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.

Thanks, Dave, and good afternoon, everyone. As Dave just shared, our first quarter results demonstrated great progress toward the fiscal year guidance that we outlined in May. While we advanced a number of key initiatives for our business this quarter, HOKA was the primary driver of performance as the brand continues to build global market share. UGG revenue came in slightly lower than last year, primarily due to category shifts occurring during the quarter, as well as lapping earlier sell-in during the prior year. But we feel the brand is well positioned to deliver another strong year and are excited for what lies ahead under Ann's leadership. With ongoing uncertainty in the macroeconomic environment, we are continuing our disciplined and responsible approach to managing our business and will remain nimble to react to this dynamic environment. Our demand signals lead us to believe that our portfolio of brands will continue to resonate well with consumers. And though not immune to the macroeconomic headwinds, Deckers has historically demonstrated an ability to course correct when necessary. We remain committed to our long-term strategies that have continued to serve us well and will build upon the strong operating model we have built over the last five years. Now, let's get into the details of our first quarter fiscal year 2023 results. First quarter fiscal 2023 revenue was $614 million, up 22% versus prior year. HOCA revenue increased 55% versus last year, accounting for nearly all of this quarter's revenue growth due to the exceptional demand experienced across the brand's global ecosystem of access points and improved inventory availability. For the first time ever, HOKA represented more than 50% of total portfolio quarterly revenue, and over the last 12 months ended June 30, the brand has delivered over $1 billion of revenue. Gross margins for the quarter was 48%, which is down 360 basis points from last year's 51.6%. This aligned with our first half direction that anticipated headwinds from higher freight costs from ocean and air, as well as impacts from unfavorable foreign currency exchange rates that we anticipate will pressure margins for the remainder of this year. Additionally, first quarter gross margin was impacted by product mix and normalized promotional activity for UGG as the brand sold more sandals and discounted select styles in line with pre-pandemic activity, and channel mix, shifting toward the wholesale and distributor segment, in particular our international distributor business that shipped product earlier than in years past. These headwinds were partially offset from benefits from increased revenue mix of HOKA as the brand commanded the highest gross margin in the portfolio during Q1 and benefits from HOKA price increases. SG&A dollar spend in the first quarter was $238 million, which is up 20% from last year's $199 million. As a percentage of revenue, we delivered 60 basis points of leverage to help offset freight and FX impact to gross margin. Our tax rate was 21.3%, which compares to 21.9% in the prior year. These results drove diluted earnings per share of $1.66 for the quarter, which was 5 cents below last year's $1.71 per share. Turning to our balance sheet, at June 30, 2022, we ended June with $695 million of cash and equivalents. Inventory was $840 million, up 83% versus the same point in time last year. And important to note that last year's inventory levels were below normal operating levels as a result of supply chain disruption. And during the period, we had no outstanding borrowings. During the first quarter, we repurchased approximately $100 million worth of shares at an average share price of $260.12. As of June 30, 2022, the company had approximately $1,000,000 $354 million remaining under its stock repurchase authorization. Subsequent to quarter end, the Board of Directors approved an increase of $1.2 billion on top of the company's existing share repurchase authorization, which now in total represents more than 15% of our market capitalization, highlighting the Board's confidence in our long-term strategic plan. Now, for a supply chain update. Over the last several quarters, we've shared an update on the status of our logistics network and our continued mitigation efforts as we navigate macro supply chain disruption. We are pleased that there have been relative improvement in this area in Q1, but I will share some brief thoughts before I touch on our fiscal year 2023 outlook. Transit times have improved relative to last year, but we are still experiencing latency and lower visibility into the timing of inventory with nearly 40% in-transit, and thus are continuing to prioritize holding inventory in the country of sale. For example, during the first quarter, inventory generally arrived earlier than anticipated. As a result, we shipped more product out. However, with low visibility into when certain shipments will arrive, we are comfortable holding higher levels of inventory to enable our brands to meet the significant marketplace demand we are seeing. Though difficult to predict the timing of when inventory will land, we expect that heightened inventory levels will continue throughout this fiscal year. On the cost front, we are confident that the price increases implemented in the HOCA and UGG brands will offset freight headwinds and help bolster second half margins to deliver our full fiscal year 2023 guidance. Given the earlier arrival of inventory, we now expect to use less air freight than originally anticipated for the HOCA brand. However, as the dollar has continued to strengthen, we are anticipating greater currency headwinds, and this reduction in planned air freight should help offset these currency pressures. Now, turning to our guidance. And with these dynamics in mind, we are reaffirming our full fiscal year 2023 guidance, which, as a reminder, includes revenue growth of 10% to 11% versus last year, gross margin 50 basis points higher than last year, anticipating approximately 51.5%, SG&A at approximately 34% of revenue, an operating margin in the range of 17.5% to 18%, a tax rate in the range of 22% to 23%, and with the share repurchase executed during the first quarter just completed, diluted earnings per share will now be expected to be in the range of $17.50 to $18.35, reflecting a $0.10 increase. While we have maintained our overall guidance, I'd like to highlight a few additional items contemplated within the guidance, which include stronger HOCA revenue growth now expected to increase in the 40% range versus last year, reflecting upside from greater inventory availability, which aligns to our expectation of using less air freight than originally anticipated, and incremental foreign currency headwinds, primarily affecting UGG growth due to the brand's wholesale business model and concentration of planned growth from the international regions. This reaffirmation of guidance excludes any charges that may be considered one time in nature and does not contemplate any impact from additional share repurchases. Additionally, our guidance assumes no meaningful deterioration of current risks and uncertainties, which include but are not limited to further impacts of the ongoing COVID-19 pandemic on our operations and economic conditions, including supply chain disruptions, constraints, and related expenses, labor shortages, inflationary pressures, changes in consumer confidence and recessionary pressures, further strengthening of the U.S. dollar, and geopolitical tensions. While macroeconomic uncertainty persists, we believe in the power of our brands and continue to see positive signs of consumer demand. Deckers has a history of remaining nimble, displaying a unique ability to react as marketplace dynamics evolve, and we are well-positioned to deliver compelling revenue growth and top-tier operating margins. Thanks, everyone. I'll now hand the call back to Dave for his final remarks.

