Operator:

Good afternoon and thank you for standing by. Welcome to the Deckers Brands Fourth Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I'll now turn the call over to Erinn Kohler, VP Investor Relations and Corporate Planning.

Dave Powers :

Thanks, Erinn. Good afternoon everyone, and thank you for joining us today. I am thrilled to be here sharing and celebrating Deckers incredible achievements in fiscal year 2024. For the full year, we delivered revenue growth of 18% versus last year, nearly reaching $4.3 billion of annual revenue, gross margin of 55.6%, a 530 basis point increase over last year, operating margin of 21.6%, and earnings per share of $29.16, representing a 51% and nearly $10 increase over last year. These extraordinary results are a testament to the success of our long-term strategies and the execution of our hardworking employees. Over the past four years, Deckers revenue has grown at a compound annual growth rate of 19%, adding over $2 billion of incremental revenue. We also substantially expanded profitability as earnings per share has grown at a CAGR of 32%. With the scale of our organization's growth, we are continuing to bolster our foundation through investments that support the long-term success of our leading brands. HOKA and UGG have become two of the strongest and most in-demand brands in the footwear space. They are continuing to win with consumers by infusing performance and fashion into products that embrace their respective brand codes. Building on the outstanding progress we have made over the last few years, our teams are laser focused on the significant opportunities that lie ahead as we seek to build HOKA into a multi-billion dollar global player in the performance athletic space, grow UGG with premium products and elevated experiences that enhance consumer connections, expand DTC through engagement, acquisition, and retention gains, and advance our international markets through targeted investments. Our robust and innovative product pipeline comprised of relevant and distinct products, is amplified by our marketplace management strategies and gives us the confidence to continue progressing on these initiatives as we create the future of Deckers. Steve will provide further specifics about our fiscal year 2025 expectations, as well as our fiscal year 2024 financial performance, but first I would like to share some of the brand and channel highlights. Starting with the brand highlights. Global HOKA revenue in fiscal year 2024 was $1.8 billion, representing an increase of 28% versus the prior year. For the year, HOKA growth was driven by increased brand awareness with the US rising to approximately 40% and international regions on average reaching just over 20%. Global DTC which increased 40% versus last year. Market share gains with key global wholesale partners, and most importantly, success with new performance innovations across the road, trail, and lifestyle product categories. From a brand awareness standpoint, these are significant strides for HOKA. Across the board, HOKA is experiencing significant gains on both a season-over-season and a year-over-year standpoint. Aligned with our strategy to solidify HOKA as a global player, international regions are driving particularly strong gains in awareness, increasing more than 80% versus the prior year. Global consumers who identify as runners remain our highest awareness group and continue to see strong increases, but we are also seeing really powerful growth among consumers who are more general fitness oriented. While HOKA is increasing its awareness across all age groups, growth is strongest among 18 to 34 year olds globally, with brand awareness among this influential age group nearly doubling year-over-year. We believe the continued progress introducing HOKA to new consumers around the world has resulted from our increased investments in brand marketing, through the expansion of the FLY HUMAN FLY campaign, including greater out-of-home digital and physical assets, dedicated and enhanced sponsorship of both globally recognized and local running events such as UTMB with HOKA becoming the new title sponsor. Enriched engagement with social media across various platforms, and a greater retail footprint that allows for community building activities like our HOKA Run Club. We are pleased to see these investments paying-off not only through increased awareness across markets, but also by growing brand consideration and purchase intent, some of which is happening in real time. We’re proud of the great progress our teams are making, but also recognize that HOKA still has plenty of room to grow awareness, consideration and ultimately market share across all global regions. HOKA has an amazing opportunity ahead as the brand continues to win with consumers around the world, and we look forward to facing this challenge head on through a relentless focus on product innovation and authentic consumer engagement. From a channel perspective HOKA continues to excel across its ecosystem of global access points. Recall at the outset of fiscal year 2024, we noted the brand's focus on building full price market share, with existing points of wholesale distribution through a pull-model and increasing the mix of DTC through consumer acquisition and retention gains. The result of our disciplined marketplace management strategy achieved both goals with HOKA delivering record gross margins as the brand benefited from maintaining exceptionally high levels of full price selling, despite operating in a more promotional marketplace and shifting mix to DTC, which increased to 38%, up from 34% in the prior year. I would also note that the HOKA brand's strong growth through full-price selling in the wholesale channel was accomplished primarily through market share gains with existing distribution, and greater efficiency with recently opened doors relative to locations that were eliminated. Regarding HOKA DTC, revenue growth was driven by global increases in acquired and retained consumers which expanded 32% and 44% respectively. We remain encouraged by the growth across markets, with the US continuing to deliver strong increases in alignment with the global averages and international regions increasing more than 50% in both acquisition and retention. These consumer growth figures are leading indicators of HOKA brand adoption, highlighting the brand's ability to both expand the scope of HOKA consumers and retain existing consumers through consistent product innovations that delivered an unmatched wearing experience. As we continue to introduce HOKA to new consumers around the world. We view branded retail stores in key cities, as an important consumer engagement vehicle. Just a few weeks ago, HOKA opened its second European retail store in Paris, France. Though only open for a short time, we have been very encouraged by the consumer feedback, conversion and broad product adoption. We were excited for HOKA to have a footing in this important market, particularly as the location expect to see high traffic during the upcoming summer Olympics. On the product front, HOKA is driving growth and consumer acquisition through innovative updates and new introductions across a diverse assortment of footwear. The HOKA brand's fiscal year 2024 performance was primarily driven by road running favourites like the Clifton and Bondi franchises, stability staples like the Arahi and Gaviota, both of which received updates during the year, trail conquers like the Speed Go, Challenger and Stinson franchises and everyday performance lifestyle shoes like the Transport, Solimar and the Kawana. We expect these styles will continue to contribute to the growth of HOKA moving forward, but are also really excited about the brand's ongoing efforts to constantly infuse new innovations into the product assortment. Back in February we highlighted the launch of the all-new Cielo X1, which represents the pinnacle of the HOKA brands race offering. We have been in awe of the consumer response to this incredible shoe, which sold out almost immediately in the initial launch colorway. While we don't expect to drive significant volumes on this very specific ultra performance shoe, we are excited and encouraged by the consumer demand validating HOKA in this category. Our progress in this more niche category is designed to emphasize the brand's performance routes, even as we expand the consumer aperture to more commercial styles. With respect to these broader more commercially focused products, we have been impressed by the consumer response to our latest update of the Mach franchise, the Mach 6. This completely redesigned silhouette was upgraded with a supercritical foam midsole and strategic rubber coverage on the outsole for greater durability, while remaining our lightest Mach to-date. Sell-through of this versatile and responsive style at our wholesale partners and in our DTC channel has been exceptional with the Mach 6 becoming a top five style across all of Deckers since its launch. Innovation is the HOKA brand's top-priority, continuing to develop groundbreaking products that energize consumers around the world. We are fortunate to have a phenomenal roster of HOKA athletes, who we will continue partnering with to drive greater athlete enhanced innovations into our most Pinnacle products, while also further developing the assortment to segment and differentiate HOKA distribution as we continue to scale. The recently launched Skyward X is the perfect example of new product innovation that benefits our segmentation efforts. This all new style was developed as our first carbon plated shoe that is designed for everyday runs with maximum cushion. The Skyward X has a revolutionary suspension system to pair with its convex carbon plate that gives the runner cushion for impact with a natural spring forward. This style helps elevate the HOKA assortment sitting above other Mach’s cushion styles from both a price point and performance perspective. This allows HOKA widen distribution on other styles while the Skyward X is targeted for specific accounts like run specialty, top strategic performance stores and our DTC channel. As we methodically open new access points for HOKA over the next year, we continue to fine-tune differentiated assortments across geographic markets and channels of distribution. I could not be prouder of the HOKA team's incredible results over the last year. We are pleased to now have a proven industry leader like Robin Green, who joined us in February, leading the team and are looking forward to the positive impact we believe she can have to drive HOKA into its next phase of growth. Moving on to UGG. Global revenue in fiscal year 2024 was $2.2 billion, representing an increase of 16% versus the prior year. For the year, UGG growth derived from the key initiatives set forth at the outset of FY '24, as aligned product, marketing and commercial execution, drove global increases in DTC acquisition and retention and expansion in international markets. These results are a testament of our powerful product engine and disciplined product management strategy. The UGG brand continues to maintain important relationships with valued wholesale partners while delivering strong results through the segmentation and differentiation of global marketplaces. With the allocation of core products driving high levels of full price sell-through and lean inventories in the marketplace, UGG has become a leading-brand in wholesale, while funneling upside demand to the DTC channel. For the year this contributed to global gains in both DTC acquisition and retention, which increased 18% and 17% respectively, contributing to the UGG brand's 22% increase in global DTC revenue. This is a truly impressive result for our DTC channel and speaks to the work our brand, marketing and PR teams have been doing to maintain high levels of brand heat year-round from seeding products with global and regional influencers, creating compelling product collaborations with prominent brands and showing up on the runway at fashion weeks around the world to deepening consumer connections through elevated brand experiences like the Field House or a recent Formula 1 activation. The UGG team has consistently developed interesting and on-brand content to stay top of mind with consumers. We believe the continued focus of our teams are working with local individuals across global markets, has helped UGG connect and resonate more effectively with international consumers. Whether it be partnering with Honey from K-PoP Group NewJeans or the collaboration with Gallery Department expanding access to influential retailers in Europe. These efforts have helped establish UGG in its healthiest position to date across influential international markets. This contributed to UGG delivering an international growth rate of more than two that of the double-digit revenue growth from the US market. The success of these initiatives drove significant shifts in the composition of UGG revenue aligned with our long-term strategy with DTC increasing to a record 50% of mix and international increasing to 37% of mix, up from approximately 30% three years ago. Both of these ships were margin accretive and when combined with exceptionally high levels of full price selling and benefits from select price increases, resulted in record high gross margin for the UGG brand in fiscal year 2024. Of course, this is all underpinned by the UGG brand's ongoing creation of compelling products that are resonating around the world. What impresses me most about the UGG brand's performance in fiscal year 2024 is that the brand drove a 16% increase in revenue through single-digit unit growth with significantly fewer SKUs than the prior year. UGG was able to achieve this because of the increased global alignment on the brand product assortment, creating efficiencies on marketing stories and inventory purchasing. Last year, we spoke about the UGG team's focus to reimagine iconic styles and that is exactly what we saw play out during FY'24, and what we continue to see consumer is excited about in the upcoming fiscal year. The UGG product team continues to delight consumers by creating threads that connect new styles to existing icons. Over the last couple of years we've seen this take shape with the Ultra Mini inspired by the Classic Mini, Platform Classics, inspired by the original classics and the Tazz, inspired by the Tasman. These are just a few examples of product evolutions that have helped UGG build the shoulder seasons outside of fall and winter, attracting new consumers while remaining rooted in the brand's heritage. Keeping an eye on the future, UGG continues to build upon franchises that are reimagining of existing icons in new categories. The Golden Collection is one, we continue to be very excited about. UGG first introduced the Goldenstar Sandal a couple of years ago, which is a strappy sandal inspired by the original classic boot. This style has continued to blossom on its own and we are also seeing great enthusiasm for new adjacent styles in the collection, including the Golden Glow sandal, a water-friendly colorful version of the original Goldenstar, which has become an instant hit and the Goldenstar Clog, which was spotted on basketball Superstar, Caitlin Clark, shortly after shoes drafted first overall to the WNBA. Outside of the Golden Collection, UGG is developing compelling new products in the slip-on shoe and sneaker category, which includes the Lowmel, a sneaker silhouette inspired by the original Neumel boot that continues to sell out quickly as new inventory comes into the marketplace and venture days, a rugged outdoor take on the original Tasman, which sold out quickly in China and was recently worn by Formula One Star Pierre Gasly at the Miami Grand Prix. These emerging franchises, along with complementary styles give us confidence that UGG will continue to capitalize on high levels of brand heat and demand to deliver strong performance for years to come. Congratulations to the UGG team on another excellent year. Moving to our discussion of consolidated channel performance. Deckers' fiscal year 2024 results reflected the success of our omni-channel marketplace management strategies that continue to preserve our brand's premium positioning around the world. By tightly managing marketplace inventory, we were able to drive strong full price sell-through, increase market share and capture upside demand in our direct-to-consumer channel. This led to outstanding DTC growth, which for fiscal year 2024 increased revenue 27% versus last year by adding nearly $400 million of incremental business. DTC represented 43% of total company revenue which is up from 40% in the prior fiscal year. DTC gains resulted from strength across brands with HOKA and UGG DTC increasing 40% and 22%, respectively. Regions with international and domestic DTC increasing 37% and 22%, respectively, and consumers with acquired and retained increasing 21% and 24% respectively, across all brands. On a DTC comparable basis, revenue increased 25% versus last year, reflecting positive engagement and conversion of demand for the great products that our brands are bringing to market across both online and in-store direct-to-consumer touch points. From a wholesale perspective, fiscal year 2024 revenue increased 13% versus last year. Growth was primarily driven by high levels of full-priced global demand for the UGG and HOKA brands, which resulted in healthy sell-throughs at our valued partners, as we maintain lean inventories in the wholesale marketplace. We are entering fiscal year 2025 in a position of strength because of the successful execution of our omni-channel brand and marketplace management strategy. As our brand teams continue to delight consumers with unique and innovative products, our commercial teams will continue to execute on this strategy, working with our fantastic partners to maintain our brand's premium positioning in their respective marketplaces. With that I will hand it over to Steve to provide further details on our fourth quarter and full fiscal year 2024 results, as well as our initial outlook on fiscal year 2025. Steve?

Dave Powers:

Thanks, Steve. I am so proud of the tenacity that our teams have consistently demonstrated to outperform expectations while continuously evolving in a dynamic consumer environment. As I near the end of my tenure leading the Deckers organization, I could not be prouder of how far we have come over the last eight years. Our company has transformed into a leading portfolio of consumer favorite brands. We have experienced explosive growth by incredible and still increasing brand heat across HOKA and UGG. Our organization has proven to be incredibly resilient and we have worked with agility to continuously deliver outstanding results. The company's success is largely attributable to our aligned long-term strategies, our highly effective leaders across the organization and hard-working and caring employees that continue to execute as we transform the business. Deckers is in an excellent position to continue on this path as Stefano steps into the role of CEO in just a few months. He has been a key contributor to our successful transformation and knows what it takes to lead Deckers on this continued journey. He and I are continuing to work together to ensure a smooth transition. Together, we are deeply committed to fostering Deckers collaborative and inspiring culture inclusive of encouraging authenticity, teamwork and a common goal to do good and to do great. This has cultivated a strong and growing team of exceptionally talented long-time employees and critical new hires across our global organization, which are the driving force behind our iconic brands, and I believe we will continue to galvanize the pathway for future success. On behalf of our executive leadership team and Board of Directors, I'd like to once again thank our employees for all their dedication to Deckers values and delivery of yet another full year of record results. Thank you to all of our stakeholders for their continued support along the way. With that, I'll turn the call over to the operator for Q&A. Operator?

Laurent Vasilescu:

Hello, good afternoon. Thank you very much for taking my question. Dave, I wanted to ask about HOKA. HOKA DTC was 38% of the mix for the year, which implies 4Q wholesale grew 40%. So I think you mentioned wholesale or maybe Steve, you had mentioned the wholesale fill in what was called out for the quarter. First quarter is also benefiting -- what are you seeing in the wholesale channel? Are retailers reordering across the Board, or may be selective? How should we think about HOKA wholesale growth for the year itself?

Stefano Caroti:

Yes, Laurent, to build on what Dave just said, sales has been strong. Our key innovation stories for the season have performed very well. [indiscernible] not huge volumes there, but has performed super, super well beyond our expectations. And Mach 6, has performed -- and is performing very, very well, and it's now a top three style not just for HOKA for Deckers. In Skyward X, which we just launched a couple of weeks ago, the early read is also very, very, very encouraging across the globe.

Dave Powers:

Yes, you're right. It's roughly around 30%. We do see that creeping up over time. We haven't given hard targets on that, but we are going to be focusing more energy on building awareness. As I said, door expansion, bolstering up our DTC engines in those markets. From a volume perspective, you'll definitely see upside in Europe. China is still a small market for us with tremendous upside and a lot of exciting things going on there. But from a dollar percentage increase, it's still going to be led by Europe in the short-term. I was in Asia last week together with Rob and Anne and the two leadership teams, there's definitely significant potential for both brands in China and the rest of Asia.

Operator:

Our next question comes from Jay Sole with UBS. Please go ahead.

Dave Powers:

Yes. I've been here now coming up on 12 years. And this is the healthy effect seen the UGG brand. The demand with the consumer, the 18 to 24 year-old consumer, the broad-based health of all of our channels, retail stores, e-commerce sites, wholesale partners globally. And essentially, what you're seeing is the marketplace pull model that we put in place in North America a few years ago. Now that's activated in our international regions. So you're seeing brand heat and consideration among consumers in new international markets, increasing and very strong, and our pull model is still working. So we like to keep things a little bit scarce. And that led to some of the success we saw in this past Q4 where people were still looking for some of our reimagined icons like the Taaz and the Ultra Mini. Normally, we would see those tail-off at the beginning of January and February, but those are still strong and starting to become year-round styles. The other significant thing last year, we -- we sold low single-digits growth in units, but 18% revenue sales on top of that. So we are seeing a very healthy full price business. There is less markdown, there is less assortment in the channel. So we have the right styles for the right consumer in the right locations. And then we are also seeing great success in new franchises like the Goldenstar and venture days. And so that, combined with just the brand heat, the health of the marketplace, the way that the consumer is reacting to our localized marketing activations and our store elevation, we see a lot of optimism for the UGG brand going forward. But you are going to see continued growth in DTC and a real focus on upside in international.

Jay Sole:

Got it. That makes sense. If I can follow up on that. Can you just maybe dimensionalize a little bit and help us understand how UGG is growing by telling us sort of how you think about growth of sort of the classics versus all the -- what I would call the relatively new stuff since the last few years or so. How do you see the growth rates in those two? But how is that driving the UGG brand?

Jay Sole:

Got, it. Thank you so much.

Operator:

Our next question comes from John Kernan with TD Cowen. Please go ahead.

Stefano Caroti:

Yes, of course, John. Our business currently is two-thirds US and one-third international, as you know. And the one-third of international, 50% comes from Europe, roughly 35% comes from Asia Pacific and the balance is Canada and Latin America. Clearly, we see a lot of opportunity internationally. And while we expect the US to continue to grow, long term, we would want international to grow faster. We are -- as you heard from Dave, in terms of brand awareness, we are well behind where we are in the US for Hoka and roughly 20 points behind. So we've been investing more, we've been investing faster internationally to accelerate that growth. And also in terms of distribution, we intend to selectively expand our distribution with key partners while carefully monitoring the productivity of the doors we expanded. So there's definitely a lot of upside for us internationally, both in terms of top line as well as margin.

John Kernan:

Got it. Extraordinary is a good word here to use. I guess the other extra thing the DTC segment contribution margin has skyrocketed the last several years. It's -- I think it's over 900 basis higher than wholesale now. Where do you think the profitability -- is it sustainable at the high 30% level at DTC? And do you expect this continued margin mix shift to continue for the direct-to-consumer channel?

John Kernan:

Got it. Well, congrats on a phenomenal year, Dave, best of luck, and I'll turn it over.

Operator:

Our next question comes from Sam Poser with Williams Trading. Please go ahead.

Erinn Kohler:

Sam. So what I'll provide for you, I think you're asking about the full year -- I'll give you a full year --.

Erinn Kohler:

Sure, I can give you fourth quarter. So fourth quarter fiscal '24 that we just completed. So this is going to be a global wholesale and distributor combined by brand. For UGG was about $139 million. For HOKA was about $350 million. For Teva, $46 million, Sanuk about $5 million that you get the other.

Dave Powers:

Yes. I think what we're experiencing now and you start in fourth quarter is a lot of that demand that we missed in December came to us in Q4. And so when we got back in stock in some of those styles, people still wanted them. And so they were buying them in January, February, March and still are. So I wouldn't say that we missed whatever opportunity we missed in December, it's all lost. We did fulfill some of that demand over the last three to four months. That being said yes, there's opportunity this year. We are excited about the assortment. And I also mentioned, we think we can maintain high levels of full price sales. But it is still going to be a challenging environment out there. I think, that the way we are pegging the business with the assortment, we don't have any necessarily any new price increases this year. And I think, maintaining a tight rein on wholesale and driving it to DTC, I think that's about right, the way we pegged it and the way we're looking at the business going into it now.

Dave Powers:

Comping an 18% growth, there is no cakewalk.

Steve Fasching:

Yes. Sam, I think the way we are looking at it is we're not going to get the same benefits in FY '25 that we got in '24. Again so that -- the difference between the revenue change and the unit change is 1 that's really important to understand because what we benefited from in '24 was full-price selling, combined with price increases combined with running a scarcity model that drove more traffic into DTC. So we won't have the same level of benefit on price increases in FY '25 that we had in '24. We'll see what the promotional environment looks like that's always a hard one to determine, especially in the current environment, a lot of uncertainty you are hearing what some other companies are saying. So that's one that we will continue to carefully watch. We're being served well with kind of a controlled marketplace. So we'll continue to look at it. But I don't think the setup to your point, is the same. I think there were more factors that we knew we could benefit from in '24 than in '25, but again we'll manage through '25 and we'll see how it turns on.

Dave Powers:

Thanks Sam. I will miss you.

Janine Stichter:

Hi, good afternoon, congratulation on the really strong year. To start out a question on HOKA. You mentioned seeing awareness from non-runner everyday athletes and more casual styles. So how do you think about just further segmenting the assortment and the distribution decade to this consumer while still keeping your heritage. And then one for Steve, on SG&A. You're flipping to basically a flat SG&A rate this year after a year of deleverage. Just how to think about where you are in that reinvestment cycle. I know you've been saying a little bit of catch-up on SG&A. And if you do see upside to your revenue guide on revenues, how do you think about further reinvestment in here? Thank you.

Steve Fasching:

And then, Janine, just on the SG&A. So I think in terms of where we landed FY '24, the 34% spend to revenue and the guide equivalent for FY '25, we think that kind of the appropriate level, we'll see. It is increasing from where we have been in the past couple of years as we've made investments and continue to make investments, and I called it out in the script in terms of building talent, infrastructure, distribution. So as we are growing and continue to grow at a slightly faster pace than what we anticipated, there is still a bit of a catch-up that you're seeing. I think as we continue to look at the year, we'll manage accordingly. I think that has served us well. We haven't gotten ahead of the growth, but we're carefully monitoring to keep pace with it. And that's some of the increases that you've seen really over the last couple of years.

Steve Fasching :

Thanks Janine.

Jonathan Komp:

Hi, thank you good afternoon. I wanted to ask about HOKA. If I could just ask a near-term question. It looks like D2C was up in the low 20s in the fourth quarter year-over-year, and you're assuming D2C outgrows for fiscal 2025. So are you assuming a little bit of a reacceleration? And if so, could you maybe talk about the drivers? And -- when you think about the product launch strategy for HOKA this year, could you just give insight to some of the shifts there. I know we haven't seen the next version of a few of your key icons or your biggest styles like Clifton and Bondi so just how should we think about the product launch cadence or cycle?

Steve Fasching:

Yes. And what I would add, John, just to that is just to be careful about kind of relying too much on a quarter performance. We are managing this for the long run. So again when you have depleted inventory in the channel, that might impact your wholesale growth in one quarter as you're refilling that. It's not necessarily indicative of the longer-term views, back to Dave's point, as we look at growth, clearly, our focus is on trying to grow DTC faster, which is kind of what we are doing and growing the proportion of that. I wouldn't rely too much just on one quarter, or a dynamic in that quarter because there are other factors that affect the short-term, but we're looking at the long-term.

Stefano Caroti:

Yes. And two new products, John, we have a couple of big programs hitting the market same fall and early next year. Speedgoat is our biggest trail franchise, a new Speedgoat 6 with the market in June. Skyflow is a new run specialty exclusive and DTC exclusive that it's going to hit the market in July. That's a sizable program for us. And Bondi, which is our second biggest show, we'll hit Q4 next year, an updated Bondi and the shoe looks fantastic. I'm very excited about how it's been received by our partners.

Dave Powers:

Thanks Jonathan, Take care, man.

Operator:

Good afternoon and thank you for standing by. Welcome to the Deckers Brands Third Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I will now turn the conference over to Ms. Erinn Kohler, VP, Investor Relations and Corporate Planning. Thank you. Please go ahead.

