Deckers Brands President and CEO Dave Powers gave analysts a bit of vinegar before the sugar on Thursday afternoon’s quarterly conference call, setting the tone for the next six months as a transition period as he exits stage left to pursue retirement on August 1. Stefano Caroti, the company’s chief commercial officer was confirmed as Deckers’ next president and CEO so that transition should be a smooth one.
Stefano Caroti was appointed CCO of Deckers in April 2023, after serving as the company’s president of Omni-Channel for nearly eight years and as interim president of Hoka. Before joining Deckers, Caroti was the CCO and managing director at Puma and held several senior executive positions at Nike, Inc.
“Many of you know him already, but for those of you who don’t, Stefano has an extensive industry and experience, and he seamlessly led our omni-channel regional and Hoka brand operations during some of Deckers’ most pivotal years,” Powers said.
Powers said Caroti is passionate about Deckers and its values, and said he has been a key member of the executive team, helping to craft and progress the company’s consumer-focused marketplace strategy and its inclusive and engaged culture.
“On a personal note, after 30 years in this industry, I am looking forward to spending more time with my family, pursuing my other life passions, and exploring more ways in which I can make a positive impact on the world,” Powers shared.
“Serving as CEO of Deckers has been a great honor, and it’s a privilege to work with some of the best talent this industry has to offer,” Powers continued. “I am incredibly proud of our accomplishments and our unique culture built on doing good and doing great. Deckers continues to demonstrate exceptional performance, and we have a strong foundation from which to continue driving results, a deep bench of talent, and innovative products that resonate with consumers globally. I believe it’s a good time for us to make this transition.”
The 11-year Deckers veteran will continue to serve as a member of the company’s Board of Directors after he leaves the CEO post.
It was all sugar and smooth sailing in Goleta as the management team talked through another amazing quarter as Ugg posted its first billion dollar quarter, Hoka posted 22 percent growth in the middle of winter and the company boasted a 50 basis-pint improvement in gross margins to uel a 44 percent increase in diluted earning per share.
“We believe the success of our brands and company as a whole continues to be the direct result of innovative product that is on trend and resonates with consumers across the globe, decision-making that is guided by our long-term strategic objectives, alignment between product creation, marketing, and omnichannel distribution that centers around the consumer, and the strong execution of our teams to deliver in real-time while remaining focused on the longer-term vision of our marquee brand,” Powers shared. “We are thrilled by the success of this quarter, but I feel it’s important to reflect on how these results represent a continuation of strong year-to-date performance as well as many years of careful strategic execution.”
With the first three quarters of the current fiscal year on the books, Powers said they believe they are on track to deliver mid-teens revenue growth for the year, which would be the fourth consecutive year of revenue growth in the mid-teens or higher.
“Highlights from the first nine months include global Hoka revenue growing 25 percent versus last year, led by a near 50 percent increase in DTC; global Ugg revenue increasing 16 percent versus last year, led by international regions growing close to 30 percent, and global DTC increasing more than 20 percent; and total portfolio DTC revenue increasing 28 percent with robust growth in both consumer acquisition and retention,” he detailed. “I am extremely proud of the collaboration across the Deckers organization to deliver these exceptional results through the first nine months of fiscal year 2024.”
Third quarter fiscal 2024 revenue was $1.56 billion, representing an increase of 16 percent versus the prior-year quarter. On a constant-currency basis, revenue grew 15 percent versus last year, driven by the success of the Ugg brand across channels and regions.
Direct-to-Consumer (DTC) net sales reportedly increased 22.7 percent to $858.1 million compared to $699.3 million. DTC comparable net sales increased 21.8 percent, While Wholesale net sales increased 8.6 percent to $702.2 million compared to $646.3 million.
Domestic net sales increased 15.6 percent to $1.05 billion, compared to $906.8 million and International net sales increased 16.7 percent to $511.9 million, compared to $438.8 million.
- Ugg brand net sales increased 15.2 percent to $1.07 billion.
- Hoka brand net sales increased 21.9 percent to $429.3 million.
- Teva brand net sales decreased 16.2 percent to $25.6 million.
- Sanuk brand net sales decreased 28.9 percent to $4.0 million.
- Other brands, primarily composed of Koolaburra, net sales increased 10.0 percent to $29.6 million compared to $26.9 million.
Global Ugg revenue for the third quarter was $1.07 billion, representing a 15 percent increase versus the prior-year quarter. Revenue growth was said to be primarily driven by global DTC, which increased 20 percent in the quarter to represent 62 percent of total brand revenue, up from 60 percent last year, aided by international and domestic consumer acquisition increasing 14 percent and 8 percent, respectively. Retained consumers increased 26 percent and 8 percent across international and domestic regions, respectively.