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 Decker's 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 its 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 Angelo Becci 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 Decker's 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 disciplined management of the business, I don't think I've ever been this excited for the opportunities ahead for Decker's. And I view the Board of Directors' recently approved increase to our share repurchase authorization, which in total now represents more than 15% of Decker's 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. And with that, I'll turn the call over to the operator for Q&A. Operator?

Thank you.

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your hands and be focused on the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. In the interest of time, please limit yourselves to one question and one follow-up. At this time, we will pause momentarily to assemble our roster.

The first question comes from Jonathan Combs with Robert W. Barrett.

Please go ahead.

Thank you. Good afternoon. I want to ask just first on the UGG brand. I'm 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.

Yeah, this is Dave. I can answer the beginning of that. You know, we're pleased with how ULG is performing. It's down a little bit for the quarter as expected. And that's largely due to us, you know, trying to lap the Fluff Yab business from last year. So, you know, you can attribute pretty much all of the myths or the decline versus last year, I should say, you know, to the Fluff franchise. And we've made up some ground on that with Sport Yab and some of the other classic slippers, which are doing well. But Sport Yab is at a lower price point. So, you know, as an example, on our e-commerce website in the U.S., sales were down for Ugg brand, but units were up. So it's a quarterly dynamic. You know, we're working through the tail end of the fluff business, but the core business across the globe is still strong and healthy. Our order book is strong and healthy. And, you know, we feel that our chances are good in the rest of the year, and we certainly have inventory in place to do that. Steve can talk a little bit more about the inventory, but The good news is we have inventory here. It's here earlier. And we're able to get it to our accounts earlier. So, you know, the setup from a brand perspective going into the back half of the year is still looking good. But, you know, we're being a little bit cautious here because it's still early in the year. And, you know, there's a lot of concerns about over inventory in the channel and the consumer. But as far as the brand health goes globally, you know, we're still seeing very positive signs. Order books are still looking healthy. And we have inventory should the business be there to be after.

