<span style="color: #6b6b6b;">Deckers Brands’ earnings and sales arrived well above analyst targets in the fiscal first quarter ended June 30, catapulted by Hoka’s stellar appointment with sales growing 54.9 percent in the period to $330.0 million, eclipsing the billion-dollar milestone over the trailing twelve-month period.
Hoka’s outperformance helped Deckers slightly raise EPS guidance for its 2023 fiscal year when most other companies are scaling back outlooks due to macroeconomic challenges and currency headwinds.
On a conference call with analysts, Dave Powers, Deckers’ president and CEO, said the quarter marked the first time that saw Hoka account for more than 50 percent of Deckers’ total quarterly revenue, significantly reducing the historical back-half seasonality of its portfolio due to its long reliance on the Ugg brand.
Hoka’s growth was paced by international markets, which jumped 66 percent versus last year, led by the strength of the EMEA region. The timing of sell-in partially influenced the gains for distributors to support entry into new markets.
U.S. sales climbed 49 percent year-over-year, with DTC growth leading wholesale. Global DTC increased by 58 percent, driven by continued momentum with retained consumers and the acquisition of new consumers. Global wholesale increased 53 percent due to increased market share at existing accounts and select doors added to strategic accounts.
Powers said, “We are excited by the positive brand indicators and continued share gains that Hoka is building upon across its entire global distribution network.”
Highlights of the quarter included:
- Expanding market share within U.S. run specialty on higher retail prices and focus styles accounting for at least half of the Top 10 styles, according to aggregated U.S.-run specialty store data.
- Overseas, revenue in France doubled, led by gains in Paris, which was Hoka’s third fastest-growing European city during the quarter.
- APAC drove the highest regional DTC growth rate, led by strength in China and Japan as these countries benefited from stores aiding awareness with consumers.
“Across the globe, Hoka stores have continued to build excitement with the new audience and drive compelling levels of traffic and purchase activity,” said Powers. “This is especially exciting in China, which has been a slow build as Hoka took some time to find its voice with the consumers local to the region. With the refined visual merchandising strategy enhancing the consumer experience, our China stores are now driving higher conversion rates. We’re better equipped as we open additional locations in the region.”
In the U.S., Hoka is on track to open its first permanent location in New York City in spring 2023. Said Powers, “This is an exciting endeavor as the Hoka store will feature an elevated design that fits our premier performance brand.”
Hoka is opening a second New York City pop-up near Lincoln Center within the next month. The brand’s Chicago pop-up, which opened during the quarter, has seen “excellent traffic, driving strong conversion,” said Powers.
He added, “We will take a disciplined approach to open a limited number of doors, but we’re excited about the opportunity to engage with the consumers in key cities worldwide.”
DTC acquisition for Hoka increased 48 percent, and retention increased 58 percent versus last year, with gains among 18-to-34-year-old consumers far outpacing the increases.
Hoka launched its first globally integrated marketing campaign, Fly Human Fly, with a strong response from consumers and wholesale partners, with 83 percent of new visitors logging onto the site. Said Powers, “We believe this campaign will have a significant impact on building awareness of Hoka as we expand the brand into a multibillion-dollar major player in the performance space over the long term.”
Ugg Revenues Impacted By Mix Changes
Ugg revenue in the quarter decreased 2 percent versus last year to $208 million. Higher international wholesale and distributor sell-in was offset by category shift dynamics impacting the brand’s global direct-to-consumer business.
Powers said the category dynamics included the introduction of more spring, summer and outdoor-ready styles, which had its latest Sport Yeah sandal in place of heritage Fluff franchise styles. While sandals were a “standout category” for Ugg during the quarter, the lower average selling price in the sandal category created a revenue headwind relative to the robust volumes of Fluff sold during Q1 in the last two years.
Powers said, “Across our Ugg global DTC, even though revenue dollars are below last year due to these product mix shifts, demand for Ugg remained robust as the brand experienced increases of 8 percent and 13 percent in acquired and retained consumers, respectively, versus the prior year. Importantly, international DTC acquisition and retention gains are trending well ahead of these global figures as we continue to build brand heat overseas.”
Ugg captured incremental market share with transition styles such as the Ultra Mini, Coquette and Sport Yeah, driving sell-through. Key styles driving new worldwide consumer acquisition include the Fluff Yeah and Sport Yeah, Clem and Goldenstar fashion sandals, and the Tasman franchise. The Fluff Yeah continues to be Hoka’s top style among acquired and retained consumers, including with 18-to-34-year-olds.
“Overall, the first quarter represented a solid start to the year for UGG,” said Powers. “We believe Ugg is well-positioned to drive a successful fiscal year 2023.”
Powers noted that Anne Spangenberg, formerly Nike’s chief merchant, had been appointed president of Fashion Lifestyle to guide Ugg. He said, “In her new role, Anne will build upon the strategic priorities for UGG, focusing on product diversification, consumer adoption and franchise evolution across our omnichannel marketplace.”
Among its smaller brands, Teva’s sales increased 2.0 percent to $59.6 million, and Sanuk’s sales slid 5.9 percent to $14.2 million. Other brands, primarily Koolaburra, sold in the mid-tier department store channel, saw sales drop 45.3 percent to $2.7 million compared to $5.0 million.
Quarterly Sales And Earnings Crush Wall Street Targets
Companywide, Deckers’ net sales increased 21.8 percent to $614.5 million, surpassing analysts’ consensus estimate of $567.34 million. On a constant-currency basis, net sales increased 23.5 percent.
Earnings slid 6.8 percent to $44.8 million, or $1.66 a share, but came in well above the average analyst estimate of $1.25.
The earnings decline primarily stemmed from erosion in gross margins by 360 basis points to 48.0 percent. The margin decline was in line with plan and due to higher freight costs from ocean and air as well as impacts from unfavorable foreign currency exchange rates that are expected to pressure margins for the remainder of this year.
Additionally, the quarter’s gross margin was impacted by:
- Product mix and normalized promotional activity for Ugg, as the brand sold more sandals and discounted select styles in line with pre-pandemic activity,
- Channel mix shifting toward the wholesale and distributor segment, particularly its international distributor business that shipped product earlier than in years past, partially offset the benefits from the increased revenue mix of Hoka as the brand commanded the highest gross margin in the portfolio during Q1 and the benefits from Hoka price increases.
SG&A expenses grew 20.0 percent to $238.4 million but reduced as a percent of sales to 38.8 percent from 39.4 percent. Operating income declined 8.9 percent to $56.3 million.
Inventories, which include amounts in-transit, are $839.5 million compared to $457.7 million. Steve Fasching, CFO, noted that last year’s inventory levels were below normal operating levels due to supply chain disruption.
Deckers said it repurchased approximately 384,000 shares of its common stock for $100.0 million in the quarter and had $354.0 million remaining under its stock repurchase authorization as of June 30.
The board has approved an increase of $1.2 billion to the company’s stock repurchase authorization.
Looking ahead, the outlook for the fiscal year ended March 31, 2023, calls for:
- Net sales are still expected to be in the range of $3.45 billion to $3.50 billion;
- Gross margin is still expected to be approximately 51.5 percent;
- SG&A expenses, as a percentage of sales, are still projected to be approximately 34 percent;
- Operating margin is still expected to be in the range of 17.5 percent to 18.0 percent;
- Effective tax rate is still expected to be approximately 22 percent to 23 percent; and
- EPS is now expected to be in the range of $17.50 to $18.35, up from a range of $17.40 to $18.25 previously.
Photo courtesy Hoka