Deckers Brands said Ugg saw a solid performance in the fiscal second quarter ending September 30, continuing to benefit from progress diversifying beyond classics. However, the star brand again was Hoka, which saw sales surge 58.3 percent to $333.0 million.
Hoka’s six-month revenue growth was 57 percent versus last year, with the brand now representing 44 percent of Deckers’ consolidated revenue in the six months, up from 35 percent last year and 28 percent two years ago.
Hoka Drives Brand Awareness
On a conference call with analysts, Dave Powers, Deckers’ president and CEO, said the majority of Hoka’s growth in the half reflected gains in market share with existing accounts. However, the brand has added access points, including expanded distribution with strategic growth accounts, 12 owned and operated stores in China, two stores in Japan, and five pop-up stores in the U.S. Said Powers, “Each of these access points are designed to build Hoka brand awareness and increase consumer access to new geographic locations.”
Hoka’s Fly Human Fly campaign drove a 145 percent increase in searches in New York and Los Angeles, helping Hoka’s DTC growth rate accelerate from the first quarter into the second. For the first half, Hoka’s DTC retention and acquisition increased 70 percent and 63 percent, respectively, across global markets.
The marketing and DTC efforts helped Hoka improve brand awareness by nine percentage points in the U.S. over the last two years to surpass the 20 percent threshold, with awareness among runners higher, according to Decker’s proprietary brands’ tracker study.
Outside of the U.S., awareness in most regions is in the low-teens percentage but similarly shows “explosive growth in awareness, which highlights the significant opportunity for continued Hoka brand expansion.”
Hoka global event sponsorships are another factor elevating brand awareness. In its first year sponsoring the Ultra Trail du Mont-Blanc (UTMB) World Series, Hoka achieved a 34 percent share in shoes tracked on race participants, which is well above last year’s total. The event supported growth for Speedgoat, Hoka brand’s top trail shoe, and Mafate Speed 4, a trail shoe update.
Beyond trail, another new category Hoka is seeing growth in is hiking, with the Kaha and Anacapa franchises building significant market share. Said Powers, “We believe this is because of the unique Hoka DNA that sets these franchises apart with their lightweight platform and maximum cushion that compares favorably to bulkier products from the competition.”
In its core road running category, the eighth update of the flagship Bondi franchise was the top-selling style globally in the second quarter and more than doubled last year’s Bondi 7 volume among 18-to-34-year-olds. Despite launching in August, it was also a Top 5 DTC style across Decker’s brand portfolio for the first half. The Bondi 8 was named the Best Road Running Shoe in SELF Magazine’s Certified Sneaker Awards and GQ‘s Fitness Awards.
Ugg Revenues Gain 6.3 Percent
Ugg sales advanced 6.3 percent to $476.5 million. Ugg’s revenue increased 3 percent over the prior year for the first half.
“The Ugg product team has done a fantastic job, broadening the consumer appeal beyond Classics while also ensuring Classics remain the pinnacle expression of Ugg,” said Powers. He said Ugg continues to benefit from its marketplace allocation and segmentation strategy to drive brand interest and the introduction of fashion-forward platform versions of iconic Ugg styles driving viral activity on TikTok.
“Platform Classics are already trending in the Top 10 among new consumers in 18-to-34-year-olds, and the fall season is just getting started,” said Powers. “Additionally, with excitement building around the platforms, we’ve also seen a significant demand uptick in the original core Classics that inspired them, as DTC revenue from the Classics Ultra Mini and the Classic Mini in the first half increased more than 200 percent and more than 60 percent versus last year, respectively.”
Beyond Classics, Ugg has continued to find success with hybrid styles, with the Tasman becoming the number one style purchase at DTC. Powers said, “We’ve been encouraged to see the Tasman being adopted as a genderless style, a movement led by the Ugg brand’s 18-to-34-year-old cohort as the second most popular and most popular style among female and male consumers in the age group, respectively.”
Building on Tasman’s popularity, Ugg introduced the Tazz platform last year, and the style is a Top 10 DTC seller among 18-to-34-year-olds.
The quarter’s revenue gains benefited from a 20 percent increase in Ugg international regions as the brand benefited from marketplace reset initiatives implemented over the past couple of years and lapped disrupted wholesale shipments in the prior year. The U.S. lapped significant wholesale refill activity from the prior year.
Said Powers, “All-in-all, the Ugg brand is well-positioned for the holiday, with inventory availability improving relative to last year in key global markets. We’re encouraged by the results we’ve seen early in the season, but, as always, remain cautious with our busiest period still to come.”
Among its smaller brands, Teva sales increased 4.3 percent in the quarter to $30.1 million, and Sanuk’s decreased 25.2 percent to $7.5 million. Other brands, primarily Koolaburra, saw sales increase 17.9 percent to $28.5 million.
Deckers Sales And Earnings Exceed Wall Street Targets
Companywide, sales in the quarter climbed 21.3 percent to $875.6 million, topping Wall Street’s consensus estimate of $808 million. On a constant-currency basis, revenue grew 25 percent versus last year.
By channel, wholesale sales climbed 16.7 percent to $636.5 million. DTC sales gained 35.3 percent to $239.1 million. Comparable DTC net sales increased 38.2 percent.
By geography, domestic sales grew 20.0 percent to $617.7 million. International sales increased 24.4 percent to $257.9 million.
Gross margins eroded 270 basis points to 48.2 percent. Roughly half of the decline was driven by unfavorable foreign currency exchange rates, with additional impacts from the higher promotional activity for Ugg as compared to last year’s exceptionally low levels, with the brand primarily using higher margin DTC close-out events to move through excess spring season inventory and higher ocean freight rates. These factors were partially offset by benefits from a reduction in airfreight usage, Hoka price increases and a favorable brand mix, with Hoka driving the majority of growth.
SG&A expenses increased 23.1 percent to $294.1 million, or grew to 33.6 percent of sales from 33.1 percent a year ago, reflecting higher advertising spend. Operating income was down 0.3 percent to $127.8 million from $128.2 million a year ago.
Net income dipped 0.5 percent to $101.5 million from $102.1 million a year ago. Due to the lower share count, EPS increased to $3.80 compared to $3.66 a year ago, exceeding analysts’ consensus target of $3.66.
Inventories, which include amounts in transit, jumped 45.4 percent to $925.0 million, primarily reflecting investments to support Hoka’s momentum.
Outlook Maintained
Looking ahead, Deckers Brands maintained its sales and EPS outlook for its fiscal year but downwardly adjusted its gross margin target and positively adjusted its SG&A target.
The updated outlook for its year ended March 2023 includes the following:
- Sales are still expected to be in the range of $3.45 billion to $3.50 billion. Hoka now expects to increase up to 50 percent (an increase in the 40 percent range previously). UGG is expected to be down mid-single-digits on a reported basis, primarily due to negative currency impacts.
- Gross margin is now expected to be approximately 50.5 percent (roughly 51.5 percent previously), primarily due to increased currency impacts and some additional promotional activity.
- SG&A expenses as a percent of sales are now projected to be approximately 33 percent (roughly 34 percent previously), reflecting variable savings.
- Operating margin is still expected to be in the range of 17.5 percent to 18.0 percent.
- The effective tax rate is now expected to be approximately 22 percent (roughly 22 percent to 23 percent previously).
- EPS is still expected to be in the range of $17.50 to $18.35.
Photo courtesy Hoka