Yeah, I think, John, just to add on to that, as Dave said, you know, order books holding up. We're seeing strong demand for the brand, so we feel good about that. You know, as we said on inventory, we were going to bring inventory in earlier this year. So, you know, kind of on message, we're delivering on that. That is contributing to, you know, an increase in our inventory levels, which, again, just remind everybody, last year's levels were unusually low and below normal operating levels. So, feel okay with the inventory where it stands, you know, 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, you know, we're coming off two strong years of UGG growth. And as we said, you know, well documented through last year, it was replenishing depleted levels of inventory in the channel. So, you know, we're comping strong growth as well as replenishing inventory and feel comfortable about that.

Yeah, great. And then maybe just one separate question on HOKA. Dave, I think you mentioned broadening the aperture of the brand, and I wanted to just follow up and get your thoughts, maybe both near-term, any specific initiatives, and then longer-term, what are your views of that comment? and the opportunity for Hoka that you see today?

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 and are a 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, in 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, you know, 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, you know, into the brand for a lifestyle perspective or walking perspective or just overall comfort. So we welcome all those consumers. You know, we consider them athletes. They're on their feet all the 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 in Dick's, but we're in less than 20% of their stores just starting to go into Foot Locker 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. you know, 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, you know, people are trading their all-white Nikes for all-white Hokas. And, you know, so that's very encouraging for us as well. And we have a lot of optimism going into the account, a Foot Locker account, to see what we can do with the younger consumer there, too.

That's great, Collier. Thanks again. Thanks, John. Thank you.

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

Good afternoon. Thanks for taking my questions. Well, I'm just going to do my normal question. Can you give us, you sort of talked a little bit about it earlier, but can you give us wholesale revenue by category or brand, please?

Hi, Sam Scherer. This is Erin. So, wholesale distributor, net sales, I'll give you just that component by brand. So, for UGG, that was 138 million. POCA, 232 million. EVA, 47 million. Sanuk, 11 million. And then, all other, which includes Kula Bura, 2 million. So, that gets you to your total wholesale distributor of 429 million.

Thank you very much. Then a couple, two more. You lost a bunch of sales even though you had a good quarter in the third quarter of last year. How are you seeing the third quarter of this year now that your inventory is flowing better? And then with Hoka, you're doing $330 million. Can you give us some idea of the cadence to get to the 40% increase that you're thinking about? Because $330 million is well above any quarter you've ever had. And is that a new normal? Or how should we think about the flow of revenue there to get to the 40%?

Yeah, so I'll start with UGG and then let Steve tackle the HOKA question. So, you know, we're optimistic about UGG in Q3. As you said, we were light 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 You know, we've been, the last couple of years for UGG and Q3, we've been very, very clean, minimal promotions, tight on inventory. We see a little bit of return to a normalized 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, you know, 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, you know, we're in inventory position. We have exciting new product launches in the UGG brand that 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, you know, as far as tackling the opportunity, we're in good shape. I think the question is the 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.

Yeah, then, Sam, on the HOCA question, you know, what we said and kind of indicated in, you know, a strong quarter one performance, where we shipped more product was increased availability of inventory in June. And that was largely driven by HOCA. And so that gave us an opportunity to ship product more than – than what we kind of anticipated could happen with the availability of inventory. That was largely HOKA-driven, right? And so I think what you're seeing in the quarter is our ability to get that product into the market a little bit sooner than what we expected, which is always encouraging, and we'll closely watch the sell-through. But that's what's driving some of this timing issue. And it's, again, going back to why we're not giving quarterly guidance. You know, we're just seeing timing shifting between quarters, and so it's very difficult with what we're dealing with to kind of precisely show when things are going to go. But when we have an opportunity to move product out a little bit earlier than what we anticipated, we're going to take full advantage of it. And that's really what you've seen with HOKA in this quarter.

