Deckers Outdoor Corporation

Good afternoon and thank you for standing by. Welcome to the Decker's Brands third quarter fiscal 2021 earnings conference call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. Following the presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please limit yourself to one question and one follow-up. Please note, this event is being recorded. I would now like to turn the conference over to Erin Kohler, Vice President, Investor Relations and Corporate Planning. Please go ahead.

Hello, and 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 fact, are forward-looking statements and include statements regarding the impact of the COVID-19 pandemic on our business and operations, business partners and industry, changes in consumer behavior in the retail environment, strength of our brands and demand for our products, changes to our product allocation, segmentation, and distribution strategies, changes to our marketing plans and strategies, investments in our business, our anticipated revenues, brands, performance, product mix, gross margins, expenses, and liquidity position, and our potential repurchase of shares. 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 filings, 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.

Thanks, Erin. Good afternoon, everyone, and thank you for joining us today. I'm excited to dive into the details of an extraordinary quarter for the company and the exceptional results that our teams have delivered. But first, I would again like to stress the paramount importance of the health and safety of our employees, customers, communities, and stakeholders as they remain top of mind with everyone continuing to navigate the COVID-19 pandemic. On behalf of Deckers, I hope everyone is staying safe and healthy. Our third quarter results include record-setting revenue of $1.078 billion and record earnings per share of $8.99. Revenue grew by 15% over last year's third quarter to deliver Decker's first ever quarter to exceed a billion dollars. Performance in the quarter was driven by delivering relevant and compelling product that consumers are demanding, focusing execution to maximize demand captured through direct-to-consumer channels, engaging consumers with authentic and emotive product storytelling, executing marketplace management that set the table for high product sell-through, and our dedicated employees working tirelessly to deliver strong results despite the challenging environment. To achieve these results, we overcame both significant operational hurdles as well as macro pressures related to the ongoing pandemic. Steve will be providing more context on these unique dynamics later in today's call. We believe much of the strength we have seen in our business fiscal year to date is the result of our continued execution and dedication to our long-term strategies, including driving year-round demand for UGG through a diverse product assortment, accelerating consumer acquisition online, which increased 87% year-to-date across our portfolio of brands, prioritizing 18- to 34-year-old consumers, which have accounted for the largest percentage increase in our U.S. customer database this year, managing the wholesale marketplace strategically, which has continued to benefit UGG margins in the U.S. and is progressing in EMEA, globalizing the HOKA ecosystem, evidenced by the acceleration of international markets, and spending responsibly to maintain high levels of profitability while deploying investments in these key strategic areas. While this last year has led to unique circumstances allowing our brands to capitalize on positive momentum, our underlying strategies remain central to Decker's long-term growth and profitability profile. As we adapt our operating model to these accelerated trends, we continue to recognize the need for additional infrastructure investments, allowing us to sustain strength in our business. More to share on that front during our year-end earnings call in May. I'll now walk you through the brand highlights from the quarter, starting with UGG. The double-digit global UGG growth rate in the third quarter was driven by the strength of the brand's diversified and compelling product offering, which has been embraced by a broader range of consumers, momentum with younger and fashion-forward consumers, targeted digital marketing and PR activations, increased purchase frequency from consumers shopping across multiple product categories, significant brand heat in the U.S. with strong sell-in and sell-through across multiple wholesale accounts paired with exceptional DDC engagement, and traction with localized strategies for international markets beginning to rebuild brand heat within Europe and Asia. The UGG brand's success, particularly in the U.S., is the result of the brand's long-term evolution as a leading global lifestyle brand through infusing brand DNA into new and expanding categories. More specifically, over the past four years, UGG has established an impressive resume of collaborations that have helped rebuild the brand's fashion credibility. This includes recently announced collaborations with British designer Molly Goddard and New York-based designer Telfar Clements. Combining buzzworthy collaborations, design innovations, and strategically manage distribution through product allocations, segmentation, and differentiation, UGG has significantly reduced its reliance on core products while significantly expanding other categories. Evidencing the success of this strategy, during the third quarter, women's classic product volume remained flat year over year, while the brand experienced growth across every other major category, including women's non-classic footwear, highlighted by slippers and the fluff franchise, men's footwear, particularly the new male franchise and heritage slippers, kids' footwear through fun variations of popular men's and women's product, and the new ready-to-wear collection, which was a resounding success this season and will be expanded upon next fall with additional products and partnerships. With this transformation beyond core products, the young consumer is becoming younger and more diverse. During the third quarter, UGG experienced a 44% increase in customers aged 18 to 34 year olds in the US, which was the largest increase of any group and represented the largest percentage of total customers. As UGG continues to expand its audience with younger consumers, it has been critical to enhance the brand's e-commerce engine and digital marketing expertise. The UGG e-commerce platform has continued to evolve as part of Decker's overall digital transformation. but it has also become a strategic driver of the product development process through exclusive products. By creating products exclusive to DTC, the UGG team is able to both develop special events that drive traffic, as well as create a faster feedback loop to enhance future product success with targeted consumers. Momentum with younger consumers has been amplified by UGG earning year-round attention from the emergence of the Fluff franchise. Historically, many consumers searched for UGG products as weather turned colder, However, with the evolution of Fluff, which features year-round product, UGG is remaining top of mind with consumers. In fact, UGG brand search interest increased 18% for the entire calendar year 2020. We have also observed Fluff as a compelling acquisition vehicle for driving repurchase decisions in other categories. Specifically, our data highlighted many consumers who purchased Fluff earlier this year returning to purchase the classic Clear Mini this fall. With more frequent attention from consumers and effective utilization of consumer insights and data analysis, over the last nine months, we've witnessed an 89% increase in repeat purchasers as compared to the same period last year. With more consumers making multiple purchases, the value of the more than 2 million new customers acquired so far this year becomes even more impactful for the future growth trajectory of the UGG brand. As the UGG customer database grows, so does the strength of its insights provided by our centralized marketing teams. For example, Consumer Insights revealed that 18- to 34-year-olds in the U.S. were the driving factor behind the new mail becoming the top global style for UGG in the third quarter. While volume growth of the style was impressive, even more exciting was the increase in 18- to 34-year-old purchases of the new mail, who more than doubled over last year in our domestic DDC channel. With the insights developed around the Numel consumer, we believe that the recently introduced Men's Fluff product will also resonate well with this consumer. First launched in November, the Men's Fluff It and Fluff You styles were modeled by NBA legend Dennis Rodman in the UGG brand's Chaotic Fun campaign. The UGG team is excited by the positive PR impressions gained from Men's Fluff, which sold out in its initial allocation online and is selling well with key wholesale partners. From a regional standpoint, as expected, Growth in the third quarter was driven by the U.S., where according to YouGov, UGG reached new all-time highs in brand consideration, purchase intent, brand impression, and brand buzz among women aged 18 to 34. Over the past three years, the UGG brand's domestic business has added nearly $200 million to the third quarter alone, which we feel is a result of our successful strategy to build brand heat and tightly manage our segmentation and diversification efforts. While a great deal of the domestic strength this year has been driven by owned e-commerce performance, and this continued in the third quarter, pairs sold at UGG domestic wholesale partners during the fall season increased 42% versus last year. Because of the UGG marketplace strategy, wholesale success was broad-based. Given the strength of our sell-through at our wholesale partners this fall, UGG experienced very little promotional activity, and season-ending inventories in the market are at a historically low level. Internationally, UGG continues to see progress in the multi-year reset in EMEA. Over the last year, UGG has exited approximately 20% of wholesale accounts in Europe and significantly reduced the core classic product in the marketplace. While revenue in Europe remained a strategic headwind in Q3 due to our ongoing marketplace reset and COVID-related challenges, margins improved as UGG drove a healthier product mix and reduced the need for promotional activity. Overall, we feel the UGG brand is headed in a positive direction in Europe, evidenced by fiscal year-to-date online consumer acquisition increasing 97% over last year. With favorable consumer acquisition and strengthened strategic youth accounts in the region, we believe UGG could return to growth in EMEA next fiscal year. With the holiday season behind us, we are now shifting our focus towards growing brand heat and consumer attention for the spring and summer seasons. Clearly, the strategy we have implemented over the past few years in the U.S. continues to pay dividends, and we are excited by this year's progress with international markets. We still have investments to make in order to rebuild brand heat in these international regions, but feel increasingly positive that our strategy to build diversified product acceptance through fashion credibility is working. Congratulations to the UGG team on executing a fantastic quarter. Shifting to HOKA. Global performance was driven by strength and momentum across the brand's entire ecosystem. Among all access points, building the brand's online consumer acquisition and retention has been a primary focus for Hoka. Through optimized digital marketing and geo-targeting, Hoka has managed to increase consumer acquisition online by 117% fiscal year-to-date, while also doubling consumer retention year-over-year. With a growing audience online and dedicated consumer replenishment trends, HOKA has been able to cross the $100 million DDC revenue mark in just the first nine months of fiscal year 2021. With this acceleration online, DDC revenue now represents nearly 30% of HOKA revenue fiscal year to date, up from 21% last year. Importantly, HOKA is also firing in all cylinders with wholesale partners as the brand has doubled both awareness and consideration among consumers outside of core runners. According to the NPD Group's Retail Tracking Service, HOKA dollar sales in the U.S. run specialty channel increased 19% for the three months ending December 2020, compared to the same months over the prior year. This growth is despite overall dollar sales of adult running shoes sold through this channel decreasing 4% for the three months ending December 2020. For calendar year 2020, the brand's top three strategic wholesale accounts sold more than $100 million of HOKA product at retail value, highlighting both the strength of these relationships and the relative size of the HOKA brand's direct-to-consumer business. As we have discussed in the past, we are constantly evaluating HOKA distribution to ensure optimized consumer access points. Earlier this year, we began testing Dick's Sporting Goods with a limited number of doors and product, and so far the partnership has been mutually beneficial. This spring, HOKA will be slowly increasing its door count with Dick's and will continue to evaluate as appropriate. Ideally, testing these additional access points for HOCA will expose the brand to a larger audience as we work to build further awareness and consideration. During the quarter, HOCA growth was powerful across the globe in every region, and we have been encouraged to see the brand's international growth rate continue to outpace domestic. While revenue dynamics remain in favor of domestic due to the differences in distribution models, 54% of units in Q3 were sold internationally. This speaks to the Hoka brand's global appeal and opportunity overseas as the brand expands. From a product standpoint, Hoka continues to be recognized with awards for its innovative technology and designs. Some of the awards received during the third quarter include the Clifton Edge being named Best Running Shoes in the Rolling Stoat Essentials 2020, the Bondi 7 being named Best for Long Runs in Outside Magazine's Best Running Shoes of 2021 Winter Guides, and the Hoka Gore-Tex Shake-Dry Run Jacket being named Best Running Jacket in the 2021 Women's Health Fitness Awards. We are proud to see not only core heritage Hoka products like the Bondi receiving recognition, but also new product innovations like the Clifton Edge and Shake-Dry Run Jacket obtaining acclaim. We are still in the very infancy of Hoka apparel, but it's promising to see such a positive response so early in the development process. On the innovation front, HOKA has been working to bolster its fly collection, which represents the brand's roster of speed shoes. We believe these lead with speed shoes are an important acquisition vehicle for younger consumers, and I'm excited to share some of the HOKA brand's recent and upcoming launches in the category, including the Rocket X, which launched in Q3, the Carbon X2, which launched in January, and the Mach 4, which launches in March. Similar to the original Carbon X that was worn by Jim Walmsley while setting a new world record 50-mile time in 2019, the X2 was launched with a world record-breaking 100K attempt. While Jim was a few seconds shy of the world record this time, he shattered the American record, and it was an incredible event to showcase the brand. We know Jim will be back for more record-breaking attempts and believe this event further demonstrates the global opportunity that lies ahead for HOKA and our supporting athletes. Congratulations to Jim on this incredible achievement, and thank you for showing us what is possible with HOKA performance. We believe that with continued innovation in the speed space, HOKA will continue to build awareness with consumers aged 18 to 34 and main consumer acquisition momentum, which fiscal year to date has increased 167% versus last year in the 18 to 34-year-old demographic in the U.S. With just under $400 million in revenue fiscal year to date, We're confident HOKA will cross the $500 million revenue milestone for fiscal year 2021. We look forward to sharing more around the HOKA growth path on our year-end earnings call in May. With respect to channel performance in the third quarter, e-commerce growth was exceptional, helping to drive our mix of DDC revenue to 48%, up from 44% last year. This is despite declines in retail and growth in the wholesale channel. From a comparable sales perspective, direct-to-consumer increased 34% versus last year. Approximately 75% of our own retail stores were open for the entire third quarter, although in most cases with limited capacity due to enhanced health and safety protocols. In total, global direct-to-consumer revenue increased 26% versus last year's third quarter. Performance was driven by consumer acquisition online. partially offset by a deceleration of retail resulting from macro pandemic pressures on store traffic. Global wholesale revenue in the third quarter increased 6% as compared to last year. Growth in the quarter was primarily driven by global HOCA and domestic UGG, with offsets from international UGG related to marketplace reset initiatives underway. In summary, global demand for HOCA, domestic strength in UGG, omni-channel execution, and disciplined approach to strategic investment and an incredible display of resiliency by our employees operationally led Decker's to double-digit quarterly revenue and earnings growth in the midst of a pandemic. On behalf of the entire leadership team, thank you to all of our employees across the globe. Your relentless resolve in getting the job done delivered these record results. I'll now hand the call over to Steve to provide more details on our third quarter financial performance, as well as some additional thoughts on the remainder of fiscal 2021 and beyond. Steve?