Dave Powers:

Thanks, Erinn. Good afternoon, everyone, and thank you for joining today's call. Before we discuss our third quarter results, I'd like to speak to the leadership announcement we made today. After 11 years at Deckers, I have decided to retire as President and Chief Executive Officer, effective August 1st. I will continue to serve as a member of the company's Board of Directors. 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. 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. 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 are resonating with consumers globally. I believe it's a good time for us to make this transition. We're all thrilled that the Board has selected Stefano Caroti, our Chief Commercial Officer, as Deckers' next President and CEO, following a thorough succession planning process. 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. He is passionate about Deckers and its values, and he has been a key member of the executive team, helping to craft and progress our consumer-focused marketplace strategy and our inclusive and engaged culture. I know Deckers will be in excellent hands with Stefano at the helm. Over the next six months, Stefano and I will continue to execute on Deckers' proven strategy. We're invigorated about this next phase of our work together and for Deckers' bright future. Now let's turn our attention to our Q3 performance. I'm glad to be here today discussing another record-breaking quarter for Deckers brands as our two leading brands continued bucking industry trends to deliver high-quality growth via full-price consumer demand. Key highlights of our record-breaking third quarter results include total company revenue increasing 16% to $1.56 billion, DTC revenue increasing 23%, representing a quarterly record 55% of total company revenue, total UGG revenue increasing 15% to achieve its first-ever billion dollar quarter, total HOKA revenue increasing 22% to $429 million, total company gross margins increasing over 500 basis points to an all-time quarterly high of 58.7%, and diluted earnings per share increasing 44% to $15.11. 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 omni-channel 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. 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. Our brands are thinking long-term, and while we are happy to produce great quarterly results, we are even more pleased to see the consistency of performance. With the first three quarters of this fiscal year behind us, we believe we are on track to deliver mid-teens revenue growth, 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% versus last year, led by a near 50% increase in DTC; global UGG revenue increasing 16% versus last year, led by international regions growing close to 30%, and global DTC increasing more than 20%; and total portfolio DTC revenue increasing 28% with robust growth in both consumer acquisition and retention. 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. We are creating remarkably distinct, relevant, and breakthrough product concepts that are deeply rooted in consumer insights and brand DNA. This is distinguishing our brands from the competition. Our strategic execution of brand and marketplace management, combined with our financial discipline, preserves Deckers’ position of strength as we focus on closing out fiscal year 2024 and plan for the significant opportunity in the years ahead. Steve will provide additional color on this quarter's financial performance and our related increased outlook for the full fiscal year, but in the meantime, let's dive into third quarter brand and channel highlights. Starting with UGG. Global UGG revenue for the third quarter was $1.07 billion, representing a 15% increase versus the prior year. Revenue growth was primarily driven by global DTC, which increased 20% in the quarter to represent 62% of total brand revenue, up from 60% last year, aided by international and domestic consumer acquisition increasing 14% and 8%, respectively, and retained consumers increasing 26% and 8% 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. As in general, DTC selling resulted in a much higher ASP and a favorable gross margin relative to the wholesale channel, UGG commended 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. 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 UGGextreme capsule that features fashionable performance products capable of handling winter's most brutal conditions. These top-of-the-funnel brand activations, combined with community building and social listening across digital platforms, help UGG create positive brand buzz and increase opportunities for consumer connections that offer feedback in real-time. This year's coordination between DTC operations and product marketing on social channels elevated the launches of new styles or colors and brought greater traffic and attention to the brand when hot products were being restocked. From a regional standpoint, 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. Both stores are performing extremely well. In Shanghai, we are seeing average transaction values that are approximately 20% above the average UGG store in China, as well as the conversion rate more than double that of the average. Though early days, the Munich store is experiencing ATVs that are 25% higher than the average European UGG store, with conversion rate well above that of the average UGG store in Germany. Similar to what we often see in markets where new stores opened, Germany's online business for UGG benefited from this 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. We are pleased to see these new consumer touchpoints are helping produce positive results in key international markets, where we continue to see long-term opportunities for the UGG brand. The success UGG is now experiencing among international regions is a direct result of our thoughtful, multiyear marketplace management implementation that fostered the alignment of product creation, localized marketing content, and brand-enhancing distribution partners. With the momentum and brand heat UGG has created among international markets, we are even more excited about the global opportunities ahead. From a style perspective, 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. The Weather Hybrid Collection was positioned as a modern, weatherized update to a few of the UGG brand's most popular styles, including the Tasman, Neumel, and Classic Boot. Our PRR teams partnered with influential NBA star, Jaylen Brown, to highlight the launch, which helped this all-gender collection drive strong sell-through among all consumers. 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. The Lowmel, which we see as the first unmistakably UGG sneaker, represented a continuation of our hybrid strategy to redefine categories through UGG DNA. We believe Tasman’s adoption of the sneaker versus previously being purchased primarily as an indoor slipper, has given UGG permission to play in the sneaker category, in which the Lowmel performed extremely well, selling out quickly across the globe. Both the Goldenstar Clog and Lowmel have been positioned for expansion into this spring and next fall, as the UGG brand continues to build connections with consumers through a cohesive, year-round, product assortment. 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. Shifting to HOKA, global HOKA revenue in the third quarter was $429 million, representing a 22% increase versus the prior year. 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. More specifically on DTC performance, HOKA revenue in the channel increased 38% in Q3, representing over 40% of total brand revenue, which is 5 percentage points higher than last year. DTC growth has been driven by significant increases in consumer acquisition, with international and domestic experience growth of 50% and 27% respectively, and important gains in retained consumers, which increased 55% internationally and 33% 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. In Europe, HOKA opens its first retail location in Covent Garden, London, during the third quarter, which is performing exceptionally well, and the brand has a location planned to open in Paris in time for the Olympics. In China, HOKA has added four new company-owned locations throughout this year, in which the consumer experience has continued to improve, particularly with a greater focus on key stories and a new capsule collection of apparel that rounded out a compelling in-store product assortment. Complimenting 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. 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. This year, HOKA benefited from the online traffic 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. 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. Over 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, outfitting thousands of elite high school athletes with complementary footwear and apparel. This event was the center of the U.S. running world and media for three days, driving significant impressions and some of the highest brand engagement we have ever seen for HOKA. On the product front, HOKA continues to develop and refine a compelling assortment of performance products that enable athletes of all kinds to achieve their goals. This morning, HOKA announced the introduction of the all new Cielo X1 that sits atop the brand’s assortment as the ultimate race day shoe for the most discerning athletes. The Cielo X1 was designed with insights and feedback from the HOKA brand’s roster of elite athletes, incorporating the most advanced geometry, foam compounds, and plate technologies to enable record setting results. Before it was even commercially available, the Cielo X1 has already made its podium debut as HOKA NAZ Elite member Kellyn Taylor won the Rock ‘n’ Roll San Jose Half Marathon wearing the Cielo X1, qualifying her for the 2024 Olympics Marathon Trials for Team USA. Beyond the brand’s pinnacle performance product, HOKA is also experiencing success with exciting lifestyle-oriented products. These products feature the same quality and comfort expected from a performance HOKA shoe, but are packaged in an everyday wear aesthetic for more versatile wearing occasions. 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. Most recently, HOKA partnered with Satisfy Running, a French running apparel brand, to co-create an exciting new take on the Clifton LS, which sold out almost instantly. Highlighting the partnerships theme of highs and lows, Satisfy created a one-of-a-kind community experience that brought together the skateboard, trail, and running communities to join in a sprint down the steep hills of San Francisco. As we continue building HOKA for the long-term, our focus is to remain a top brand in road running, expanding with innovative performance footwear, become a dominant off-road player with disruptive trail and hike products, and bring the HOKA experience to the lifestyle consumer while keeping the brand rooted in performance. While we are at different stages of this journey across domestic and international markets, we see significant global opportunities ahead with this powerful brand. 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. Now moving to our discussion of consolidated channel performance. During the third quarter, performance remained strong across both DTC and wholesale. However, in line with our strategic objectives, DTC remained the fastest growing channel, increasing 23% versus last year to represent a record 55% of the quarter’s revenue, up from 52% in the prior year. DTC success continues to be broad-based across brands with HOKA and UGG DTC increasing 38% and 20% respectively, regions with international and domestic DTC increasing 40% and 16% respectively, and consumers with acquired and retained increasing 13% and 16% respectively across all brands. In addition, as discussed, we are also experiencing strong engagement with our brands both online and in store, reflecting the quality of our omni-channel operations and ability to provide a consistent consumer experience. 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. With respect to consolidated wholesale performance, third quarter revenue increased 9% 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. 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. Thanks, everyone, and now I’ll hand the call over to Steve to provide more specifics on third quarter performance and an update to our fiscal year 2024 guidance.

Dave Powers:

Thanks, Steve. We are extremely proud of our brand's year-to-date performance, which have produced record revenue and earnings results. As we look beyond fiscal year 2024, I believe we have an incredibly strong innovation pipeline for the UGG and HOKA brands, giving us further confidence in our ability to build upon this year's exceptional growth. Thinking into the next few years, we believe HOKA remains our primary growth vehicle with considerable opportunity for both region and category expansion as awareness of the brand's innovative performance product increases further, and continue to position UGG for growth through the development of category hybrids that celebrate heritage brand codes to resonate with target consumers across global markets. Deckers strategic focus on marketplace management, omnichannel strategy and flexible operating model continues to be the driving force behind our sustained success. We remain focused on executing against our long-term objectives while continuing to deliver high levels of profitability and driving shareholder value. Additionally, I'd like to recognize and thank all of our employees across the organization for their consistent and dedicated focus to driving results aligned with our long-term strategic vision. Our employees continue to go above and beyond while upholding Deckers values. Before we turn to Q&A, I want to give Stefano a moment to say a few words. Stefano?

Dave Powers:

Thanks, Stefano, and thank you, everyone, for joining us on the call today. We look forward to sharing more next quarter as we continue to build towards Deckers exciting future. With that, I'll turn the call over to the operator for Q&A. Operator?

Tom Nikic:

Hey, guys. Thanks for taking my question and Dave, congratulations on a great run and Stefano looking forward to working with you. So look, on HOKA, so it kind of sounds like you're embedding a little bit of a reacceleration, I guess, specifically in the wholesale channel in the fourth quarter. Is that just inventory levels being really lean? Is it sell-in of the new products? Is it door expansion with Decks and Foot Locker, if I could just kind of unpack how to think about the drivers of HOKA wholesale that would be greatly appreciated?

Tom Nikic:

Sounds good. And just if I could follow up also just one on UGG. Obviously, you've had a couple of great holiday seasons in a row. What do you do for non-core next year?

Steve Fasching:

Yes, Tom. And just to add to that, this is Steve. I think the – as we look at the success that we had in Q3, this is where our marketplace management works.

Steve Fasching:

We are containing that wholesale channel. We're lowing some of the demand over to our DTC channel. And this is really where you're seeing the power of that work. You see it with the gross margin expansion. And so that's a model that we're going to continue to reinforce next year. And we know we're leaving demand on the table and that's by design. So we continue to build D-to-C brands by controlling that marketplace distribution, lowing some of that excess over into D-to-C, and leaving some demand on the table. Yes.

Dave Powers:

Thanks, Tom. Appreciate it.

Laurent Vasilescu:

Good afternoon. Thank you very much for taking my question. And Dave, I wanted to wish you the best for your future endeavors. You will be missed by many. And Stefano, it's great to have you on the call.

Laurent Vasilescu:

I wanted to just follow up. I wanted to follow up, Dave, on some of the – there are some targets out there long-term. There's that $5 billion to $6 billion target, 50% DTC mix. Is there anything that changes over the long-term on these targets that you maybe want to update? And then could you maybe also provide – Steve, I think you maybe kind of alluded to, sometimes you'll over earn that 20% EBIT margin for fiscal year 2024. Is there a raise, like resting heart rate [ph] for EBIT margin for this business long term?

Stefano Caroti:

Yes, then, Laurent, kind of on the operating margin, and we've talked about this before on prior calls. The way we look at the business is kind of a high teen margin business. And as I've said in the past is when we have an opportunity, when the business runs so well and delivers margins above that like we've seen in Q3, we will let some of that margin run through. We're not out just to spend money for the sake of spending money. We carefully watch where we're placing our investments. And when we see the opportunities to invest, we will take that. And that's the way we approach kind of every year. In a given year where we're seeing such strong full price selling, like we did this year where our brands and product are in such demand, it's a perfect case where we can flow through some of that. You've seen that in prior years, but at the same time, as we've indicated in our full year outlook, where we've raised it, we're also looking at where we can continue to invest in our brands because we know the competition is stepping up as well. So this provides us an opportunity that when we are performing well, we'll pass through some of that. But at the same time, we're looking at the long-term health of the business and we'll make the right investments to continue to drive this business forward in the long run. So that's our approach. That's not going to change. It's working for us and you can kind of see how that's driving these types of results.

Steve Fasching:

Yes, so I'll start, Laurent. In terms of some of the shifts, what I mentioned in the prepared remarks is, yes, we are seeing where some of the over performance of Q3, because again, as you know, we haven't guided orders, where we did see some earlier wholesale deliveries in Q3. That's slightly impacting our Q4. In terms of our full year, we have raised our full year and that's really a reflection of the strength that we've seen in Q3. Because we haven't given quarterly guidance, I know everybody's models may be a little bit different. And so it's hard to say specifically kind of how you're looking at it. The way we've looked at it is some of the business that we thought may happen in Q4 did come at us in Q3 as the sell-through was very strong. And so we took advantage of that, and we were able to kind of shift some of that price. Generally speaking, what you're seeing is the business has performed better than what we expected. We have flowed that through on our full year lift, and we're seeing Q4 kind of as we've seen it with a little bit of timing issues [ph]. But overall, I think, the takeaway is incredible performance in Q3. We've flowed that through, we've lifted our full year, business is incredibly strong, and the demand for our brands is there.

Laurent Vasilescu:

Super helpful. Thank you very much for all the color. And best of luck, Dave.

Operator:

Thank you. And your next question comes from the line of Jay Sole from UBS. Please go ahead.

Dave Powers:

Yes, I don't have the exact specifics on that, but I will say the core Classics are really just a maintained business at this point, so it's not like we're purposely trying to shrink those. Those are still healthy. We are just managing that category and that product better in the marketplace. But the growth is coming from some of the newness, the Taz, the platform style, the Ultra Mini, and then, like I said, some of the sneaker versions and the hybrid winter programs. And as you notice, we launched UGGextreme, which is our first serious foray into more performance products. So this is a brand that has really broad shoulders. I have always said that. And I think now we're seeing, once we get the right design DNA into these categories that are really innovative and distinct, there's really nothing like this product in the marketplace. We have a lot of runway and so we're going to continue to innovate, continue to attack these categories with a focused assortment of UGG DNA products and connect with our consumers in a segmented way. And I think there is still a tremendous upside there. So lots to be confident with the UGG brand. I think this is an indication of the new leadership that Anne has brought to the team and the discipline in the marketplace, as well as our innovation pipeline. And we're optimistic this is going to continue at a healthy pace going forward.

Dave Powers:

I'll let Steve answer that real quick.

Dave Powers:

Yes, and the last thing I would say, if you think about this brand five years ago, it was a boot brand. And we've had that stigma attached to UGG brand for quite some time. And I think that those days are in the past. We have products that is resonating in different categories that we've never had before. And I'm really excited about the Lowmel, that it’s our version of a sneaker. And I think that’s going to be a best seller for years to come and start potentially taking share from some of the sneaker brands out there.

Dave Powers:

Okay.

Janine Stichter:

Hi, congrats on the results. And Dave, wish you all the best as well.

Janine Stichter:

I wanted to get to pricing a little bit. Yes. And UGG, could you elaborate on the price increase there? How big was it? When did you take it? And maybe how broad was it in terms of the styles? And then curious about any future opportunities for price increases. And I guess the same question for HOKA. I think you’ve talked about being pretty happy where the pricing is there. But do you see any opportunities just as some of your peers potentially look at taking that price? Thank you.

Steve Fasching:

Yes. And Janine, just to add a little bit on that, as Dave said, it was not across the Board. It was very surgical in terms of units that we identified had the potential to absorb a price increase without much consumer resistance to it. And that was significant. And so it was not a lot of styles, it was on styles that we knew would do well. And so it was surgical in the sense of, those high performing styles, and it drove a big portion. So just in terms of quantified a little bit, in the quarter, our gross margin from last year was at 580 basis points. I think the other thing that was a big contributor along with price increases, we didn’t get promotional. This was a full, strong, price, sell-through quarter for us. So of that 580 basis points, about 340 of it came from not being promotional, and the price increases that we experienced in the quarter. So a big dry growth quarter [ph]. And as Dave said, we’re not looking to decrease in this to kind of continue to drive that. We’re going to be very careful about how we place price increases and how we contemplate it. But this year was one year that we benefited from it that we will not necessarily see in future periods.

Dave Powers:

Yes. Yes.

Janine Stichter:

Perfect. Thanks so much and best of luck.

Operator:

Thank you. And your next question comes from the line of Sam Poser from Williams Trading. Please proceed.

Erinn Kohler:

Sure, Sam. So real quick for the third quarter total wholesale and distributor for UGG as you mentioned, you can count is $403 million, HOKA $252 million, Teva $20 million, Sanuk $2 million and then other largely Koolaburra $24.5 million.

Dave Powers:

Thank you, Sam. I appreciate that.

Dave Powers:

I wouldn’t say that we’re forcing more inventory purposely away from wholesale into DTC. What I would say is I think the teams have gotten better at allocating the right amount of inventory for our stores, so that we’re not missing sales when the customer comes in. And we’ve been guilty of that in the last few years, not having protected some of the inventory in this kind of demand. Some of that inventory can get sucked up by DTC or wholesale fill-ins, so we’re protecting it better than we have for our stores and just making sure that we’re balancing out across wholesale and retail and e-commerce as best we can for the consumer and how they like to shop. Just so happens, though, when you have this kind of brand heat momentum, if there are wholesale partners that are running low on inventory, they’re going to go to our stores to find it and our websites to find it. And this is an indication of what happened, but it’s also a strong indication of how well our pull model is working. And we have a pull model like that, it does help generally benefit your DTC business a little bit more.

Dave Powers:

Yes. Well, I will say, it’s exciting for us. We established this Deckers Lab innovation engine a few years ago with the help of Jean-Luc, who is one of the co-founders of HOKA. And that has been quietly building as a force for our pipeline for all of our brands. So some of the innovation you’re seeing in UGG and HOKA, and we’ll soon see some of that in Teva as well, has come from that. And one of the things we uncover is there’s an opportunity for a new kind of sneaker brand. So we would put this under the category of super sneaker brand. It’s pretty exciting. It’s more sophisticated in styling, it’s made for really all day wear, but it comes with a lot of the technologies that you would find in a performance running brand. So carbon plates, different foams, different more modern materials and cleaner lines, a little bit elevated price point above 200. And obviously, it’s early days. We’re excited to launch this into the market. I’ll let you know the name as soon as I’m allowed to, but stay tuned in the next few weeks, you’ll hear about the soft launch and then we’ll head into March and April in a more robust way and build from there.

Dave Powers:

Thank you.

Jonathan Komp:

Yes, hi, thanks. Good afternoon. One more question on UGG. In a different forum, Dave, I think you recently highlighted long-term potential for UGG to still double revenue, potentially without a time frame attached. So, Dave or Stefano, could you maybe share any more insights, how you think about those comments in relation to the long-term opportunity for UGG? And then just separately on HOKA, can you share any retailer feedback on the new styles, thinking about the Cielo X, the Skyward X, the Skyflow, just what are you hearing, especially on some of the premium product you plan to bring out? And any thoughts on sustaining leadership or still growing and core run specialty while you eventually, thoughtfully expand distribution?

Stefano Caroti:

Yes. On the Cielo X launch, we launched today, literally. So it’s a bit early to say how well it’s doing [indiscernible] results, they’re quite encouraging. But it’s early days.

Jonathan Komp:

Okay, thanks for that. Just one more, if I could sneak it in for Steve. Any comments on what bonus or incentive accruals look like in 2024, given the strong performance and just how to think about that potentially year-over-year in a more normal year for 2025? Thanks.

Jonathan Komp:

Okay. Thank you all, again.

Steve Fasching:

All right. Thanks, Jon.

Operator:

Good afternoon and thank you for standing by. Welcome to the Deckers Brands Second Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. [Operator Instructions] I'd like to remind everyone that this conference call is being recorded. I will now turn the call over to Erinn Kohler, Vice President, Investor Relations and Corporate Planning.

Dave Powers:

Thanks, Erinn. Good afternoon, everybody, and thank you for joining today's call. It's great to be here with you today to discuss our exceptional second quarter, where our two marquee brands experienced high levels of full-price consumer demand, leading to revenue increasing 25% versus last year, eclipsing $1 billion for the first time in our September-ending quarter, gross margin improving 520 basis points versus last year and diluted earnings per share increasing nearly 80% versus last year to $6.82. Our direct-to-consumer business was the fastest-growing component of revenue growth in the second quarter, increasing nearly 40% versus last year, with HOKA growing 46% and UGG increasing 38% as both brands experienced a greater than 30% global increase in consumer acquisition. Our global wholesale business also put up strong revenue growth in the second quarter, increasing 19% versus last year, again driven by our two largest brands, UGG and HOKA. Our wholesale accounts also continue to see incredible heat and momentum for our key styles across both brands. With this strong consumer demand, selling for wholesale in the quarter included some accelerated fall seasonal shipments, benefiting our first-half results, and increasing our confidence to achieve our outlook for the fiscal year. As we continue to focus on our strategic marketplace management, we are pleased to have captured this strong momentum of demand early in the year, particularly with these products capturing high levels of full-price selling across all channels. As we focus on delivering the full-year, I think it's important to reflect on our year-to-date performance. We closed out a record first-half for Deckers, with total portfolio revenue across all channels growing 19% versus last year, driven by HOKA revenue increasing 27% from global strength across its ecosystem of access points, UGG revenue increasing 18% primarily from gains across international regions and global DTC, total portfolio global DTC acquisition and retention increasing 29% and 27% respectively, and international revenue across all brands increasing 23% versus last year. While Steve will provide further details on our financial performance and related increased outlook later in the call, I'd like to emphasis how proud we are of the continued alignment of our strong near-term performance with Deckers' long-term objectives to build HOKA into a multibillion dollar performance brand, grow UGG through direct-to-consumer connections with elevated products and experiences, expand DTC through consumer acquisition and retention gains, and drive international growth through targeted investments. With that, let's get into the highlights of our successful first-half, starting with HOKA. Global revenue in the first-half increased 27% versus last year. This impressive result reflects the HOKA brand's successful marketplace management execution, which is driving more business to DTC in conjunction with market share gains from high full-price sale through at our existing points of wholesale distribution. HOKA revenue growth in the first-half was led by direct-to-consumer, which increased 54% versus last year, and represented 38% of revenue, up from 31% in the prior year. This was aided by global increases in brand awareness according to Deckers proprietary brand tracker study, consumer acquisition, which is up 47% versus last year; and consumer retention, which is up 52% versus the prior year, HOKA experienced significant growth in awareness across all major markets, with the U.S. growing to approximately 30%, and international regions, on average, rising to mid teens with much more room to grow. Specific to our gains in DTC in the first-half, consumer acquisition in EMEA DTC nearly doubled to help achieve a 75% year-over-year increase in channel revenue for the region. This represents great progress for our EMEA region. And though DTC remains a relatively small percentage of its total revenue, we see this expansion as a positive indictor that HOKA is increasingly resonating with the European consumer. As we have demonstrated in the U.S., thoughtfully building brand awareness through marketing activations and strategic marketplace presence served as a catalyst to DTC acceleration as the brand begins to take hold with the local consumer. To that end, HOKA recently opened its first European flagship store in Covent Garden in London, giving the brand a powerful presence in one of the most influential footwear markets around the world. In the U.S., HOKA continues to deliver exceptional growth. DTC revenue increased nearly 50% versus last year for the first-half, with strong growth among 18- to 34-year-old retained consumers, which increased 70%. We believe some of this demand was fueled by HOKA having increased resonance in the back-to-school timeframe with college-age students. Brand loyalty among this group is especially exciting given the increased potential lifetime value of repeat purchases. The HOKA marketing teams have done an exceptional job building global brand awareness through compelling Fly Human Fly campaign content, connecting with consumers at HOKA-sponsored events, and highlighting the incredible performances of HOKA athletes. We continue to sponsor key running events around the globe as part of our commitment to support the sport and provide a platform to showcase our innovative performance products. This includes events from 5ks to elite ultramarathons for all types of athletes around the world, allowing us to elevate the brand with pinnacle performance-minded consumers and also to broaden worldwide awareness of the achievements capable in HOKA products. This year's HOKA-sponsored UTMB or Ultra-Trail Mont-Blanc World Series Finals, held in Chamonix, France, is the perfect example of our team's 360-degree collaborative approach to building HOKA brand awareness and performance credibility. This trail running event allows us to celebrate the roots of HOKA, which was born in the French Alps, further connecting the brand with European consumers. At the UTMB World Series Finals, the HOKA team set up a base camp that offered consumers the opportunity to engage with the brand in a unique way through athlete meet-and-greets, 24-hour product testing, and shoe personalization. We received overwhelmingly positive feedback on the experience, and are already looking forward to leveraging these learnings at future events. HOKA made its mark on the event, both from a product and athlete performance standpoint, with several impressive achievements, including HOKA athlete Jim Walmsley making history becoming the first American man to win the Dacia UTMB, a 106-mile race that included more than six miles of elevation gain, completing the course in a record time of less than 20 hours. HOKA raking top among all brands with the most top-five finishes across the series of three races, and HOKA remaining the number one brand worn by UTMB participants. From a product standpoint, first-half HOKA growth was driven by a variety of categories and styles, which includes, among others; the Clifton franchise which benefited from the ninth addition launch as well as new successful lifestyle versions with suede uppers, stability staples like the Arahi and Gaviota franchises, the latter of which launched its fifth edition during the second quarter as we are seeing increased adoption of this category from consumers; trail and hike favorites, the Challenger and Anacapa franchises benefiting from new innovations incorporated in recent updates; speed shoes highlighted by the Rocket X Refresh and the all-new Mach X; and new lifestyle options including the popular Solimar and Transport styles. We remain encouraged by the breadth of category adoption across the innovative HOKA product assortment, which continues to evolve and attract new consumers to the brand. We are implementing greater segmentation across the ecosystem of HOKA Access Points to ensure our accounts are best positioned to serve their respective consumers and emphasize DTC as the pinnacle destination to experience the full depth of the brand's product offering. For the balance of the year, the HOKA team remains focused on executing its Marketplace Management Strategy which includes a focus on building global brand awareness and heat to increase demand which is helping to drive high full price sell-through at DTC and across wholesale allowing the brand to deliver healthy growth with best-in-class margins and inventory turns. Complemented by several new innovative product launches coming up in our fourth quarter, we expect HOKA to continue delivering strong results for the remainder of this fiscal year and well beyond. Now shifting to UGG, global revenue in the first-half increased 18% versus last year. The brand's strong first-half performance was driven primarily by high levels of brand heat, disciplined Marketplace Management leading to product scarcity on key styles exiting last Fall, and intentional pull forward of the brand's Fall marketing campaign relative to past years. We currently have the most cohesive globally aligned product, marketing, and consumer targeting strategy I've ever seen for UGG. Marketplace Management has been a core strength of the UGG brand for some time now. The allocation and segmentation of core and popular new styles continues to serve the brand well helping drive high levels of full price sell-through. Last year we shared that we did not fully capture demand on several key styles. As we began this fiscal year, we strategically developed targeted inventory that caters to the brand's most popular products and seeded the Fall marketing campaign, field Like UGG, in July as opposed to the typical September timeframe. From July 15th to August 15th, we saw a groundswell of influencer public service announcements reminding consumers to buy UGG now. Videos using hashtag UGG's received over 25 million views during that timeframe, and UGG saw twice the level of engagement on Instagram as compared to last year. We believe the UGG Team's strategic marketing shift served as a catalyst for earlier Fall consumer demand globally. In the U.S. specifically, this shift helped fuel greater back-to-school demand, with search interest increasing 46% versus last year, according to Google Trends. To keep this momentum going, at the tail end of September, UGG celebrated the official kickoff of hashtag UG season. with music superstar Cardi B, whose video announcement featuring the new classic dipper had nearly 20 million views. This resulted in significant press and media coverage of our launch, with influential publications such as Billboard and Vogue featuring UGG. Brand Heat, created by the UGG team, directly translated to incredible first-half results, particularly from the global DTC business and international regions, which both experienced a revenue increase of above 25% versus last year. Furthermore, UGG gross margins benefited from transitional and Fall products selling at full price during the second quarter. This dynamic is in contrast with prior years, with the brand's DTC business has historically been more weighted towards end of Spring and summer products that generally carry a lower average selling price. The Tasman franchise, including the Taz platform as well as the classic mini and ultra mini franchises have been the focal products of UGG's search interest and revenue growth in the first-half as expected. We are also excited that some of the new Fall franchises are beginning to resonate with consumers as well, including the aforementioned Classic Dipper, a key globally marketed style, the all gender hybrid weather collection, which includes modernized weather ready versions of the Tasman and Neumel, and the Lowmel, a sneaker hybrid take on the original Neumel. UGG is well positioned to capture consumer demand during the holiday season with great products like these. Considering the demand we've seen thus far, we are already in chase mode for a select group of popular items and colors, for which we are expediting production to ensure greater DTC inventory through the season. The UGG brand's first-half growth sets us up well, especially when factoring the signals of a weakening global economy and lower consumer confidence. Given this dynamic, we are glad to have captured some demand earlier to help reduce the pressure of competing with more promotional brands during this upcoming holiday season, as we see to continue selling premium UGG products at full price. Moving on to our discussion of consolidated channel performance, global growth was across both direct-to-consumer and wholesale, with DTC being the primary driver of revenue gains in the first-half, increasing 37% versus last year. Our portfolio experienced DTC strength relative to last year across consumers with acquired and retained increasing 29% and 27% respectively, brands with HOKA and UGG revenue increasing 54% and 26% respectively, regions with international and domestic revenue increasing 48% and 34% respectively, and channels as consumer demand was robust in stores and online. Additionally, we saw a double-digit increase in average selling price as a result of a greater mix of HOKA, higher full-price selling for UGG combined with a focus on fewer proven SKUs and more favorable foreign currency exchange rates. Regarding global wholesale, revenue in the first-half increased 11% versus last year, growth was driven by strength in UGG and HOKA as well as across both our domestic and international regions. Market share gains continue to be the primary avenue of wholesale growth for HOKA, which is now the top-selling brand in U.S.-run specialty stores in aggregate, according to third-party market sources. HOKA has also quickly become the top-running brand with key strategic partners in applicable doors. Our teams are extremely proud of the HOKA brand's top market share achievement, which further validates the brand's performance-rooted credibility. UGG wholesale performance in the first-half is right in line with our strategy this year, with international regions fueling the majority of growth, while the brand maintains its strong business in the U.S. With these first-half results, it is clear that our marketplace management strategies are working well, positioning our brands to excel during the holiday quarter and capture increased consumer demand across their respective ecosystems of access points. Before I hand it off to Steve to discuss our results in more detail, I'll note that we also announced our plan to divest Sanuk. At Deckers, we're focused on the most effective allocation of our resources that are in alignment with long-term objectives. Consumers have long valued Sanuk for its fun, innovative, and comfort-first products. Over the coming months, we will work to find the right owner to support the brand's next chapter while we continue to execute our growth priorities. Thanks, everyone. And now I'll hand it over to Steve.

Dave Powers:

Thanks, Steve. HOKA and UGG have delivered incredible results for the first-half, and we believe our company is well positioned to deliver on the increased full fiscal year objectives we outlined today. Marketplace Management remains paramount to the ongoing success of Deckers and our continued ability to buck industry trends as we build awareness and drive demand for our brands. Our proficiency in the implementation and delivery of strategic objectives is what truly differentiates Deckers as an organization, allowing our brands to create lasting consumer connections. We are focused on continuing to deliver meaningful consumer experiences with great products and dedicated to doing so with our long-term objectives at the forefront of everything we do. This approach, alongside our flexible operating model, financial discipline, innovation across fashion and performance brands, and our purpose-led culture are what empowers our highly engaged employees to deliver exceptional results and shareholder value. I'd like to thank our entire executive leadership team and all of our employees across the organization for their continued dedication to Deckers values as our company seeks to do good and do great. For more information on these efforts, I'd encourage you to read our forthcoming FY '23 Creating Change report, which launches next week. Thanks everyone for joining us here today and thank you to all of our stakeholders for your continued support. We look forward to continue sharing the exciting future ahead of Deckers. With that, I'll turn the call over to the operator for Q&A. Operator?

John Kernan:

Excellent. Congrats on a phenomenal quarter. And I guess wanted to hone in on – obviously, tremendous momentum as you go into Q3. Q3 is almost 50% of the full-year sometimes in terms of total revenue. So, just curious, given all the momentum you see, particularly in DTC in Q2, how should we think about UGG in the back-half of the year, and particularly Q3?

John Kernan:

Got it. May be one quick follow-up just on the margin profile in the back-half of the year. It looks like SG&A dollars are planned out on a growth basis pretty significantly. Can you just talk to some of the investments you're making behind UGG and HOKA?

Steve Fasching:

Yes, John, this is Steve. I think just to kind of further on Dave's comment, what we've said now for a number of years is that, I think, one, we're very well financially disciplined as an organization, and we're very careful about where we're placing investments. And I think an indication of that is the increase in the operating margin that we're now guiding to. And so I think we're taking these times of performance and using that to invest in the business. And that's what we've been saying for the past few quarters, is that trust us, we're going to make the investments in the right places. We know that sales have been outpacing what we originally thought. And so, we are making the proper investments, as Dave said, in the business that continue to drive these levels of sales. I think we're demonstrating marketplace management, disciplined investment approach, and that's the way we're operating, and even with that increased investment, leveraging some of the increase in the gross margins to lift our profitability for the year. So, we're doing it in a very strategic, thoughtful, disciplined way.

John Kernan:

Got it. Thank you.

Operator:

Our next question comes from Jonathan Komp from Baird. Please go ahead.

Dave Powers:

Yes, great question. I'm glad you asked that. So, to put a little bit color on how we're thinking about the launches in the second-half in the year, we're strategically pushing launches into the Q4 timeframe. That's when we really get into the beginning of the spring/summer season, when running starts to kick in again. Traditionally, the holiday season is kind of less exciting, so to speak, still a lot of volume to do. But we want to make sure that we come out really powerfully at the beginning of spring, next year in our Q4 timeframe. It also allows us to stay out of the fray of the promotional marketplace in Q3. So, we're anticipating that, particularly in the athletic space where there's a lot of situations where it's over-inventoried with a lot of inventory in the channel and the slowdown of the marketplace, we feel we're better to stay above the fray, so to speak. I don't want to launch two of our major innovation launches coming in Q4 in Q3 when there's a lot of markdowns and promotions going on. So, the teams have strategically decided to push those launches to Q4. I can tell you the innovation that's coming out in two of our launches are incredibly exciting. And then we'll address how the oversized trends are evolving for us. And we're taking that very seriously. We don't want to lose that dominant position in the category that we created. There is a lot of activity, obviously, from competitive brands going in that direction, some good, some bad. But the bottom line is we're not as differentiated as we were three or four years ago with that type of profile. But our technology, our focus on materials and geometry, product testing, new use of plates, different foams, different compounds, et cetera, continues to be at the forefront of everything we do. But we are addressing the fact people may want a little bit of low profile, they want different uses for their product. We think there's a tremendous opportunity in trail and hike, we're going to go heavy after that. We have a dominant position in that already. So, it's top of mind for the teams. I think Stefano, as the interim president of the HOKA brand, with the brand leadership team, has done an exceptional job of fast-tracking our innovation pipeline, and we're excited to unveil some of those new concepts coming up in Q4.

Dave Powers:

Yes. I think the team here is really maintaining a healthy marketplace for the HOKA brand. And listen, HOKA is having an exceptional year. You saw the results in the first-half of the year. On a promotion event or level, we were dominant at the UTMB event this year. In Chamonix, France, our athlete won the race, first American male winner ever in that contest. Two weeks later, our athlete won the Ironman Championship in Nice, France. Actually just today, it was announced by Footwear News that HOKA is the brand of the year. You're seeing the increases in awareness in acquisition from our consumers. Our full-price selling is exceptional. We're still dominant in the run specialty channel. We've got tons of momentum here, and we want to make sure that it doesn't get ahead of us, and that we manage the marketplace effectively to continue to drive strength in DTC. And I think the strategy that the teams have laid out and the cadence of product introductions and innovation is spot on. So, a lot of reasons to be excited, but the same time we're not naïve to the fact that this sector is having some challenges right now. And Q3, as people are talking about the fact that it may be really tough, we haven't quite seen that just yet. But again, it's a sector economic issue that we're going to pay close attention to, but we want to maintain scarcity in the marketplace, full-price sell-through, and keep this brand moving in a healthy pace.

Steve Fasching:

Yes, I think it's a good question. And yes, as you're looking to second-half, part of this is recognizing that part of Q2 was benefiting from earlier sales of planned sales that we had in the second-half of the year, right? And so, while we're raising our overall year, it's not the full beat of that what we've experienced in Q2 because some of those sales at this point in time appear to be timing. We'll see how the marketplace plays out kind of in the back half, but combined that with some of the timing of back half sales moving into Q2, passing through what we think is a full-year lift, it is taking some of the sales out of the back half a little bit. But with the overall improvement in the year, and as you know, John, I keep saying, we're focused on the year, not quarters. We are lifting our full-year, we're lifting our full-year gross margins, we're lifting our full-year operating margin. So, like Dave said, we're managing the business for the long run. We're not managing the business on a quarter-to-quarter basis. We look at the full-year, that's how we're guiding the full-year. And some of that outperformance in Q2 is allowing us to make these additional investments.

Operator:

The next question comes from Paul Lejuez of Citi Research. Please go ahead.

Steve Fasching:

Okay, Paul. Some of that was a little hard. I'll take my best shot. It's Steve, so on the HOKA DTC business, strong, very strong Q2, up 46%. And we look at that factor as the real true demand signal. We know there are going to be fluctuations with wholesale orders of when they flow. And so we closely watch the DTC performance. And having that up 46% in Q2 is just another strong demonstration of how well HOKA is resonating with consumers, so very encouraged by that. I think as we've said, and as Dave just articulated kind of how we're thinking about Q3 and back half, managing the marketplace, we don't want to get into a promotional environment. We know there's a lot of competition out there that's over inventory. We're seeing a lot of promotion. HOKA's not in that space. We're not having to promote like other brands are. And so how we continue to build this brand forward and then build toward a bigger fourth quarter type increase on percentages terms as we have those new style intros planned for Q4. And then your other second question was chasing, do you want to go Dave?

Steve Fasching:

Yes, and I think Paul just add to that, one of the things with the strength that we've seen in Q2 on some of the styles that have been very popular and we're selling down the inventory. We are looking to expedite some of that back in but there's a limit, right and we won't necessarily be able to chase every sale nor would we want to chase every sale. So we'll see how things play out. But we're set up very well. It is the driver of our full-year increase. So we're very encouraged going into the back half of the year.

Steve Fasching:

Thank you.

Sam Poser:

Thank you for taking my question guys. First of all, Erinn, you've got most of it but Teva, Sanuk and other are my normal question and then I have a whole bunch of questions.

Sam Poser:

Okay. All right, so just skip this out of the way. With Sanuk, are you going to take that as a discontinued operation and going to the balance of the year or how should we think about that in the guidance and so on?

Sam Poser:

Okay, and then with the way this is flowing in the back half, was there a lot of pull forward in the UGG Wholesale business? I mean, should we expect UGG Wholesale, especially in the third quarter, to be down given how much came in in Q2?

Dave Powers:

Yes, and I think what is still to be determined is how much of the upside in we captured in Q2 was just earlier demand or brand heat that will continue through Q3. And so either way, I think we're positioned well, depending on how the market moves. But at this point, the demand seems strong and healthy, and we think it should continue. But as we said, we're heading into an unknown macro environment that's hard to say what it's going to look like. But we're optimistic that some of that demand was brand heat that will continue through Q3.

Dave Powers:

Yes, so Sam, it's a good question. And there's kind of different ways to look at it. So, I think, as I said, and Dave has said, we haven't changed the way we're looking at HOKA for the year. So, I think kind of that's most important. Remember, the underlying fundamentals of that is a very controlled wholesale marketplace, right? And so, as we think about Q3, as Dave talked about, we are controlling wholesale in that Q3 period, because we want the market to be seen as we're launching some new product in Q4. So, I think that's an important underlying. The other then is, remember, we had very large DTC comps a year ago. So, when you're looking at some of those -- our DTC comps last year, Q3 was 107. I think Q4 was like 97%. So, we're coming off of very big growth quarters a year ago. So, that's the other thing to consider, right, as we're talking about this. So, there's growth. Then the other thing, I think, to take into account is what we've said about full-year growth. So, as we've said full-year growth, our first-half has exceeded that average full-year growth guide number, which means, by definition, the second-half is going to be a little bit lower, because we're controlling, again, that wholesale component of the marketplace. This is part of our strategy. Now, as we talk and some of our partners have discussed, there will be some wholesale expansion at the end of our Q4, right? So, that won't necessarily get captured in our back half, but it's a setup for next year. So, again, everything is playing out like we've said. The brand continues to perform very well, and I think there are some dynamics that are in there that are important to understand, but most importantly is the brand continues to perform very well.

Sam Poser:

Got you. And then lastly, Dave, you've been now, how long at Decker's?

Sam Poser:

Does that make you the elder statesman?

Sam Poser:

So, you weren't in charge of that collaboration?

Sam Poser:

Okay, all right. Thanks very much and have a continued success.

Steve Fasching:

All right. Thanks, Sam.

Laurent Vasilescu:

Good afternoon, thank you very much for taking my question, and congrats on such solid results. I wanted to ask about HOKA. Dave, I think you mentioned that HOKA International grew 44% in the quarter. If that's the case, maybe can you just give a little bit of color, just what you saw by region, what's driving that growth? I think you mentioned a little bit about Europe, but how did you think -- how did you see the growth between wholesale and DTC? Was there a spread between that internationally? And maybe, Steve, I don't know if you can maybe give us some guardrails of how you're thinking about international HOKA growth for the year.

Steve Fasching:

So, Laurent, I think the number you quoted was total company international DTC growth. So, we didn't provide the HOKA component. So, the total 44%, I think that you quoted, was total company international DTC growth. I think then, just your question on HOKA to me was a little bit about how do we see HOKA internationally expansion --

Steve Fasching:

I think what we see, some of the trends that we're seeing, are similar to what we saw in North America probably a year or 2 ago, right? So, how we're seeing HOKA show up in the run community and then beyond the RUN community is similar, but further behind. And so, this bigger expansion, or faster growth in percentage terms, is another indication that that seems to be the case, that we're seeing the HOKA brand resonate with consumers, kind of starts with runners, RUN community, and begins to build out as awareness grows. Very similar trend to what we've seen in North America. So, in that international arena, we're a little bit behind where we were. Still very early innings for both domestic and international, but a little bit earlier on internationally, and that's why we're seeing those growth percentages high in total company, but you can extrapolate that to the HOKA brand as well.

Laurent Vasilescu:

That's great to hear. Thank you for that. And then, Dave, I think last quarter during the Q&A, you alluded to the launch of a new brand, that might be small, but maybe just can you give us an update where that stands and with the potential divestiture of Sanuk, does that give you capacity, just bandwidth, time, resources to potentially pursue M&A at the same time of launching a new brand?

Laurent Vasilescu:

Very helpful. Thank you very much for taking the questions.

Operator:

Our last question today comes from Janine Stichter from BTIG. Please go ahead.

Dave Powers:

Yes, good question. So, HOKA Performance, new doors that we have opened up are performing very, very well. I was talking to Stefano, who's overseeing that brand, right now the new doors that we've opened over the last year, new accounts, all performing very well. High level of full-price sales, strong turns, scaling market share, run specialty stores where we have a number one position there that we're fighting every day to maintain and we want to build out in that position. But new doors and Foot Locker and DICK's and JD, et cetera. They want more. So that's a good sign. And the way that we're performing those doors is right in line with what we would have hoped would happen. But we're managing it tightly as we have been doing so that we maintain full-price selling at healthy turns and gross margins for our partners. It's a good question on the type of consumer, Foot Locker, as an example was a strategic play, not just from a volume play, but also strategic to reach a younger lifestyle consumer, both male and female. And we're seeing that happen. I think some of the success in Q2 was probably back-to-school business that we hadn't really realized before. And with our focus on 18 to 34-year old consumers and college athletes, we're seeing that pay off. And so it's exciting to see high school athletes and college athletes and beyond gravitating to our brand, going to those doors, looking for the brand, making the choice of HOKA over a traditional Nike Dunk or Air Force 1. That's super exciting. We're going to keep a close eye on that because we don't want that to be a big spike and then go away. So we need to manage that tightly and the lifestyle teams are all over that and working with our accounts to make sure that it's a healthy business for the long-term. And then on UGG International, similar to what Steve was saying in HOKA, UGG is an international, particularly in Europe, is at the point where UGG was a couple of years ago, really healthy, strong growth. They've been working hard on local marketing activations and leveraging PR in the region. And the new product is resonating extremely well across the board, but particularly with younger consumers there. And it's really exciting to see. And we haven't been in this position in Europe quite some time, but the momentum is real. The brand heat is improving. The level of acquisition and consideration for our consumers are all heading in the right direction. So we think this is an opportunity to build on this, particularly in the U.K. and Germany, our two biggest markets and we're going to continue to play this playbook out and get more aggressive with marketing activations in the region.

Dave Powers:

Thank you.

Operator:

Good afternoon and thank you for standing by. Welcome to the Deckers Brands First Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. [Operator Instructions] I'd like to remind everyone that this conference call is being recorded. I will now turn the call over to Erinn Kohler, Vice President, Investor Relations and Corporate Planning. Please go ahead.

Dave Powers:

Thanks, Erinn. Good afternoon, everyone, and thank you for joining us. I'm pleased to be here today to discuss another strong quarter for Deckers, starting off fiscal 2024 on the right path as we build towards delivering another year of great results. Our results give us increased confidence to achieve our updated outlook for full fiscal year 2024, which includes a raise to our prior expectations. For the first quarter, our performance slightly outpaced our expectations, with revenue increasing 10% versus last year, to $676 million, gross margin improving more than 300 basis points including beneficial brand and channel mix dynamics, and diluted earnings per share growing 45% to $2.41. Revenue growth versus last year was driven by our key areas of focus, with global HOKA expanding 27% to deliver $420 million, global DTC increasing 35% to represent 37% of portfolio revenue, up from 30% last year, and international UGG delivering strong growth. As anticipated, we had some offsets to the growth in the quarter due to timing dynamics in UGG U.S. wholesale, with accounts choosing to receive products for it later into the year as opposed to a frontloaded preference we saw in the last couple of years. As we look to best manage our wholesale account product flow, we also continue to monitor marketplace inventory levels to maintain a healthy omnichannel presence that services our end consumer in the best way possible, and preserves the premium nature of our brands. Our ability to propel the targeted opportunities of global HOKA, global DTC, and international UGG further demonstrates the success of our omnichannel marketplace management and strategic investments. We will continue to remain nimble in execution, as we always have, to deliver strong results on both the top and bottom line. With the continued execution of our long-term vision, we believe Deckers is emerging as a leading creator of compelling consumer connections through highly desirable products that infuse disruptive innovation across both fashion and performance. As a reminder, our long-term strategic vision remains focused on building HOKA into a multibillion-dollar major player in the performance athletic space, growing the UGG brand by connecting with consumers through elevated experiences and a segmented product offering, expanding our DTC business through consumer acquisition and retention, and driving international growth through strategic investments. Steve will provide further details around our increased forward-looking expectations later in the call. In the meantime, let's dive into the brand and channel performance for the first quarter of fiscal year 2024, starting with the brand highlights. As mentioned, global HOKA revenue increased 27% versus last year, to $420 million, a quarterly record, and the first time the brand eclipsed $400 million in a single quarter. The HOKA brand's well-managed ecosystem of access points continues to flourish. DTC was the primary growth driver in the quarter, increasing 63% versus last year, and accounting for approximately two-thirds of total brand growth. DTC growth was broad-based as each region grew the business more than 50% versus the prior year, global consumer acquisition increased 58%, global consumer retention increased 57%, and 18 to 34-year-old consumers in the U.S. increased 68%. This exceptional DTC demand resulted in an improvement in gross margin as HOKA maintained high levels of full-price selling, and continues to benefit from shifting a greater proportion of revenue mix to DTC. While the HOKA brand's DTC business is still predominantly ecommerce, our select retail stores are augmenting the brand's presence by increasing awareness and brand engagement with a physical presence in key strategic markets, creating personal consumer connections through community-oriented experiences, and broadening category adoption by showcasing the depth of the HOKA product offering. For these reasons, we expect to continue testing potential permanent locations through pop-up stores. We are excited about a couple of new doors that are in the pipeline, and look forward to sharing more soon. From a wholesale perspective, HOKA continues to drive growth and manage the marketplace to build market share in existing points of distribution, maintain high levels of full-price sell-through, increase category shelf space through differentiated products, and expand brand awareness with a broader consumer demographic. HOKA has preserved high levels of full-price sell-through, and remains one of the fastest turning brands within the majority of its wholesale accounts. We continue to tightly manage the marketplace inventory and closely monitor HOKA key performance indicators in the channel to ensure the brand maintains its premium positioning across its ecosystem of access points. As excess consumer demand materializes, we prefer that HOKA satisfies upside through the brand's DTC business, which is what we saw happen this quarter. We are encouraged by the momentum that HOKA has sustained across its distribution landscape, and continue to make investments to build awareness and affinity for the brand across key markets. In June, HOKA launched the second edition of its Fly Human Fly global marketing campaign, and is already seeing the benefits of this upgraded rollout. This edition of the campaign was designed to reinforce that HOKA stands for joyful and inclusive performance at its highest level. As campaign content and activations continue to roll out across the globe, HOKA has seen a powerful response from consumers in the first few weeks, including robust growth in online engagement across social channels and digital platforms, especially with the release of the campaign's focal film, titled, Murmuration, which embodies the brand ethos of moving together. Heightened attention brought directly to HOKA.com with the vast majority of digital campaign asset clicks yielding first-time visitors to our brand's ecommerce platform globally, more than doubling the conversion rate of HOKA.com landing page visitors, and significant impressions from out-of-home activations. We are optimistic about the reach and broad appeal of this campaign as HOKA continues to introduce itself to new consumers around the world. And the brand is as visible as it has ever been, with connected TV advertising, billboards, special running events, and several compelling activations in the pipeline. On the heels of the Fly Human Fly campaign rollout, HOKA launched the all-new Mach X, which was designed for propulsive everyday running, and features high-rebound cushioning and a Pebax plate. Mach X media content was seamlessly weaved into the Fly Human Fly launch. And HOKA further celebrated this innovative product creation with several regional activations to aid Mach X awareness, including a demo run, in Germany, where participants were challenged to run as far as they could for 30 minutes, a sprint relay in France across a two-kilometer loop, in [Les Deux, Chamonix] (ph), a college event in Eugene, Oregon, hosting demo community runs to celebrate the U.S. Track and Field Championships, and a two-day HOKA experience clinic at our retail store in Japan, and at a popup location in Thailand. These global events, combined with the connected TV, social media, and digital out-of-home content have created significant energy behind the HOKA brand's latest shoe innovation. The Mach X was treated as an exclusive launch in our own DTC channel, and with our run specialty partners as we continue to work towards greater segmentation of the HOKA brand's compelling product line. Just a few weeks into the second quarter, the Mach X is close to cracking the top 10 sales globally on HOKA.com, and we are getting great feedback so far from our run specialty partners. HOKA continues to build a bigger business through the expansion and increased adoption of its lineup of innovative products. We see the Mach X as an incremental addition to the already stellar portfolio of our footwear, led by the brand's most popular styles, Clifton and Bondi. The Mach is a great example of franchise development where the team has innovated upon the original Mach which continues to perform exceptionally well, by introducing the snappier and more competitive version, the Mach X. It is with this approach to product line management that HOKA is able to broaden the aperture of HOKA consumers, while maintaining pinnacle positioning in the performance athletic space. HOKA has an amazing roster of athletes around the world who are competing at the highest level, and achieving incredible results wearing commercially available versions of our shoes. During this past quarter, HOKA athlete, Cole Watson finished first in the Canyons Endurance 100K wearing the HOKA Tecton X carbon-plated trail running shoe. Congratulations to Cole who, with this victory, punched his ticket to the UTMB Mont-Blanc, a HOKA-sponsored event to be held in Chamonix, France, at the end of August. Moving to UGG, global revenue in the first quarter decreased 6% versus last year, to $196 million. As expected, this decline resulted from lapping earlier wholesale shipping patterns over the last couple of years in the U.S. UGG was able to offset this challenging compare in the U.S. with the strength of the brand's international regions. International strength was broad-based across multiple regions, and in both wholesale and DTC channels. In particular, our EMEA region, as well as China, which benefited from lapping lower demand from lockdowns in the prior year, drove above average growth. These regions found success attracting consumers with more transitional styles, like the Ultra Mini, Tasman, and Classic Mini, as well as seasonal franchises, like the Goldenstar and LA Cloud. We are encouraged by the continued progress of international regions to increase the adoption of key global franchises year-round. Part of the excitement behind these franchises is being driven by the brand's more focused approach to product marketing, creating greater global alignment of key stories. With this more focused approach; UGG is maintaining high levels of brand heat with more consumers actively searching for the brand. During the first quarter, online search interest across Europe increased 60% versus last year, with outsized strength in the U.K. and France. The same is true in the U.S., where search interest increased 21% versus last year according to Google Trends. UGG brand momentum also benefited from this spring's Feel House activation at Coachella. The Feel House, first launched in the fall of 2022, is a multisensory community experience dedicated to making self-expression comfortable for all. UGG invited individuals from around the world to experience this latest iteration of the Feel House, which was designed as an oasis for creatives, in Palm Springs, California. The Feel House was decorated with signature artwork from New York City-based artist, KidSuper, who partnered with UGG to design a quick-strike collaboration of the Tasman X, whose global activation drove significant press coverage with the likes of influential publications, such as Esquire, Teen Vogue, Daily Mail, and Hypebeast. As a result of the UGG team's continued brand activations and compelling products, UGG global DTC increased 6% versus last year. UGG experienced consumer demand both in stores and online. We have been particularly excited by the interest of consumers who are shopping in person, especially during the spring and summer seasons. We believe this dynamic is partly attributable to the development and greater adoption of transitional franchises that embrace the brand's heritage DNA and have greater year-round wearing occasions. By maintaining this momentum, the entire UGG product portfolio benefits, especially in our stores, where consumers can feel and directly engage with the broader product offering. For this reason, and in line with our focus on elevate the UGG brand in an influential international market, subsequent to quarter-end, we opened our newest flagship store in the high tourist traffic Harajuku shopping district of Tokyo. With the first quarter behind us, we remain confident in executing the UGG plan we outlined for fiscal year 2024, evidenced by the continued momentum of global markets as consumers actively search for UGG, growth of global direct-to-consumer with improved margins from full-price business, and strength of iconic silhouettes like the Ultra Mini and Tasman driving year-round excitement. Entering the second quarter, the UGG team is working hard to state its global omnichannel marketplace to connect with consumers through engaging experiences in the autumn/winter season. To execute this vision, UGG will be expanding on and embracing the celebration of culture and community by creating meaningful experiences, such as the Feel House, that serve as an invitation to develop and emotional connection with the brand. This fall, UGG will celebrate its brand heritage through consumer-centric moments around the world, with new winter lifestyle-themed Feel House executions, an exciting new winter product aimed at capturing more of the winter fashion and resort-focused consumer. Shifting to our discussion of consolidated channel performance, global direct-to-consumer drove first quarter revenue growth, increasing 35% versus the prior year on a reported basis, and 33% on a comparable basis. Strength in the channel was driven by continued increases in HOKA consumer acquisition and retention globally. HOKA consumer growth was robust across regions and various age demographics, with outsized growth among international markets and the 18-34 year-old cohort, which remain key targets for us. The UGG DTC business also experienced growth, driven by more than 20% increase internationally, that benefited from China catching up from lockdowns in the prior year. The strength in China resulted from increased adoption of both sneaker and sandal styles. From a wholesale perspective, global revenue was down 1%, as gains in HOKA were offset by UGG U.S. shipment timing realignment to pre-pandemic cadence, as well as a continued focus to manage the marketplace inventory of our brands to maintain high levels of full price selling in this more promotional consumer landscape. Overall, we are pleased with the China results, which reflect the power of our marketplace management strategies that continue to benefit our wholesale partners, DTC business, and ultimately Deckers bottom line. With that, I will hand the call over to Steve to provide further details on our first quarter financial results as well as our increased outlook for fiscal year 2024. Steve?

Dave Powers:

Thanks, Steve. Fiscal year 2024 is off to a nice start, with HOKA continuing its strong momentum, and the balance of our brand portfolio on track to our full-year expectations. While keeping our long-term strategies top of mind, we are operating fiscal year 2024 with a sharp focus to prioritize DTC growth across all of our brands, while managing wholesale marketplace inventory to drive online acquisition in a high level of full price selling, expand HOKA brand awareness globally, lead with UGG products that are proven to resonate with global consumers, thoughtfully manage inventory to align with consumer demand, and invest in enterprise infrastructure in key strategic growth areas. We believe Deckers' unique ability to introduce exciting innovation into both fashion and performance products, is why our differentiated brands are able to create lasting consumer connections. This along with our financial discipline, agile operating platform, exceptional marketplace management and purpose-led culture allow us to continue to deliver best-in-class results, and exceptional shareholder value. On behalf of our management team, I would like to thank our employees for their continued dedication to delivering results and making Deckers a great place to work. And I would also like to thank all of our stakeholders for their continued support. With that, I will turn the call over to the operator for Q&A. Operator?

Jay Sole:

Great, thank you so much. My question is on HOKA. You talked about, obviously, really strong DTC performance for HOKA in the quarter. Can you just talk about a little bit what you say at wholesale, and then talk about what you're seeing for the rest of the year? And really just going back to the quarter for a second, just talk about some of the drivers of the HOKA growth just across channel in terms of product that would be great? Thank you.

Jay Sole:

Got it. Okay, thank you so much.

Operator:

Thank you. And our next question today comes from Laurent Vasilescu with BNP Paribas. Please go ahead.

Dave Powers:

I can speak to that, and then, Steve, you want to get into specifics.

Dave Powers:

Yes, this is -- like we're doing with everything else in our marketplace, we like to test and learn. And when we see positive signs we like to go fast and capture opportunities, and so far, very good on retail. Fortunately for us, we know how to run retail stores based on our legacy of UGG retail stores over the last 20 years, we have the operations globally to do it, and we're leveraging that platform exceptionally well. The stores that we have opened, both pop-ups and permanent, are exceeding or on plan, no concerns as of this point. But we do want to take it slow. We want to make sure we're not overextending ourselves; we're going into markets that are accretive to the overall marketplace strategy, but are also creating awareness to important consumers in key locations around the globe. We need retail to work in China. We can't have a distributor business with partners if we don't know how to do retail very well, so we're fine-tuning that. But, so far, the partners are pleased. We're very positive and optimistic about our own retail stores there as well. Excited to open our first permanent store in New York City, feedback from that has been exceptional. And I think for us, now, it's really about fine-tuning the experience for the consumer in the stores. So, the operations and the behind the scenes, we have dialed, but we want to make sure this is an exceptional experience for the consumer beyond just the product. We're looking at holding events and run clubs, and making sure that there is engagement with the community in these stores as well to drive renewed interest or renewed -- sorry, I should say repeat visits from existing customers, but also creating awareness and showing the full breadth of the line for new customers to the brand. So, off to a good start. Small in the scheme of things at this point, but we see upside here. And as far as size of stores and how many, we don't have a number put on that yet. It all depends on how the marketplace evolves. But DTC is our primary objective here. And using our stores to grow online, and vice versa. But you'll see a handful of key stores being opened in key cities and locations as we go, and continuing to leverage our popup and test model before we make long-term commitments.

Laurent Vasilescu:

Very helpful, thank you for all that color. And then just as a follow-up, I think Stefano was elevated to Chief Commercial Officer, in April.

Laurent Vasilescu:

Just curious to know if you have any update with regarding a permanent find for the brand president for HOKA. And then just another -- sneaking in one more question. You've got $1 billion of cash on the balance sheet. Can you just remind us your capital allocation [technical difficulty] audience?

Steve Fasching:

And then just on the capital allocation question, no change in terms of how we're thinking about it. Clearly, like to operate from a position of strength, so have an incredibly strong balance sheet, especially in current times, I think that serves us well, constant conversation with our Board in terms of how we're looking at capital allocation. But as we've indicated over prior quarters, we have been and look at share repurchase as a great way to return value to our shareholder base. So, we'll continue to look at that and evaluate that. But yes, in terms of how we're thinking about it, no change. And we'll continue to have conversations with our Board.

Steve Fasching:

Thank you.

Sam Poser:

Good afternoon. Thanks for taking my questions. Erinn, I think two of the five have been answered. So, can you give me -- well, can you give me wholesale for every brand, please?

Sam Poser:

Okay, thank you. So, either Dave or Steve, on HOKA DTC, can you give us some idea of what you're looking at for the full-year there, given that's going to be the big driver of this? Are we going to have -- I mean, is there going to a 4 handle on it, a 5 handle on it, the growth?

Sam Poser:

[Multiple speakers]

Sam Poser:

Thanks. And then lastly, you're investing a lot in the SG&A, but you tend to roll it forward. Is this going to be another year like normal, where you don't really see that leverage on all that SG&A until we come out of the -- you can't really roll it out of the fourth quarter again? Are we looking at it the same way?

Dave Powers:

Yes, and I think, this is from my perspective, I want to make sure that we have the operations at Deckers to take this business to $5 billion, $6 billion over the coming years. And so, we want to make sure, and I've said to my leadership team that we need to focus on infrastructure investment, innovation, the systems, data accessibility, global supply chain investments, DCs, that so we are ready for the growth when it continues to come. And in the past, some quarters we've pushed out marketing spend because we didn't need it to hit our numbers, but we're rethinking this. We're much more strategic now. We want to make sure we're doing more activity at the top of the funnel, connected TV, et cetera. And we have some great created from both HOKA and UGG that you'll on connected TV this coming season, in fall. And the ELT is completely aligned on where additional SG&A opportunities are going to go and how we prioritize them. So, if we see signs that there is opportunity to free up some more spend for some of these strategic initiatives, Steve and I are looking at it quick, we're allocating the money fast so that teams can get on with it and create more upside. But I am excited about the opportunities of marketing for HOKA specifically, but also UGG, and UGG men's, and some new exciting product launches coming this fall for both of them, and on the marketing side too.

Dave Powers:

Thanks, Sam.

Janine Stichter:

Hi, good afternoon, everyone, and congrats on the great quarter, and thank you for taking my question. I wanted to ask about the wholesale environment in the U.S. really for the UGG brand. Understanding the tough multiyear comparisons you have there, I'm just wondering what you're hearing from your wholesale partners, both on their broader ordering patterns, and then specifically on sell-through for UGG? Certainly hearing it's tough out there. And then also wanted to hear more about the UGG transitional franchises, sounds like they're working really well on DTC, but wondering what the appetite is for that product at wholesale? Thank you.

Janine Stichter:

Great. And on the SKU count reductions, are there any potential gross margin savings that might go along with that?

Janine Stichter:

Great, thanks so much.

Operator:

Thank you. And our next question comes from Paul Lejuez with Citi. Please go ahead.

Steve Fasching:

Kelly, this is Steve. I think on the quarter, we pretty much delivered kind of to our expectation. I know some of the models may have been a little bit higher than we were. My guess is where you may have been a little bit higher was around a promotion assumption and potentially a foreign currency assumption. When we look at the 330 beat, that's a pretty substantial beat, in line with what were thinking. Just to give you some sense of how that broke down, the freight channel mix in brand was around 450 basis points of it, and that was offset by about 100 basis points which was a mix of promo and foreign currency. So, just depending on how you factored that into your model, but generally speaking, in line, but yes, as we mentioned we did do some closed out to seasonal items in Q1, which is impacting that gross margin.

Dave Powers:

Yes, it was sum of both in the quarter.

Dave Powers:

Sure, Kelly. There is a lot in there. Let me try to thrive some of that. So, you are right, we did do, and Italian distributor conversion, so that is impacting. A year ago Q1 would have picked up the distributor order, which would have covered multiple quarters in the wholesale model. So, you are seeing some kind of delay of those sales in the Italy market. We have not talked about how much that is, but not a huge number and a Q1 impact, but safe to say, within millions of dollars in terms of what the impact was. But you will see pick up in the wholesale business later. So, that was impacting some of the wholesale distributor growth in Q1. Then the other parts of your question were…

Kelly Crago:

Yes…

Kelly Crago:

Yes, pretty much.

Steve Fasching:

But no real change in strategy.

Kelly Crago:

Got it. Thank you.

Operator:

Thank you. And our next question today comes from Jonathan Komp with Baird. Please go ahead.

Dave Powers:

Yes, let me grab my LRP necessarily. That's just generally speaking, like, my job as CEO I need to be looking three to five years out, you know, and based off where we are today and on the cash flow hitting $4 billion mark, my head is like, "Okay, so do we get to $5 billion and $6 billion, what it's going to take from the team perspective and infrastructure perspective, category expansion, all those things." So, when I put out, say, $5 billion or $6 billion, that's just generally thinking, "Hey, down the road, we are going to get to these numbers. I don't have anything to share with how that is." But certainly if you put the pieces together you could see it happening as well, with the current growth we are seeing. In HOKA, I think you're going to see a resurgence of UGG over the coming years in Anne's leadership, and hopefully we get Teva to be a meaningful number in the coming years as well. So, it's within line of sight for sure, but I don't want to put a timeline or brand mix or any of that yet, it's early days, but the opportunity we see is this company to be a $5 billion-$6 billion business over time for sure.

Dave Powers:

Yes, we are in the transform; myself right now have trouble finding it honestly. So, that one surprised us. I was actually little bit skeptical about how that was going to received in the marketplace. It's not necessarily positioned as a performance shoe, although I do running it and work out in it, and so, it's very versatile. But I think it's showing us that there is more aperture and appetite for HOKA to being meaningful in the lifestyle space, whether that is color ups or fabric changes or design details and some of our franchise styles. We pull things out of the vault. I mean we're 10-year-old now, we have things actually in the vault that customers ask for. But there is opportunity for new styles like the Transport and the TransportX that we tested this year. And we think that there is emerging opportunity in lifestyle, it's not just people wearing a running shoe anymore, they want shoes made for all day wear, that feel like running shoes, but have a little bit of a different aesthetic, and we see a massive opportunity there not only within the HOKA brand, but we are working on launching a new brand actually in Spring's timeframe, to go after some of that opportunity as well. So, as far as category growth, right now if you ask Stefano and the team, we are focused on being to maintaining our dominant position in run, we want to be number one in hike and trail over the coming years. We think that's a tremendous opportunity, and that's an important category that's growing within the category, but also has lifestyle implications as well, and then really cultivating the lifestyle, distribution and consumer with performance product that has a little bit of a different aesthetic. If you think about down the road, different categories, we are exploring other categories as well, and those things take time to develop. So, we are having the teams on the sidelines looking at different opportunities, like different categories, whether it's court shoes or whatever that maybe. But we are thinking that way for the long-term, but right now we are really focused on run, hike and the lifestyle opportunity.

Steve Fasching:

Yes, I think if you are looking back kind of two years ago, the big difference will be around just the promotion assumption. So, that was pretty clean, I would say, very clean selling in terms of hardly any promotion. You are right; as we are looking at the HOKA contribution increasing we are going to continue to see an increase. As we see a higher proportion of DTC increase, we will also see gross margin expansion. So, what you are seeing, I think this year from where we were a couple of years ago, similar assumption around promotion and we will see how that plays out this year, and then going forward beyond that is higher proportion of HOKA should continue to give us some gross margin expansion opportunities as well as the higher proportion of DTC business.

Operator:

Thank you. And our final question today comes from Dana Telsey with Telsey Group. Please go ahead.

Dave Powers:

Yes, thanks, Dana, good question. We don't talk very often about Teva and Sanuk, and from the quarter results it makes sense there is questions about them. We recently have reorganized our smaller brands, Teva, Sanuk, and some incubation work that we're doing, and emerging brands for leveraging resources, and we are resetting those brands. So, we have a new leader there, Lee Cox, who spent a lot of time in the HOKA brand early days, he is appointed to get a long-term strategy for both of those brands, and right now they're doing brand works, so, resetting their positioning, tightening their positioning and proposition, understanding who their consumers are deeply, and elevating their innovation pipeline. So, I would say the biggest opportunity right now that we see down the road in the short and long-term is Teva. We have looked at a number of brands externally that we could acquire, and quite honestly, none of them look as good as Teva does. It's a beloved brand. It's got a great 30-plus year history, and a lot of heritage product. And it's healthy in the marketplace. It's got great margins, and we think that is a brand that we invest in for the long-term. So, right now it's just about resetting the marketplace. That's where you're seeing some degradation in the top line, and both Teva and Sanuk were cleaning things up, and we basically getting -- gearing those up to go back at it with a new and improved version of both brands. But the Teva opportunity is continued within sports sandal, and we are working on trail sandals for that brand, we are going to be launching early next year, which we think will be clearly exciting, trail running sandals, and then, also expanding into closed toe and year-around business through our innovation engine. So, we won't see dramatic changes in this year in the P&L for any perspective, but you will start to see improvement going into FY'25, both on the top line and bottom line, particularly for the Teva brand that's a bigger opportunity. And then, we have some ideas of what Sanuk could be, and we will see if those play out over the next coming years as well.

Dana Telsey:

Got it. Thank you.

Dave Powers:

Thanks, Dana.

Operator:

Good afternoon and thank you for standing by. Welcome to the Deckers Brands Fourth Quarter Fiscal 2023 Earnings Conference Call. I’d like to remind everyone that the conference call is being recorded. And at this time, I’d like to turn the floor over to Erinn Kohler, VP, Investor Relations and Corporate Planning.

Dave Powers:

Thanks, Erinn. Good afternoon, everyone, and thank you as always for joining us today. I am delighted to be here today to discuss another exceptional year for Deckers, as we delivered record results on both the top and bottom line and continued to progress against our long-term strategic initiatives. For fiscal year 2023, our brands achieved revenue growth of 15% on a reported basis versus the prior year to more than $3.6 billion, which is 42% and $1.1 billion above revenue of 2 years ago. Operating margin in line with the high-end of our guidance range at 18%, which is top tier in our industry and a more than $3 increase in earnings per share, representing a 19% increase versus last year. Specifically, our progress in fiscal year 2023 includes HOKA driving global revenue growth of 58% versus last year to eclipse $1.4 billion. UGG revenue holding steady in constant currency, with the brand increasing its mix of both direct-to-consumer and international business; global portfolio DTC adding more than $0.25 billion of incremental revenue, growing at nearly twice the rate of wholesale; and our international markets increasing 20% versus the prior year on a reported basis, which when accounting for an approximate $100 million headwind from currency fluctuations, increased 30% in constant currency. Reflecting on the past few years, our company’s performance is remarkable, particularly given the consumer climate and speed with which we have had to build our infrastructure to support this incredible growth. We still have much more work ahead to build upon the foundation for long-term sustainable growth, but I am truly proud of how far we have come. We believe that the strength of our operations, omnichannel management and brand teams have enabled our organization to improve resilient and capable of achieving the goals we have set forth, including driving significant top line growth, while maintaining an 18% operating margin and reducing inventories to more appropriate levels. I want to thank our employees and our tremendous leaders across the organization for their hard work and collaboration that contributed to Decker’s outstanding execution. Steve will provide further details on fiscal year 2023 results and what’s ahead for fiscal year 2024. But first, I will share more about our 2023 brand and channel performance. Starting with the brand highlights, global HOKA revenue for fiscal year 2023 increased 58% versus the prior year to $1.4 billion. This is the fourth consecutive year HOKA has delivered revenue growth above 50%. For the year, HOKA growth was driven by a more than 30% increase in global brand awareness in fall 2022; an acceleration of DTC, which grew 85% versus the prior year; broader category adoption; market share growth with existing points of wholesale distribution; and additional access points with our strategic partners, which was complemented by increased availability of product inventory and an improved supply chain environment. In June of 2022, HOKA launched Fly Human Fly, its first-ever globally integrated marketing campaign. The campaign was designed to build awareness and elevate the HOKA brand in the minds of global consumers through rich storytelling and targeted activations in key cities. The HOKA team utilized connected TV and digital and out-of-home channels to reach a broader audience with creative that combined emotionally connected brand and product messaging. As a result of the investments behind this campaign, HOKA awareness increased across a broad spectrum of key markets, such as the U.S., France, the UK, China and Germany, with three of those countries increasing awareness more than 40% compared to fall 2021. Given the success the brand has experienced, we continue to see a significant opportunity for growth in each of our markets over the long-term. Specifically, we are working to close the awareness gap between the U.S. and international regions to build a more global brand. The HOKA marketing team has done a fantastic job developing insights from the initial campaign to evolve the next iteration of Fly Human Fly, which will focus on the brand’s roots and performance through inclusive storytelling that emphasizes the joy of movement for everybody. Stay tuned for more details on the campaign when it launches next month. On the direct-to-consumer business, the HOKA brand’s exceptional growth helped drive a 5 percentage point increase in DTC mix up to 34% of total brand revenue as compared to 29% in the prior year. Importantly, HOKA continues to bring new consumers into the brand, while also retaining existing consumers, evidenced by a 78% increase in acquisition and an 81% increase in retention as compared to last year. Momentum with younger consumers in the U.S. helped drive these increases as HOKA more than doubled the number of purchasers aged 18 to 34 years old. As HOKA continues to expand, we are encouraged by the broader product adoption from consumers beyond the brand’s heritage running styles. We have seen this trend among DTC consumers and continue to gain category shelf space with wholesalers. Among DTC purchasers in the U.S. and EMEA, multi-category purchases increased 79% and 127% versus last year, respectively. Across all channels, HOKA more than doubled revenue on trail and hike products aided by the Speedgoat and Challenger updates as well as market share gains with the Kaha and Anacapa franchises and fitness and recovery products benefiting from greater over recovery sandal adoption and introduction of both the Solimar and Transport Styles. With the success HOKA is experiencing across a variety of innovative products, we are very excited to now offer a selection of our most popular items to the next generation of HOKA athletes with the brand’s recently launched first ever use collection through our DTC channel and with very select wholesale partners. We view the opportunity with kids as an avenue to further expose the brand to parents and younger athletes over the long-term. In terms of HOKA wholesale for fiscal year 2023, revenue increased 47% versus the prior year, driven by market share gains with existing points of distribution, which accounted for approximately 2/3 of global dollar growth, an additional access points with strategic partners. HOKA continues to prioritize delivering a pinnacle experience with performance products with the brand’s exceptional run and outdoor specialty partners, while expanding the addressable market through strategic relationships that broaden brand awareness beyond the traditional specialty consumer. With expanded distribution, HOKA is placing greater emphasis on the segmentation to align product and marketing with the respective distribution partners target consumer. HOKA is leveraging the run and outdoor specialty channel to maintain authenticity and brand credibility by offering exclusive high-performance products that are only available at DTC and select specialty doors. Marketplace management continues to be a top priority for HOKA as the brand enters fiscal year 2024. At the current scale north of $1.4 billion, our focus is to protect the HOKA brand’s premium positioning and maintain a pull model. HOKA plans to emphasize growth in the DTC channel, driving high full price sell-through and building market share with existing points of wholesale distribution, especially in light of a dynamic consumer environment. This focus on marketplace management will be particularly evident in our EMEA region as HOKA expects to prioritize low levels of promotion in the coming year. Steve will get into more specifics on our HOKA outlook later in the call, but I would like to congratulate the HOKA team for delivering another special year and look forward to the brand’s continued success in the upcoming year and well beyond. Moving to UGG. Global revenue for fiscal year 2023 was $1.9 billion, which is down 3% versus last year on a reported basis, but up slightly in constant currency. UGG performed in line with expectations as the brand focused on driving growth through DTC and international markets, while facing tough comparisons from the prior year related to refilling domestic wholesale inventories as well as currency exchange rate pressures overseas. Despite these unique dynamics, UGG maintained high levels of brand heat and demand, as evidenced by the strength of global DTC acquisition and retention, which increased 16% and 15% versus last year, respectively. While this is a tremendous growth figure in terms of worldwide consumers, we have been even more encouraged by the trends in our international markets, where acquisition was up 29% and retention increased 37% over the prior year. EMEA was the fastest-growing DTC region across the globe, aided by an 80% increase in new visitors to ugg.com in Europe. Helping drive the buzz around UGG, the brand was featured in a number of highly respected fashion publications, including and Harper’s Bazaar, each touting the brand’s fashion relevance. The UGG team has done an excellent job executing a brand-appropriate collaboration strategy over the past few years, which continues to benefit awareness and increase visibility with target consumers. Most recently, UGG partnered with London-based Gate Brand Palace; LA-based lifestyle brand, Madhappy. And just a few weeks ago, UGG launched an exciting new collaboration centered around the Tasman with New York-based fashion brand opening ceremony. We believe the UGG brand’s focused on winning with younger consumers through strategic collaborations, presence on fashion week runways around the world and product designs rooted in brand DNA have been key drivers of building this excitement internationally and maintaining these record levels of brand heat in the U.S. Reflecting this exceptional demand for UGG, search interest in the U.S. increased 26% versus last year according to Google Trends. Additionally, from a purchasing perspective, UGG continue to over-index with 18 to 34 year-olds, which increased 21% versus last year, outpacing all other age groups and remaining the largest cohort of UGG consumers in the U.S. UGG products that drove demand in this fiscal year included Heritage Classics like the Short and Mini, fashion updates to core styles such as the Platform Classics, new and hybrid styles like the Ultra Mini and Tasman. The popularity of these items reflects the brand’s consumer appeal across an exciting range of products helped by the successful category diversification strategy the UGG brand has been working towards over the last 5 years. Now more than ever, the UGG brand is leaning into its consumer-first approach, sharpening the product lines to create a cohesive consumer experience that feeds product strategy through direct engagement and insights. The brand plans to concentrate on product families featuring recognizable brand codes consumers love and expect from UGG, while reducing inefficient SKUs. Over time, we believe this strategy will drive better margins and greater efficiencies, allowing for more selectful and impactful storytelling across a globally aligned and focused UGG product offering. UGG is now transitioning to the next phase of growth. Over the past several years, the brand has successfully established heightened consumer attention and increased global brand heat through product propositions that are both complementary and counter seasonal to its core lineup. This work increased the UGG brand’s connection with consumers, established a permission to play in new categories and reenergized the love for the brand’s most iconic UGG silhouettes. In fiscal year 2024, the brand is placing greater emphasis on these icons; ensuring inventory is strategically weighted to meet demand for the most popular products and building on its foundation for healthy full-price growth across a variety of category and gender offerings in the future. Overall, UGG delivered a fantastic result given the challenges it faced both in terms of comparing to abnormal shipping timing and volumes and impacts from currency headwinds. The UGG team is developing compelling products through the integration of consumer data and insights within each layer of the product creation process. We are excited for the year ahead as the brand continues to build on the international opportunity and maintaining the exciting momentum the last few years. Turning to Teva. Global revenue for fiscal year 2023 increased 12% versus last year to a record $183 million. This is the second consecutive year of double-digit growth for Teva as the brand continues to be a leader in the sports sandal category with aspirations to become a destination brand for the modern outdoor consumer. We are confident about the opportunity ahead for Teva as the brand works toward future growth through additional investments this fiscal year aimed at driving increased closet share over the next 5 years. From a channel performance perspective, fiscal year 2023 results were driven by strength across our direct-to-consumer and wholesale businesses, both of which drove more than $200 million of incremental revenue. For the year, DTC revenue on a reported basis increased 21% to nearly $1.5 billion, representing 40% of consolidated revenue. On a DTC comparable basis, revenue increased 23% versus last year, with healthy growth in both the physical and digital segments. Gains in our direct-to-consumer business were driven by the continued momentum of global consumer acquisition and retention, which increased 28% and 29%, respectively, versus last year. We are encouraged that all major regions drove double-digit DTC growth in reported dollars, especially considering the significance of currency headwinds in our international markets. On wholesale for the year, revenue increased 12% on a reported basis versus last year, which primarily reflects global market share gains for the HOKA brand, which was partially offset by a reduction of UGG domestic wholesale revenue as we did not repeat the fill-in activity that occurred in fiscal year 2022. The success we are seeing with both DTC and wholesale is a testament to our omnichannel brand and marketplace management. Maintaining the authentic and premium positioning of our brands in their respective markets continues to be our top priority, especially as we navigate an ongoing dynamic consumer environment. With that, I will hand over to Steve to provide further details on our fourth quarter and full fiscal year 2023 results as well as our initial outlook on fiscal year 2024. Steve?

