Deckers Outdoor Corporation

Good afternoon, and thank you for standing by. Welcome to the Decker's Brands fourth quarter fiscal 2022 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 call is being recorded. I'll now turn the call over to Erin Cooler, VP Investor Relations and Corporate Planning.

Hello, and thank you everyone for joining us today. On the call is Dave Powers, President and Chief Executive Officer, and Steve Foshing, 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 changes in consumer behavior, 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, changes to our capital allocation strategies, the impact of the COVID-19 pandemic on our business and supply chain, our anticipated revenues, brand performance, product mix, gross margins, expenses, inventory, and liquidity position, and our potential repurchase of shares. The 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 share our record-breaking fiscal year 2022 results, which include a number of significant achievements. For the first time, Decker's 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, Decker's 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 am even more excited about the runway ahead. Of course, none of this would be possible without our dedicated employees and exceptional leadership team collaborating to deliver in a difficult supply chain environment while remaining focused on executing for the long term. Because of these efforts, our performance this year was well aligned with the long-term strategies to drive quality hookup growth, further diversify and elevate the UGG brand, strengthen and build our DDC business, and unlock the full potential of our international markets. More specifically, our progress in these strategic initiatives in fiscal 2022 includes growing Hoca revenue by 56% over the prior year to nearly $900 million, which represents 28% of the total portfolio revenue, up from 22% last year and 17% two years ago. Diversifying UGG revenue and highlighting the brand's success around the core with categories outside of women's classics now representing more than 65% of annual brand revenue, up more than 10 percentage points from five years ago, increasing DDC revenue by 14% versus the prior year and 65% versus two years ago, and expanding our international business, which grew 25% versus last year and 34% versus two years ago. Again, I'm proud of our organization for the hard work that enabled accomplishing these exceptional results while navigating an extremely complicated logistics environment. Looking ahead to fiscal year 2023, we are operating from a position of strength and leveraging the lessons learned over the last 18 months. Decker's has incredible growth ahead, and I have the utmost confidence in the consumer demand for our brand and our team's proven ability to deliver on our goals. even amidst a complex macro environment. Steve will provide more details on our forward-looking expectations later in the call. In the meantime, I will share some details about fiscal 2022 brand and channel performance, as well as some context around strategies propelling us forward in fiscal 2023. Starting with the brand highlights, global UGG fiscal 2022 revenue increased 15% versus last year to $1.982 billion. This is the second consecutive year of UGG-driving double-digit growth. Success in fiscal 2022 was driven by continued consumer adoption of the brand's diverse product assortment. As all major categories increased double digits over the prior year, men's footwear grew to over $300 million after adding approximately $100 million over the last three years. Apparel and accessories combined increased 47% over last year, now representing more than 6% of brand mix at more than $100 million. And women's classics continue to drive incremental dollar growth through newness. Consumers adopting a broader assortment of UGG products is directly related to the brand's ability to develop new franchises while innovating existing franchises. The Ultra Mini is a great example of the latter. First introduced in the second half of 2020 as a companion style related to the brand's core Classic Mini and Classic Short, the Ultra Mini has been viewed as something of a sneaker alternative with its greater year-round wearability, as it sports a lower ankle height profile. While still very new to the UGG assortment, the Ultra Mini has already become a top five DDC style among both newly acquired and retained consumers, and it was just outside of the top five styles among consumers aged 18 to 34 years old. The Tasman is another UGG style that younger consumers are wearing as a sneaker alternative. The original Tasman has been around for many years now, but the UGG product team has developed this heritage style into a burgeoning franchise. Through the infusion of fresh colors, new prints, and local treatments, adding new lightweight and sustainable material options, such as our UGG plush blend of upcycled wool and plant-based lichen cell for the Tasman LTA, the introduction of the TAS, a fashion-leading platform version, and most recently, the launch of an innovative rain clog, the Tasman X. We are particularly excited about the initial response to the Tasman X, which was featured as part of a broader rain campaign during the fourth quarter and received positive coverage in a number of fashion publications, including a few organic consumer unboxing viral videos on TikTok. With its versatility, year-round relevance, and broad consumer appeal, we believe the Tasman franchise can continue to be a key driver of further diversifying and de-seasonalizing the UGG brand. From an omni-channel marketplace management perspective, the UGG brand's strategic priorities for the year played out as expected, with domestic wholesale driving impressive growth through a diverse product assortment while refilling their channel inventories. International regions growth rate exceeding the U.S. growth rate for the first time in four years, and global direct-to-consumer increasing mid-single digits on top of the more than 30% increase from the prior year. These results are a testament to UGG omnichannel marketplace management, as the brand was able to drive strong growth across all channels despite logistics challenges impacting the timing of deliveries and availability of product. This also speaks to the consumer demand for UGG overall, which remains quite high, as evidence in the fourth quarter just completed. UGG performed well beyond our expectations in the fourth quarter as wholesalers accepted later than normal deliveries and DDC shoppers waited beyond the peak holiday season for availability of key items that have been out of stock. Across the full fiscal year 2022, we saw a number of favorable indicators for UGG demand, including U.S. search interest increasing 9% over last year and 20% over two years ago, according to Google Trends. 