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?

Yeah, I think right now the way we're kind of looking at things is equivalent between those channels. So, you know, still early and we'll see, but right now the way we're looking at it is kind of equivalent.

Thank you and continued success. Thanks, Sam.

The next question comes from Lauren . Please go ahead.

Oh, good afternoon. Thank you very much for taking my question. I wanted to follow up on HOCA and the global marketing campaign. Dave, were there any key learnings you could share with us from that campaign? And can you remind us, I think in the 10K for fiscal year 22, marketing was about 8% of sales, meaningfully up over from like a few years ago at 5%, which is great to see. Steve, where do you think marketing goes for this fiscal year? And can you maybe talk a little bit about the nuances, the spread maybe in terms of marketing spend as a percentage of sales between the two big brands?

Yeah, I'll talk a little bit about Hoka. This is the first global campaign that the brand's ever done. So we felt it's important to you know, refresh the messaging and the communication from the brand. And, you know, we've obviously evolved our thinking as to what this brand can be for folks globally. And, you know, we've been on a track of inspiring athletes all around the world of all types to, you know, 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 a 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, so far, so good. I think we need to add in a little bit more, you know, grittiness, if that's the right word, into the campaign and, you know, pull off some of the great performances and athletes in the UTMB and Western States and Ironman and leverage those influencers a little bit more in the campaign. But we 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. But so far we're seeing great adoption globally and positive reaction from consumers and wholesale accounts.

Yeah, and Laurent, this is Steve. Just on the marketing spend, you know, over the past few years, we have been increasing marketing spend. As it relates to brands, we spend more in marketing on a proportional basis to sales on HOKA than we do other brands. That is part of what's driving our overall marketing increase and marketing as a percent of revenue increase. You know, what we're seeing, as Dave just articulated, is great productivity with our marketing spend. and what's contributing to building brand awareness. As we talked about quite a bit, HOGA brand awareness is still relatively low in comparison to other brands. And so with the marketing spend, with the campaigns that we're launching, we're seeing great productivity and how that's driving consumer awareness of the brand and building brand awareness. So it's a lever that we're using very efficiently and productively, and we'll continue to do that. And as you've seen with the global campaign, and as Dave said, we'll continue to refine and continue to build awareness through those campaigns.

That's great. Great to hear. And then as a follow-up question, I think you mentioned a few remarks, Dave, on Foot Locker. Maybe you can give 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 could be up and running over the next year or two. you know, followed by the Indiana Distribution Center last year. Can you just maybe kind of frame up, you know, the need for that? Is that to really focus on the multi-billion 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.

Yeah, I'll tackle Foot Locker first. So, you know, it's early days. We just put the product in Foot Locker. It's in a handful of, you know, Positioned stores that we feel are right for the consumer going after, which is younger, more athletic-minded, but still fashion-minded consumer in stores that we think the Foot Locker group can represent the brand positively. And then we're online with some styles as well. So too early to share any results, but I will say that we're pleased with how the launch has gone. We're pleased with the feedback we're getting from Foot Locker. As I mentioned, we're seeing younger consumers more increasingly adopt the brand. So we feel good about it long term. So far, so good with the launch. We're going to take our time and maintain the discipline that we always have with expanding distribution, much as we've done with Dick's. But both of those are strategic in reaching consumers where they want to shop in environments that can showcase the brand in a positive way, and they're both doing that. And we're going to continue to monitor and see how things go. But there's no major plans to, you know, drastically increase door count. We're still in less than 20% of Dick's stores. And you can see the results we're getting through our own DDC channels. So very healthy right now. And we'll continue to monitor these and trickle out distribution.

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 HOCA business. We do have levers as well. So we have other arrangements in 3PLs that we can change distribution patterns. So 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. You know, 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.

