, fashionable footwear targeted at niche markets and building these concepts into viable brands utilizing our expertise in product development, production and marketing. We intend to continue to identify and build or acquire new brands that demonstrate potential for significant future growth.
Our primary product lines are:
Teva Performance Outdoor Footwear. We believe there has been a general shift in consumer preferences and lifestyles to include more outdoor recreational activities, including light hiking, trail running, outdoor cross training, bouldering, kayaking, kite boarding and whitewater river rafting. These consumers typically seek footwear specifically designed with the same quality and high performance attributes they have come to expect from traditional athletic footwear. The first Teva sport sandal was developed in the 1980s to meet the demanding needs of professional river rafting guides navigating the Colorado River and the rugged Grand Canyon terrain. As our core consumers' pursuits have evolved, we have retained our outdoor heritage while adding new products to our line, including slides, thongs, amphibious footwear, trail running shoes, light hiking boots and other rugged closed-toe footwear. Our brand remains popular among professional and amateur outdoor athletes seeking authentic, performance-oriented footwear, as well as among general footwear consumers seeking high quality, durable and comfortable styles for everyday use.
We market Teva products as the brand of GO.DO.BEÂ®. This captures the lifestyle of the new outdoor athlete. The Go, the Do, and the Be each have their own unique properties and perspectives. Individually, they are elements of the outdoor experience. Together, they form the fabric of the outdoor lifestyle.
Go. The Go product collection represents versatile, rugged, and comfortable footwear for travel, leisure, and light activities. Styles range from classic Teva sandal architecture to more compelling, contemporary designs.
Do. The Do product collection is technical, lightweight footwear, engineered for the performance needs of the new outdoor athlete. Many styles include one or more of our proprietary performance technologies, such as the Wraptor Fit System, Spider Rubber traction technology, or Drain Frame technology.
Be. The Be product collection is inspired by the laid-back attitude of life on the beach. Designs are simple, yet distinctive, with a premium on comfort. The styles are young, fresh and colorful for any casual lifestyle.
We introduced several new Teva products in 2007, and we plan to introduce new styles for men, women and children in the future. Our kids' product collection is a fun, colorful assortment of sandals, closed-toe, and amphibious styles for a variety of outdoor and water-based activities. The manufacturer's suggested domestic retail prices for adult sizes of the Spring 2008 Teva product collections range from $22.00 to $110.00.
UGG Footwear. Beginning in 1979, the UGG brand gained recognition in the U.S. for sheepskin boots and slippers and was later widely used by the California surf community. We acquired the brand in 1995 and expanded the collection, offering consumers a luxurious and distinctive look in sheepskin fabrications.
Our UGG product line comprises seven footwear collections, each of which includes styles for men, women and children:
Classic Collection. We offer a complete line of sheepskin boots built on the heritage and distinctive look of our first product, the Classic sheepskin boot. Our Classic Collection products are distinctive in styling, featuring an array of neutral and fashion colors.
Ultra Collection. The Ultra Collection builds upon the heritage of the original Ultra boot. These boots are designed with our comfort system, featuring a multi-surfaced rugged bottom with a heel-cushioning insert that offers enhanced traction, support and comfort. Our Ultra Collection also features a three-part insole designed to provide all-day comfort and support and a reflective barrier that captures body heat to create a natural foot warming mechanism. Our sheepskin products are naturally thermostatic, keeping feet comfortable across a wide range of temperatures.
Fashion Collection. Our Fashion Collection offers fashion forward styles for women, men, and children without compromising comfort. Luxurious materials and trend-influenced styles make this collection stand out. Within this collection is a fashion wedge group, a stacked high heel group for women, a European influenced collection for men, and fashionable styles for children.
Casual Collection. This collection features refined, sophisticated styles for men, women, and children. These footwear styles include suede and glove leather uppers, lined in a thinner insole of sheepskin for added comfort. Styles from the men's collection feature an interchangeable leather insole that allows them to be worn either with or without socks.
Surf Collection. This collection is taken from the laid-back surf lifestyle that was the original heritage of the brand. The Surf Collection features true comfort style including sandals, clogs, and boots that incorporate a thin layer of sheepskin for luxury and comfort.
Cold Weather Collection. This collection is designed with more rugged styling and features Vibram outsoles and waterproof eVent uppers designed to withstand colder, wetter climates.
Slipper Collection. Our Slipper Collection builds upon the UGG brand's reputation for comfort, warmth and luxury and is offered in a wide selection of styles and colors.
We have expanded our UGG brand collection from the Classic and Ultra sheepskin boot and slippers to a broader footwear line for men, women and children in a variety of styles, colors and materials designed for wear in a variety of climates and occasions. Over the last few years, our line expansion, distribution and high end marketing strategies, among other factors, have resulted in significantly increased exposure for our UGG brand products and have contributed to the growth of the UGG brand's year round business. The manufacturer's suggested domestic retail prices for adult sizes for the Fall 2008 UGG brand product collections range from $60.00 to $350.00.
Simple Sustainable Footwear. Finding the materials and processes that make our products sustainable is a method we call "the Green Toe process" and we measure our progress with a scale called "Good, Better, Best". The Best category represents our most sustainable shoes and bags and sets the bar for the rest of the line. Only the Best products may bear the Green Toe label. In the future, we plan to incorporate these same innovative materials and constructions in the Good and Better categories, raising the bar for the Best products.
Men's and Women's Green Toe. Part of the Best category, Green Toe products represent our efforts to reduce the ecological footprint left by shoes. Green Toe products are primarily made of sustainable materials like bamboo, jute, organic cotton, linen, coconut buttons, cork, crepe, latex, recycled car tires, and water based adhesives. This line includes sandals, loafers, mary janes, oxfords and boots.
Men's and Women's ecoSNEAKS. ecoSNEAKS are vulcanized sneakers that use old car tire outsoles, recycled PET for footbeds and shoelaces and organic cotton, thus leaving a better ecological footprint than ordinary sneakers.