18 to 34-year-olds remaining the UGG brand's largest age bracket of consumers. Incremental purchases of multiple products at the same time, led by Tasman, Numel, and Slipper combinations, highlighting our UGG for All mantra. And an increase in the brand's loyalty program enrollment across every region, with nearly 6 million global members at year end. As the size and scale of the UGG Rewards Program continues to grow, I want to highlight a few key metrics that emphasize the value of these loyal consumers, such as that members account for approximately 40% or more of revenue in all regions where the program has existed for more than one year, and that members spend approximately 40% to 50% more than non-loyalty consumers. Fiscal 2022 was another strong year for the UGG brand, and I'd like to thank the team for their hard work and dedication to delivering back-to-back years of exceptional growth. On the heels of the growth UGG delivered over the last two years, we are placing an emphasis on maintaining the record levels of brand heat across global markets. To do this, we expect to elevate the brands through disciplined and strategic global marketplace management, prioritize the consumer experience at DDC to build loyalty, edit to amplify the assortment, driving fewer but more powerful product stories, and attracting new consumers through innovative fashion collaborations. I'm proud of the great work the young team has delivered and look forward to continued progress toward our strategic goals in the upcoming year. Moving on to HOKA. Global revenue in fiscal 2022 increased 56% versus last year to $892 million. With improved supply enabling the delivery of strong growth in the fourth quarter, HOKA drove yet another year of record-breaking results with plenty of exciting runway ahead. The HOKA team continues to build a balanced business across the brand's ecosystem of access points which has enabled growth in every region across all channels. More specifically, from a channel perspective, for the full year, HOKA global wholesale accelerated, increasing 55% versus the prior year, with volume that is now larger than the brand's entire business in fiscal 2021, and global direct-to-consumer increased 58% versus last year, with strong gains in acquired and retained consumers. With the rapid growth and consumer adoption of HOKA, Distribution management remains a critical component of driving awareness with and attracting new consumers. On the wholesale front, I would note that the majority of growth in fiscal 2022 came from market share expansion with existing run specialty and outdoor retailers versus opening new points of distribution. While HOKA has opened new distribution with strategic partners and even expanded door counts with these accounts in certain instances, the brand continues to be highly disciplined about expansion. HOKA has a superb group of wholesale partners who have continued to support the brand's strategic vision, enhanced brand credibility and awareness with core consumers, and helped broaden the scope of consumers that HOKA reaches. Further to that point, I'd like to provide a little more context around the HOKA brand's growth opportunity at wholesale in the upcoming year and beyond, which includes quarter our brand strategy, building market share, and run specialty. While in certain locations HOKA has grown to the number one or two brand, We have identified several regional growth opportunities within pockets of the U.S., as well as overseas. Volume expansion with strategic partners that have opened in the last two years, with the opportunity to increase door counts over time, and opening a select number of doors with new strategic accounts. One of these new strategic relationships I'd like to highlight is Foot Locker. HOKA and Foot Locker have shown mutual interest for several years now, and over that time created a distribution plan that aligns the interests of both parties. We are excited to be opening HOKA in a limited number of Foot Locker doors beginning this summer with the intent to increase the brand's exposure with young consumers in key markets where HOKA is lacking presence with existing distribution. We know from our experience with UGG that the Foot Locker team has a clear perspective on their consumer and believe this valuable partnership can have a considerable impact on HOKA awareness with the 18 to 30, 40-year-old audience. Complementing the HOKA wholesale business, the brand's direct-to-consumer channel has continued to acquire new consumers as well as drive repeat purchases with existing consumers. In fiscal 2022, HOKA global direct-to-consumer acquisition increased 50% versus the prior year, and retention increased 62% versus the prior year. While acquiring new consumers is an important metric as we expand HOKA awareness, increasing customer retention is a critical component of maintaining brand strength and building loyalty. Ultimately, DDC is where Hoka can best showcase the breadth and newness of the brand's innovative product assortment, including apparel, and provide a convenient consumer experience to drive repeat purchases. Over the last year, Hoka drove a more than 40% increase in the number of consumers making multiple purchases, as well as those purchasing across multiple categories. Though wholesale remains the primary acquisition point for new consumers, the Hoka brand's digital marketing activations are also driving DDC acquisition with targeted consumers. The specific focus on the 18 to 34-year-old consumer, the Hoka brand's digital tactics have been successful in growing the mix of these consumers by two percentage points over last year and six percentage points over two years ago. Hoka is also seeing a fantastic consumer response at the brand's pop-up retail locations. New York has been our strongest performer, but we're also excited about the recently opened pop-up store in Chicago and a relocation in Los Angeles where we opened a store in Venice, California. We believe Hoka can deliver a premium experience at retail locations by showcasing the breadth of the brand's product offering and driving community engagement. Over the longer term, we see an opportunity to open a limited number of permanent locations in key cities around the world, including our first U.S. location in New York City by the end of fiscal 2023. The Hoka brand's new strategic wholesale distribution, targeted digital marketing activations, and pop-up retail stores in key markets are collectively designed to accelerate consumer acquisition around the world through increased awareness. Our integrated approach to managing HOKA distribution continues to serve the brand well in driving balanced global growth across the HOKA ecosystem of access points. On the product front, HOKA continues to develop an assortment designed to ignite the inner athlete within all humans. The brand's inclusive approach to product management includes evolving heritage franchises to be accessible to all types of athletes, elevating performance through new innovations, and expanding the consumer audience through new categories. Polka made progress on all three of these strategies in fiscal 22 by introducing the Bondi X, which is both an evolution of the Heritage Bondi style and an elevation of performance with the addition of a propulsive carbon plate to the brand's most cushioned ride, trailblazing with the all-new Speedco 5, the lightest and most grippy version of the brand's number one trail shoe, reinventing the Mach using a lower-profile outsole that delivers soft cushion with an up-tempo ride built for speed and capable of being an everyday trainer, disrupting the hike category with the Anacapa franchise, which is a performance hiking shoe that features sneaker-like comfort, and launching the all-new Kawano, which is designed to seamlessly transition from gym workouts to daily runs to casual wear. In all, Hoka continues to develop a compelling product assortment that is built with all types of athletes in mind, serving the spectrum of performance runners to extreme hikers and trail explorers, as well as those looking for everyday, all-day comfort. I want to congratulate the Hoka team on delivering another phenomenal year of growth, which we expect to continue in fiscal 2023 through continued market share gains with existing wholesale partners, expanded awareness with new consumers that the brand launches its first major global marketing campaign later this summer, driving acquisition and replenishment activity through our direct-to-consumer channel, and introducing innovative products with the brand's signature Ahoka ride. Turning to Teva, global revenue in fiscal 2022 increased 17% versus last year to a record $163 million. Growth this year was driven by the brand's leadership in sports sandals and progress building share in closed-toe categories, highlighted by the success of the Hurricane and the Re-Ember franchise. While wholesale drove the majority of growth for Teva in FY22, the brand was able to comp the exceptional DDC growth experience in the prior fiscal year. Success at DDC was driven by a significant increase in retained consumers, which the brand will look to replicate in the upcoming year. Shifting to Coolabora, global revenue in fiscal 2022 decreased 9% versus last year to $69 million due to the disruption of wholesale deliveries that resulted from pandemic-related bottlenecks. Despite this, The Koolaburra brand's DDC business increased 35% over last year and is now three times the size of DDC volume two years ago. And finally, Sanook global revenue in fiscal year 2022 increased 3% to $43 million. We are pleased with the brand's performance, driven by our greater mix of full-price business and an increase in higher price point items. With respect to channel performance in fiscal year 2022, both wholesale and DDC drove double-digit growth over the prior year, reflecting the strength of our omnichannel brand management. For the year, global wholesale revenue increased 31% over last year and 39% over two years ago, with four out of five brands posting double-digit increases this year. Wholesale dollar growth was primarily driven by the momentum of global HOCA as the brand continues to gain market share, refilling the marketplace inventories for domestic UGG accounts, and the UGG brand's international markets returning to growth, benefiting from the marketplace reset activities over the past few years that cleaned up distribution in EMEA, and localized product and marketing strategies in China. Overall, wholesale revenue represented 61% of total revenue, which is up from 58% last year, but down from 65% two years ago. We expect to drive continued growth through wholesale, working with best-in-class partners who are showcasing our brands and attracting new consumers around the world. From a direct-to-consumer standpoint, revenue for the year increased 14% over last year and 65% over two years ago to $1.2 billion. We experienced year-over-year gains in both physical retail, as we lapped closures during the prior year, and online, where we have focused our investments to drive new consumer acquisition and increase retention. Importantly, our DDC business is growing globally and across multiple brands, as both domestic and international DDC increased double digits over last year, and four out of our five brands experienced growth on top of the exceptional increases achieved in the prior year, with HOKA and UGG accounting for the vast majority of dollar volume gains. With that, I'll hand the call over to Steve to provide further details on our fourth quarter and fiscal 2022 financial results, as well as our initial outlook on fiscal year 2023.