“In addition to driving a significant increase to gross margin, the outsized growth from DTC helped deliver a double-digit increase in the brand’s consolidated global average selling price,” Powers said. “In general, DTC selling resulted in a much higher ASP and a favorable gross margin relative to the wholesale channel. Ugg commanded extraordinarily high levels of full-price selling, and the brand benefited from select price increases on a few of its most popular styles. The cohesion of product, marketing, and consumer targeting, in addition to a reduced SKU count, drove focused energy behind key styles, which has greatly contributed to the success Ugg is experiencing this year.”
Powers said that by recognizing that there was unmet consumer demand last year and capitalizing on the continued brand momentum driven by that scarcity, the Ugg team invested in additional inventory to support its most popular product.
“Helping fuel brand heat and further the conversation with target consumers during the third quarter, Ugg spearheaded meaningful collaborations, most notably with Palace Skateboards, selling out in minutes across key cities like New York, Los Angeles, London, and Tokyo, hosted pinnacle brand experience feel houses in New York, Paris and Seoul and launched the first of its kind Ugg extreme capsule that features fashionable performance products capable of handling winter’s most brutal conditions.”
Powers said these top-of-the-funnel brand activations, combined with community building and social listening across digital platforms, helped Ugg create positive brand buzz and increase opportunities for consumer connections that offer feedback in real time.
Regionally, Powers said Ugg has maintained high levels of brand heat and demand almost universally across the globe to deliver strong year-to-date growth across the U.S., Europe and Asia.
“Helping bolster Ugg performance in the third quarter, the brand opened a couple of exciting new stores in key markets, including a Shanghai flagship, which offers one of the most contemporary visual expressions of Ugg anywhere in the world, and the brand’s first full-price location in Germany with a new Munich store,” Powers offered. Both stores are said to be performing extremely well.
“In Shanghai, we are seeing average transaction values (ATVs)that are approximately 20 percent above the average Ugg store in China, as well as the conversion rate more than double that of the average,” Powers shared. “Though early days, the Munich store is experiencing ATVs that are 25 percent higher than the average European Ugg store, with conversion rate well above that of the average Ugg store in Germany.”
The CEO said that similar to what is often seen in markets where new stores opened, Germany’s online business for Ugg benefited from the additional consumer touchpoint, boasting both the highest online growth rate and highest conversion rate of any European country in the third quarter for the brand.
For additional research on this reality of retailing, see the latest report from ICSC, which measured foot traffic and web traffic by neighborhood. Read SGB Media coverage here.
From a style perspective, Powers said Ugg experienced growth and success with key franchises like the Tasman, Ultra Mini, and Classic Mini, including the fashion-oriented platform versions of each, as well as new introductions that include the Weather Hybrid Collection, Goldenstar Clog, and the Lowmel Sneaker. He also said the Goldenstar Clog was “somewhat of a surprise hit” during the holiday season, as it was created to bolster the shoulder seasons outside of winter, complementing the rising Goldenstar Sandal.
“Through the first nine months of this fiscal year, Ugg has delivered undeniably impressive results. The brand has driven exceptional growth in focus areas, including international regions and global DTC, and has done so by acquiring and retaining target consumers with full-priced products. I’d like to congratulate and thank the entire Ugg team for their hard work and collaboration that enabled the brand’s success in the third quarter and fiscal year-to-date,” Powers expressed.
“While we will always manage our brands with the intent to deliver high levels of full-price selling, the level we experienced this year, particularly for Ugg in its peak season is one we don’t expect will always repeat,” added CFO Steve Fasching. “This dynamic combined with a larger than expected impact from price increases due to the strength of performance from affected styles is part of the catalyst for our increased full-year expectations for Ugg growth.”
Powers said global Hoka revenue in the third quarter was $429 million, representing a 22 percent increase versus the prior-year quarter. He said Hoka has continued to deliver consistent year-over-year growth and volume each quarter this year, reflecting the brand’s balanced seasonality in year-round demand.
“Similar to what Hoka experienced in the first half, third quarter growth was primarily driven by gains in the DTC channel as intended, with Hoka diligently managing the wholesale marketplace to drive market share gains with high levels of full price sell through,” Powers said. “More specifically on DTC performance, Hoka revenue in the channel increased 38 percent in Q3, representing over 40 percent of total brand revenue, which is 5 percentage points higher than last year.”
The CEO said DTC growth has been driven by significant increases in consumer acquisition, with international and domestic experience growth of 50 percent and 27 percent, respectively, and important gains in retained consumers, which increased 55 percent internationally and 33 percent in the U.S.