Kids' Product. Our Kids' product line is made up of ecoSNEAKS and Green Piggies. Green Piggies is a kids' and infants' product collection that represents the brand's best ecological efforts through material and construction innovation. It uses materials such as organic cotton, hemp, and wool felt.
Bags. Our sustainable bag collection includes messenger bags, backpacks, totes and laptop sleeves. These are made from materials such as organic cotton, jute, hemp, coconuts and PET.
The manufacturer's suggested retail prices for our Simple brand product collections range from $24.00 to $90.00 and our Simple brand bags are priced from $20.00 to $100.00.
Angel R. Martinez , age 52, joined Deckers in April 2005 as President and Chief Executive Officer. In September 2005, he became a director of the Company. Subject to his re-election as a director at the Annual Meeting, Mr. Martinez will become Chairman of the Board, replacing Douglas B. Otto in that position. Previously, Mr. Martinez was Chief Executive Officer and Vice Chairman of Keen LLC, an outdoor footwear manufacturer, from January 2005 to March 2005, after serving as President and Chief Executive Officer from April 2003 to December 2004, and as an independent consultant since June 2002. Prior thereto he served as Executive Vice President and Chief Marketing Officer of Reebok International Ltd. and as Chief Executive Officer and President of The Rockport Company, a subsidiary of Reebok. Mr. Martinez has been a member of the Board of Directors of Tupperware Brands Corporation since 1998.
Rex A. Licklider , age 65, has served as a director since September 1993. Mr. Licklider has been director and Vice Chairman of The Sports Club Company, a developer and operator of health and fitness clubs, since May 1994. Mr. Licklider has served as the Chief Executive Officer of The Sports Club Company since March 2004 and as Co-Chief Executive Officer of The Sports Club Company from February 2002 to March 2004. From February 1992 to January 1993, Mr. Licklider was Chairman of the Board of Resurgens Communications Group, a long distance telecommunications company, and from 1975 until February 1992, Mr. Licklider was Chairman of the Board and Chief Executive Officer of Com Systems, Inc., a long distance telecommunications company that merged with Resurgens Communications Group in February 1992.
John M. Gibbons , age 59, has served as a director since June 2000. Mr. Gibbons has been an independent consultant since April 2004. From June 2000 to April 2004, Mr. Gibbons was Vice Chairman of TMC Communications, Inc., a long distance, data and Internet services provider, and was its Chief Executive Officer from June 2001 to April 2003. From June 2000 to June 2001, he was President of TMC Communications, Inc. He has served as a director of National Technical Systems, Inc., a provider of integrated testing, certification, quality registration, systems evaluation and staffing services, since September 2003. Mr. Gibbons was Vice Chairman of Assisted Living Concepts, Inc., a national provider of assisted living services, from March 2000 to December 2001. Previously, Mr. Gibbons was employed by The Sports Club Company, a developer and operator of health and fitness clubs, where he was Chief Executive Officer and a director from July 1999 to February 2000 and was President and Chief Operating Officer from January 1995 to July 1999.
John G. Perenchio , age 52, has served as a director since December 2005. Since 2003, Mr. Perenchio has been the owner and operator of Entrada Music LLC, a holding company with controlling interests in Fearless Records LLC, a boutique indie rock music label; and Smartpunk, LLC, an internet music retail store. From 1990 to 2003, Mr. Perenchio served as an executive with Chartwell Partners, LLC, a family owned boutique investment and holding company specializing in the entertainment, media and real estate industries. From 1984 to 1990, Mr. Perenchio was the Director of Contemporary Music at Triad Artists, Inc., one of the premier talent agencies in the world, and prior to that, from 1982 to 1984, practiced law as an attorney in California. From 1992 to 2007, Mr. Perenchio was a director of Univision Communications Inc., the leading Spanish-language media company in the United States.
Maureen Conners , age 61, has served as a director since September 2006. Ms. Conners is President of Conners Consulting, which she founded in 1992. Conners Consulting has worked with companies such as Johnson & Johnson, Ralph Lauren Footwear, Rockport, Hewlett Packard, Monster.com, Polaroid, Bausch and Lomb, Southcorp Wines, and Western Union Money Zap, providing a range of services including marketing and strategic planning, new product and new business development, and global brand building. Prior to founding Conners Consulting, Ms. Conners held senior level marketing positions with several leading consumer companies, including Senior Vice President of Marketing, Girls Division at Mattel. Prior to that, she served as Director of Marketing, Men's Jean's Division at Levi Strauss, and Group Marketing Manager at Gillette. Ms. Conners has an MBA from the Wharton School of the University of Pennsylvania.
Tore Steen , age 70, has served as a director since May 2007. Mr. Steen has been the owner and President/CEO of World Intelligent Network, LLC (formerly the Coventry Group, Inc.), and of management, consulting and holding companies, since 1995. He also served as President of the IOS Foundation from 2003 to 2004. From March 1991 to March 1995, Mr. Steen served as President and CEO of H.C. Inc. and later as Chairman and CEO of Cascade General, Inc., both major west coast ship repair companies. Mr. Steen was the Executive Vice President, Finance for WTD Industries, Inc., a NASDAQ forest products company, from January 1989 to December 1990. Previously, Mr. Steen had been involved at executive and board levels of NYSE, NASDAQ and London Stock Exchange companies. Early in his career, he was with Citibank and Chemical Bank (now JPMorgan) and for seven years built a major international financial services company with operations in sixteen countries globally. He holds an MBA in International Finance from the University of Oregon. Mr. Steen has served on many corporate and not-for-profit boards, including the World Technology Group, ABSO Alarms Company, the Young Presidents' Organization, the World Presidents' Organization, the Chief Executives Organization, Outward Bound, and the Regional Drug Initiative.