Dave Powers:

Thanks, Steve. We continue to remain focused on executing against our strategic priorities and driving progress towards our long-term vision, while actively managing the marketplace for our brands to build HOKA into a multibillion-dollar major player in the performance athletic space, continue to grow the UGG brand by connecting with consumers through elevated experiences and a segmented product offering, expand our DTC business through consumer acquisition and retention and drive growth in international markets through strategic investments. These strategies, coupled with our disciplined operating model, position us well to drive the development of our portfolio of powerful brands while maintaining top-tier levels of profitability as a global organization. Again, I’d like to emphasize some of the points Steve outlined in our guidance for fiscal year 2024. To summarize, we plan to grow DTC faster than wholesale as we prioritize marketplace management and direct-to-consumer acquisition, focus on UGG products with a recognizable brand codes to feed the global momentum with young consumers, continue to manage inventory to align with our consumer demand and invest behind key strategies and infrastructure to further bolster our organization to support our scaling business. On behalf of our entire team, I’d like to thank all of our employees for their dedication and support in helping us drive record levels of earnings in fiscal year 2023. Our results demonstrate the strength of our brands, people and our commitment to delivering value to all of our stakeholders. We are incredibly proud of our accomplishments across the whole Deckers organization and look forward to building on this success in the years ahead. With that, I’ll turn the call over to the operator for Q&A. Operator?

Laurent Vasilescu:

Thank you very much, and good afternoon, and congrats on really just another great year. Dave, I would love to ask about your HOKA business, the global potential. I know you gave really good details around channel mix dynamics by quarter. But just maybe for the audience, can you maybe just kind of size up where HOKA is in its international journey? How big is it overseas in perspective and dollar perspective? I think you mentioned that the growth for 20% assumption for this year assumes no net new doors. But where are you on your journey for – potentially for China? Would you be open up to working with some local partners there to open up stores? Any color there as we think about focus potential would be great. Thank you.

Laurent Vasilescu:

That’s great to hear. And then as a follow-up, Dave, I think you mentioned DTC will grow faster than wholesale. Maybe can you a little – unpack that a little bit more for the audience? Are you expecting that for across your two big brands? And if you have any color just what you’re seeing in the U.S. wholesale marketplace, particularly in the run channel, that would be great?

Laurent Vasilescu:

Great. Continue success.

Steve Fasching:

Thanks, Laurent.

Jonathan Komp:

Yes. Hi, thank you. Good afternoon. Just wanted to follow-up on the HOKA plans for the year and any more color to get to the 20% growth rate? What D2C growth you need within that? And then could you just remind us, given the comments about wholesale not growing doors, how did the door growth look – looking backwards for fiscal 2023? Just trying to understand how next year – or this year, I should say, looks different than last year?

Steve Fasching:

DTC is going to be higher than that and wholesale will be lower than that.

Jonathan Komp:

Yes, that makes sense. And just as a follow-up, sorry if I missed it. Did you say roughly how many doors you’re in and how that changed in fiscal ‘23?

Steve Fasching:

We didn’t give specific numbers, Jon, but we did increase number of doors throughout FY ‘23. So we will be anniversary in some of that in FY ‘24. So we will be getting the full year benefit in the wholesale channel related to those stores. So – but we haven’t given specific numbers. But yes, there was some door growth in ‘23 that will be anniversaried and is shown through wholesale growth in ‘24.

Jonathan Komp:

Okay. Great. And then just a follow-up if I could, Steve, on the gross margin comments. Just – so it’s crystal clear. Did you say about 52% for the first quarter? And I guess, if that’s the case, usually, it looks like the first quarter is below the full year, typically looking back. So I don’t know if there is something different this year? And maybe more broadly, is there anything that’s holding you back to getting back to that 53% level? Thank you.

Dave Powers:

Marketplace promotions.

Jonathan Komp:

Okay, very helpful. Thanks again.

Operator:

Our next question comes from Sam Poser from Williams Trading. Please go ahead with your question.

Dave Powers:

You want to ask it or you want to just tell you.

Erinn Kohler:

Sure. Sam, I’ve got the full year here in front of me. I’ll give you the full year. You can back into Q4. So for global wholesale and distributor for UGG was $1.004 billion; HOKA, $925.9 million, Teva, $149.1 million; Sanuk, $27.7 million; and that leaves you with other $53.7 million.

Steve Fasching:

Yes. I’ll give you and we won’t give kind of numbers by brands, but I’ll give you kind of direction. So significant improvement in the UGG inventory as we did close out some seasonal non-carryover styles within the UGG brand in Q4 that helped drive some revenue, a little bit of pressure on the margin as we closed that out, but really positioned us much better. HOKA, some growth and as you would expect, with the growing brand that we do have with HOKA. So overall, I think the composition of inventory, we are very pleased with. So, given our sales rate growth, supporting a high-growth brand in HOKA, I think our inventory levels look really good for where we stand.

Steve Fasching:

Yes. I will start. This is Steve. So Sam, I think the way we are looking at it is the growth that we saw with HOKA, clearly, the marketing we did drove demand. And so clearly, we benefited from that. Also, we were coming out of FY ‘22, where we had a large unmet demand with HOKA brand. So, that was driving a lot of the early in the year increases. I think what we saw throughout the year is continued productivity of our marketing spend. That’s where we were able to tailor some of our marketing spend to still achieve that 18% operating margin. So, even in the face of the currency headwinds, looking at the productivity of our marketing, we were able to drive some leverage in that respect. That’s not necessarily how we are looking at it in the same way for FY ‘24. We are looking to continue, as Dave mentioned earlier, to drive international global awareness around the HOKA brand. So, we are looking at increasing. We will see how productive that marketing spend is. Last year was also really the first year we benefited from a global campaign. So, probably experienced improved productivity over that. So, I just want to be careful on assumptions going into next year. But we will continue to invest in marketing. We continue to see high productivity of those dollars spend. We are increasing brand awareness, but we still, as Dave said, early innings and a long way to go here.

Sam Poser:

And one last thing, I mean you stated last year, you talked about building awareness for the brand, and I assume that is sort of long-term marketing dollars, working out for long-term health. But you have got short-term benefits from that. So, in fact, you are guiding the same way that you did last year, and you are not planning for that short-term benefits on the brand marketing. And then I am already got hit by a bunch of people based on one of your competitors. Can you just compare sort of your strategy to this unknown competitor from Europe that – because I think there is a difference here, especially on the wholesale side?

Sam Poser:

Okay. Thanks very much and good luck.

Operator:

Our next question comes from Tom Nikic from Wedbush Securities. Please go ahead with your question.

Dave Powers:

Yes. Thanks Tom. It’s a good question. I think we all realized that last year, we left a little bit of money on the table with UGG. And so all of our accounts, even the mall-based athletic store, could have done more business on UGG last fall. We had a really, really strong success with our Ultra Mini, our Platform Classics, our Tasman, our Tas platform. We left money on the table. The demand is higher than we were able to supply. People still want those products, even though it’s six months later, and it’s a big opportunity for us going into the fall. At the same time, the one thing I would say and maybe a little bit biased, of course, but key accounts, including some of the lifestyle athletic accounts for us want UGG. They need UGG, it’s high price point, it’s high margin, it sells through incredibly well. And so while their overall business may be a little bit more conservative or pulling back a little bit, there is a handful of brands right now that are winning, and UGG is one of them. And you can see it from our metrics around our consumers, our rates of adoption, an acquisition in the 18 to 34 the consumers, the brand heat is stronger than ever. UGG is a very, very healthy brand right now. And because of the work we have done on inventory, it’s a very clean brand in the marketplace. And it’s set up perfectly for fall, where we are going to have inventory in key styles, and that’s one of the things that our new President, Anne and her team have been working on is tailoring the line, making sure that we have a really strong portfolio of heritage classics with modern updates. And the innovation pipeline is really exciting. And so I wouldn’t read into the numbers as there is a challenge out there with distribution. We are worried about the brand. We are going to focus growth into DTC and key accounts, put forward an exceptional product assortment with inventory behind it, and we should have a good season.

Dave Powers:

Thanks Tom.

Chris Nardone:

Hey guys. Thanks for taking the question. I would like to go back to the HOKA distribution strategy. First, can you clarify what percentage of your HOKA wholesale business comes from the specialty channel today? And do you still think there is opportunity to take share in that specific market segment? And then I have a follow-up.

Chris Nardone:

Got it. That’s very clear. And then just in terms of the guidance of 20% range for HOKA this year total, and that includes no new doors. I just want to confirm the strategy with Foot Locker and Dick’s Sporting Goods. Have you talked about how many doors you are in today? And are you still growing in those two accounts, and that’s just not included in the guidance?

Dave Powers:

But I would say, we are very pleased with the productivity we are seeing in both Dick’s and Foot Locker.

Dave Powers:

Thanks Chris.

Jay Sole:

Great. Thank you so much. Dave, you talked about DTC and HOKA and DTC growing faster than wholesale. Can you just talk about HOKA stores that you have opened up? I know you have experimented with some pop-up stores and things like that. Give us a sense of what your learnings have been and what your outlook is for the kind of store – owned store footprint, you think hope you can have over time?

Jay Sole:

Okay. That’s helpful. If I can just because you also mentioned that HOKA is still early innings, especially internationally. And at the same time, you are guiding to 20% growth for HOKA this year. I think there is a question out there. Obviously, fiscal ‘23 has huge growth, talking about a little bit of a slower growth rate this year. The question is like, what should investors understand like what’s the long-term opportunity for HOKA? I mean, $1.4 billion in sales at the end of this year. I mean do you see this as a $2 billion brand, is it a $3 billion brand over time? Like I think people are trying to figure out if – how much of that early innings will translate into bigger sales growth versus sales growth rate that is lower this year than last year? And what exactly we should really be thinking about for HOKA big picture?

Jay Sole:

Got it. Thank you so much.

Operator:

And our final question today comes from Abbie Zvejnieks from Piper Sandler. Please go ahead with your question.

Dave Powers:

Sure. I would say no cautiousness we are seeing. So, it’s really – if there is any cautiousness that’s in managing their total open to buy and being smart with – in regards to the economic climate right now. But as far as cautiousness on the HOKA brand, we are not seeing any. And as I mentioned, for our productivity in these doors, our turns or some of the best-in-class, if not the best-in-class in certain run specialty accounts. And so if anything, as we said, there is more opportunity there as we look to expand over the years. But right now, the order book this year, I wouldn’t say there is any cautiousness at all. On apparel, it’s a good question. We have talked about apparel here and there for both UGG and HOKA. I think for UGG, we got off to a good start. And then with new leadership and taking a more critical eye, we want to make sure that we have the right line and the right assortment of products in the marketplace. And so we are taking a little bit of a pause on growing that business to get the assortment right, get the design right, make sure that the lounge collection, has the same DNA as the ready-to-wear collection. If you go into one of our department store partners and look at the lounge product and then you go into our own store, there is a disconnect between lounge and ready-to-wear. So, we want to clean that up. We also are excited about the winter collection that we are launching this year with more cold weather outerwear and product and boots. I think that’s going to be a big part of it. So, what you are seeing now in UGG is really just a reset of the apparel strategy for the long-term. On the HOKA side, as I mentioned, I was at the HOKA sales meeting last week. Our new designer that we hired a little 1.5 years ago, I think in HOKA, this is the first major collection that she has put forward. The response was very, very exciting by the audience there, and it looks really good and there is some innovative pieces in there. So again, this is a long plan for us to think the product that you are going to see starting in fall ‘23 and spring ‘24 and apparel for HOKA is getting better and better, but we are going to start with DTC and a few select accounts and grow and build the demand and then supply the demand as it comes. So, long-term strategy, certainly opportunities in the hundreds of millions for both brands over time, but with new leadership in place and resetting the marketplace, we want to get the product right.

Dave Powers:

Thank you.

Dave Powers:

Yes. No additional comments for us. Thanks for joining everybody and we look forward to speaking to you next quarter.

Operator:

Good afternoon and thank you for standing by. Welcome to the Deckers Brands Third Quarter Fiscal 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I will now turn the call over to Erinn Kohler, VP, Investor Relations and Corporate Planning. Please go ahead.

Dave Powers:

Thanks, Erinn. Good afternoon, everyone and thank you for joining today’s call. I’m pleased to be here today highlighting another record quarter for Deckers Brands, as our teams were once again have able to successfully execute against our long-term strategic objectives to deliver standout results in a dynamic consumer environment. Our fiscal third quarter record setting results include, $1.35 billion in consolidated revenue, reflecting a reported 13% increase versus the prior year, and diluted earnings per share of $10.48. here as a progress during the third quarter included HOKA delivering record revenue of $352 million as a brand more than doubled its DTC business, while demonstrating momentum across the product line and significantly increased wholesale through both market share gains and select new strategic access points. UGG increasing its mix of business in DTC to 60%, up from 54% last year as the brand drove an 8% increase in the channel. Total portfolio DTC increasing 19% versus last year, to represent 52% of volume with both HOKA and UGG contributing to this mix shift, an all-time-high for the third quarter, and our international revenue increasing 12% on a reported basis, and growing 25% on a constant currency basis, when adjusting for the significant FX headwinds. Deckers delivered exceptional performance in the quarter and continued progress with respect to our long-term objectives. Notably, our brands commanded strong full-price selling despite a highly promotional marketplace during the holiday season. While our brands did experience more normalized promotions relative to extremely low levels in the past few years, we were able to avoid significant discounting due to the strength of consumer demand for our products, as well as disciplined marketplace management through our omnichannel approach. I’m thankful for the leaders throughout our organization who continue to prioritize long-term brand health and remain committed to our strategic pillars, allowing Deckers to maintain top-tier profitability. Our brands are well positioned for calendar 2023 as we end our fiscal year 2024 in April. Steve will provide further details in our updated guidance for this fiscal year, as well as how we’re thinking about the arduous macroeconomic environment. For now, let’s get into the brand highlights for the third quarter, starting with UGG. Global UGG revenue in the third quarter was $930 million, down 2% versus last year on a reported basis, but up low single digits on a constant currency basis. Overall, consumer demand for UGG was strong in the quarter as the brand delivered global gains in DTC across genders and categories, driven by a 21% increase in acquired consumers and a 17% increase in retained consumers. The UGG brands’ healthy DTC performance was offset by unfavorable foreign currency exchange rate impacts across all channels, as well as lower wholesale revenue. This wholesale decline resulted from the unique shipment timing dynamics discussed at the outset of this fiscal year, which included an expectation that the third quarter would be impacted. Specifically, these earlier shipments drove temporarily elevated levels of inventory in the channel. As a result, and in line with our marketplace management strategies, the UGG brands’ attention shifted to selling through product already in the channel, to strategically reduce marketplace inventory, allowing DTC to capture demand upside, and limiting the need for excess promotional activity. From a style and franchise perspective, UGG continues to find success with fresh updates of iconic styles. Throughout the year, consumers have continued to migrate to fashions that are uniquely UGG, such as the Classic Mini and Tasman, as well as more versatile derivatives of these products. The consumer demand for these products was quiet strong, and certain style color combinations even led to out of stocks. Our measured approach to buying aimed at driving improved inventory levels, combined with the high level of demand for these products, led to some scarcity in the marketplace. We see this approach as an effective tool to fuel demand and we’ll continue to optimize our pull model to bounce future supply. With respect to how these styles are performed, we’re encouraged to see the continued strength of adoption from the brands’ target segment of 18 to 34 year olds. Among this segment in the US, the Classic Short remain the top seller, but the strongest growth came from the Classic Mini and Ultra Mini styles which ranked second and third, respectively. Platform Classics were also extremely popular with this age group, likely resulting from the brand heat generated through unpaid product gifting to A list celebrities which helped drive the hashtag, Platform UGGs as the brands’ number one social trending topic in the quarter. Among 18 to 34 year old males in the US, UGG brand consideration reached an all-time-high in the third quarter, UGG has increasingly seen this segment of consumers adopt versatile slipper hybrids like the Tasman and Classic Slip-On as consumers continue broadening their wearing occasions of iconic styles. Beyond these hybrids, male consumers gravitated towards heritage winter boots such as [Fluff Yeah] [ph] as well as weatherized versions of iconic styles like the [inaudible]. Brand heat remains at an all-time-high based on the exciting new products designed for the brands target audience. Supplementing these fantastic inline products, our teams developed heat season, UGG continues to build fashion credibility through collaborations. The most recent of which was with designer Shayne Oliver, the founder of Hood by Air, Shayne’s futuristic take on UGG Classics was covered by several high profile outlets, including Vogue, Complex and Hypebeast. These aspirational style continue to drive excitement in the line and bringing awareness to a new audience of consumers. From an international standpoint, UGG showed growth on a constant currency basis, despite revenue being down versus last year on a reported basis. This was led by DTC as acquired and retained consumers in the channel each grew 38% versus the prior year. International wholesale was down versus last year, as UGG lapped the supply chain disruption which pushed additional shipments into the prior years’ third quarter. Strength in the UGG brands international regions is largely attributed to the successful ongoing marketplace reset activities completed over the last few years, which included a revamped approach to product and marketing, helping drive greater synergies in product adoption across the globe. Overall, we’re very pleased with the performance UGG this fall. The brand continues to attract new consumers and drive more business through direct to consumer with a loyalty program that now has massed over 7 million members worldwide. We feel great about the brands’ ability that offset more normalized promotional activity through a strategic shift in channel mix, which also helped reduce marketplace inventories heading into the spring 2023 season. We expect UGG to finish the fiscal year in a position of strength as demand for the brands’ compelling products that are resonating with consumers globally has never been stronger. Shifting to HOKA. Global revenue for the third was $352 million, representing an increase of 91% versus last year on a reported basis. Another quarterly revenue record for HOKA. Just two quarters ago, we celebrated HOKA achieving $1 billion of revenue on a trailing 12-month basis, and with the quarter just delivered, the brand has now eclipsed $1 billion of revenue over the last nine months, ended December 2022. HOKA growth in the third quarter was driven by share gains with one specialty account in the wholesale channel as product flow improved this year relatively to last, allowing HOKA to increase sell through, added points of distribution with select strategic accounts as the brand has been slowly expanding throughout the year, global DTC revenue more than doubling versus last year, as consumer acquisition and retention increased 95% and 109%, respectively. And a favorable comparable period as wholesale shipments were disrupted in the prior year due primarily to port congestion. We believe the Fly Human Fly marketing campaign has been a key catalyst for the HOKA brands’ DTC strength throughout the year which has driven a higher growth rate than wholesale on each quarter thus far this fiscal year. During the third quarter, targeted marketing activations in Chicago and New York City helped drive a 22% increase in brand awareness, a 27% in consideration and a 33% increase on purchase intent in these markets over the next six months. We also believe these markets have seen a halo effect from the additional brand visibility created by popup stores which have continued to perform well for HOKA. In particular, we saw a significant gains among 18 to 34 year old consumers, who in the US and EMEA drove the largest year-over-year increase of any age group during the third quarter. We have been increasingly encouraged by the broad product adoption from females in this coveted demographic, who appeared to be actively searching hoka.com for what is new and exciting on a regular basis. Giving us confidence and the investments we’re making to build brand awareness globally. The all new [Solimar] [ph], our cross trainer is the perfect example of this trend. The Solimar launched earlier this fall without significant marketing dedicated to the shoe, but still landed in a top five of styles purchased by females aged 18 to 34 years old in this quarter. HOKA is also resonating well with males in this demographic, but we see a great deal of more opportunity to further expose the brands’ product depths by testing access points to specialize and serving this target consumer. Importantly, even with the expansion beyond run specialty distribution, the brand has hyper-focused on delivering in that core channel as well. According to aggregated US run specialty store data, during December, HOKA increased market share by 5 percentage points versus last year, delivered the highest average product turns and maintain a gross margin well above the channel average. In terms of our wholesale partner access points in the third quarter, we are extremely proud of the HOKA brands’ performance as that continued to build market share in a highly competitive marketplace. With the strength of consumer demand for the brand, HOKA was able to maintain its high percentage of full-price business even with the incremental access points with strategic accounts. Though early days in some of the brands’ new doors, the feedback on HOKA performance has been exceptional. On the product side, HOKA has continued to introduce award-winning footwear, in October, HOKA was featured in the 2022 Men’s Health Sneaker Awards with Bondi 8 being chosen for the most comfortable cushion, and the Kaha 2 GORE-TEX noted as the best hiking sneaker boot. In addition, Outside Magazine published its Winter Gear Guide for 2023, selecting the Mafate Speed 4 as the best shoe for fast in rugged trail runs. All of us at Deckers are excited for what is to come for the HOKA brand, starting with a couple of innovative product launches planned for the fourth quarter and more to come in fiscal year 2024 and beyond. In terms of consolidated channel performance in the third quarter, we saw strong growth in both global DTC and wholesale, but the majority of revenue growth was driven by global DTC which increased 19% versus last year on a reported basis, and 22% on a DTC comparable basis. DTC’s strength was driven by impressive global consumer acquisition and retention across the entire portfolio, which increased 44% and 38%, respectively. From a dollar growth perspective, global HOKA DTC volume more than doubled and UGG DTC increased 8% on a reported basis versus the prior year, driving over $100 million of combined incremental revenue. On the wholesale side, consolidated global revenue increased 8% on a reported basis versus last year. Growth was driven by HOKA brand market share gains and existing points of distribution as well as incremental business from added doors with select strategic accounts. For the total portfolio, the increased HOKA volume was partially offset by lower wholesale shipments for UGG, where the brand focused on selling through existing inventory to reduce the need for promotional activity. Evidencing this success and illustrating the underlying brand heat during the season, UGG wholesale units sell through in the US increased mid-single-digits in fall ‘22 as compared to fall 2021. With the exceptional demand our brands were able to capture through DTC combined with a strategic actions taken on the UGG wholesale front, our third quarter DTC mix increased from 50% last year to 52% this year. In the third quarter, our brands achieved the highest DTC mix ever for our historically largest quarter, which represents great progress towards our long-term objective of a 50% mix of DTC business to the entire fiscal year across the portfolio. Alongside our disciplined omnichannel approach, I would like to share out our amazing design teams that continually bring compelling new products to market. The combination of these talented teams create the exceptional experience with our products that consumers have come to love and expect from our brands. With that, I’ll turn the call over to Steve to provide further details on the third quarter performance and an update on our fiscal year 2023 guidance.