That's just great to hear. Thank you very much for taking my questions.

All right. Thank you.

The next question comes from Jim Duffy with C4C. Go ahead.

Thank you. Good afternoon. Really nice work, guys. I wanted to ask about the state of wholesale channel inventories in the specialty running channel. HOKA has clearly been a share gainer, but the category has been very strong. Do you feel HOKA's caught up on uh having inventory and equilibrium in that channel now and then i'm curious if you've seen any indications uh of moderating growth in the category that that's catching some of the other brands wrong footed on inventory yeah jim this is steve good question you know we're watching that carefully and as you mentioned we are growing our presence um and inventory has increased we are not at the

at some inventory levels than 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 leaning 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. 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.

Yeah, and I think also we're hearing a little bit that some of the run specialty accounts are full in general with not just HOKA inventory but all their inventory. So there's a limited capacity to be able to bring in additional inventory. But as Steve said, the productivity of HOKA versus others is exceptional, high retail, high margin, full price sales. But we have the inventory now and on the way to be able to manage that channel much better than we have in the last two years. We're really in chase mode.

Yeah, the brand indicator is super encouraging. Five of the top ten styles. That's really impressive. Yeah.

And the other thing on that is we are working on more innovative launches, so we're going to bring innovation and new ideas to market faster. We're going to utilize that channel to do some test and learn along the way as well and get some new innovative products out faster, utilizing DDC and the Run Specialty channel at the beginning of calendar year 23.

Great. And Dave, I also wanted to ask about the addition of Ann Spangenberg. What's the particular skill set that Ann 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?

Yeah, you know, we are collectively as an ELT, as a board, and as an organization, very excited to have Ann join the company. She's been here Now almost three weeks, she's hit the ground running. She's been a fantastic addition to the ELT. I would say first and foremost, she is the right kind of leader for Deckers. She's an inspirational leader. She's an empathetic leader. She's got incredible experience over her years in Nike, all within merchandising and storytelling and brand building. She spent three years on the ground in China, redeveloping. repositioning that market, and oversaw just a massive business for Nike. And so the core talent that we love about Ann is she is an exceptional merchant, first and foremost. She understands and appreciates products. She understands how to bring product to market in a compelling way with head-to-toe storytelling. She knows footwear and apparel. And she's not from the fashion space, but we have a full team of people who are experts in that space. And what we're really looking for here is an inspirational leader who can get the best out of that team. And at the same time, really editing and amplifying our storytelling, which is something a lot of people learn from Nike over the years. We think just the combination of her leadership, her merchandising experience, the global execution that she was overseeing at Nike gives us great leadership for this brand and can unlock the true potential of this brand going beyond the $2 billion that it's at now.

Very good. Thank you, guys.

Thank you.

Thank you so much.

Our next question comes from John Herman with Talon. Please go ahead.

Excellent. Thanks for taking my question. Congrats on another great quarter. Thank you. Could you talk to price increases you realized in Q1 and what you're planning for the back half of the year and the impact to gross margin as you're planning? Thank you.

Yeah, John, this is Steve. We haven't changed anything from what we've said previously. So, you know, we have introduced at the beginning of this calendar year price increases related To HOCA, 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 really 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 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 will be more a future opportunity, not anything we would expect in this year.

Yeah, I think for UGG specifically, we raise prices at about 30% of the line for Q3. But in places where we think we can get it, and we've heard that from our wholesale partners, that we can get that as well.

Yep. Got it. Maybe just one quick follow-up. You mentioned specialty running being a little bit full on the wholesale side of things for HOCA. Anything else, any other detail you can give as it relates to the wholesale channel for both UGG and HOCA? 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.