Ruth M. Owades , age 59, has been nominated for election as a director of the Company. Ms. Owades' principal occupation is as a Corporate Director for various private companies, and she is a frequent lecturer and consultant on corporate governance. Since 2006, Ms. Owades has served as a director on the Western Advisory Board of Northern Trust Corporation. From 2002 to 2006, Ms. Owades was a director of Armstrong World Industries, a manufacturer and wholesaler of flooring, ceiling and cabinetry products. From 1997 to 2006, she was a director of the J. Jill Group, a women's apparel, accessory and footwear retailer, and between 1998 and 2005 she served as a director of Providian Financial Corporation. From 1988 until 2000, Ms. Owades was the Founder, CEO and Chairman of Calyx & Corolla, Inc., the first fresh flower catalog and online retailer. From 2000 to 2002, she served as a consultant to the financial group that purchased Calyx & Corolla. Prior thereto Ms. Owades was Founder and CEO of Gardener's Eden, Inc., a catalog and retailer of upscale gardening tools, accessories and outdoor furniture. She sold the company to Williams-Sonoma, Inc., continuing to serve for five years as President. Ms. Owades is a graduate of Scripps College in Claremont, California and earned an MBA from Harvard Business School.
Karyn O. Barsa , age 47, has been nominated for election as a director of the Company. Since February 2008, she has served as President and Chief Executive Officer of Investors' Circle, a network of individual and institutional investors focused on sustainable business practices. Between May 2007 and February 2008, she was Chief Executive Officer of Embark Stores, Inc., a start-up pet supplies retailer where she remains on the advisory board, and prior to this time she was an independent investor. Between 1999 and 2001, Ms. Barsa was Chief Executive Officer of Smith & Hawken, Ltd., a specialty gardening retailer, and prior to that she was Chief Operating Officer and Chief Financial Officer of Patagonia, Inc., a specialty outdoor apparel and equipment manufacturer. She serves on the advisory board of inResonance, Inc. and is a Trustee of the Institute of Interpersonal Psychology. Ms. Barsa holds a BA in Economics from Connecticut College and an MBA from the University of Southern California.
MANAGEMENT DISCUSSION FROM LATEST 10K
We are a leading designer, producer and brand manager of innovative, high-quality footwear and the category creator in the sport sandal, luxury sheepskin, and sustainable footwear segments. We market our products under three proprietary brands:
Teva: High performance sport sandals and rugged outdoor footwear and accessories;
UGG: Authentic luxury sheepskin boots and a full line of luxury and comfort footwear and accessories; and
Simple: Innovative sustainable lifestyle footwear and accessories.
In 2004, we embarked on a strategy to license our footwear brands to complementary products outside of footwear, generally in the apparel and accessories categories. We currently have eight licensing agreements with five licensees for the Teva and UGG brands combined. We record licensing revenues and expenses within their respective brand. The activity is very small in relation to the consolidated operations, and we do not expect significant incremental net sales and profits from licensing in the near future.
We sell our three brands through our quality domestic retailers and international distributors and directly to our end-user consumers through our eCommerce business and our retail stores. We sell our footwear in both the domestic market and in international markets. Independent third parties manufacture all of our products.
Our business has been impacted by several important trends affecting our end markets:
The markets for casual, outdoor and athletic footwear have grown significantly during the last decade. We believe this growth is a result of the trend toward casual dress in the workplace, increasingly active outdoor lifestyles and a growing emphasis on comfort.
Consumers are more often seeking footwear designed to address a broader array of activities with the same quality, comfort and high performance attributes they have come to expect from traditional athletic footwear.
Our customers have narrowed their footwear product breadth, focusing on brands with a rich heritage and authenticity as market category creators and leaders.
Consumers have become increasingly focused on luxury and comfort, seeking out products and brands that are fashionable while still comfortable.
By emphasizing our brand image and our focus on comfort, performance and authenticity, we believe we can maintain a loyal consumer following that is less susceptible to fluctuations caused by changing fashions and changes in consumer preferences.
Below is an overview of the various components of our business, including some of the important factors that affect each business and some of our strategies for growing each business.
Teva Brand Overview
From fiscal 2002 to 2004, wholesale net sales of Teva brand products increased at a compound annual growth rate of 13.5%. However, for fiscal years 2005 and 2006, wholesale net sales of Teva products decreased by approximately 3.6% and 6.4%, respectively, compared to the year ago periods. We attribute this decline in sales primarily to a prolonged period of weak product innovation, coupled with a significant increase in competitor activity. We began to address this situation in 2006 by dedicating significantly greater resources to product planning, design, and development, and through aggressive marketing. We also repositioned the Teva brand to a younger target consumer. For the year ended December 31, 2007, wholesale net sales of Teva products increased by approximately 8.9%, and net sales of Teva products including wholesale, eCommerce and retail store sales increased by approximately 9.2%, compared to the same period in 2006.
We see a continuing shift in consumer preferences and lifestyles to include more outdoor recreational activities. The Teva brand has remained popular among professional and amateur outdoor enthusiasts, who consider the brand authentic and performance oriented. Our Spring 2007 product line was over 70% new, and included innovative technical performance styles, as well as new colors and fresh new casual styles, which target a new generation of young outdoor athletes and enthusiasts. Likewise, our Spring and Fall 2008 product lines include new product introductions.
We intend to explore opportunities to broaden the Teva brand's distribution with image-enhancing retailers beyond our core outdoor specialty and sporting goods channels. Through effective channel management, we plan to expand into new distribution channels without diluting our outdoor heritage and our appeal to outdoor enthusiasts. Through appropriate channel product line expansion, we plan to further broaden our product offerings beyond sport sandals to new products that meet the style and functional needs of our consumers.
UGG Brand Overview
The UGG brand has been a well known brand in California for many years and over the past few years has become a recognized brand throughout the remainder of the country as well as internationally. Over the past few years, our UGG brand has received increased media exposure including increased print media in national ads and co-op advertising with our customers, which has contributed to broader public awareness of the UGG brand and significantly increased demand for UGG brand products. We believe that the increased media focus and demand for UGG brand products was driven by the following:
consumer brand loyalty, due to the luxury and comfort of UGG brand footwear,
increased marketing in high end magazines,
successfully targeting high end distribution,
adoption by high-profile film and television celebrities as a favored footwear brand,
increased media attention that has enabled us to introduce the brand to consumers much faster than we would have normally been able to,
continued geographic expansion across the U.S. and internationally, and
continued addition of new product categories.