Dave Powers:

Thanks, Steve. We are proud of our strong results and ability to navigate a challenged consumer landscape through our marketplace managing strategies tailored to each of our unique brands. Exiting the holiday season, we are encouraged by and have great confidence in the strength of our brands and the exciting future ahead. With the brand heat we’re seeing on HOKA and UGG in particular, we feel Deckers is well positioned. Both brands operate on a pull model, and we believe the strong relationships our brands have built with key wholesale partners will serve us well. Deckers’ strategic brand marketplace management, omnichannel capabilities and flexible operating model continue to be the driving forces behind our company’s sustained success. But Deckers’ success is ultimately made possible by the hardworking employees who go above and beyond to deliver consistent results aligned with our long-term strategic goals. Thank you, everyone for joining us on the call today. And thanks to all of our stakeholders for your continued support. We look forward to sharing more as we continue to build towards Deckers’ exciting future. With that, I’ll turn the call over to the operator for Q&A. Operator?

Aubrey Tianello:

Hey, everyone. This is Aubrey Tianello on for Laurent. Can you guys hear me okay?

Steve Fasching:

We can hear you.

Aubrey Tianello:

All right, thanks for taking our questions. Wanted to start on the wholesale side, up 8% in the quarter, I think last quarter you talked about the channel being down slightly in 2H. Maybe just talk about what you’re seeing in that channel, how it’s progressed versus 90 days ago?

Aubrey Tianello:

The wholesale up 8% in the quarter. But I think you spoke to wholesale being down slightly in 2H on the last call. Just any you know color you can give on whether that’s still the view or if something’s changed?

Steve Fasching:

Yeah. I think you know, when we get into the quarterly discussion, it’s a little bit about what we alluded to at the beginning of the year. We knew that given – coming out again, Q4, just to remind everyone, where we shipped product last year in Q4, that was going to impact Q3 and Q4 of this year in terms of wholesale growth. So we took the opportunity to sell products in. We had wholesale customers participating and wanting to hold some of that product that they didn’t sell in Q4, which we knew would impact Q3 and Q4 of this year. So I think, as we see Q3 and Q4 play out, it’s much to our expectation and a little bit better, which is why we are increasing our full year outlook. We knew kind of between quarters, there would be some disruption in the current year, again, why we didn’t guide quarterly. But I think continuing to see strong demand with our wholesalers. This is a bit of you know impact from pandemic and supply chain disruption experienced last year, still playing through this year. It is impacting how we see wholesale growth in the current year, but we knew that, right and it goes a little bit back to the point I made in the prepared remarks, which was, we were going to take every opportunity to get products in early in the year to make sure that we have an opportunity for strong sell through during the season, which is exactly what we’ve seen. And our brands continue to perform well and resonate with customers. So both on the UGG side, and especially as you can see in the numbers on the HOKA side. So, again, really pleased with our performance, again, don’t want to get hung up on quarterly percentage changes, because really, we’re measuring the health of the business on the year and that’s our outlook on the race for the year.

Aubrey Tianello:

Hey, got it. Very clear. And then on HOKA, if I can just ask a follow-up. You mentioned expanding through strategic access points on wholesale. Can you maybe just give a little more detail on that? Would the opportunity looks like there to expand? HOKA in the wholesale channel outside of specialty running? And kind of what the strategy is there? Thanks.

Aubrey Tianello:

Thank you so much.

Operator:

Thank you. And the next question will be from Jonathan Komp with Baird. Please go ahead.

Dave Powers:

Yeah, I can share with you my inbox of emails of people looking for those styles. So you know, I think to take it up to a higher level as we’re managing through our inventory in the UGG brand you know, we pulled back a little bit on how much we invested in some of these new styles, not anticipating how strong the consumer demand for them would be. So you know, the platform styles, the Tas, the Ultra Mini, those styles, you know, in many cases sold out to the piece. And so, we missed some opportunity there. The good news is that wholesalers want more, the consumer wants more. And we’ve realized that these extended Classics, you know, in more iterations of core classics would keep our brand DNA intact, are resonating very, very well with particularly younger consumers. But I would say all consumers, and then on a global scale. So you know, you can feel confident that we’re going to continue on that path and developing these styles, take advantage of the platform trends, et cetera as we continue through the year and beyond. So, good news is that you know core classics remain strong and healthy. But some of these new iterations were better than we expected. Which is great news. And you know, there’s demand on the table and the consumer is hungry for.

Dave Powers:

Yep. Thanks, Jon. So yeah, on the HOKA side, you know, we’re very happy with these results. I think, in the early days of HOKA, you know, we were selling obviously to core runners and beyond, and then some people were using it for, you know, comfort and longevity reasons. And the younger consumers weren’t really adopting it as part of their own yet, but we’ve seen that shift – change dramatically in the last year or so, you know, in the 18 to 34 year old category was our fastest growing consumer segment. So it’s working as, you know, as we planned, probably a little better than we planned, tapping a little faster than we planned. But some of the activities we’re doing, the collabs with folks like free people, et cetera, marketing, but you’re seeing, you know, teenage girls and boys trading from traditional athletic brands into HOKA, and raving about it. So it’s very exciting. And it just expands the breadth of our brand from ages, you know, 18 to 80. And I think that marketing and the product teams are doing an exceptional job of creating right product for that consumer, putting it in the right place, and showcasing it the right way. And some of the extended work we’re doing on the lifestyle side, taking core styles, but you know, different treatments, different materials, different colors that are more kind of lifestyle focused, that’s working extremely well, too. So we think that this is a big unlock for the brand long-term. We want to be healthy and meaningful and important to this younger consumer. And we’re seeing that play out, which is really great.

Dave Powers:

Yeah, and I think you know, from a consumer perspective, you know, they don’t know the quarterly ins and outs, but they’re seeing the product it’s selling through very well at full price and the demand is certainly there. You know, and I think you have to pull back and look at the full year results of this brand, and especially the way both of our brands and Q3 performed in a very challenging environment, FX pressures, promotional environment, and to come out with this rate of high level – high price, full price sell through, healthy margins, and still momentum and demand in the marketplace. You know, that’s what we’re focused on. And so, we see this continuing and the brands as I said before, I’ve never been in a better place the brand heat that we see. And UGG and HOKA are exceptional and we’re going to continue to build on that. And, you know, invest in these brands for the long-term.

Dave Powers:

And particularly, international.

Jonathan Komp:

That’s great. Thanks again.

Operator:

The next question will be from Paul Lejuez from Citi. Please go ahead.

Dave Powers:

Yeah, good questions. I would say for HOKA, the majority of the growth is coming from existing accounts, you know, outside of, you know, some expansion in Q3 in Dick’s stores, there really wasn’t a lot of expansion in new doors globally. So, you know, we’re continuing to gain market share, you saw that in their pre-recorded comments. And that’s happening, you know, across the board. It’s not just a run specialty. So, strong full price sell through, healthy margins for the retailers, great presentations in wholesale. But we’re getting better at it as we go and the wholesale accounts are realizing the power of this brand. And so the majority of that is coming from existing accounts at this point, which again, goes back to the brand marketplace management and just, you know, speaking to the right consumer. What was the other question, sorry?

Dave Powers:

The pricing. Yes, sorry. You know, we have raised prices in both brands this past Q3 and coming into the fall period, and we didn’t see any, really any resistance to that, you know, obviously evidenced by the sellout of some of these UGG styles and some of the price increases in HOKA, we haven’t really seen a slowdown in sell through. And so I think the product is worth it. The brand is, you know, meaningful and important to these consumers. And they were willing to pay full price even though some of the prices were higher.

Dave Powers:

Yeah, I think it was like overall is about 8% across both brands.

Dave Powers:

On lifestyles.

Dave Powers:

Correct, sorry, yeah.

Paul Lejuez:

And is that an even higher number when you adjusted for mix you were introducing higher price styles into the assortment generally?

Dave Powers:

No. In UGG when we’re also doing, you know more slippers and Tasmans that a little bit lower priced than the Classic and some of the Minis you know, it may affect the total average price across the board. But you know, I think we’re providing excellent value and quality for the price and I think the consumer sees that and it’s resonating strongly with them and willing to pay it.

Dave Powers:

Thank you.

Tom Nikic:

Hey, everybody. Thanks for taking my question. I just want to ask about UGG. So obviously the last couple of years have been you know fairly wonky you know between COVID stuff and supply chain and the dynamics around wholesale. But I mean when we – when you kind of think about UGG on a more you know normal basis or a long-term basis like how should we think about the growth of that brand? I mean, what – is it – you know, this thing a mid-single-digit grower or is it a high-single-digit grower under normal times, like just, I think you know given how wonky things have been the last year, I think it’s hard to sort of wrap your head around what the sort of normal algorithm is for this brand?

Tom Nikic:

Understood. And if I could just follow-up on margins real quick. So you know I think you did talk a bit about normalizing promos, but or normalizing discounts or whatever. But on the gross margins, it would seem like there would be you know some kind of good guys over the next 12 months as well, you know, kind of freight rolling off and FX, I guess, turns from a bad guy to a good guy and channel mix and brand mix, et cetera. So, definitely seems like there’s a fairly bright gross margin outlook like, you know, how should we think about the drop through to EBIT margins? And I know you want to invest in the growth of the brands, but you know can we see EBIT margins creep higher over time?

Tom Nikic:

Yeah, yeah. Understood. Thanks guys and best of luck this year.

Dave Powers:

Thank you.

Krista Zuber:

Hi, this is Krista Zuber on for John. Just wanted to circle back on the inventory question in terms of kind of where you see or how – what your level of comfort is on the inventory levels by channel, DTC and wholesale? Thank you.

Dave Powers:

Yeah, and I would say from a channel perspective, you know, I think the channel is in good place with the inventory. You know, we were able to fill the bucket, so to speak in UGG last year, and we’re getting back inventory in key styles in HOKA. So I think it’s in a very healthy place and that’s reflected in, you know, how DTC exceeded wholesale growth in the quarter. Still healthy sell throughs globally. So again, credit to the teams you know managing the marketplace in this environment. But I would say, you know, from a brand health and a marketplace and a market channel perspective, things are in good shape. And, you know, in addition to what Steve said about how we’re managing and our number on levels.

Dave Powers:

You bet.

Sam Poser:

Good afternoon. Erinn, I know and thank you guys for giving part of what I always ask, but Erinn, can you give us the whole thing, please for wholesale or DTC?

Sam Poser:

Thank you. And Steve, I want to commend you, I think you should run for President given your answer to John Komp’s question. So I’m going to ask it again. Could you give – if you look at the DTC business, and if you look at wholesale business historically, Q4 for HOKA has accelerated from Q3. So the question is, do you anticipate that Q4 HOKA revenue will be higher than Q3?

Sam Poser:

But I understand. And I’m not trying to get worked up as we’re trying to model this properly. The question, though, is, as you talked about, I think Dave, you spoke of one more after this, which is related to UGG, but with HOKA, you spoke about some new, you know, shoe you sounded pretty excited about that are launching in Q4. And now is this situation because of the scenario that Steve just mentioned that you would launch it in direct to consumer first, maybe in Q4 and then launch it to wholesale in Q1? I mean, so is that what you’re thinking about? I mean, as far as manage – you know, how you bring things to market? Where, you know, I mean, I’m just trying to understand it, because you’re bringing in brand new products and the demand real high than those retailers want your product then it really will probably take away from some other brand not necessarily from you and theoretically not make things worse.

Sam Poser:

Got you. And then on UGG given the guidance, I would assume you know that you’re going to have a big swing on wholesale in the fourth quarter, which is really about the big increase that happened in Q1 – sorry in Q4 last year. But can you just and since it is not you know on a relative basis, it’s your second smallest quarter. Can you give us some direction on how to think about the wholesale for – in the fourth quarter? I mean, does it have a negative – is it a negative 20 handle negative 30 handle negative? You know, give us something there that can, because it sounds like the wholesale is going to be down much more than the DTC though the DTC is probably going to be down a bit.

Steve Fasching:

Well, again, I mean, the UGG costs of being down in Q4, you have so much that shifted from Q3 to Q4 last year, and you brought more of it in Q3 this year. And so that’s not really – that’s a different scenario than health. That’s not expected. It’s just more a matter of trying to triangulate where it is.

Steve Fasching:

Thank you.

Operator:

And our final question today will come from Chris Nardone with Bank of America Merrill Lynch. Please go ahead.

Dave Powers:

Yeah, sure. You know, it’s hard to comment on things right now in this quarter. But you know, I think coming out of the year-to-date so far in China, listen, I give our teams over there, the leadership and management team, the way they have managed the last three years in that marketplace with all the challenges from COVID and lockdowns, and you know, consumers not being able to spend, I think we’re in you know, exceptional shape and our brands as considering the marketplace. So the brands, you know, are strong, they’re healthy, they’re in demand, the marketing tactics that we’re employing for both brands over there being more locally relevant, the collabs that we’re doing in UGG, the fashion partnerships, reaching in younger consumer, those are all checking boxes and performing extremely well. You know, I think what you’ll start to see, and I was talking to the China team the other night, you’re going to start to see consumers come back out. And we feel really good about our chances, you know, for the finish of this year and heading into next year. Keep in mind that, you know, China isn’t a massive business for us yet, we do have long-term aspirations. But I think we’re going to see that consumer come back not only domestically but globally. And that’ll be an interesting dynamic for us and other brands. But we like the way we’re set up the like, we like the way we’re managing the marketplace, the way we’re resourcing it, and then specifically to HOKA you know, so far so good. We’ve invested in our own stores, we’re working with partners on door expansion, creating awareness in the marketplace in an authentic way. And we’re going to continue on that path because we see just tremendous opportunity for HOKA in the long-term. And so far, we’re seeing good signs from our partners and our retail stores and gives us a lot of confidence that this can be a big success over time.

Dave Powers:

You bet.

Operator:

Ladies and gentlemen, this concludes our question-and-answer session. And that concludes today’s call. We thank you so much for joining Deckers Brands third quarter fiscal 2023 earnings conference call. And you may now disconnect. Take care.

Operator:

Good afternoon, and thank you for standing by. Welcome to the Deckers Brands Second Quarter fiscal 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I'll now turn the call over to Erinn Kohler, Vice President of Investor Relations and Corporate Planning.

Dave Powers:

Thanks, Erinn. Good afternoon, everyone, and thank you for joining today's call. I'm pleased to be here with you today to discuss the strong results delivered by our portfolio of compelling brands as we make continued strides towards our long-term strategic vision even amidst a challenging macroeconomic environment. For the second quarter, revenue increased 21% versus prior year to $876 million. In the quarter, our two largest brands, UGG and HOKA drove compelling revenue growth of 6% and 58%, respectively. Steve will provide further details on the strength of our second quarter later in the call. But for now, I'd like to focus on how our first half results demonstrate Decker's progress towards longer term goals. As a reminder, our long-term vision is to build HOKA into a multibillion-dollar major player in the performance athletic space, further diversify the UGG brand's product, geographic and seasonal mix, grow our DTC business through consumer acquisition and retention and drive international markets through strategic investments, while maintaining top-tier levels of profitability for the company overall. With the continued focus on moving our in-demand products into the marketplace early ahead of the UGG brand's peak selling season, and while at the same time, fueling year-round demand for the HOKA brand, we are pleased with the progress we have made thus far against our annual outlook of the current fiscal year. As we continue to track our progress, I reflect on the first half results of fiscal 2023, which thus far have delivered consolidated revenue growth of 21% versus last year and 64% versus two years ago, HOKA revenue growth of 57% versus last year, with the brand now representing 44% of consolidated revenue, up from 35% last year and 28% two years ago; UGG revenue growth of 3% versus last year, with international driving growth aligned with our strategy despite currency headwinds and a 63% increase in DTC acquisition versus last year for HOKA, and a 54% increase for reflecting the strength of the demand of our brands, which propelled revenue growth of 26% for the first half. Results like this demonstrate the success of Deckers’ multi-pronged approach to creating growth and proactively managing our brands to progress towards our long-term vision while delivering quality profitability. Deckers is able to deliver on our objectives while managing through external factors because of our flexible operating model, omnichannel capabilities and our nimble organization. Our compelling brands are well-positioned for the second half of the fiscal year, and I'm confident in the team's ability to continue executing. Steve will provide further details on our updated thoughts on guidance and the macroeconomic environment later in the call. But for now, let's dive into the brand and channel performance highlights for the second quarter and first half. Starting with UGG. As a reminder, Anne Spangenberg joined our company earlier this year to leave the Fashion Lifestyle group, which includes the UGG and Koolaburra brands. With her a wealth of experience, Anne is already having an impressive impact on UGG, as a leader with passion and a clear vision that puts the consumer at the center of everything the brand is doing, it aligned with the UGG brand strategy implemented over the last few years, Anne is focused on refining a few key elements of the brand's approach to product and demand creation, which include expanding the base of UGG consumers through a clear strategic vision of brand purpose and experience, prioritizing the design DNA of UGG in the product proposition, editing and focusing UGG products and experiences to maximize consumer impact and elevating the pinnacle expression of UGG. I'm looking forward to seeing more of Anne's vision integrated into the UGG brand's bright future ahead. Moving to UGG brands first half results. Global revenue in the second quarter increased 6% versus last year to $477 million. For the first half, UGG revenue increased 3% over the prior year. We've been talking for some time about the diversification of UGG product and the brand's focus on developing franchises to complement core Classics. 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. Keeping Classics special essential to our UGG marketplace allocation and segmentation strategy that spans multiple countries and critical to UGG maintaining high levels of brand interest around the world. From a product standpoint, UGG has quite literally elevated core Classics through the introduction of fashion forward platform versions of the brand's most iconic styles, generating tremendous press coverage from being spotted on top models and going viral on TikTok. Platform Classics are already trending in the top 10 amongst new consumers in 18 to 34-year olds, and the fall season is just getting started. 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% and more than 60% versus last year, respectively. Beyond Classics, UGG has continued to find success with hybrid styles, of which the latest and greatest example has been the Tasman. For the first half of this year, the Tasman has been a top five style for UGG overall and the number one style purchase at DDC. We've been encouraged to see the Tasman being adopted as a genderless style, a movement being 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. Further to the Tasman's popularity and the prevalence of platforms, UGG introduced a platform Tazz last year, and the style is already in the top 10 amongst 18 to 34-year olds. We're excited about the continued opportunity with this franchise as it speaks to the UGG brand's growing year on appeal and increased category diversification. Driving the success of an early attention to UGG this fall, with the brand team's enhanced global marketing campaign strategy that leans into the consumer feedback derived from a recent brand survey. With concrete consumer feedback across the eight global markets provided by the surveys, UGG designed this year's campaign dubbed Feels Like UGG, to deliver a unified brand message via local influencers that were cast specifically for each of these individual key markets, which leans into the feeling and comfort that are core to the brand's DNA. Beginning with an influencer event in Paris that coincided with the UGG collaboration with opening ceremony and continuing on to a collaboration with 6pm that was featured during Fashion Week Milan, the Feels Like UGG campaign was launched on the runway and broadcast globally through social engagement by a community of ambassadors and consumers who love the brand. We are seeing tremendous response from consumers thus far, as in the second quarter, search interest for the US increased 11% versus last year, with two-thirds of the ugg.com visitors new to the site, 18 to 34-year old site visitors in EMEA more than doubled versus last year, Asia Pacific DTC business grew 11% versus last year, and global DTC retention increased 50% versus the prior year. The consumer response has been positive globally for the UGG brand. First half revenue was driven by international regions as the US lap significant wholesale refill activity from the prior year. Additionally, some of this year-to-date growth overseas is due to lapping supply chain latency in the first half of last year, but we feel the UGG brand's international regions returning to growth is proof of the successful marketplace reset initiatives implemented over the last few years. All-in-all, the UGG brand is positioned well for holiday with inventory availability having improved relative to last year in key markets across the globe. 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. Shifting to HOKA, global revenue for the second quarter increased 58% versus last year for $333 million, a quarterly revenue record for HOKA, leading to a first half revenue increase of 57% versus last year. HOKA growth continues to be driven by the brand's exceptional global ecosystem of access points, which is building market share through increased awareness and benefiting from strategic door count increases. While greater market share with existing accounts is responsible for the majority of HOKA growth this year, the brand has made some notable addition to access points, which include expanded distribution with strategic growth accounts, 12 owned and operated stores to build awareness and serve the monobrand China market, two stores in Japan and five pop-up stores in the US. Each of these access points are designed to build HOKA brand awareness and increase consumer access to new geographic locations. In addition, the HOKA brand has rolled out exciting out-of-home FLY HUMAN FLY campaign content in highly visible cities around the world, helping to drive a 145% increase in search terms in New York and Los Angeles. With these efforts, we've seen the HOKA brand's DTC growth rate accelerate from the first quarter into the second. Overall, for the first half, HOKA has driven exceptional increases in DTC retention and acquisition, increasing 70% and 63%, respectively, across global markets. All of these actions are driving incredible increases in brand awareness. Over the last two years, HOKA awareness across all consumers has improved nine percentage points and even crossed the 20% threshold, with awareness among runners even higher according to Decker's proprietary brands tracker study. Outside of the US, awareness is much lower, with most regions sitting in the low teens percentage, but seeing similarly explosive growth and awareness, which highlights the significant opportunity for continued HOKA brand expansion, augmenting the global marketing campaign. HOKA global event sponsorships have continued to help the brand maintain and build performance credibility with extreme athletes around the world. One recent example of this is the HOKA brand sponsorship of the Ultra Trail du Mont-Blanc, the UTMB World Series. In the brand's first year sponsoring the UTMB Series, we saw positive results, as HOKA achieved a 34% share of shoes tracked on race participants, which is well-above last year's total. Additionally, HOKA athlete Ludovic Pommeret placed first in 145-kilometer TDS race in this year's UTMB series wearing the HOKA spigot trail shoe to conquer the course's diverse terrain. The HOKA brands alignment with the ultra competitive UTMB series highlights the brand's focus on becoming a leader in the growing outdoor trail and hiking segment. The aforementioned Speedgoat is the HOKA brand's top trail shoe. Coinciding with the UTMB event, in order to complement the Speedgoat, HOKA launched the Mafate Speed 4, which is an innovative update to a heritage style designed to broaden the brand's footprint in trail. Early reads from consumers purchasing the Mafate have been exceptionally strong across global markets, which is exciting for HOKA as the brand focuses on building market share in the trail category. For hiking, HOKA now has two franchises in Kaha and the Anacapa that are experiencing immense growth and building market share. Thus far, in fiscal year 2023, both of these hiking franchises have made their way into the top 10 most purchased styles for HOKA. 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. Importantly, while we're seeing really strong growth in new categories of focus such as trail and hiking, HOKA is also delivering exceptional growth and results with core running styles like the Bondi. With the support of the increased global brand awareness I mentioned earlier, the brand's launch of the eighth evolution of the flagship Bondi franchise was even more impactful as the Bondi 8 was the top-selling style globally in the second quarter, more than doubled last year's Bondi 7 volume among 18 to 34-year-old consumers. It was a top five DTC style across Decker's entire portfolio of brands for the first half despite just launching in August. With this latest addition, Bondi, the brand's most plush riot got softer and more comfortable. With the lightest HOKA foam to date in an all-new extended shell geometry, featuring rear crash pads that provide a soft and balanced transition built for long distance. In just a few months of selling, the Bondi 8 has already been named the Best Road Running Shoe by both the SELF Certified Sneaker Awards as well as the GQ Fitness Awards. Congratulations to the HOKA team for the continued success and balanced growth across global regions and product categories. We look forward to delivering more exciting and innovative products throughout the rest of this fiscal year and beyond. From a channel performance perspective, the first half was strong in both wholesale and DTC, fueled by a 39% increase in consumer acquisition and 44% increase in retention. First half global direct-to-consumer revenue grew 26% versus last year. HOKA continues to be a significant driver of consolidated DTC growth, and the brand's growth rate even accelerated from the first quarter into the second, overall increasing 66% versus the prior year for the first half. UGG also contributed to the first half DTC growth, as the brand returned to growth in Q2, leading to a 4% increase for the brand in the first half. On wholesale, global revenue in the first half increased 20% versus last year. Strength in the wholesale channel was primarily driven by HOKA gaining global market share and the brand benefiting from select additional doors with strategic accounts. UGG also contributed to first half wholesale growth in the brand's international regions. Our first half performance highlights the strength of our omni-channel marketplace management strategies that have allowed our brands to build market share with strategic retailers, while capturing DTC demand at the same time. And while we continue to see great demand in the marketplace for our brands, as we move into the back half, the environment is evolving quickly, which may present challenges outside of our control. However, our teams are focused on the variables that are within our control as we work towards this year's objectives. With that, I'll now turn the call over to Steve, who will walk you through further details on second quarter performance, as well as the context of our reaffirmed full year top and bottom line guidance.

Dave Powers:

Thanks, Steve. We are excited about the strong results delivered in the first half of fiscal year 2023. But again, it's important to acknowledge that we are still operating within an uncertain environment where things can change quickly, and the bulk of our fiscal year is still ahead. With that said, Deckers is fortunate to have two of the strongest brands in the footwear space that continue to engage and attract new consumers every day. The UGG brand's diverse product assortment is positioned well for holiday, led by elevated platform Classics, which are driving heat and excitement around the core, as well as the continued interest in more transitional hybrid styles like the Tasman and Ultra Mini. Paired with a compelling marketing campaign that is resonating across global markets, we expect UGG to perform well this holiday season. Our powerful brands paired with strategic marketplace management, omni-channel capabilities and disciplined financial management gives me the confidence that our organization can achieve a compelling guidance set forth for fiscal year 2023, even in the face of macro pressures that will impact the broader retail space. Of course, none of this will be possible without the dedication and hard work of our employees, who I'd like to thank in advance of our busiest period of the year. I'd also encourage everyone listening to take a look at our FY 2022 Corporate Responsibility Report that we'll be launching next week and will be posted on deckers.com, further highlighting our company's efforts to do good and do great in the communities where we operate and beyond. Thanks, everybody, for joining us here today, and thank you to all of our stakeholders for your continued support. We look forward to continue sharing the exciting future ahead at Deckers. With that, I'll turn the call over to the operator for Q&A. Operator?

Laurent Vasilescu:

Good afternoon. Thank you very much for taking my question, and congrats on such solid results in this environment. Dave, Steve, I wanted to ask about the implied 2H rev guide. On a reported basis, it looks like 3%. Maybe on a CC basis, it's about 6%, 7%. Tell me if I'm wrong there. But can you maybe unpack that a bit? How much you're expecting wholesale to grow or not grow versus strength in DTC? And I know, Steve, you don't typically guide by quarter, but any nuances we should consider between 3Q and 4Q? I know you've had shifts in revenues over the years due to shipments. But anything that we should consider as we model the rest of the year?

Dave Powers:

And I would just add on to that. We've been spending a lot of time planning the back half of the year. And we're really proud of the fact that we're able to maintain guidance despite some really significant headwinds on the margin front potentially, from a proportional standpoint, but significant FX headwinds as well. And we've aligned as a leadership team across the organization, and we feel confident that we can still deliver, despite some of these significant headwinds, and that's our objective. And we're going to optimize the strength of our brands right now to deliver its healthy margin and promotional-free season that we can.

Dave Powers:

Yes, sure. We're really pleased with how things are playing out internationally. We've been working at transitioning those markets much like we did in the US a few years ago and we're starting to see fruits of that work in a positive way, particularly around diversified Classics in the UGG brand and younger consumers. And so, the marketing campaign, the key styles, the platform styles are really resonating well in those regions. But I think a key factor is that we are showing up more local than we are a global brand. So we're working closely with key influencers in the regions. That's not something we've generally done this aggressively in the past before. We've got some great partnerships with local influencers and celebrities, and also Fashion Institute in China that is giving us access to local designers to collaborate with. And we're showing up more -- with more of a local understanding of the consumer versus purely just peanut butter spread a global campaign. So we're getting surgical on the regions, both in assortment and distribution, but also the consumers that we're going after and leveraging those local relationships as best we can, and that's driving a very healthy business right now. So it's good. Despite some of the challenges, obviously, at a macro level in both Europe and in China right now, our brands are still covered and are performing well. And like I said, it's great to see that turnaround, and we see it continuing. A little more challenging in UGG in the US, just some of the wholesale nuances with shipping and things that we've had last year versus this year. But overall, it's off to a really good start. And like I said, in this environment, it's tremendous to see the international region is doing so well.

Dave Powers:

Yeah, okay.

Tom Nikic:

Thanks very much for taking my question. I guess on the FX side, I mean, it sounds like you were it not for FX changes over the last three months, you would have been raising guidance today. Is there anything -- like do you make -- trying to make any pricing adjustments or anything like that given how dramatically the exchange rates have shifted and the relative values in the different markets has changed dramatically, or do you just take the changes in FX rates and what they've done to the prices and the margin rates of those businesses and just kind of run rate from there?

Tom Nikic:

And I've got a quick follow-up. Just a quick follow-up on -- so UGG last year in Q4, I recall you said that you had a bunch of stuff that you had shipped for the wholesale channel, and the wholesale partners are planning to pack it away and release it for holiday 2022. Does that have a meaningful impact on the back half, or the shape of the back half? I mean, it causes a pretty difficult compare in the fiscal Q4. So I just want to touch on that.

Tom Nikic:

Thanks, very much. And best of luck in the holyday season.

Dave Powers:

Thanks, Tom.

Jon Komp:

Yes. Hi. Good afternoon. Thank you. Steve, maybe just a follow-up on the gross margin assumptions for the second half. Can you maybe just talk about how your promotional assumptions changed for the second half, if at all, versus what you maybe previously thought embedded in the gross margin? And then, bigger picture, any change in your confidence that you should be a low 50s gross margin business over time?

Jon Komp:

Got it. Understood. And then maybe, Dave, switching to HOKA. Could you share a little bit more on your reaction to what you've seen following the launch of the marketing campaign this summer? I know you mentioned a pretty impressive improvement in awareness. Just curious, how marketing has contributed to that. And as you think for HOKA, the balance of this year and into next year, what are you looking at in terms of what could be the most incremental for growth going forward here for HOKA?

Jon Komp:

Great. Thank you very much.

Operator:

The next question comes from Jay Sole from UBS. Please go ahead.

Dave Powers:

Yeah. Good question, Jay. I think obviously, for HOKA, the growth-on-growth that we're experiencing now, the scale of that business, the multiple categories that we're doing very well in and the expansion into more lifestyle product and distribution, all with still performance product, we're just finding more opportunities. The awareness we said in the script of the brand for non-runner is only around 20%. It's single digits in the international regions. And so when you start doing the math on awareness increases, the category opportunities head-to-toe, the global markets both in our omni-channel distribution, there's clearly a path to a multibillion dollar opportunity. And as I've said before, we don't see this as just a running brand. This is a running, trail, hike brand that is more like a North Face or a Salomon eventually than it is more like a Brook. So we are re-looking at our category approach, we are bolstering up some design and product management talent in our teams, we're elevating our marketing functions and we're going to stay aggressive, because we feel we have a tremendous opportunity to create the next multibillion dollar performance brand.

Jay Sole:

Got it, okay. And then can you just talk about October and the weather compares versus last year? How is October started? And last year was negatively impacted by weather in November, is that fair to say specifically in the US? And what's your expectation this year? Thank you.

Dave Powers:

Yeah. I mean, so far, so good. I mean we spoke about some of the early launches of the Ultra Mini platform products, both in the Ultra and all of Tasman. I mean, we're seeing just incredible response to those products. And we've gotten great press from a lot of the runways in Europe and also in New York. Influencers, they're wearing our product in a compelling way. I think the advertising, the marketing campaign is resonating very well with our consumer. We're getting really good feedback on that, and the sell-through of these extended Classics is exceptional. So we're pleased. And again, we're heading in with a lot of confidence, but we're heading into an environment that is seemingly going to be very promotional. But we're going to try to optimize full price sell-through as best we can and come out clean and healthy.

Dave Powers:

Thank you.

Sam Poser:

Thanks for taking my question. So before I get to questions, Erinn, can you give us the -- my normal question, please, on what the wholesale revenue is by brand?

Sam Poser:

No, it doesn't because you should just put it on there. You just tell everybody upfront.

Sam Poser:

Okay. Thank you. Okay, so now for questions. The FX, you're looking for what? What are the FX headwinds in total that you're looking for in the back half? I'll just ask all my questions together. What are your replenishment expectations for UGG built into your guidance for the third and fourth quarters? And I'll just do those two and I got one more.

Steve Fasching:

Just back half.

Sam Poser:

On the gross margin, though, on the gross margin, what's the headwind on the growth like just for the back half? That's for the full year?

Dave Powers:

Yeah. I'll just double check that real quick. Do you get the right info?

Sam Poser:

My math isn't good. But -- and then with UGG, what percent of the UGG business in the third and fourth quarter is international versus US? And how does that break down from a wholesale to DTC scenario? Because it looks like the DTC business, I would assume that's very US centric, and the demand just looks like it's exceptionally strong. So I mean, how are you thinking about wholesale and DTC from a -- you can do a currency neutral or whatever, just in for UGG for the balance of the year, especially DTC?

Sam Poser:

But I would assume that would mean that UGG wholesale is down a lot, just given how strong it was last year and the FX, that's offset by high increases balance different with HOKA. Is that a fair way to think about it?

Sam Poser:

All right. Thank you very much. Continued success.

Operator:

The next question comes from Dana Telsey from Telsey Advisory Group. Please, go ahead.

Dave Powers:

Yes. Good question, Dana. So in UGG, there really isn't extended distribution happening. So we're sticking to our tight distribution framework that we have globally. We've been working hard at establishing that, closing more accounts than opening. So we're not really in an expansion mode for distribution in UGG. We're trying to consolidate, work with the strategic players that we have tremendous relationships with an optimized DTC. For HOKA, it's a little bit different. We obviously want to optimize DTC, and we're doing a great job with that. But we are strategically expanding two doors, not in a massive scale, but I'll give you an example in the US. Coming up in Q3 this fall, we're going to expand up to 100 doors in DSG with DICK'S Sporting Goods. So we're slowly opening up more doors with that account and expanding a little bit. We're testing Foot Locker. And then, so -- but beyond that, there really isn't much distribution expansion for either of our brands. What we're seeing is higher rates of productivity and full price sell-through in the accounts we have. Those accounts are like DICK'S Sporting Goods and Foot Locker are new-ish and we're still learning a lot. But the growth that we're seeing in existing accounts and the productivity in those doors is very exciting, similar to what we're seeing in DTC. And then we're going to continue to strategically thoughtfully expand distribution, because we don't really need a lot more distribution right now, with the demand we're seeing in the channels we have, and we want to enter into any new distribution in a quality brand building way. From a DTC perspective, we use that strategically. One of the beauty of our omni model is that we can shift pretty easily between wholesale and e-commerce and retail. And we use the DTC channel strategically to exit some goods at a high healthy margin, but also use that as an acquisition for new customer retention. Inventory, we were so tight last year in inventory that we didn't have probably any excess. You'll see a little bit more on our UGG and HOKA websites perhaps than you've seen in the past, but that's strategic because we make more money in those sales on our own accounts and we get the consumer data versus discounting heavily in the marketplace. So we want to control this as much as we can, and strategically use DTC as an engine to drive growth and profit and also acquisition.

Operator:

Our last question is from Jim Duffy from Stifel. Please go ahead.

Steve Fasching:

Yeah. No, it's a great question. And it's interesting because we've had such success with more fashionable styles. The Fluff was a big acquisition opportunity for us with the younger consumers, and there's a lot more fashion and fund. But what you're seeing right now is the excitement around our Classics extension. So the team has done a tremendous job of taking our core Classics, which we, as you know, we've managed incredibly well over the last three years, pulling back on distribution, allocating inventory. And now we're going back to these accounts with a more expanded classic offering, which is right on trend. The platform trend is out there in a big way. That product is selling well globally, as well as the Tasman as is a little bit more behind on a new international level. But generally speaking, the diversification into heritage Classics and kind of more fashionable product is serving this brand incredibly well. We're bringing in more diverse consumers. We're bringing in younger consumers, people are purchasing more often. International is a little bit behind on, for example, China is having a moment now with Fluff, where US and Europe, that was last year. So it's just a little bit of a different cadence in some of the international markets versus the US, but all the product is resonating. The one difference in, I would say, the Asia Pacific region is that, they have a higher penetration of Classics overall, but they also have a much higher penetration of sneakers in those markets, which have been resonating very well also, which gives us more opportunity to lean into that category going forward, which is a big one for the UGG brand to capture. So strategy is working great. You're going to see an expanded focus on classics and more functional product coming into next year, which we believe will be accretive to margin and ASP and still some market share from others in that space as well. So lots of opportunity, we've got some work to do on bolstering men's at the moment and putting more marketing behind that category. But overall, the new product is resonating well and we're very optimistic.

Steve Fasching:

Yes. There is a HOKA element. So I think the important thing to remember there was in both Q2 and Q3 last year, we were really starved for HOKA inventory. And that really arrived in Q4. So we had a kind of pent-up demand that was being fulfilled in Q4. And so you saw a big spike in HOKA Q4 of last year, and we're comping that this year. So yes, that – HOKA does play a part in Q4 as well as UGG.

Steve Fasching:

Thanks, Jim.

Operator:

This concludes our question-and-answer session, and the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good afternoon, and thank you for standing by. Welcome to the Deckers Brands First Quarter Fiscal 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be provided at that time for you to queue up for questions. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I will now turn the call over to Erinn Kohler, VP, Investor Relations and Corporate Planning. Please go ahead.

Dave Powers:

Thanks, Erinn. Good afternoon, everyone, and thank you for joining us today. I’m excited to dive into another quarter of exceptional results, which represent a strong start to fiscal year 2023 and further progress towards our long-term strategies. First quarter revenue increased 22% versus last year to $614 million, and we delivered earnings per share of $1.66. Revenue growth was primarily driven by HOKA as the brand achieved its first ever $300 million quarter. With strong HOKA growth, we were able to deliver another profitable first quarter as we continue to reduce the historical seasonality of our portfolio through the expansion of year round HOKA demand and further diversifying the category mix. Importantly, our first quarter result demonstrated momentum behind our long-term vision to build HOKA into a multibillion dollar major player in the performance athletic space further diversify the UGG brands product, geographic and seasonal mix, grow our DTC business through consumer acquisition and retention, and drive international markets through strategic investments. We are making clear progress in each of these initiatives. During the first quarter, HOKA delivered global revenue of $330 million, an increase of 55% versus last year. UGG products mix shifted into sandals away from seasonal fall styles. UGG regional mix shifted towards international regions, as these markets drove year-over-year revenue growth. Global DTC across all brands grew 15% as a result of increasing consumer acquisition and retention by 13% and 28%, respectively, and revenue from international markets increased 36% versus last year, which includes earlier distributor shipments. These highlights reflect the strength of Deckers marketplace management and omni-channel capabilities across our portfolio of exciting brands. Our disciplined approach to managing brands, markets and distribution channels continues to serve us well, as we create the future of Deckers. While the macroeconomic environment is evolving quickly, I’m confident in a consumer demand of our brands and our team’s ability to remain nimble and deliver on our goals in this dynamic environment. Steve will provide further details around our forward-looking expectations later in the call. In the meantime, let’s dive into the brand and channel performance for the first quarter of fiscal year 2023. Starting with the brand highlights, global HOKA revenue for the first quarter increased 55% versus last year to $330 million. This is a significant achievement that resulted in HOKA global revenue and the trailing 12 months, and in June 30, breaking the billion dollar barrier with much more growth ahead. The HOKA brands exceptional growth also delivered a new milestone for Deckers as a whole with HOKA revenue representing more than 50% of total portfolio quarterly revenue for the first time. With its year on-demand that utilizes infrastructure during off peak UGG periods and full price selling at premium price points. The HOKA brands growing scale is improving Deckers overall quarterly financial and operational performance. The HOKA brands strong quarter featured outstanding revenue growth across the brands far reaching global ecosystem of access points highlighted by international markets increasing 66% versus last year, led by the strength of the EMEA region, which was partially influenced by the timing of selling for our distributors as we strategically build new markets. U.S. increasing 49% versus last year, with DTC growth leading wholesale global DTC increasing 58% versus last year, driven by continued momentum with retained consumers, as well as the continued acquisition of new consumers and global wholesale increasing 53% versus last year, as the brand increased market share and existing accounts and benefited from select doors added to strategic accounts. We were excited by the positive brand indicators and continued share gains that HOKA is building upon across its entire global distribution network. A few highlights include increasing market share within U.S. run specialty, while commanding higher retail prices. Focus styles accounting for at least half of the top 10 styles according to aggregated U.S. run specialty store data. Doubling revenue in France led by gains in Paris, which was our third fastest growing European city during the quarter, and APAC driving the highest regional GDP growth rate led by strengthen both China and Japan as these countries benefited from stores eating awareness with consumers. Across the globe HOKA stores have continued to build excitement with a new audience and drive compelling levels of traffic and purchase activity. This is especially exciting in China, which has been a slow build as HOKA took some time to find its voice with consumers local to the region. With a refined visual merchandising strategy enhancing the consumer experience, our China’s stores are now driving higher conversion rates and we’re better equipped as we open additional locations in the region. In the U.S., the retail team continues to work towards opening the HOKA brands first permanent location in New York City during the spring of calendar year 2023. This is an exciting endeavor as the HOKA store will feature an elevated design that is fit for our premier performance brand. In the meantime, HOKA is opening a second New York City pop-up location near Lincoln Center within the next month. Our Chicago location which was opened in the last 3 months is seeing excellent traffic and driving strong conversion, giving us even greater confidence in a consumer appetite for HOKA retail stores. We will take a disciplined approach to opening a limited number of doors. But we’re excited about the opportunity to engage with consumers in key cities around the world. Further on direct-to-consumer across global markets, HOKA continues to increase the number of acquired and retained consumers that remarkable levels compared to the prior year. During the quarter, DTC acquisition increased 48% and retention increased 58% versus last year, with gains among 18 to 34 year old consumers far outpacing these increases. This led to a 4 percentage point increase in the mix of 18 to 34 year old, among individuals purchasing from hoka.com. We are seeing incredible momentum behind HOKA as the brand continues to inspire humans to fly over the earth. The HOKA brand ethos is echoed through its new globally integrated marketing campaign dubbed Fly Human Fly. This campaign was thoughtfully designed as an invitation for humans around the world to experience the HOKA arrived. As part of the campaign, HOKA launched the fifth edition of the Mach, which has quickly become a top 5 style for the brand, as well as a completely redesigned consumer website. The upgraded website features a brand new aesthetic that elevates product presentation with greater technical detail and enhances the visibility of brand values and storytelling throughout the site. Fly human fly has been live for just over a month now. And we’ve been very pleased with the consumer response and feedback for our wholesale partners. But the fly human fly landing page at hoka.com, 83% of visitors were new, which aligns with the campaign’s intent to reach a new audience. 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. Speaking of performance, I’d like to congratulate HOKA sponsored athlete, Adam Peterman, for winning the 100 mile 2022 Western states race. This was an incredible feat for Adam having this been his first time ever competing in 100 mile race. He won while wearing recently launched HOKA Speedgoat 5, which is a completely redesigned version of the brand’s most popular trail shoe with less weight and enhanced traction with Vibram Megagrip to inspire confidence in any terrain. Results like these emphasize that HOKA brands leadership is a premier performance brand, enabling athletes to achieve peak levels of performance. Other congratulations to Adam and all the other athletes who competed in this year’s HOKA sponsored Western states 100. Moving to UGG, global revenue in the quarter decreased 2% versus last year to $208 million dollars. Outperformance was driven by higher international wholesale and distributor selling that was offset by category shift dynamics, impacting the brands global direct-to-consumer business. The UGG brands international regions continue to experience benefits from the marketplace allocation and segmentation strategies implemented to build brand heat and increased demand overseas. With core fall product limited in the marketplace that was able to drive full price sell through during the past holiday season, and generate open buy opportunities in the spring season, driving the quarter’s results. UGG captured incremental market share with transition styles such as the Ultra Mini and Coquette as well as the newly launched Sport Yeah sandal, all of which are driving sell through. Briefly touching on the category dynamics impacting UGG global DTC. Over the last couple of years, the Fluff franchise experienced increased relevance as consumers turn to UGG for comfortable and stylish hybrid slippers to wear in the home. Expecting shifts in consumer behavior towards outdoor wearing, the UGG product team continued to evolve the franchise with the introduction of more spring, summer and outdoor ready styles, which included the Sport Yes Sandal. Sandals were the standout category for UGG during the quarter showing the strong demand for the brand outside of the fall and winter timeframe. While successful in shifting consumer adoption from heritage fluff franchise styles into beach ready styles. The lower average selling price in the sandal category created a revenue headwind relative to the exceptional volumes of Fluff that were sold during Q1 in the last 2 years. That said, the Fluff Yeah continues to be as top style among acquire and retain consumers, including with 18 to 34 year old. Across a global direct-to-consumer even though revenue dollars are below last year due to these product mix shifts, demand for UGG remain robust as the brand experienced increases of 8% and 13% and acquired and retain 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. He styles driving new consumer acquisition globally include the aforementioned Fluff Yeah and Sport Yeah, as well as the Clem in golden star fashion sandals, and the Tasman franchise which continues to be on fire. We are encouraged by the continued consumer interest and broader adoption of the UGG brands diverse product assortment. Overall, the first quarter represented a solid start to the year for UGG. We believe UGG is well positioned to drive a successful fiscal year 2023. And I’m even more excited for the brand’s future, after our recent announcement of Anne Spangenberg as the President of Fashion Lifestyle. Anne as a proven leader with meaningful experience building brands across our industry, most recently serving as Nike’s Chief Merchant, and has already hit the ground running in the last few weeks as she begins to immerse herself with all things UGG, and engage with our talented brand team and cross functional business partners. In her new role, and we’ll be building upon the strategic priorities for UGG, focusing on product diversification, consumer adoption and franchise evolution across our omni-channel marketplace. I’d like to welcome, Anne, and thank the UGG team for the cross functional collaboration and teamwork that enabled the brand to maintain a strong position in the market as we work to fill this role. From a channel performance perspective in the first quarter, global wholesale segment revenue including distributors was the primary driver of growth increasing 25% versus last year. Strengthen these channels resulted primarily from continued global market share gains for HOKA, as well as the benefits from added doors with strategic accounts. UGG also contributed to wholesale revenue gains based on the continued adoption of the brand’s diverse product assortment among international regions, which continue to benefit from marketplace reset activities. On direct-to-consumer global revenue for the first quarter increased 15% versus the prior year. DTC growth was driven by significant increases in consumer acquisition and retention for the HOKA brand, which was partially offset by the category and seasonal dynamics unique to the UGG brand that I covered earlier in the call. Overall, our direct-to-consumer business continues to benefit from the HOKA brands growing influence, especially in quarters outside of historical peak selling periods for UGG. The quarter just completed HOKA represented 53% of DTC revenue, which is up from 39% last year and 27% 2 years ago, with nearly all of the HOKA brands DTC business occurring through e-commerce, our most profitable channel. This brand shift dynamic is a creative to our bottom line. With that, I’ll hand the call over to Steve to provide further details on our first quarter financial results, as well as our reaffirmed outlook on fiscal year 2023.

Dave Powers:

Thanks, Steve. We are quite pleased with the start to fiscal year 2023. As our portfolio drove revenue growth above 20% in the first quarter, and our organization continued to make progress against key strategic initiatives. I want to congratulate the entire HOKA team and all of the shared service individuals that support the brand on reaching the billion dollar revenue milestone. This is a huge feat for HOKA but also for Deckers as a whole to have a second brand in our portfolio to reach this significant point of scale. The exciting part for our company is that we believe HOKA has much more growth ahead as the brand stays laser focused on rhis strategic expansion plan. The brand’s fly human fly campaign is just the beginning of our journey to build awareness and broaden the consumer aperture for HOKA. From a talent perspective, we are fortunate to have bolstered our executive leadership team with the recent promotion of Angela Ogbechie to Chief Supply Chain Officer, and the hiring of Anne Spangenberg as President of Fashion Lifestyle. I’m excited to be working closely with both of these experienced leaders and look forward to their contributions that are sure to further enhance Deckers workplace culture, and drive success against our long-term strategic initiatives. I’d also like to thank our executive leadership team and all of our employees for remaining flexible and staying focused on our goals, while managing through transition. With our strong portfolio of brands, dedicated employees and discipline management of the business, I don’t think I’ve ever been this excited for the opportunities ahead for Deckers. And I view the Board of Directors recently approved increased to our share repurchase authorization, which in total now represents more than 15% of Deckers current market capitalization as an impressive vote of confidence in our company, brands, people and strategic plan for the future of our organization. A big thank you to all of our stakeholders for your continued support. With that, I’ll turn the call over to the operator for Q&A. Operator?