Yeah. I mean, you know, from what I'm hearing, I wouldn't necessarily say it's caution, but, you know, I think wholesalers are filling up on inventory. They've been light, you know, for many of their key brands over the last couple of years and they're filling up and, you know, logistics is still a challenge for brands and wholesalers. Space is becoming a challenge. And so we're hearing a little bit about that out there in the marketplace, which is, why we think it's good that we got inventory in early and we were able to get inventory into the channel to capture that space. So I think it's going to be a dynamic this year that wholesale is going to have to work through as they try to fill up their inventories and get back in the right position heading into the rest of the year. So we don't see it really affecting our business yet. Demand is still strong. Brand health is still strong. We're not hearing about crazy cancellations or anything. It's pretty normalized. So We still feel good about our chances, but that is a dynamic that we're hearing about.

Understood. Thank you. All right.

Thanks, John. Thanks, John.

The next question comes from Paul. It's city research. Please go ahead.

Okay. 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, if, uh, things kind of held steady throughout, or if you saw sort of ups and downs in the business on the DTC side, or maybe a deterioration as you, as you moved along again, both, uh, for UGG and, and HOCA and curious if you can just talk about the inventory, uh, a little bit more. Um, I think you mentioned your, um, you had a high percentage of, uh, goods in transit. Just curious what the comparison was, uh, versus a year ago and what, inventory looks like in terms of units on hand versus last year.

Thanks. Yeah, so I'll talk about e-commerce a little bit. You know, as you saw from the HOKA results, very healthy quarter for UGG. We did see a lift with the new campaign and the launch, you know, when that kicked in. And so that helped in the back half of the quarter, created a little more excitement, a little more awareness. The first-time visitors was in the 70% range. And so, you know, very healthy business that continues to be repeat purchasers, new consumers, younger consumers coming to the site, better KPIs, as I mentioned, on the landing pages and conversion on those pages. So that's really good, and it's broad-based. It's across all categories. It's not really a standout amongst the group. It's just the whole brand is seeing, you know, that level of interest and adoption. Within UGG, you know, the real challenge for DDC, as I mentioned, is, was in the slipper category. And it's a combination of the fluff business slowing down dramatically from where it was a year ago, still aided by the pandemic. So that's slowed down, but we've made up some ground with the sport, yeah, but it's at a lower price point. So as I mentioned, revenue in DDC was down, or e-commerce was down for UGG, but units were up. So I think, as I said, it's a point-in-time dynamic. I still think the core business, I know the core business is still strong. Heritage Slippers is still strong, and men's still strong. A little softness in kids, but that was also fluff-related. So aside from that, the brand is still performing on expectation in the categories that we need it to. And as I said, as we get into Q2 and Q3, the fluff dynamic will be behind us, and it will be a more normalized business.

And then, Paul, just a little bit on the inventory. In terms of the in-transit, percentage-wise, we're a little bit better, but on a higher dollar amount. 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, you know, significant amount more of freight embedded in those higher inventory values as well. And then the other with, you know, large percentage increase related to HOCA as we're ramping the HOCA inventory to support the growth in that business, that's contributing to the higher inventory balance. And just to remind everyone, you know, the average price on a HOCA is greater than the average. So that's contributing significantly to a lift as well.

Did you say, did you give a breakdown of HOCA versus all inventory? No, we don't.

All right. Thanks, guys. Good luck. All right. Thank you.

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

Great. Thank you for taking my question. Steve, you gave a bunch of the key factors that impacted the gross margin in the quarter. Is it possible to give us a little bit more detail around how much the supply chain costs affected the gross margin and basis points? And then on the supply chain, you mentioned you're starting to see some improvement. Can you give us a sense of how much it's improved and what kind of visibility you have into the trajectory of those challenges maybe getting easier as we go through the fiscal year?

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. 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?

Just on the supply chain, you said some improvements, like

Yeah, how do you think it trends from here? 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 Phil Kleisler- arrival of inventory good news is you know, on the West Coast port Labor negotiations that's still ongoing so we haven't seen. Phil Kleisler- disruption related to that, but again still ongoing so we'll keep a close eye on that so again seeing inventory come in better. Phil Kleisler- Which is good gives us an ability, like we demonstrated in 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. Got it.

Okay. Thank you so much. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.