We believe the luxury and comfort features of UGG brand products will continue to drive long-term consumer demand. Recognizing that there is a significant fashion element to UGG brand footwear and that footwear fashions fluctuate, our strategy seeks to prolong the longevity of the brand by offering a broader product line suitable for wear in a variety of climates and occasions and by limiting distribution to selected higher-end retailers. As part of this strategy, we have increased our product offering to approximately 150 styles for men, women and children for the Fall 2008 season. This product line expansion includes an ever-growing Spring line, an expanded men's line, as well as a Fall line that consists of a range of luxurious collections for both genders. These collections include: new fashion collections, a variety of casual comfort collections, cold weather offerings, as well as our Classic, Ultra, Ultimate and Slippers collections.
Nevertheless, we cannot assure investors that UGG brand sales will continue to grow at their recent pace or that revenue from UGG brand products will not at some point decline. For the year ended December 31, 2007, the UGG brand's wholesale net sales increased 60.1%, and the UGG brand's net sales including wholesale, eCommerce and retail store sales increased by approximately 64.4%, compared to the same period in 2006. We do not expect these growth rates to continue.
The Simple brand began in 1991 as an alternative to all the over-built, over-priced, and over-hyped products in the marketplace. The brand's foundation was built on the Old School Sneaker and the New Original Clog. In 2005, as a response to the massive amount of waste produced by the footwear industry, the Simple brand launched a new collection of ecologically friendly footwear called Green Toe, a product collection that consists primarily of sustainable materials and that is revolutionizing the footwear industry. We have repositioned the brand to be focused on becoming a leader in sustainable footwear and accessories. In 2007, we improved our distribution initiatives through the establishment of dedicated sales representatives in key markets. In 2006 and 2007, our men's and women's products performed well at retail, as demand continued to increase for our Green Toe and ecoSNEAKS products. We increased our account base both domestically and internationally. We also expanded our presence into additional retail stores with our key accounts. For the year ended December 31, 2007, wholesale net sales of Simple products increased by approximately 2.4%, and net sales of Simple products including wholesale, eCommerce and retail store sales increased by approximately 8.2%, compared to the same period in 2006. We expect Simple brand growth including wholesale, eCommerce and retail store sales, to be higher year over year in 2008 compared to 2007.
We acquired our eCommerce retailing business in November 2002 as part of the acquisition of the Teva Rights. Our eCommerce business, which sells all three of our brands, enables us to meet the growing demand for these products, to sell the products at retail prices and to provide us with significant incremental operating income. From the time we initiated our eCommerce business through the end of 2007, we have had significant revenue growth, much of which occurred as the UGG brand gained popularity and as consumers have continued to increase reliance on the internet for footwear and other purchases. Net sales of the eCommerce business increased 57.4% in the year ended December 31, 2007, compared to the same period in 2006. As our annual baseline of eCommerce sales increases, we do not expect this growth rate to continue.
Our eCommerce business consists of internet sales and catalog sales. Managing our internet business requires us to focus on generating internet traffic to our websites, to effectively convert website visits into orders, and to maximize average order sizes. We distribute approximately 670,000 consumer brochures for our UGG brand products throughout the year to drive our catalog order business. We plan to continue to grow our internet business through improved website features and performance, increased marketing and international websites. Overall, our eCommerce business benefits from the strength of our brands and, as we grow our brands over time, we expect this business to continue to be an important segment of our business.
Retail Stores Overview
In 2007 we opened our fifth retail outlet store, in Woodbury, New York, to add to our existing retail outlet stores in Ventura, California; Camarillo, California; Wrentham, Massachusetts and Riverhead, New York. In 2007, we also opened our second UGG brand concept store in Chicago, Illinois, to add to our existing concept store in New York, New York. Based on the success of the existing stores, we currently plan to open one additional outlet store and two additional UGG brand concept stores in major metropolitan areas by the end of 2008.
Our retail stores enable us to directly impact our customers' experience, meet the growing demand for these products, to sell the products at retail prices and to provide us with incremental operating income. From the time we opened our first retail store through the end of 2007, we have had significant revenue growth, much of which occurred as we opened new stores and the UGG brand gained popularity. Net sales of the retail store business increased 163.3% in the year ended December 31, 2007, compared to the same period in 2006. We do not expect this growth rate to continue because as we increase the number of our stores, each new store will have less proportional impact on our growth rate.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
We are a leading designer, producer and brand manager of innovative, high-quality footwear and accessories and the category creator in the luxury sheepskin, sport sandal and sustainable footwear segments. We market our products primarily under four proprietary brands:
â€˘ UGGÂ®: Authentic luxury sheepskin boots and a full line of luxury and comfort footwear and accessories;
â€˘ TevaÂ®: High performance sport shoes and rugged outdoor footwear and accessories;
â€˘ SimpleÂ®: Innovative sustainable-lifestyle footwear and accessories; and â€˘ TSUBOÂ®: High-end casual footwear that incorporates style, function and maximum comfort.
We sell our brands through our quality domestic retailers and international distributors and directly to our end-user consumers through our eCommerce business and our retail stores. We sell our footwear in both the domestic market and in international markets. Independent third parties manufacture all of our products.
Our business has been impacted by several important trends affecting our end markets:
â€˘ Recent changes in U.S. and global economic conditions have adversely impacted businesses generally; some of our customers may be adversely affected, which in turn may adversely impact our financial results.
â€˘ The markets for casual, outdoor and athletic footwear have grown significantly during the last decade. We believe this growth is a result of the trend toward casual dress in the workplace, increasingly active outdoor lifestyles and a growing emphasis on comfort.
â€˘ Consumers are more often seeking footwear designed to address a broader array of activities with the same quality, comfort and high performance attributes they have come to expect from traditional athletic footwear.
â€˘ Our customers have narrowed their footwear product breadth, focusing on brands with a rich heritage and authenticity as market category creators and leaders.
â€˘ Consumers have become increasingly focused on luxury and comfort, seeking out products and brands that are fashionable while still comfortable.
