Tightened segmentation, success reaching men’s, and early cold weather in the U.S. helped drive robust sales for Ugg to help Deckers Brands handily exceed guidance in its holiday quarter. Hoka One One also remained on fire with sales now expected to reach $220 million in its fiscal year.

In the quarter, sales increased 7.8 percent to $873.8 million, surpassing guidance calling for sales between $805 million to $825 million. On a constant currency basis, sales increased 7.7 percent.

Breaking down the $49 million that sales exceeded the higher end of guidance, $18 million came from the Ugg domestic wholesale channel due to higher than expected sales in Ugg men’s and women’s non-core styles, including women shoes.

Another $15 million came from less promotional activity for the Ugg brand, driving increased full price selling that supported both top-line results and gross margins. Of the rest, $8 million came from Hoka’s continued market share gains in the run specialty channel and $2 million from strong in-season reorders for Koolaburra brand in the family channel as well as some early European wholesale and distributor shipments originally planned for the fourth quarter.

Gross margins improved to 53.8 percent from 52.2 percent for the same period last year. The majority of the margin improvement was driven by fewer promotions and closeout sales that helped drive higher full price selling, as well as payback from supply chain initiatives.

SG&A expenses were reduced to 25.8 percent of sales from 28.4 percent on a reported basis and to 26.1 percent of sales from 27.2 percent on a non-GAAP basis. Operating income improved 26.7 percent to $244.7 million.

On a non-GAAP basis adjusted to exclude unusual items, earnings rose 21.7 percent to $193.8 million, or $6.59, well ahead of guidance between $5.10 to $5.25. Net income came to $196.4 million, or $6.68, against $86.3 million, or $2.69, a year ago.

On a conference call with analysts, CEO David Powers said the strong results reflect overall efforts over the past few quarters to bring compelling Ugg product to market, further segment the Ugg brand in the marketplace, and improve gross margins and operating margins.

Men’s And Non-Core Women’s Styles Boost Ugg

While the gains also reflect “impressive growth” by Hoka and Koolaburra, the majority of upside to guidance was attributed to Ugg. Ugg’s sales increased 3.6 percent to $761.0 million, accounting for 87 percent of Deckers’ revenues in the quarter.

Powers said that in addition to a product lineup that was “well received” at U.S. wholesale accounts, a core classic allocation and segmentation strategy created high full price sell-through rates. Said Powers, “Along with a great selling, as well as further improvement in our supply chain process, inventory levels significantly improved, and we’re very pleased with how we exited the quarter.”

The distribution strategy also resulted in men’s increasing its penetration to 15 percent of overall brand sales, total women’s classics moderating to about 48 percent with core classic units in the marketplace below last year’s levels, and women’s non-classic increasing as percent of total sales. Said Powers, “This shift in the Ugg brand’s revenue composition demonstrates that we’re continuing to make progress and becoming less reliant on core classic styles, allowing us to showcase the breadth of what the brand can offer with success.”

The distribution strategy also led to additional reorders, fewer cancellations and less promotional activity than anticipated in its guidance.

Ugg also saw improved performance in its domestic DTC channel with better-than-anticipated selling in both retail and in e-commerce with the help of cold weather in October and November.

The strength domestically offset lower than anticipated sales in the APAC region and continued weakness in the European marketplace. Powers believes the European weakness is due to region-specific factors, including struggles in the U.K. amid Brexit talks and recent labor strikes. Ugg will be taking the lessons it’s learned in fine-tuning distribution in U.S. wholesale to help improve “the selling and heat of the brand internationally.”

Companywide, domestic sales expanded 14.2 percent to $573.0 million while international sales decreased 2.6 percent to $300.8 million.

In men’s, the “significant” gains for Ugg were led by styles such as the New Male aimed at younger consumers and the Tasman Slipper, which more than doubled in volume year over year. Men’s is also finding success outside core stylings such as with the Hannan and the Steeton, showing an opportunity to address men outside cold-weather wearing occasions.

