Deckers Outdoor Corporation

Good afternoon and thank you for standing by. Welcome to the Decker's Brands first quarter fiscal 2023 earnings conference call. At this time, all participants are in a listening 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 Polo, VP 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 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, our potential repurchase of shares, and the impacts of the macroeconomic environment on our operations and financial conditions. 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 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 continued to reduce the historical seasonality of our portfolio through the expansion of year-round HOKA demand and further diversifying the UGG category mix. Importantly, our first quarter result demonstrated momentum behind our long-term vision to build HOKA into a multi-billion dollar major player in the performance athletic space, further diversify the UGG brand's product, geographic, and seasonal mix, grow our DDC business through consumer acquisition and retention, and drive international markets through strategic investments. We are making clear progress in each of these initiatives as during the first quarter, HOCA 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 Decker's 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 Decker's. While the macroeconomic environment is evolving quickly, I'm confident in the 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 HOCA revenue for the first quarter increased 55% versus last year to $330 million. This is a significant achievement that resulted in HOKA global revenue in the trailing 12 months and in June 30th breaking the billion-dollar barrier, with much more growth ahead. The HOKA brand's 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-round demand that utilizes infrastructure during off-peak UGG periods and full price selling at premium price points, the Hoka brand's growing scale is improving Decker's overall quarterly financial and operational performance. The Hoka brand's strong quarter featured outstanding revenue growth across the brand's 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 sell-in for our distributors as we strategically build new markets, the 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 at existing accounts and benefited from select doors added to strategic accounts. We are 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 GDC growth rate led by strength in both China and Japan, as these countries benefited from stores aiding 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 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 brand's 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 three months, is seeing excellent traffic and driving strong conversion, giving us even greater confidence in the 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 at remarkable levels compared to the prior year. During the quarter, DDC 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-olds 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 ride. As part of the campaign, Hoka launched the fifth edition of the mock, which has quickly become a top five 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 have been very pleased with the consumer response and feedback from our wholesale partners. For the Fly Human Fly landing page on 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 multi-billion 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 a 100-mile race. He won while wearing the recently launched HOKA Speedgo 5, which is a completely redesigned version of the brand's most popular trail shoe with less weight and enhanced traction with Bieber MegaGrip to inspire confidence in any terrain. Results like these emphasize that Hoka Brand's leadership is a premier performance brand, enabling athletes to achieve peak levels of performance. Another 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. UGG performance was driven by higher international wholesale and distributor sell-in that was offset by category shift dynamics impacting the brand's global direct-to-consumer business. The UGG brand's international regions continue to experience benefits from the marketplace allocation and segmentation strategies implemented to build brand heat and increase demand overseas. With core fall product limited in the marketplace, UGG was able to drive full-price sell-through during the past holiday season and generate open-to-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 Yass 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 turned 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 Yacht sandal. Sandals were the standout category for UGG during the quarter, showing the strong demand for the brand outside of the fall and winter time frame. 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 two years. That said, the Fluffy Yacht continues to be its top style among acquired and retained consumers, including with 18- and 34-year-olds. Across UGG global direct-to-consumer, even though revenue dollars were below last year due to these product mix shifts, demand for UGG remained robust as the brand experienced increases of 8% and 13% in acquired and retained consumers, respectively, versus the prior year. Importantly, international DDC acquisition and retention gains are trending well ahead of these global figures as we continue to build brand heat overseas. Key styles driving new consumer acquisition globally include the aforementioned Fluff Yacht and Sport Yacht, as well as the Clem and 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 brand's 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 am even more excited for the brand's future after our recent announcement of Anne Spangenberg as the President of Fashion Lifestyle. Anne is a proven leader with meaningful experience building brands across our industry, most recently serving as Nike's Chief Merchant. Anne 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, Anne will be building upon the strategic priorities for UGG, focusing on product diversification, consumer adoption, and franchise evolution across our omnichannel 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. Strength in 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. DDC 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 HOCA brand's growing influence, especially in quarters outside of historical peak selling periods for UGG. In the quarter just completed, HOCA represented 53% of DDC revenue, which is up from 39% last year and 27% two years ago. With nearly all of the HOCA brand's DDC business occurring through e-commerce, our most profitable channel, this brand shift dynamic is accretive 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.