â€˘ There is an emerging sustainable lifestyle movement happening all around the world. Consumers are demanding that brands and companies take a more responsible approach when it comes to protecting the environment.
By emphasizing our brandsâ€™ images and our focus on comfort, performance and authenticity, we believe we can maintain a loyal consumer following that is less susceptible to fluctuations caused by changing fashions and changes in consumer preferences.
Below is an overview of the various components of our business, including some of the important factors that affect each business and some of our strategies for growing each business.
UGG Brand Overview
The UGG brand has become a well-known brand throughout the country as well as internationally. Over the past few years, our UGG brand has received increased media exposure including increased print media in national ads and cooperative advertising with our customers, which has contributed to broader public awareness of the UGG brand and significantly increased demand for the collection. We believe that the increased media focus and demand for UGG products were driven by the following:
â€˘ consumer brand loyalty, due to the luxury and comfort of UGG brand footwear,
â€˘ increased marketing in high-end magazines,
â€˘ successful targeting of high-end distribution,
â€˘ adoption by high-profile film and television celebrities as a favored footwear brand,
â€˘ increased media attention that has enabled us to introduce the brand to consumers much faster than we would have otherwise been able to,
â€˘ increased exposure to the brand driven by our concept stores which showcase all of our product offerings,
â€˘ continued geographic expansion across the U.S. and internationally, and â€˘ continued innovation of new product categories and styles.
We believe the luxury and comfort features of UGG brand products will continue to drive long-term consumer demand. Recognizing that there is a significant fashion element to UGG brand footwear and that footwear fashions fluctuate, our strategy seeks to prolong the longevity of the brand by offering a broader product line suitable for wear in a variety of climates and occasions and by limiting distribution to selected higher-end retailers. As part of this strategy we have increased our product offering, including a growing spring line, an expanded menâ€™s line, as well as a fall line that consists of a range of luxurious collections for both genders. These collections include: new fashion collections, a variety of casual comfort collections, cold weather offerings, as well as our Classic, Ultra, Ultimate and Slippers collections.
UGG brandâ€™s wholesale net sales increased 56.3% for the third quarter of 2008 and 71.3% for the nine months ended September 30, 2008 and UGG brandâ€™s net sales including wholesale, eCommerce and retail store sales increased by approximately 57.1% for the third quarter of 2008 and 73.1% for the nine months ended September 30, 2008, compared to the same periods in 2007. Nevertheless, we cannot assure investors that UGG brand sales will continue to grow at their recent pace or that revenue from UGG products will not at some point decline.
Teva Brand Overview
We continue to see a significant shift in consumer preferences and lifestyles to include more outdoor recreational activities. Because of our long history with outdoor footwear, as well as our renewed commitment to performance and lifestyle product innovation, the Teva brand has remained popular with outdoor athletes and enthusiasts, and is poised to capture new outdoor consumers entering the market. Our spring and fall 2009 product lines include a mix of core performance product evolutions and new lifestyle product introductions. Beginning with the introduction of our first fully complete closed-toe footwear collection in fall 2008, we have begun to reduce our reliance on sandal sales and optimal spring weather.
We intend to continue to explore opportunities to broaden the Teva brandâ€™s distribution with quality, image-enhancing retailers both within and beyond the core outdoor specialty and sporting goods channels. Through effective channel management and product line segmentation, we plan to expand into new distribution channels without diluting our outdoor heritage and our appeal to outdoor enthusiasts. Through appropriate channel product line expansion, we plan to broaden our product offerings to meet the performance and lifestyle needs of todayâ€™s outdoor consumer. However, we cannot assure investors that these efforts will be successful.
Wholesale net sales of Teva products increased by 1.9% for the third quarter of 2008 and 0.7% for the nine months ended September 20, 3008, compared to the same periods in 2007. Net sales of Teva products including wholesale, eCommerce and retail store sales were flat for both the three and nine months ended September 30, 2008 compared to the same periods in 2007. We believe that Teva has more competition than our other brands, and that as a result, a slow economy curtailed Tevaâ€™s growth more than our other brands during this period.
Because of the lower than expected growth rates, we conducted an interim impairment evaluation of the Teva goodwill and other intangible assets using market value approaches and valuation techniques as of June 30, 2008 and concluded that the Teva goodwill was not impaired, but the fair value of the Teva trademarks was lower than the carrying amount. Therefore, we recognized an impairment loss of $14,900 on the Teva trademarks during the three months ended June 30, 2008, which is included as a separate line item in our condensed consolidated statement of income for the nine months ended September 30, 2008. See Note 11, â€śGoodwill and Other Intangible Assets,â€ť to the condensed consolidated financial statements.
Simple Brand Overview
The Simple brand is committed to innovation and bringing sustainable products to the market, growing the brandâ€™s business while at the same time bringing environmental awareness and creating meaningful, environmentally friendly products for a global market. The Simple brand is a leader in sustainable footwear and accessories. We feel that how we make Simple products is just as important as why we make them. That means our goal is to find more sustainable and innovative ways of doing business. We are committed to our goal of making Simple products 100% sustainable, thus minimizing the ecological footprint left on the planet. Green ToeÂ®, a collection of sustainable footwear, represents a revolutionary shift in thinking about footwear by building a shoe from the inside out using sustainable materials and processes.
The progress in Green Toe has influenced the rest of the Simple product line, which has led to the development of additional product platforms, including ecoSNEAKSâ„˘ and PlanetWalkersÂ®. These product collections also use sustainable materials such as water-based cements, organic cotton, British Leather Consortium (BLC) and International Standards Organization (ISO) 14001 leathers, hemp, and outsoles made from recycled car tires. We promote our Simple brand by emphasizing that we make fun, casual, comfortable and sustainable footwear. Our goal is to create a dialogue with the consumer through all communication vehicles and to show people that sustainability is an emerging lifestyle for everyone, not just environmentally conscious individuals. Our print advertising campaigns include national publications and alternative weekly publications in select cities around the world. Our online advertising campaign reaches consumers through websites that focus on sustainability as well as popular culture. Additionally, we sponsor environmental-themed concerts, film festivals and green expos to showcase and tell the sustainable lifestyle brand story.