“The Hoka brand’s DTC business has been strong in every single region this year but has been particularly powerful in Europe and China, two regions where we have been emphasizing growth in the channel as brand awareness grows. Both regions have benefited from a greater retail presence,” he suggested.
In Europe, Hoka opened its first retail location in Covent Garden, London, during the third quarter, which Powers said is performing exceptionally well. The brand has a location planned to open in Paris in time for the Olympics this summer. In China, Hoka has reportedly added four new company-owned locations throughout this year.
“Complementing the added stores in China, we continue to see our premiumization efforts online paying off, as Hoka has achieved high levels of full-price sell-through online, which is the channel that China generally uses for promotion activity,” explained Powers. “One example of this during the third quarter was China’s annual Double 11 event, better known as Singles Day, which is a countrywide event that features widespread discounts across brands and product categories known for driving significant consumer traffic online.”
Powers said Hoka benefited from the online traffic this year despite low levels of promotion and maintains strong full-price selling, particularly in comparison to competitive brands.
“We are very encouraged by the increasing adoption of Hoka across international markets, particularly in the DTC channel, where we have been focusing our growth efforts while managing the wholesale environment to maintain high levels of full-price sell-through,” he said. “We believe Hoka is still in the early stages of expansion internationally, as we continue to build brand awareness in key markets to establish Hoka as a major worldwide player in the performance space.”
In the U.S., where we also see a significant opportunity for growth, I want to take a moment to highlight an amazing event that Hoka had a huge impact on during the third quarter. Hoka was a presenting sponsor of the 44th Annual Foot Locker Cross Country National Championships.
The Hoka Transport has become the brand’s go-to casual shoe, now sitting within the brand’s Top 10 best sellers. The Hoka brand’s captivating collaborations are also furthering its resonance with the lifestyle consumer. They are designed to reach a new audience by partnering with logical yet unexpected brands.
“While we are at different stages of this journey across domestic and international markets, we see significant global opportunities ahead with this powerful brand,” Powers offered. “We are proud of the consistent momentum Hoka is achieving around the world. Our efforts to build brand awareness and drive high full-price sell-through continue to bear fruit and have set the stage for a strong finish to the year with another record quarter.”
Powers said performance remained strong across both DTC and wholesale during the third quarter, but, in line with the company’s strategic objectives, DTC remained the fastest growing channel, increasing 23 percent versus last year to represent a record 55 percent of the quarter’s revenue, up from 52 percent in the prior-year quarter.
“DTC success continues to be broad-based across brands with Hoka and Ugg DTC increasing 38 percent and 20 percent, respectively, regions with international and domestic DTC increasing 40 percent and 16 percent, respectively, and consumers with acquired and retained increasing 13 percent and 16 percent, respectively across all brands,” Powers said.
“Furthering the success of DTC, we continue to see a double-digit increase in the average selling price through the third quarter, driven by a greater mix of Hoka which carries the highest ASP in the portfolio, higher Ugg full-price selling, including benefits from select price increases and favorable foreign currency exchange rates,” he reiterated.
Wholesale third-quarter revenue increased 9 percent versus last year with domestic Hoka and Ugg contributing the majority of the incremental dollar volume.
“We are very pleased with this strong wholesale result, especially considering the tight marketplace management we have been focused on executing during this fiscal year,” Powers shared. “As a result of these efforts, our brands drove high levels of full-price sell-through, entering calendar 2024 with lean channel inventories that have created opportunities for market share gains going forward.”
Consolidated gross margins for the fiscal third quarter was 58.7 percent of sales, which was up 580 basis points from the year-ago period. Gross margin in the quarter reportedly benefited from a higher mix of Ugg full-price selling, freight savings, select pricing action, and favorable brand and product mix, favorable channel mix with DTC continuing to grow faster than wholesale and favorable foreign currency exchange rates.
“While we are exceptionally proud of these remarkable results, we remain mindful that the outsized margin expansion seen this quarter is above normalized levels and is not something we anticipate will repeat to the same degree,” Fasching cautioned. “While we do see opportunities to continue to deliver top tier profitability through our key strategies, items that we anticipate may not repeat in a normalized environment include the extremely low levels of promotional activity achieved for our two major brands, considerable benefits from Ugg pricing actions and very low freight costs that are now on the rise, as well as other potential macroeconomic factors such as foreign currency exchange rate fluctuations.”
SG&A dollar spend in the third quarter was $429 million, up 23 percent versus the prior-year Q3 period. As a percent of revenue, SG&A was 150 basis points higher than last year, said to be primarily due to investment in talent to support key functions within our growing organization and higher marketing spend.
