Deckers Outdoor Corporation

Good afternoon, and thank you for standing by. Welcome to the Decker's Brands First Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference call, please press star zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded. I'll now turn the call over to Erin Kohler, Vice President, Investor Relations and Corporate Planning. Please go ahead.

Hello, and thank you everyone for joining us today. On the call is Dave Powers, President and Chief Executive Officer, and Steve 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 our current and long-term strategic objectives, changes in consumer behavior, strengths of our brands, demand for our products, product distribution strategies, marketing plans and strategies, disruptions to our supply chain and logistics, our anticipated revenues, brand performance, product mix, margins, expenses, inventory levels, and promotional activity, and the impacts of the macroeconomic environment on our operations and performance, including fluctuations in foreign currency exchange rates. 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. On this call, management may refer to financial measures that were not prepared in accordance with generally accepted accounting principles in the United States, including constant currency. In addition, the company reports comparable direct-to-consumer sales on a constant currency basis, for operations that were open throughout the current and prior reporting periods. The company believes that these non-GAAP financial measures are important indicators of its operating performance because they exclude items that are unrelated to and may not be indicative of its core operating results. With that, I'll now turn it over to Dave.

Thanks, Erin. Good afternoon, everyone, and thank you for joining us. I'm pleased to be here today to discuss another strong quarter for Decker's. starting off fiscal year 2024 on the right path as we build towards delivering another year of great results. Our results give us increased confidence to achieve our updated outlook for full fiscal year 2024, which includes a raise to our prior expectations. For the first quarter, our performance slightly outpaced our expectations, with revenue increasing 10% versus last year to $676 million and gross margin improving more than 300 basis points, including beneficial brand and channel mix dynamics, and diluted earnings per share growing 45% to $2.41. Revenue growth versus last year was driven by our key areas of focus, with global HOCA expanding 27% to deliver $420 million, global DTC increasing 35% to represent 37% of portfolio revenue, up from 30% last year, and international UGG delivering strong growth. As anticipated, we had some offsets to the growth in the quarter due to timing dynamics in UGG U.S. wholesale, with accounts choosing to receive products spread later into the year as opposed to a front-loaded preference we saw in the last couple of years. As we look to best manage our wholesale account product flow, we also continue to monitor marketplace inventory levels to maintain a healthy omnichannel presence that services our end consumer in the best way possible and preserves the premium nature of our brands. Our ability to propel the targeted opportunities of global HOCA, global DTC, and international UGG further demonstrates the success of our omnichannel marketplace management and strategic investments. We will continue to remain nimble in execution, as we always have, to deliver strong results on both the top and bottom line. With the continued execution of our long-term vision, we believe Decker's is emerging as a leading creator of compelling consumer connections through highly desirable products that infuse disruptive innovation across both fashion and performance. As a reminder, our long-term strategic vision remains focused on building Hoka into a multi-billion dollar major player in the performance athletic space, growing the UGG brand by connecting with consumers through elevated experiences and a segmented product offering, expanding our DDC business through consumer acquisition and retention, and driving international growth through strategic investments. Steve will provide further details around our increased 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 2024, starting with the brand highlights. As mentioned, global HOCA revenue increased 27% versus last year to $420 million, a quarterly record, and the first time the brand eclipsed $400 million in a single quarter. The HOCA brand's well-managed ecosystem of access points continues to flourish. DDC was the primary growth driver in the quarter, increasing 63% versus last year and accounting for approximately two-thirds of total brand growth. DDC growth was broad-based As each region grew the business more than 50% versus the prior year, global consumer acquisition increased 58%, global consumer retention increased 57%, and 18- to 34-year-old consumers in the U.S. increased 68%. This exceptional DTC demand resulted in an improvement in gross margin, as HOKA maintained high levels of full-price selling and continues to benefit from shifting a greater proportion of revenue mix to DTC. While the HOKA brand's DDC business is still predominantly e-commerce, our select retail stores are augmenting the brand's presence by increasing awareness and brand engagement with the physical presence in key strategic markets, creating personal consumer connections through community-oriented experiences, and broadening category adoption by showcasing the depth of the HOKA product offering. For these reasons, we expect to continue testing potential permanent locations through pop-up doors. We are excited about a couple of new doors that are in the pipeline and look forward to sharing more soon. From a wholesale perspective, Hoca continues to drive growth and manage the marketplace to build market share in existing points of distribution, maintain high levels of full-price sell-through, increase category shelf space through differentiated products, and expand brand awareness with a broader consumer demographic. Hoca has preserved high levels of full-price sell-through, and remains one of the fastest turning brands within the majority of its wholesale accounts. We continue to tightly manage marketplace inventory and closely monitor HOKA key performance indicators in the channel to ensure the brand maintains its premium positioning across its ecosystem of access points. As excess consumer demand materializes, we prefer that HOKA satisfies upside through the brand's DDC business, which is what we saw happen this quarter. We are encouraged by the momentum that Hoka has sustained across this distribution landscape and continue to make investments that build awareness and affinity for the brand across key markets. In June, Hoka launched the second edition of its Fly Human Fly global marketing campaign and is already seeing the benefits of this upgraded rollout. This edition of the campaign was designed to reinforce that Hoka stands for joyful and inclusive performance at its highest level. As campaign content and activations continue to roll out across the globe, HOKA has seen a powerful response from consumers in the first few weeks, including robust growth in online engagement across social channels and digital platforms, especially with the