Deckers Brands shares were up over 10 percent in after-hours trading on Thursday, October 24. The parent of the Hoka, Ugg, and Teva brands blew past analysts’ estimates and a last-minute downgrade from a BTIG analyst.

Hosting his first quarterly analyst conference call as president and CEO on October 25, Stefano Caroti emphasized that Deckers Brands continued to execute the long-term strategy established through his tenure with Deckers and shared his approach to driving Deckers’ continued success.

“As we look ahead, we’re honing on four guiding principles to help us build upon our recent wins and amplify the power of our brands and organization while remaining true to our proven fundamentals,” Caroti said when kicking off the call.

“Starting off, our consumer-first mindset harnesses insights and feedback to create distinctive products that resonate with a growing audience,” he said. “Next, our brand-less philosophy for product creation and marketplace positioning leverages our unique brand codes for consistent, elevated experiences prioritizing long-term brand health. Third, we’re innovation forward, committed to creating leading-edge performance technologies and unique designs that deliver tangible consumer benefits. And, finally, we’re globally driven, aiming to diversify and build international markets for a more balanced business expanding regionally and strategically through various channels.”

Caroti shared that he intended to build on the company’s established foundation business in his new leadership role.

“These guiding principles have fueled our successful years, and we are enforcing them as cornerstones of our future growth,” Caroti continued. “With our strong operating model and strategic focus on key opportunities for Hoka again, we’re well-positioned to drive long-term brand health, prosperity, and sustained success.”

Deckers Beats on Top- and Bottom-Line
The company reported that fiscal second-quarter net sales increased 20.1 percent to $1.31 billion in the period ended September 30, compared to net sales of $1.09 billion in the prior-year fiscal Q2 period. On a constant-currency basis, net sales increased 20.4 percent year-over-year.

DECK shares were up double-digits in after-hours trading on Thursday, October 24, into Friday, October 25, as the company beat the consensus revenue estimate by over $108 million and EPS of $1.59 for the quarter beat by 35 cents per share.

Channel Summary

  • Direct-to-consumer net sales increased 19.9 percent to $397.7 million in Q2, compared to $331.7 million in Q2 last year. DTC comparable net sales increased 17.0 percent year-over-year.
  • Wholesale net sales increased 20.2 percent to $913.7 million in Q2, compared to $760.2 million in the prior-year Q2 period.

Geography Summary

  • Domestic net sales increased 14.2 percent to $853.9 million in Q2, compared to $748.0 million in Q2 last year.
  • International net sales increased 33.0 percent to $457.4 million in the fiscal quarter, compared to $343.9 million in the year-ago quarter.

Company CFO Steve Fasching said growth in the quarter was primarily driven by Hoka, which increased 34.7 percent versus the fiscal Q2 period last year to deliver record quarterly revenue of $570.9 million due to “exceptional demand” across the brand’s global marketplace.

“The Hoka brand’s growth in the quarter benefited from a high concentration of new product launches during the quarter, as well as some earlier wholesale and distributor shipments relative to the prior year,” Fasting shared.

“Across both Hoka and Ugg, we continue to see retailers looking to get product on their shelves earlier than in prior years in response to strong consumer demand for our brands,” Fasching continued. “During the second quarter, our distribution center teams were highly affected in managing increased shipment volumes to our wholesale partners, particularly at the tail end of the quarter.”

The CFO said the company expects this incremental benefit in the second quarter to impact some of its third-quarter growth as it manages the marketplace tightly to maintain a pull model.

Hoka Brand Summary
Caroti noted that the Hoka brand achieved another milestone, eclipsing $2 billion in revenue over the trailing 12-month period for the first time.

In the first half, Caroti reported that global Hoka revenue increased 32 percent compared to the prior year.

“Hoka performance continues to be driven by the strength of full-price demand across multiple categories around the globe,” Caroti said. “The Hoka team has continued to refine their multi-category offense, which is powered by core focus to win the road, dominate trail and develop fitness and performance lifestyle.”

In the Road category, the CEO said that Hoka continues to deliver healthy growth in heritage franchises like Clifton and Bondi while bolstering the assortment with newness, incorporating technical advances that have been “well-received by consumers and wholesale partners.” He said the brand was “especially encouraged” by the early reads of its recent introductions, Skyflow and Mach X 2.

In the Trail category, Caroti said Hoka continued to see broad adoption of the “versatile transfer franchise” complemented by two “powerful updates” during the company’s most recent quarter, including the six additional SpeedGoat models—the brand’s most popular trail franchise.

“The Tecton X3, our commercialized version of the Tecton X prototype, was worn by the last two champions of the Hoka-sponsored UTMB race. For those unfamiliar, UTMB refers to Ultra-Trail Mont Blanc, the pinnacle event of a global trail running competition, a grueling 106-mile Ultra Marathon through the French Alps with over 30,000 feet of elevation game,” Caroti explained.

From a regional perspective, Caroti said the company’s focus on building awareness in under-penetrated international markets is reaping the rewards as Hoka’s international revenue growth outpaced its healthy growth in the U.S.

“Through the first six months of the fiscal year, Hoka drove strong international growth across all channels with DTC outpacing wholesale,” Caroti said. “We continue to see great progress across all key international geographies as Hoka gains market share within Europe, according to Circana, engaging with local consumers through elevated community building activations at the brand’s retail locations in Paris, London, Tokyo, and Shanghai, and increased share of shoe counts at key long-distance running events across Asia.”

At the same time, Caroti said the U.S. business delivered balanced growth across DTC and wholesale, aligned with the company’s strategy for this fiscal year.