Fasching said the company’s tax rate was 21.9 percent, which was lower than last year’s 23.7 percent.
“These results, combined with favorable interest income relative to last year and a lower share count, drove record diluted earnings per share of $15.11, which compares to last year’s $10.48 diluted earnings per share representing EPS growth of 44 percent,” he said.
Deckers Brands ended the fiscal third quarter with $1.65 billion of cash and equivalents.
Inventory was $539 million, down 25 percent versus the same point in time of the prior year.
“I’d note that with the strong levels of selling that we have seen this year, we are now below normal operating levels for the current size of our organization,” Fasching said. “And heading into next year, we expect to see incremental inventory investment to keep up with growth. Today’s inventory position reflects the upside that has already been captured in the quarter just completed, which could have a small impact on sales in the fourth quarter.”
The company had no outstanding borrowings during the period.
During the third quarter, DECK repurchased approximately $100 million worth of shares at an average price of $507.95. As of December 31, 2023, the company had approximately $1.05 billion remaining authorized for share repurchase.
Looking ahead, Fasching said the company increasing our full-year revenue guidance to be approximately $4.15 billion, up from our previous guidance of approximately $4.025 billion, based on the strong demand experienced in the third quarter. He said the increase now equates to full-year growth expectations of approximately 14 percent versus the prior year.
- Net sales are now expected to be approximately $4.15 billion.
- Gross margin is now expected to be approximately 54.5 percent.
- SG&A expenses as a percentage of net sales are now expected to be approximately 34.5 percent.
- Operating margin is now expected to be approximately 20 percent.
- Effective tax rate is now expected to be approximately 22 percent.
- Diluted earnings per share is now expected to be in the range of $26.25 to $26.50.
- The earnings per share guidance does not assume any impact from potential future share repurchases.
Ugg revenue is now expected to grow in the low double digits up from the company’s prior expectations for a mid-single-digit increase.
“This full-year increase is the result of the strong DTC demand that we experienced and fulfilled in the third quarter, said Fasching.
Full-year Hoka revenue growth is now forecast at approximately 25 percent, with strong third-quarter sell-through driving wholesale refill upside in the fiscal fourth quarter through March, reflecting what Fasching called their “disciplined marketplace management.”
SG&A margin is now expected to be approximately 34.5 percent of sales. Fasching said they have identified areas to accelerate spend in Q4 with revenue growth exceeding expectations for fiscal year 2024.
“We believe this additional spend, part of which represents top-of-funnel marketing opportunities, gives our brands the opportunity to defend their current positions of strength, setting the foundation for the future,” he noted. “Additionally, I would note that some of the third and fourth quarter spending timing dynamics related to unrealized FX gains recorded in Q3 that we expect will be offset in Q4 as rates have recently moved in the opposite direction.”
DECK increased its operating margin outlook for the year and now expects it to be approximately 20 percent, reflecting the improvement in gross margin.
The company’s effective tax rate is now projected to be approximately 22 percent.
Deckers Brands increased its diluted EPS expectations to now be in the range of $26.25 to $26.50 per share for the fiscal year. Fasching noted this guidance excludes any charges that may be considered one-time in nature and does not contemplate any impact from additional share repurchases.
“Additionally, our guidance assumes no meaningful deterioration of current risks and uncertainties, which include, but are not limited to, changes in consumer confidence and recessionary pressures, inflationary pressures, geopolitical tensions, supply chain disruptions, and fluctuations in foreign currency exchange rate.
“This guidance update represents a $3.25 increase on the prior top end of our diluted earnings per share guidance range,” the CFO offered.
But he did offer a note of caution on the fourth quarter.
“Based on the success that we’ve seen this year with strong sell-through and high levels of full-price selling, there are a few business dynamics related to the fourth quarter that we would like to highlight, including U.S. wholesale shipments that went out at the tail end of the third quarter of this year that have historically occurred in the fourth quarter,” Fasching said. “Meaningful revenue from Ugg closeouts last year that will not repeat this year and low levels of inventory on Key Styles that have been driving the business this fiscal year. We, of course, still expect to deliver a strong fourth quarter that is now projected to round out Decker’s fourth consecutive year of at least mid-teens top-line revenue growth, while also consistently delivering exceptional high levels of operating profitability.”
DECK shares were up nearly 14.1 percent to close at $882 a share on Friday to put a period on a beautiful week in Santa Barbara County.
Image courtesy Deckers Brands / Ugg
For more details on the CEO transition planned for this year, go to more SGB Media coverage here: