Deckers Outdoor Corporation

Good afternoon, and thank you for standing by. Welcome to the Decker's Brands' fourth quarter and fiscal year 2019 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. If anyone has any difficulties hearing the conference call, please press star zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded. I'll now turn the call over to Erin Kohler, Senior Director, Investor Relations and Corporate Planning. Please go ahead.

Thank you, everyone, for joining us today. On the call is Dave Powers, President and Chief Executive Officer, and Steve Fashing, Chief Financial Officer. Before we begin, I would like to remind everyone of the company's safe harbor policy. Please note that certain statements made on this call are forward-looking statements within the meaning of the federal securities laws, which are subject to considerable risks and uncertainties. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements made on this call today, other than statements of historical facts, are forward-looking statements. and include statements regarding our anticipated financial performance, including but not limited to our projected revenue, margins, expenses, earnings per share, cost savings, and operating profit improvement, as well as statements regarding our strategies for our products and brands. Forward-looking statements made on this call represent management's current expectations and are based on information available at the time such statements are made. Forward-looking statements involve numerous known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from any results predicted, assumed, or implied by the forward-looking statements. The company has explained some of these risks and uncertainties in its SEC filing, including in the risk factor section of its annual report on Form 10-K and quarterly reports on Form 10-Q. except as required by law or the listing rules of the New York Stock Exchange, the company expressly disclaims any intent or obligation to update any forward-looking statements. With that, I'll now turn it over to Dave.

Thank you, Erin, and good afternoon, everyone. It gives me great pleasure to share with you that Decker's has achieved a significant milestone in its history. For the full fiscal year 2019, we reached over $2 billion in annual revenue in a very profitable manner. This accomplishment is a testament to the hard work that our teams put into our company, and I am very proud of the results this dedication, discipline, and focus have been able to produce. In addition to breaking through the $2 billion mark in top-line revenue, the organization has successfully delivered on our long-term margin target a year ahead of schedule with solid performance recorded in the fiscal year 2019 results. These results include operating margin well beyond the prior target of 13%, driving more than the committed $100 million of operating profit improvement over the past two years, and delivering returns on invested capital above the benchmark 20%. With the strides that the organization has made, especially in terms of earning performance and cash generation, we believe that we are now positioned better than ever to invest in our brands and channels within key areas of opportunities for future growth. As a reminder, the areas of focus that we have identified include investments in marketing to build awareness and adoption of the HOKA One One brand and growing the UGG men's and UGG women's non-core categories, as well as investments in technology to enhance e-commerce capabilities to evolve how we engage and grow with our consumers, and talent tools and analytic capabilities that will allow us to maximize the above opportunities. Today I will share brand and channel level highlights from our fourth quarter performance and fiscal year 2019 in review before handing the call over to Steve to walk through our financial results in more detail, including an outlook for the first quarter and full fiscal year 2020. To recap the recent performance, revenue in the fourth quarter was $394 million, coming in above the high end of our guidance and 1.6% less than the same period last year, with a decline to last year mainly due to retail store closures Despite that, non-GAAP EPS came in at 85 cents as compared to 50 cents last year. For the full year, revenue was a record $2.02 billion, up 6.2 percent, while operating income increased to $327 million, representing a 16.2 percent operating margin and earnings per share of $8.84, also a record high. In reviewing our performance over the past two years, Our revenue has grown over 6% each year. Our non-GAAP operating profit dollars have grown 40.5% on an annualized growth rate. And non-GAAP operating margins have increased from 9.2% to 16.2%, representing a 700 basis point expansion, all delivering a two-year annualized non-GAAP earnings per share growth rate of 52%. While these results exceeded our initial outlook, as Steve mentioned on our last call, We experienced an exceptional selling environment this year in the third quarter and drove much better than expected results than what we would normally plan for. Now turning to performance by group. Starting with the fashion lifestyle group, UGG sales declined by 7% in the fourth quarter to $239 million, largely due to retail store closures and international softness, partially offset by strength in domestic wholesales. The fourth quarter result was higher than previous guidance, primarily related to earlier shipments of spring product moving out of Q1 fiscal 2020 into Q4 fiscal 2019. For the year, UGG sales increased 2% to $1.533 billion, with domestic wholesale and e-commerce accounting for most of the gain. During the year, UGG experienced amplified success with younger consumers, as evidenced by year-round slipper growth, aided by the newly introduced Fluff Yacht Collection and expansion of the Tasman, continued demand for the Classic Mini and Mini Bailey Bow, and accelerated growth of the new male franchise, which included incremental purchasing from both male and female consumers. The UGG team has been focused on de-seasonalizing the business by growing our spring-summer product offering. Our recent results underscores the progress we've made on this important front. In fiscal year 2019, UGG successfully redistributed its category mix. In conjunction with UGG's domestic wholesale allocation and segmentation strategy of women's core classic products, the brand saw increases of over 25% in women's shoe and sandals categories. Equally important, UGG brand interest in the U.S. is on the rise. According to Google Trends, interest in UGG over the past year grew by 7%. During the fiscal year, UGG acquired nearly 1.5 million new customers and two owned GDC channels, which we believe is the result of delivering compelling products and marketing that resonate with a more diverse consumer base. These trends are representative of why we believe in dedicating investment to target customer acquisition and engagement through digital marketing. Next, Coolabora in the fourth quarter grew by 67% to $3.6 million, rounding out a fantastic year as annual revenue more than doubled to $44 million, driven by strong full-price sell through a major account. We have high confidence in our strategy of focusing on the family value channel for this brand, and next year looks even stronger based on a robust order book. Coolabora continues to gain market share that is incremental to UGG's business and has already shown the ability to drive profit to our bottom line. Switching gears to our performance lifestyle group, for the second consecutive quarter, HOKA set a revenue record, with the fourth quarter growing by 33% to $67 million. HOKA achieved impressive growth in fiscal 19, with sales increasing 45% to $223 million. The HOKA team's dedication to creative innovative product rooted in authentic performance continues to be the driver of exceptional results. The Bondi, Clifton, Arahi, and Gaviota styles represent the core of the Hoka brand. These core styles have continued to deliver significant growth, while the brand also continues to diversify its product offering, capturing new consumers as well as satisfying incremental needs of existing loyal customers. Since launching in March 2019, the Sky Collection has received initial positive feedback from both wholesale accounts and consumers as the brand now expands its reach into the hiking category. The Sky Collection is yet another example of how the brand is expanding its category reach while staying firmly focused on a commitment to delivering authentic performance footwear in the marketplace. With the continued expansion of category offerings, the seasonality of the Hoka brand is beginning to smooth out throughout the year as the team is strategically planning the timing of product launches. On May 1, 2019, Hoka introduced the Carbon X, establishing its impressive credentials just four days later with a record-setting attempt. I would like to congratulate Jim Wamsley on becoming a new world record holder for the 50-mile distance and doing so while wearing Hoka's CarbonX product. Having just launched to consumers worldwide on May 15th, the CarbonX is one of Hoka's most innovative products released to date. With a carbon fiber plate to help athletes accelerate and propel forward, combined with ProFly X foam, our lightest and most resilient foam yet. We are looking forward to seeing more record-breaking performances in this shoe. Within the U.S., Hoka's wholesale business was up 30% on the year, and the brand is now a top three brand in multiple specialty running accounts. We remain focused on growing our domestic wholesale presence through high-touch premium specialty retailers. The hookah team is gaining market share with an existing distribution through strategic category expansion. In addition to wholesale, domestic-owned e-commerce continues to add meaningful volume year over year as we work to capture incremental replenishment business. On the international front, hookah sales were up 59% for the year, with the largest share coming from Europe. As we've noted in the past, Europe remains the largest near-term opportunity for growth, while at the same time, the APAC region is beginning to show adoption. As we work to grow internationally, we are concentrating on building awareness with consumers through authentic performance aligned with our domestic marketplace strategy. Turning to Teva and Sanuk, I am pleased with the team's dedication to driving profit to Decker's bottom line. Both brands experienced an increase in gross margin and contribution margin for the second consecutive year. For Teva, sales were up 3% on the year to $137 million, a record high for revenue. Growth was driven by a considerable increase in Japan, as the brand's functional outdoor appeal was complemented by premium fashion collaborations. In addition to record revenue, Teva's operating profit dollar contribution was its highest on record, increasing over 30% versus the previous year. On the product side, the brand recently celebrated its Born in the Canyon launch, to commemorate the Grand Canyon's 100th year of the national park and Teva's 35th anniversary. Turning to Sanuk, sales for the year were down 9% to $83 million. The result was driven by a high single-digit decline in U.S. wholesale. From a product perspective, revenue was negatively affected by the softness of the Yoga Sling franchise. Over the last year, the brand has been working to diversify its product offering by introducing Chill product, which represents boot and slipper silhouette. Early reads of Chill product have been strong in attracting new consumers to the brand, as 75% of online purchasers had previously not owned Sanur. Now moving to channel performance. Total company wholesale revenue increased 6% for the quarter and 10% for the year. As mentioned in our third quarter call, the U.S. marketplace allocation and segmentation implementation has been very successful. As a result, we'll be implementing the strategy across Europe in the coming year with the hopes of reigniting the markets that drive healthy full-price sales in future years. Shifting to our direct-to-consumer channel, DDC comps decreased 0.5% for the quarter. For the year, the total comp increased 1.9%. Comps for DDC were strong domestically but challenged internationally. We believe suppressed EDC comps internationally are largely a result of macro headwinds mentioned on our third quarter earnings call, but we're also actively engaged in enhancing the health of our brands across all markets. Overall for the year, total direct-to-consumer sales were flat. Fiscal 2019 was another solid year for our online business, as we added more than 2 million new customers globally across our brand portfolio. We continue to invest in our digital infrastructure to drive and support online engagement and conversion. As I reflect on the past year, I am incredibly proud of the organization's achievements that went far beyond what we had targeted, both for fiscal 2019's initial guidance as well as our long-range goals. I'm delighted by the team's successful accomplishments, including highlights coming from UGG's growth of non-core categories within its offering, complemented by the implementation of our U.S. wholesale allocation and segmentation strategy, HOKA's rapid momentum across various categories within authentic performance footwear and using innovation and brand ethos as their driving force, and continued supply chain efficiencies and disciplined cost management delivering increasing levels of profitability and generating further opportunities to fuel growth as we look to the future. While we feel favorable marketplace conditions and weather patterns aided our performance this past fiscal year, We believe in our strategies and remain confident in our ability to deliver exceptional levels of performance as we move into the next phase of our growth. With that, I'll hand the call over to Steve to provide details on the fourth quarter and fiscal 2019 financial results, as well as our initial outlook on the first quarter and full fiscal year 2020.