For the three and nine months ended September 30, 2008, wholesale net sales of Simple products increased by approximately 15.9% and 35.0%, respectively, and net sales of Simple products including wholesale, eCommerce and retail store sales increased by approximately 16.6% and 36.9%, respectively, compared to the same periods in 2007. We have already exceeded 2007 annual sales of Simple products. However, we cannot assure investors that Simple brand sales will continue to grow at their recent pace or that revenue from Simple products will not at some point decline.
TSUBO Brand Overview
In May 2008, we acquired 100% of the ownership interest of TSUBO, LLC (â€śTSUBOâ€ť). TSUBO, meaning pressure point in Japanese, was a company co-founded by British designer Nick Oâ€™Rorke in 1998. The TSUBO brand was marketed as a high-end casual footwear company with products for men and women. The brand is the synthesis of ergonomics and style, with a full line of sport and dress casuals, boots, sandals and heels constructed to provide consumers with contemporary footwear that incorporates style, function and maximum comfort. TSUBO products are sold throughout the United States primarily at department stores and independent shoe stores, as well as in Canada, France, Denmark, Slovenia, Israel, Japan, Australia, and New Zealand.
We believe that the TSUBO brand represents an ideal complement to our portfolio of lifestyle brands. The TSUBO brandâ€™s target consumer, product selection, industry niche and relative under-penetration in the marketplace make it a good fit for our business model. In addition, the TSUBO brandâ€™s commitment to quality distribution and its unique performance comfort platform allow us to develop a compelling brand story for the global marketplace. We intend to leverage our existing design, marketing and distribution capabilities to grow the TSUBO brand into a meaningful business over the next few years, consistent with our mission to build niche brands into global market leaders. Nevertheless, we cannot assure investors that our efforts will be successful.
Our eCommerce business, which sells all of our brands, enables us to meet the growing demand for these products, to sell the products at retail prices and to provide us with significant incremental operating income. In recent years, our eCommerce business has had significant revenue growth, much of which occurred as the UGG brand gained popularity and as consumers have continued to increase usage of the internet for footwear and other purchases. For the three and nine months ended September 30, 2008, net sales of the eCommerce business increased by approximately 36.0% and 51.3%, respectively, compared to the same periods in 2007.
Our eCommerce business consists of internet and catalog sales. Managing our internet business requires us to focus on generating internet traffic to our websites, to effectively convert website visits into orders, and to maximize average order sizes. We plan to continue to grow our internet business through improved website features and performance, increased marketing and international websites. Overall, our eCommerce business benefits from the strength of our brands and, as we grow our brands over time, we expect this division to continue to be an important segment of our business. Nevertheless, we cannot assure investors that eCommerce sales will continue to grow at their recent pace or that revenue from our eCommerce business will not at some point decline.
Retail Stores Overview
Based upon the success of our existing concept stores in Chicago and the SoHo area of New York City, we opened our first west coast UGG brand concept store in August 2008 in San Francisco near Union Square. We plan to open our second New York City UGG brand concept store near Lincoln Square as well as our sixth retail outlet store in New Jersey in November 2008. In the United Kingdom, we plan to open two Deckersâ€™ owned UGG brand stores in London in the fourth quarter of 2008.
In July 2008, we entered into a joint venture agreement with an affiliate of Stella International Holdings Limited for the opening of retail stores and wholesale distribution for the UGG brand in China. Initial plans call for the opening of one new store in Beijing, China in 2008. The joint venture is owned 51% by Deckers and 49% by Stella International. The total initial investment in the joint venture is $1,000 contributed by both parties in proportion to their respective ownership in the joint venture. The estimated total investment by Deckers and Stella International, including contributed capital and loans, for the joint venture is expected to be approximately $5,000.
Our retail stores enable us to directly impact our customersâ€™ experience, meet the growing demand for these products, sell the products at retail prices and provide us with incremental annual operating income. Net sales of our retail store business increased 145.4%, 143.2% and 92.3% in the first, second, and third quarters of 2008, respectively, compared to the same periods in 2007. For those stores that were open during the first, second, and third quarters of last year, same store sales grew by 46.1%, 59.4% and 32.7%, respectively, when compared to the same period last year. Nevertheless, we cannot assure investors that retail store sales will continue to grow at their recent pace or that revenue from our retail store business will not at some point decline.
Thank you very much operator, and welcome to all of you. With me on the call today are Tom Hillebrandt, our Chief Financial Officer and Zohar Ziv, our Chief Operating Officer, who is calling in from a remote location.
As we previously reported two weeks ago, the third quarter represented another period of robust growth for our Company. Actual sales increased 52.5%, $297.3 million, and diluted earnings per share were 34% to $1.97 million. This compares to our regional guidance per sales and diluted EPS to increase 34% and 12% respectively. Our result were particularly rewarding given the reason events that have impacted the global economy and placed additional strain on consumers and their disposable income.
I believe our performance year-to-date underscores the strength of our brands and the successful execution of our disciplined growth strategy, specifically the third quarter our brand sales increased 57.1% to a record $178.7 million compared to a year ago. Teva brand sales were $11.2 million the same as last year, and Simple brand sales were up 16.6% to $5.2 million compared to last year.
The main driver of our performance was once again the UGG brands. Domestically, we have continued to experience very high and favorable reaction to our expanded full year offering while benefiting from increased floor and shelf space within our existing account base.
As we mentioned on our second quarter call, back in August, retailers scheduled Fall shipments earlier than previous years as the UGG brand continues to evolve into a true year round brand.
Throughout the third quarter, we witnessed strong sales toward retail in all regions of the country and in many instances out-of-stock positions on key items much sooner into the season than we have historically seen. I think this is a very good indicator that demand continues to outpace supplies, which bodes well as we head into the holiday. With more than 140 styles, the fall line is our most diverse collection ever, not only does not include a greater selection of women boots but a wider assortment of men of rather casuals and slippers for men and children as well.