Within DTC, Hoka continued to drive growth, increasing consumer acquisition and retention. In its wholesale business, the brand benefitted from increases in key partners who reported positive feedback from the back-to-school season with Hoka.

Ugg Brand Summary
Ugg’s revenue increased 13.0 percent year over year to $689.9 million. Fasching said the brand delivered broad-based growth across all regions and channels as it continued to resonate with global consumers and benefited from earlier wholesale shipments in the U.S.

“I could not be more pleased with the Ugg brand’s year-to-date results,” Caroti shared. “Global revenue in the first half increased 13 percent over last year. Ugg’s performance was driven by success across key initiatives, including evolving and elevating iconic franchises to resonate with today’s consumers, reflecting the year-round momentum for the brand’s most popular models.”

Caroti said the half was highlighted by the increased adoption of the Golden and Lowmel franchises across shoulder seasons and amplifying international, which delivered growth above the global brand average.

“The Tasman and Ultra mini franchises continue to experience full price demand from consumers worldwide, enhanced by our product team’s dedicated focus to keep this franchise special,” Caroti noted.

The new CEO said the momentum with the Golden and Lowmel franchises, led to both styles landing in the Top 10 in the first half, with each contributing meaningful year-over-year growth.

Caroti said Ugg’s growth in the first half was led by international regions, which maintained high demand through lean inventory management.

“Europe’s season is bearing last year’s trend, with the earlier start of the Ugg season and consumer demand. This has driven exceptional DTC growth in the region, with first-half revenue nearly doubled compared to two years ago,” he said.

Despite a more pressured consumer environment, Ugg performed well in Asia through the first half across wholesale and DTC.

“The Ugg brand’s business in the region has continued to benefit from the success of transitional styles that resonate year-round, especially with the emergence of the Golden Collection,” Caroti shared.

In the U.S., Ugg continued to “perform well,” with most first-half revenue growth coming from wholesale sell-in as the company allocated more product to the channel and retail partners looked to get into stock earlier.

Caroti said, “Wholesale sell-through was strongest among accounts primarily serving younger consumers, as Ugg remains a popular brand among the 18-to-34-year-old cohort.”

Other Brands Summary

  • Teva brand returned to positive territory with net sales increasing 2.3 percent to $22.0 million in Q2, compared to $21.5 million in the year-ago Q2 period.
  • Sanuk brand, which is being divested, saw net sales decrease 47.6 percent to $2.8 million in Q2, compared to $5.4 million in Q2 last year.
  • Other brands, primarily composed of Koolaburra, saw net sales decrease 15.8 percent year-over-year to $25.8 million.

Income Statement Summary
Gross margin for the second quarter was 55.9 percent of net sales, up 250 basis points from last year’s 53.4 percent in the second quarter.

“Second quarter gross margins benefited from favorable brand and product mix as both our highest margin brand, Hoka and our higher margin products within Ugg and Hoka drove a larger percentage of growth and reduced closeouts to the wholesale channel, with partial offsets from increased freight and channel mix with an increased proportion of distributor business resulting from earlier shipments to our global partners,” Fasching detailed.

SG&A dollar spend in the second quarter was $428 million, up 19 percent from last year’s $358 million as the company continued investing in key business areas. As a percentage of revenue, SG&A was said to be slightly below last year at 32.7 percent.

Operating income was $305.1 million for the period, compared to $224.6 million in the year-ago period.

The tax rate for the quarter was 24.0 percent, which compares to 23.8 percent for the prior-year period.

Net income in the second quarter amounted to $242.3 million, or $1.59 per diluted share, compared to $178.5 million, or $1.14 per diluted share, in the prior-year Q2 period.

During the quarter, the company effected a six-for-one forward stock split of its common stock (the stock split), while maintaining the par value of $0.01 per share, per the company’s release on September 13, 2024. The share, per share, and resulting financial amounts, including prior period metrics, have been adjusted to reflect the effectiveness of the stock split.

Balance Sheet Summary
Decker Brands ended the September quarter with $1.23 billion of cash and equivalents. Inventory was $778 million, up 7 percent from the same period last year. The company had no outstanding borrowings during the quarter.

“During the second quarter, we repurchased approximately $104 million worth of shares at an average price of $152.09. As of September 30, 2024, the company had approximately $685 million remaining authorized for share repurchase,” Fasching said.

Outlook
Deckers Brands has increased its expectations for revenue growth, which is now expected to be approximately 12 percent above last year to $4.8 billion, which compares favorably to the prior guidance of approximately $4.7 billion.

From a brand standpoint, DECK now expects Hoka to increase approximately 24 percent year-over-year, reflecting the continued strength of global demand. Ugg is still likely to grow in the mid-single– digits.

Fasching continued, “With the strong gross margin achieved in the first half, we are increasing our full-year expectation of 55 percent to 55.5 percent, recognizing brand and product mix benefits and maintaining our expectation for freight headwinds and a more promotional environment in the second half relative to last year’s exceptionally low levels.”

SG&A is now expected to be approximately 35 percent, aligned with the commitment to “continue investing responsibly to support the long-term sustainable growth of the business.”

Fasching said that with these adjustments, the company now expects an operating margin in the range of ~20 percent to ~20.5 percent.

“We are updating our effective tax rate to be in the range of 23.0 percent to 23.5 percent, and as a result of our improved revenue and gross margin expectations, we are increasing our diluted earnings per share expectations to now be in the range of $5.15 to $5.25.”

Image courtesy Hoka, Tecton X3