Jonathan Komp:

Thank you. Good afternoon. I want to ask just first on the UGG brand. Curious to maybe get your thoughts on just the overall health of the UGG brand in the marketplace, maybe this is more of a domestic question. But just levels of inventory comfort with orders that you may have with your wholesale partners and just overall thoughts on how you expect UGG to fare in the current environment?

Steven Fasching:

Yeah, I think, Jon, just to add on to that, as Dave said, order books holding up we’re seeing strong demand for the brand so we feel good about that. As we said on inventory, we were going to bring inventory in earlier this year, so kind of on message we’re delivering on that. That is contributing to an increase in our inventory levels, which again, just remind everybody at last year’s levels were unusually low and below normal operating level. So feel okay with the inventory, where it stands, that will continue to build, but we’re well positioned from that standpoint to fulfill the orders that we have. And we’re continuing to see consumer response to it. So still very positive on how UGG is performing and the outlook. And then just to remind everybody, we’re coming off too strong years of UGG growth. And as we said well documented through last year, it was replenishing depleted levels of inventory in the channel. So we’re comping strong growth as well as replenishing inventory and feel comfortable about that.

Dave Powers:

Yeah, it’s really related to two things. One is just expanding the reach of the product to reach new consumers, and then also expanding our reach internationally, particularly in China. But this is at its core, a running brand, and we have incredible authenticity, and are very important brand in that space. And we’ll maintain that authenticity as we go forward. Hence, the Western states and the UTMB, and the Ironman championships that is the core of this brand, and always will be. But we obviously see expanded opportunity in trail and hike, and then in walking and also lifestyle. So, we are well aware of the fact that there’s a broad base of consumers that are purchasing the HOKA brand across age groups demographics and end use. And so with the new Fly Human Fly campaign that we launched, reestablishing our authenticity in ultra sports with the events that I mentioned. And at the same time speaking to a broader base consumer that is into the brand for a lifestyle perspective, or walking perspective, or just overall comfort. So we welcome all those consumers, we consider them athletes, they’re on their feet all day, and they need performance footwear, and we’re working on ways to establish more communication and engagement with those folks, while staying true to the authenticity of the brand. And that’s more on a product standpoint, we’re not necessarily opening up new distribution to go after those consumers. We’re pleased with the business index, but we’re in less than 20% of their stores, just starting to go into footlocker and opening more stores globally, particularly in China, where we’re seeing a broad base of consumers coming into our stores and on our websites really loving the brand. But what’s also incredibly exciting on the lower age spectrum is 18 to 34 year olds are increasingly purchasing the HOKA brand. We’re starting to hear comments about people are trading their all white Nikes, for all white HOKAs, so that’s very encouraging for us as well. And we knew a lot of optimism going into the account – of Foot Locker account to see what we can do with the younger consumer there too.

Dave Powers:

Thanks, Jon.

Operator:

The next question comes from Sam Poser with Williams Trading. Please go ahead.

Erinn Kohler:

Hi, Sam, sure. This is Erinn. So wholesale distributor net sales, I’ll give you just that component by brand. So for UGG, that was $138 million, HOKA $232 million, Teva $47 million, Sanuk $11 million, and then all other which includes Koolaburra $2 million. So that gets you to your total wholesale distributor of $429 million.

Dave Powers:

Yeah, so I’ll start with UGG. And then, I’ll let Steve tackle the HOKA question. So we’re optimistic about UGG in the queue in Q3, as you said, we were late on inventory last year. We potentially missed some sales last year. And the good news is that we have inventory, obviously, in the channel earlier, and we have more inventory coming. So from an inventory standpoint, I think we’re going to be in very good shape for Q3. There’s just a lot of questions out there still on the consumer level of promotions, et cetera. We’re not – we’ve in the last couple of years for UGG in Q3, we’ve been very, very clean, minimal promotions, tight on inventory. We see a little bit of return to normalize season, but we’re not expecting or modeling in heavy promotional activity at this point. We want to protect the health of the brand and not chase top-line, because we think we can make up a lot of revenue if we need to, on the year with HOKA. But as far as how the setup looks, we’re in inventory position, we have exciting new product launches in the UGG brand, we think are going to resonate very well. And we have a new campaign, a holiday campaign that we’re working on right now. So as far as tackling the opportunity, we’re in good shape. I think their question is their macroeconomic environment globally, and what that’s going to do to not necessarily just the brand, but the wholesale partners, who are tight on inventory as well or heavy on inventory in general.

Sam Poser:

Yeah. One last thing, do you expect the DTC business to outgrow wholesale this year, given sort of the some of the maneuvers at the end of last year in the wholesale shipments?

Sam Poser:

Thank you for continued success.

Operator:

The next question comes from Laurent Vasilescu with Exane BNP Paribas. Please go ahead.

Dave Powers:

Yeah, I’ll talk a little bit about HOKA. This is the first global campaign that the brand has ever done. So we felt that it’s important to refresh the messaging and the communication from the brand. And, we’ve obviously evolved our thinking as to what this brand can be for folks globally. And, we’ve been on a track of inspiring athletes all around the world of all types to get active and be there for them. And so this is a way for us to bring all the different product launches that we go through, whether it’s a Clifton, or Bondi, or Speedgoat, to have a little bit more consistency in the look and feel of the campaign to have a consistent tone of voice and to be more consistent with global consumers around the globe. So we’re very pleased with how it’s been received. We’re getting very positive feedback from our wholesale partners. We’re getting very positive KPIs on our website. The amount of new visitors for the quarter was up tremendously and very healthy for us, as you see in some of the retention and acquisition figures are all heading in the right direction. And we think this is a foundation and a story that we can continue to build on head to toe and build real power, and an aspirational positioning for the brand. So far, so good. I think we need to add in a little bit more grittiness, if that’s the right word into the campaign and pull off some of the great performances and athletes in the UTMB and Western states in Ironman and leverage those influencers a little bit more in the campaign. But we feel the platform is right. The redesign of the website is proven to be very successful so far, our landing page, spend time and dwell time and conversion rates are up. And so we’re very pleased. But it’s the beginning of a long journey with this campaign. And but so far, we’re seeing great adoption globally, and positive reaction from consumers and wholesale accounts.

Laurent Vasilescu:

That’s great. Great to hear. And then as a follow-up question, I think, you mentioned in your remarks, Dave, on Foot Locker, maybe you can give us a little more granularity on what type of consumer you’re seeing there. What’s the response? And then, Steve, I think in your 10-K, you signed another lease for a pretty significant distribution center. That should be up and running over the next year or two followed by the Indiana Distribution Center last year. Can you just maybe kind of frame up the need for that? Is that is that to really focus on the multibillion dollar target for HOKA. Is there a channel effort there? It’s in wholesale DTC any color on that would be very helpful. Thank you

Steven Fasching:

Yeah. And just on the distribution centers, Laurent, we are, as you mentioned, expanding our presence and space available that is in part to handle the growth that we anticipate with the business and specifically kind of help handle the additional growth in the HOKA business. We do have levers as well. So there – we have other arrangements in 3PLs that we can change distribution patterns. But we have our main facility in Moreno Valley. We’re increasing space in the Midwest, as you mentioned, we also have some distribution through 3PLs on the East Coast that we can also look at. So it’s helping us plan for the future. We know these things take time. What I would also say is, we’re introducing more automation. And so a big part of what we’re developing in the Midwest is an increased automated fulfillment center, so being able to be efficient as we get those up and running efficiently. So more to come on that, but that’s how we’re looking at that.

Steven Fasching:

Right.

Operator:

The next question comes from Jim Duffy with Stifel. Please go ahead.

Steven Fasching:

Yeah, Jim, this is Steve. Good question. We’re watching that carefully. And as you mentioned, we are growing our presence and inventory has increased, we are not at some inventory levels, of some of the others, but our productivity is much higher than other brands. So run specialty is highly productive, I think, we’re probably the most productive brand in many of those outlets, that’s leading to significant turnover of that inventory, so our ability to fulfill it. So, I think, again, as inventory increases, as we have more inventory available, we’re going to continue to feed that channel, there’s more opportunity, I think, and our teams believe that as well. So we’re going to continue to take advantage of that. And now especially with a better inventory position, we’re better positioned to continue to go after that business.

Jim Duffy:

The brand indicators super encouraging five of the top 10 styles that’s really impressive.

Jim Duffy:

Great. And Dave, I also want to ask about the addition of Anne Spangenberg, what’s the particular skill set that Anne brings to you that makes her well suited to lead the fashion lifestyle division. And what are the areas you’re most excited about her opportunities to have an impact?

Jim Duffy:

Very good. Thank you, guys.

Operator:

The next question comes from John Kernan with Cowen. Please go ahead.

Dave Powers:

Thank you.

Steven Fasching:

Yeah, John, this is Steve. We haven’t changed anything from what we’ve said previously. So, we have introduced at the beginning of this calendar year price increases related to HOKA, we’re seeing that drive some of the gross margin improvement. Clearly, that’s being and has been offset with the higher freight. It’s helping mitigate some of the pressures. And we’ll continue to face that relate into the next quarter. What we’ve also said and haven’t changed our stance on is price increases on related select product for UGG, that’ll really kick in our Q3. Again, that was part of what we indicated on our initial guidance. So we haven’t changed anything there. So no change in terms of how we’re thinking about price increases, we’re going to continue to monitor that. But our prices are pretty well set for the seasons, and would be more a future opportunity, not anything we would expect in this year.

John Kernan:

Got it. Maybe just one quick follow-up. You mentioned specialty running being a little bit full on the wholesale side of things for HOKA. Anything else any other detail you can give as it relates to the wholesale channel for both UGG and HOKA. We have heard some updates from some of your peers in the sector. And it does sound like there’s some caution building in that wholesale channel.

John Kernan:

Understood. Thank you.

Steven Fasching:

Thanks, John.

Paul Lejuez:

Hey, thanks, guys. I’m curious if maybe you could talk a little bit more about the trends that you saw on the DTC side of the business for each of the brands as you kind of progressed throughout the quarter have things kind of held steady throughout, if you saw sort of ups and downs in the business on the DTC side, or maybe a deterioration issue is moved along again, both for UGG and HOKA. And curious if you could just talk about the inventory a little bit more, I think you mentioned your – you had a high percentage of goods in transit, just curious what the comparison was, versus a year ago and what inventory looks like in terms of units on hand versus last year? Thanks.

Steven Fasching:

And then, Paul, just a little bit on the inventory, in terms of the in transit percentage wise were a little bit better, but on a higher dollar amounts, so we have higher dollar amounts still in transit. I think that’s important to note. And then embedded in that inventory this year versus last year is about $70 million more of additional freight, as rates increased throughout last year. So we’re dealing with a significant amount more of freight, embedded in those higher inventory values as well. And then the other with large percentage increase related to HOKA is we’re ramping the HOKA inventory to support the growth in that business that’s contributing to the higher inventory balance. And just to remind everyone, the average price on a HOKA is greater than the average. So that’s contributing to a lift as well.

Steven Fasching:

No. We don’t.

Steven Fasching:

All right.

Operator:

The next question comes from Jay Sole, and this will be the last question. He’s with UBS. Please go ahead.

Steven Fasching:

Yeah. Sure, Jay. So this is Steve. So of the 360 basis point decline versus last year in the quarter, roughly 260 of it is increased freight. So that’s related to both ocean and air, because we did use some air in Q1, which a year ago, we didn’t start using air freight last year until later in the year. So that’ll be where we’re going to have some headwinds in the first half of the year versus tailwinds when you get into the latter part of the year, so roughly 260 on freight, there’s about 50 basis points related to FX and then everything else were kind of all the other things that we stated. Yeah. And just to remind you, the freight again, as we talked about is inclusive of air and ocean. And then the second part of your question was?

Steven Fasching:

Yeah, so what we’re seeing and this is what’s contributed to the strong first quarter. We have seen an improvement, as we mentioned, in the prepared remarks. So product is flowing in a little bit sooner than what we anticipated. So we’re seeing things flow. The visibility is still limited, as I mentioned in the prepared remarks, too. So we’re still trying to get better gauges on arrival of inventory. Good news is, on the West Coast port, labor negotiations, that’s still ongoing, so we haven’t seen disruption related to that. But again still ongoing, so we’ll keep a close eye on that. So again, seen inventory come in better, which is good, gives us an ability like we demonstrated in the quarter with June and with HOKA and ability to move it out and be in a better position than we were a year ago in order to kind of meet some of the demand. So we’ll see how things go. We’re continuing to work on that continuing to look at ways to improve, but encouraged by some of the improvements that we have seen, but continuing to look for further improvement.

Operator:

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

Operator:

Good afternoon, and thank you for standing by. Welcome to the Deckers Brands' Fourth Quarter Fiscal 2022 Earnings Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I'll now turn the call over to Erinn Kohler, VP investor Relations and Corporate Planning. Please go ahead.

Dave Powers:

Thanks, Erinn. Good afternoon, everyone, and thank you for joining us today. I'm excited to share our record-breaking fiscal year 2022 results, which include a number of significant achievements. The first time Deckers delivered over $3 billion in annual revenue, and we did so just three years after reaching $2 billion. In total, we delivered fiscal 2022 revenue of $3.15 billion, an increase of 24% over the prior year and nearly 50% above two years ago. Aligned with our commitment to driving top line growth and healthy profitability, Deckers delivered an operating margin just shy of 18%. And lastly, we delivered earnings per share of $16.26, which represents a 21% and 69% increase over last year and two years ago, respectively. As I reflect on this incredible expansion and evolution of our business over the past two years I look forward to seeing our brands build up this momentum, and I'm even more excited about the runway ahead. Of course, none of this will be possible without our dedicated employees and exceptional leadership team collaborating to deliver in a difficult supply chain environment while remaining focused on executing to the long term. Because of these efforts, our performance this year was well aligned with our long-term strategies to drive quality HOKA growth, further diversify and elevate the UGG brand, strengthen and build our DTC business and unlock the full potential of our international markets. More specifically, our progress in these strategic initiatives in fiscal 2022 includes

Dave Powers:

Thanks, Steve. Fiscal year 2022 represented another phenomenal year for Deckers as our portfolio of brands delivered revenue and earnings growth above 20%. We continue to drive progress towards our long-term vision to build HOKA into a multibillion-dollar major player in the performance athletic space, further diversify the UGG brand's product, geographic and seasonal mix, grow our DTC business through consumer acquisition and retention and drive international markets through its strategic investments. These strategies continue to benefit our organization's focus and act as a North Star guiding to continued development of our portfolio of powerful brands while maintaining top-tier levels of profitability. Our consistent delivery of exceptional results often overshadows the progress our organization continues to make in doing good and doing great in the communities where we operate. We've made great progress with Deckers Gives, as our employees contributed more than 14,000 volunteer hours in fiscal year 2022; our DAI initiatives as we've improved bipart representation among our leadership teams to 21%, which is up from 12% two years ago. I'd like to thank our employees for their dedication and hard work that continues to drive Deckers into the future. Thank you to all of our stakeholders for your continued support. Before I turn over the call, I'd like to acknowledge our announcement earlier that Wendy Yang will be stepping down from her role as President of Performance Lifestyle effective as of the end of this month. On behalf of the entire Deckers team, I want to thank Wendy for her leadership and contributions over the past seven years. With HOKA and Teva in their strongest position to date, I am confident in our ability to continue our positive momentum. I look forward to the future with this talented team and wish Wendy the best. While the company conducts a leadership search, Stefano Caroti, our President of Omnichannel, will assume Wendy's responsibility on an interim basis. Wendy will remain with the company in a consulting role through August 15, 2022, to ensure a smooth transition. As we are now ready to take questions, again, I would like to say how proud I am of the Deckers organization and our accomplishments over the past few years. We have delivered impressive results and have built a strong foundation for the future. Our future opportunities are more exciting than ever, and I look forward to the journey ahead with our team. With that, I'll turn the call over to the operator for Q&A. Operator?

Laurent Vasilescu:

Good afternoon. Thank you very much for taking my question. And congrats on such a great finish to the year. Dave, Steve, I wanted to ask about pricing. When we think about the 10% to 11% growth for the year, we're hearing a lot of brands take up pricing. Should we assume that there's high single-digit pricing for this year? Any guardrails on that would be very helpful.

Laurent Vasilescu:

Very helpful. And then my follow-up question is with regards to HOKA's growth of high 30s, can you give us any update on how many doors you're currently at DICK'S Sporting Goods? When you said limited number of doors at Foot Locker, can you just give us some guardrails? And on that, like how do we think about wholesale versus direct-to-consumer growth? I think you mentioned right wholesale still be the driver, but just trying to put some guardrails around that after the full year's results.

Operator:

Our next question comes from Jonathan Komp with Baird. Please go ahead.

Steve Fasching:

Yes, sure, John. This is Steve. I'll go first. So on the UGG, you're right. When you consider what we did in the fourth quarter, again, demonstration of how strong the brand performed, how relevant the brand was. We also did see strategic partners, wholesale accounts who took inventory in knowing that they weren't going to sell it through in the fourth quarter. So as we expect, they'll carry it in knowing that there are supply chain disruptions they're happy to carry it into our fiscal year '23, which we expected to sell through. We do see that more as an impact in kind of Q3, Q4. And you're right, so the underlying growth on that is more mid-single digits versus the low single digits that we were kind of thinking previously.

Jonathan Komp:

Yes, that's really helpful. And then maybe a broader question on your total top line growth profile. I know before COVID, you talked about several years where you saw, I think it was low double-digit combined revenue growth. Any thoughts as you look out beyond this year. Is that sort of the right algorithm, especially after this year when pricing falls off a bit and then tied into that, is this sort of a 1-year step up in the G&A investment? And what do you expect to get leverage after this year?

David Powers:

Yes. And there is a lot of investments still to make in the business, too, I mean you think about the international growth, setting up retail footprint to expand into HOKA and elevate our game in UGG apparel resources, IT resources, et cetera. And we've made some investments this year. We're going to continue to do that in line with the growth of the business. So hopefully, the supply chain headwinds, the cost side of that subsides over the next year or two and we can reinvest some of those savings back into the business, too.

Mackenzie Boydston:

Hi, this is Mackenzie Boydston on for Camilo. Thanks for taking my questions. My first question is just more generally, how your wholesale partners are viewing back half orders and if their views have changed at all from, say, 90 days ago, just any thoughts on discussions with your partners would be really helpful.

Steve Fasching:

Yes.

Steve Fasching:

Yes. So I think on that, Mackenzie, that on the Q4 hit, you're right, a little bit more, and that was really driven by freight. And that -- and within the freight, there was the ocean combination, but there was also more air freight as we used air to bring in the HOKA product, which really helped drive the top line on the HOKA sales for the quarter. So that was an important element to be able to get that product in. As we said going forward, our expectation is we will incur some headwinds with ocean freight in the first half of the year as we're lapping a year that didn't have that freight, and then we do expect to reduce our air freight usage. So sitting on a better inventory position this year going into FY '23, our expectation is that we'll need to use less air freight, which should help margins this year versus last year.

Operator:

Our next question comes from Jay Sole with UBS. Please go ahead.

David Powers:

Yes. Great question. Really excited about Marco, the GM of Europe and the progress that he and the team have made around UGG. It has been a multiyear journey. They've done a great job of cleaning up the marketplace and creating a city around classics, introducing styles like the Fluff and that franchise to her consumers. So the playbook, so to speak, that we've been employing in the U.S. is working. It's unfortunate that we've had supply chain challenges last year, and now we have a macroeconomic challenge going on in that region. We're still optimistic. We're still hearing positive responses from our accounts and the fact that there's still leaving an egg and want the inventory, we can get it. But it is going to dampen our opportunities a little bit, and that's embedded into the guidance. But suffice to say, the brand is on a resurgence there. We have work to do in individual markets that was looking to really optimize Germany as an example. We were in the market in December visiting the market. The brand is strong. But we need to raise our game on how we look in front of the consumer and how we show up in DTC a little bit. But the good news is a lot of the trends that we're seeing in the U.S. around a younger consumer gravitating to the brand, we're seeing that there as well. And we think that we have a really strong run for the UGG brand going forward. With regards to HOKA retail, it's definitely early days. we got into retail really is a way to attack the China market. So we opened our first few stores in the China region. We opened pop up here in New York and L.A. and we just opened one in Chicago, all exceeding expectations, all doing great. They're smaller formats by design, but they're giving us great confidence that we can do some meaningful business through retail for HOKA, but the real objective is to just engage with our consumers and create further our ecosystem. So we're driving them into our brands across multiple categories, bringing them online, maximizing lifetime value. So we're not looking at this says, "Hey, we want 200 HOKA stores overnight." But they will play a strategic role in bringing the full breadth of the brand to consumers in key cities that we have identified, and then we're going to maximize the opportunity in some of these key cities and then see where we go from there.

John Kernan:

Yes, thanks for taking my questions. Congrats on a phenomenal year.

John Kernan:

So maybe just step back on the gross margin, for everyone across the whole sector, across the risen here, whether it's raw materials, ocean, air, on the freight side, just wondering how the long-term gross margin outlook? Has it changed at all if some of these costs remain structurally higher on the commodity and transportation and freight side? How do we think about this new inflationary environment that we're in?

David Powers:

Yes.

David Powers:

Yes. I think there's -- well, there's two things to think about. One is the category opportunity. So we really see HOKA as a performance brand and a performance brand across multiple categories. We're obviously rooted in running, and that's where our authenticity comes from, but we're relevant and important trail and hike and getting into fitness and other categories down the road, head to toe. So when you think about the breadth and the shoulders that this brand has, we see a multibillion-dollar opportunity. From a channel perspective, listen, we could light up wholesale today and dramatically increase the results of this business overnight. But we want to make sure it's sustainable. And in this environment where first-party data is critical for success. We're doing everything we can to drive healthy DTC business at the same time. So right now, we're looking at probably a 50-50 split because internationally, there's there is more opportunities in wholesale, and that's just depending on the market than DTC today. But we're very conscious of the fact that we're leveraging wholesale to introduce the brand and create awareness and have healthy sell-through in the right accounts. But at the end of the day, we want that traffic to all to end up in our website and in our stores. And we believe that that's the right model. We have the resources. We have the capabilities to make that happen. And we're in this for the long haul. We want to see this to be a multibillion-dollar brand that is meaningful against some of the top performance brands in the world over time.

David Powers:

Yes, low.

John Kernan:

Awesome. Congrats on a great year and outperforming most of your peers in the industry.

Steve Fasching:

Thanks, John.

Paul Lejuez:

Thanks guys. The EBIT margin guidance that you gave for the year is similar to what you achieved this past year. I'm curious how you're thinking about each brand and where you expect HOKA versus UGG to shake out versus this prior year? Or if you're looking at both of them as being kind of in line? And then second question, I'm just curious, just from a very high level, which parts of your supply chain right now are getting better, saying the same, getting worse? Any comments along the -- along those lines.

Steve Fasching:

Yes. And then, Paul, to answer your questions on supply chain, so just going down the list, I would say our capacity is good, right? We have the factory capacities that we need for all the brands, but particularly HOKA increasing going into the second half of the year. So that's good. Shipping times are still a challenge, right? We've had to put buffers into our lead times for product creation and then when we put our buys in. So there's a level of uncertainty that comes with that, but we're managing that through that well, but it is from the time inventory leaves the factory to our DCs is still longer than we would like, obviously. Port bottlenecks, and particularly in Long Beach, we're seeing a little bit of improvement there. Things are coming in a little bit faster. But I hope I'm wrong, but I personally think there's just a lull before we come into the fall inventory starting to ramp up again. So I'm optimistic that, that will continue, but I'm a little nervous that when we get into peak selling season, that's going to jump up again. Inventory and visibility of that inventory and timing as to when it's going to come in, still a challenge for our teams, their customer experience and the sales team are having to rebalance orders against inventory availability. So that's just a lot of heavy lifting that the teams have to go through. We don't see a lot of improvement on that yet still because the challenge with the port is we don't know which container is going to come in and win. But -- and then on the logistics side of it from a DC perspective, the investments we've made in the last couple of years are paying off. We have a little bit of work to do and just stabilizing some of the newer DCs in Europe and the Midwest, but we're excited that we have these underway and we're gearing up for continued growth. So I think the hope there is that the shipping lead times and the bottlenecks of the port by it a little bit. And I think other than that, we're really in good shape.

Steve Fasching:

Yes. And I do think, and I really believe that bringing this inventory orally and carrying a little bit is going to serve us well because we need the inventory in the marketplace to be able to sell it. And it's a very uncertain environment right now, still probably more uncertain than it was a year and even last year ago -- two years ago. So I'm excited that we have this inventory coming in. We're in good place. We just need to get it out to the marketplace now and just keep going after it.

David Powers:

Yes, we didn't provide that. What we can say is it's consistent with -- the larger brands is consistent with the average. So increasing as we anticipate kind of disruption and bringing more in. But again, on a two and three year comparison to sales is in line with our sales growth.