While many of our best sellers continue to come from our classic and metropolitan collections, we are experiencing very nice traction from our expanded surf and coat weather collections. We ended September with 35 of our shop-in-shops open at retail up from none in the third quarter and 10 on the fourth quarter of last year and the results from these locations are very strong. At the same time, our national advertising campaign supporting the fall line debut in August and concurrently be found in the issues of Vogue, Teen Vogue, Glamour, Vanity Fair, Lucky, O and GQ through December, as well as on billboards in select metropolitan areas.
Using the Resort Town of Bahns and the Canadian Rockies as a backdrop, they ads do a terrific job of showcasing a lifestyle nature of the UGG brand. Overseas, we are seeing similar demands for the fall line with the established market flight to UK and Benelux, reporting strong year-over-year growth. Meanwhile, newer territories such as Scandinavia and Germany are off to a very solid starts with the brand. Our Canadian business is also very strong.
With regard to our international business, it has been well documented that many of the same measures impacting the domestic economy and retail environment have spread to Europe, that said, like the US, we have not seen any slowdown in our business and in fact sales outside the US were up 91.9% year-to-date and we are forecasting another robust holiday season in our foreign markets. Of all our brands, Tevaâ€™s market is by far the most competitors, given this in the difficult retail environment, we are pleased with the third quarter performance, which was highlighted by the launch of the brandâ€™s first truly complete fall performance in last outline of clothes footwear.
The development of this collection as the key component of our strategy to target a broader outdoor performance category and we are confident at the strength and authenticity of the brands that allows us to develop a meaningful business for the fall season.
Inaugural lines featured approximately 24 new styles of clothes footwear and as being sold through key accounts such of REI, Famous Footwear as well as independent retailers across the country. We have been particularly pleased with the performance of several styles that sold in very well and more importantly sold through nicely during the quarter, this includes the menâ€™s Temur and a womenâ€™s Cape and the Mountain for men, women and children slip on casual that we believe has the ability to capture key market share in the years ahead.
We also introduced the fall line of select overseas markets such as Benelux, Switzerland and Hong Kong and the results were comparable to the US. Many of our retailers continue to be pleased with the new direction of Teva and have expressed confidence that the brand can be relevant on a year round basis.
Now, Simple which posted its four consecutive quarter of strong double-digit growth. Simpleâ€™s performance was driven by an increasing consumer brand awareness and strong sell-through from the fall 2008 ecoSNEAKS collection. Core styles, such as the womenâ€™s satire and Karat are experiencing solid and consistent weekly sell through rate at key accounts such as Nordstrom, Journeyâ€™s, shift stores, and Dillardâ€™s.
It is worth noting that Nordstrom recently added the Karat to their auto-replenishment program, which guarantees greater than our weekly base, which guarantees reorders on a weekly basis. I think this is really underscores the rapid acceptance and the early success we have seen with ecoSNEAKS just launched last year.
We also expanded the Simple franchise with the debut of Planet Walkers and to our influential independent retail partners this past August. The line is currently experiencing low double-digit, weekly sell through rates and many of these accounts, which have been encouraging for a brand new collection of casual footwear retailing for over $120 in this difficult economic environment.
At the same, our simple.com, internet business another external e-commerce site likes, samples.com and endless.com remain very strong. The success of Simple continues to experience within the internet channel distribution, further validates of the consumers are actively seeking out the brand. This is also a good indication that Simpleâ€™s product will benefit from increased point to distribution of retail, which continues to be a top priority for the brand.
Like our wholesale business sales from our direct operations, once again, outpaced expectations. Beginning with our e-commerce platform, revenues increased 36% to $10.6 million with increases coming from our UGG and Simple brand sites. The investments we have made over the past several years enhancing the consumer experience in approving the overall functionality continue to translate into higher conversion rates.
Turning the retail, in the third quarter increased 92.3% over the same period last year to $5.4 million and included approximately a month and half of sales of our newest concept store that opened in San Francisco in mid August. We have continued to see traffic and transactions increased across our store base, driving a same source of its sales gain of 32.7% over the third quarter of last year or stores open at least one year.
The fourth quarter will be our busiest period of expansion yet, as we get set to open a second full price store in New York, two in London, one in Beijing as well as another location in New Jersey.
And now I will turn the call over to Tom overview the financials and then I will turn the discussed outlook for the remainder of the year and beyond. Tom.
Thanks, Angel. For the third quarter, domestic sales which were included in the brand sales numbers that Angel mentioned earlier increased 40.9% to $162.3 million compared to $115.2 million in the third quarter of 2007. International sales increased 146.7% to $35 million compared to $14.2 million a year ago. As a percentage of sales, international sales were 17.7% in Q3 of 2008 compared to 11% last year.
Our third quarter gross margin was 43.3% compared to last yearâ€™s third quarter of 45.4%. As anticipated, the year-over-year decline in our gross margin was primarily attributable to material cost increases in 2008 and a higher percentage of international sales for the UGG and Teva brands in Q3 2008 versus Q3 2007. All of which was partially offset by an increased in Simple brandâ€™s gross margins. For 2008, we still expect the full year gross margins to be approximately 45% versus 46.2% in 2007.
Total SG&A expense for the quarter was $42.3 million or 21.4% of net sales compared to $28.1 million or 21.7% of net sales a year ago. The planned increase in SG&A in absolute dollars resulted primarily from the increase and personnel cost including additional stock compensation of $1.5 million related to our long term incentive plan that we discussed last quarter. Additional distribution center costs related to our expansion in December 2007 and increased in our bad debt reserve due to a higher credit risks in a current economic environment and higher sales and marketing variable cost related to the increase in sales and three new retail stores that were not opened during the full third quarter of 2007.
Our level of cash and short term investments have been sufficient to sell finance to build up of inventory required to meet increased sales, However the use of cash for inventory purchases and lower market interest rates resulted in the third quarter decrease in our interest income to approximately $0.5 million as compared to last yearâ€™s third quarter interest income of $0.9 million.