In women’s, the Fluff Yeah Slide and the Neutra sneaker were among the newer styles seeing strong demand. The women shoe category overall nearly doubled in volume versus the prior year.

Powers said the Ugg brand heat is being supported by product collaborations, increase social media presence and celebrity influencers. According to NPD, Ugg was the number one woman’s U.S. fashion footwear brand in the three months ending December 31, up 11 percent from last year and commanding 8 percent of the market. Ugg was number six men’s U.S. fashion footwear brand, up 18 percent year over year.

Powers also said Ugg’s performance was aided by favorable weather, in particular in the U.S. with weather turning cold early in the season.

“These external variables started incremental opportunity allowing us to sell product early in the quarter with high sell-through rates at full price experienced in wholesale accounts as well as in our own DTC channel,” said Powers. “These conditions improved reorders and minimize in season cancellation resulting in less promotional activity than in past years, reducing the amount of inventory being sold through closeout avenues. With the combined impact of these items significantly lifting both our top-line results and profitability.”

Among other brands, Powers said Koolaburra also performed above expectations and is gaining significant market share in the family value channel. Said Powers, “We saw success with the brand in existing accounts as well as new wholesale partners for the season with strong consumer demand and sell-through. We are actively building the positioning of the brand in the marketplace for next year and we’re managing strategic placement with a clear vision of the brand’s positioning.”

Hoka Seeing Sizeable Market Share Gains In Run Specialty 

Hoka’s revenues vaulted 79.2 percent to $56.9 million. Powers said Hoka exceeded expectations with the gains coming on top of nearly 80 percent growth in the year-ago quarter. Deckers raised its expectations for Hoka for the fiscal year and now expects sales of $220 million, representing over 40 percent growth versus fiscal year 2018.

Powers further noted that Hoka’s growth came “at a very profitable rate with gross margins coming in at above prior forecast. This was mainly driven by strong full price selling at volumes above prior guidance.”

The Clifton and Bondi franchises continue to sell well at the run specialty channel with the brand once again increasing market share. Product highlights beyond the Clifton and Bondi include the Gaviota stability shoe, which is seeing “fast growth” and is particularly popular with female runners.

Continued growth was seen with the Speedgoat trail running shoe and the Arahi stability model. Said Powers, “Looking ahead, we are excited about the launch of new offerings and the brand Sky collection which we’re confident will show that Hoka can be relevant in the hiking category. Along with the continued strength of its core specialty product, the brand has strong momentum to close out another successful year.”

Among its other brands, Teva’s sales increased 17.5 percent to $22.9 million while Sanuk’s revenues decreased 7.0 percent to $12.9 million.

Overall wholesale sales climbed 12.5 percent in the quarter to $482.2 million. DTC increased 2.6 percent to $391.6 million and inched up 1.4 percent on a comp basis. DTC benefited from a strong start to the season, mainly in the U.S. with strong full price selling and the minimal promotion throughout the holiday season. Additionally, “meaningful” DTC growth was seen with Hoka and Koolaburra.

For the current fiscal year ended March 31:

  • Sales are now expected to be in the range of $1.986 billion to $2.0 billion, up from previous guidance in the range of $1.94 billion to $1.96 billion;
  • Ugg sales are now expected to be roughly flat to last year (down low single-digit previously); Hoka to be up in the mid-40 percent range (up in the mid-to-high 30 percent range previously), and Teva to be up low-single-digit (down low-single digit previously). Sanuk is still expected to be down mid-single digits;
  • Gross margin is expected to be above 50.5 percent versus a target of approximately 50 percent previously;
  • SG&A expenses as a percentage of sales are now projected to be below 36.5 percent versus guidance calling for slightly below 37 percent before;
  • Operating margin is now expected to be in the range of 14.5 percent to 14.7 percent compared with a range of 13.0 percent to 13.2 percent previously;
  • The effective tax rate is now expected to be approximately 20 percent versus 21 percent before;
  • Non-GAAP EPS is now expected to be in the range of $7.85 to $7.95, up from previous guidance of $6.65 to $6.85.

Image courtesy Ugg