Net income for the third quarter was $26 million or $1.97 per diluted share compared to $19.3 million or $1.47 per diluted share in the third quarter of last year. It is important to note that our tax rate for the third quarter was 40.1% versus 39.5% in the first and second quarters of this year. The higher tax rate was primarily due to our decision to allocate a portion of Tsubo IP rise offshore, which required a one time buy-in payment which increases the US base income as a ratio to worldwide income. The higher tax rate equated to approximately $0.02 in diluted earnings per share in this yearâ€™s third quarter when compared to effective tax rate for the first and second quarters of the year.
Turning to the balance sheet, at September 30, 2008, our overall inventories increased to $157.9 million versus $88.1 million a year ago. By brand, UGG inventory increased $62 million to $134.4 million. Teva inventory increased $3.9 million to $15.6 million and Simple inventory increased $1.9 million to $5.9 million. The addition of the Tsubo brand in the third quarter added $2.2 million in the inventory.
As we said before, the majority of the UGG brandâ€™s business in pre-booked and the increase in UGG inventory is necessary to fulfill the volume of orders currently on the book. We now expect UGG brand sales for the full year to increase approximately 64% up from our previous guidance of 53%.
Based upon our current visibility, we feel very comfortable with our overall inventory levels. In addition, at September 30, 2008, we had cash, cash equivalents and short term investments totaling $67.9 million compared to $74.7 million at September 30, 2007, and accounts receivable of $113 million compared to $74.4 million at September 30, 2007.
With regards to our outlook, based on better than expected third quarter results as well as our increased expectation for the fourth quarter, we are raising our 2008 guidance. We now expect full year revenues to increase approximately 52% over 2007 levels up from our previous guidance of approximately 43% growth. We also now expect diluted earnings per share excluding the second quarter Teva impairment charge to increase approximately 40% over 2007 up from our previous guidance of approximately 34% growth. Again, this is based upon our better than expected third quarter results and improved visibility based upon our current pre-booked. This guidance also assumes our previously issued expectations for gross margin of approximately 45% in 2008 and SG&A as a percentage of sales of approximately 23%, excluding impairment charges.
In addition our fiscal 2008 guidance includes approximately $10.5 million of stock compensation expenses which is an increase of approximately $3.9 million over 2007. With the fourth quarter, we now expect revenues to increase approximately 52% over the same period last year up from our previous guidance growth target of 45% and diluted earnings per share to increase approximately 44% over the same period last year, up from our previous growth target to 42%.
Our forecast is based on fourth quarter gross profit margins of approximately 47% and SG&A as a percentage of sales of approximately 18%, both consistent with our previous guidance. For the full year, we now expect UGG brand sales to increase by approximately 64% while Teva brand sales are expected to be flat and the Simple sales to increase by approximately 31% over 2007. Teva brand sales for 2008 are expected to be less than $5 million.
I will now turn the call back over to Angel for some closing remarks. Angel.
Well, we are obviously very pleased with our third quarter and year-to-date results and excited that our profitable demand continues as we begin the fourth quarter. Tom just mentioned, we are raising our guidance for the fourth quarter basis on our stronger than expected deliveries schedule for us.
Despite commentary, forecasting a difficult holiday season in general, we have not witnessed any slowdown in our UGG business or any meaningful cancellation, in fact, based on upcoming ship dates or returns and the importance of December to retailers businesses. We expect that we would have already received fourth quarter cancellation if we are going to get them.
Many of our retailers continue to tell us, we are one of the best selling full price brands with multiple queues in their list of top performing items, and this is reflected in our heightened outlook for UGG in 2008.
In addition, while Teva and Simple are in good positions entering the fourth quarter. For Teva, we are pleased with the responses we have received on the fall close footwear line. As the line further develops, we expect Teva to help offset the developing trend of retailers placing more and more their spring orders closer to the season.
With regard to Simple, we believe that ecoSNEAKS are poised for continued growth on the fourth quarter as we leverage the collections recent performance into increased shelf space with both existing accounts as well as new distribution opportunity. Looking out into next year, we are certainly encouraged about the growth prospects for each of our brands, given the favorable response from retailers to our spring collection. Our UGG accounts have expressed enthusiasm about the continued evolution of the spring line. Now on its fourth year, we offered diverse mixed of boots, slippers, sandals and casuals, which pre-booked very well across all doors.
Despite the economic climate, the positive reaction of Tevaâ€™s newline for spring â€™09, give us additional confidence that we remain head in the right direction. I discussed earlier, retailers are placing more of their future orders for in season delivery. As a result, we are now seeing a larger percentage of Teva sandal sales being booked for Q2 compared with Q1. Historically, it has been the opposite, therefore we now anticipate Q1 will be more fill in business with results depend on the weather and the retail environment.
We are being told this trend is industrywide and not specific to Teva and we continue to hear that Teva is one of the few brands in the space that continues to hold its own.
For Simple, spring '09 will not only include new and innovative collection of ecoSNEAKS, Planet Walkers and Green Toe but a brand message as well. To help create a message that is broader and more appealing to the consumer audience, we recently hired JWT, formerly known as J. Walter Thompson. JWT has worked with some of the biggest brands out there including Nestle, Ford, JetBlue, Domino's and Kellogg's, we are very pleased and very excited to be collaborating with an agency of this caliber and we look forward of the new campaign early next year.
Now, before we open up the questions, I want to add that we are obviously very in tune with what is currently going on at retail and mindful of the impact of the unprecedented events that the world financial market's could have on a global economy going forward. As we always have, we will continue to operate on a conservative manner, closely monitor our inventory levels and plan accordingly. While no one can predict what the future demand for branded consumer products will be, we believe with our portfolio of leading each brand, a strong operating platform that we are well positioned to capitalize in the many opportunities that still lie ahead both domestically and overseas. This belief was underscored when we recently raised our long-term growth target to a billion dollars in sales by 2012, up from $750 million. This now include $750 million in UGG sales, $140 million from Teva, $75 million from Simple and $35 million from Tsubo with 30% of total sales coming from international markets.