release of the campaign's focal film titled Murmuration, which embodies the brand ethos of moving together. Heightened attention brought directly to HOKA.com with the vast majority of digital campaign asset clicks yielding first-time visitors to our brand's e-commerce platform globally, more than doubling the conversion rate of Hoka.com landing page visitors, and significant impressions from out-of-home activations. We are optimistic about the reach and broad appeal of this campaign, as Hoka continues to introduce itself to new consumers around the world. And the brand is as visible as it's ever been, with connected TV advertising, billboards, special running events, and several compelling activations in the pipeline. On the heels of the Fly Human Fly campaign rollout, HOKA launched the all-new MachX, which was designed for propulsive everyday running and features high-rebound cushioning and a PBAX plate. MachX media content was seamlessly weaved into the Fly Human Fly launch, and HOKA further celebrated this innovative product creation with several regional activations to aid MachX awareness. including a demo run in Germany where participants were challenged to run as far as they could for 30 minutes, a sprint relay in France across a two-kilometer loop in Les Buttes-Chamont, a college event in Eugene, Oregon, hosting demo community runs to celebrate the U.S. Track and Field Championships, and a two-day hookah experience clinic at our retail store in Japan and at our pop-up location in Thailand. These global events, combined with the connected TV, social media, and digital out-of-home content, have created significant energy behind the Hoka brand's latest shoe innovation. The Mach-X was treated as an exclusive launch in our own GDC channel and with our run specialty partners, as we continue to work towards greater segmentation of the Hoka brand's compelling product line. Just a few weeks into the second quarter, the Mach-X is close to cracking the top 10 sellers globally on Hoka.com, and we are getting great feedback so far from our run specialty partners. Oka continues to build a bigger business through the expansion and increased adoption of his lineup of innovative products. We see the Mach X as an incremental addition to the already stellar portfolio of footwear led by the brand's most popular styles, Clifton and Bondi. The Mach is a great example of franchise development where the team has innovated upon the original Mach, which continues to perform exceptionally well, by introducing this snappier and more competitive version, the Mach X. It is with this approach to product line management that Hoka is able to broaden the aperture of Hoka consumers while maintaining pinnacle positioning in the performance athletic space. Hoka has an amazing roster of athletes around the world who are competing at the highest level and achieving incredible results wearing commercially available versions of our shoes. During this past quarter, HOKA athlete Cole Watson finished first in the Canyon's Endurance 100K, wearing the HOKA Tecton X carbon-plated trail running shoe. Congratulations to Cole, who, with this victory, punched his ticket to the UTMB Mont Blanc, a HOKA-sponsored event to be held in Chamonix, France, at the end of August. Moving to UGG, global revenue in the first quarter decreased 6% versus last year to $196 million. As expected, this decline resulted from lapping earlier wholesale shipping patterns over the last couple of years in the U.S. UGG was able to offset this challenging compare in the U.S. with the strength of the brand's international regions. International strength was broad-based across multiple regions and in both wholesale and DTC channels. In particular, our EMEA region, as well as China, which benefited from lapping lower demand from lockdowns in the prior year, drove above-average growth. These regions found success attracting consumers with more transitional styles like the Ultra Mini, Tasman, and Classic Mini, as well as seasonal franchises like the Golden Star and LA Cloud. We are encouraged by the continued progress of international regions to increase the adoption of key global franchises year-round. Part of the excitement behind these franchises is being driven by the brand's more focused approach to product marketing, creating greater global alignment of key stories. With this more focused approach, UGG is maintaining high levels of brand heat, with more consumers actively searching for the brand. During the first quarter, online search interest across Europe increased 60% versus last year, with outsized strength in the UK and France. The same is true in the US, where search interest increased 21% versus last year, according to Google Trends. UGG brand momentum also benefited from this spring's Fieldhouse activation at Coachella. The Feel House, first launched in the fall of 2022, is a multi-sensory community experience dedicated to making self-expression comfortable for all. UGG invited individuals from around the world to experience this latest iteration of the Feel House, which was designed as an oasis for creatives in Palm Springs, California. The Feel House was decorated with signature artwork from New York City-based artist Kid Super, who partnered with UGG to design a QuickStrike collaboration of the Tasman X. This global activation drove significant press coverage with the likes of influential publications such as Esquire, Teen Vogue, Daily Mail, and Hypebeast. As a result of the UGG team's continued brand activations and compelling products, UGG Global DTC increased 6% versus last year. UGG experienced consumer demand both in stores and online, but we have been particularly excited by the interest of consumers who are shopping in person, especially during the spring and summer seasons. We believe this dynamic is partly attributable to the development and greater adoption of transitional franchises that embrace the brand's heritage DNA and have greater year-round wearing occasions. By maintaining this momentum, the entire UGG product portfolio benefits, especially in our stores, where consumers can feel and directly engage with the broader product offering. For this reason, in line with our focus to elevate the UGG brand in an influential international market, Subsequent to quarter end, we opened our newest flagship store in the high tourist traffic Harajuku Shopping District of Tokyo. With the first quarter behind us, we remain confident in executing the UGG plan we outlined for fiscal year 2024, evidenced by the continued momentum of global markets as consumers actively search for UGG, growth of global direct-to-consumer with improved margins from full-price business, and strengthened of iconic silhouettes like the Ultra Mini and Tasman driving year-round excitement. Entering the second quarter, the UGG team is working hard to stage its global omnichannel marketplace to connect with consumers through engaging experiences in the autumn-winter season. To execute this vision, UGG will be expanding on and embracing the celebration of culture and community by creating meaningful experiences, such as the Feel House, that serve as an invitation to develop an emotional connection with the brand. This fall, UGG will celebrate its brand heritage through consumer-centric moments around the world with new winter lifestyle-themed fieldhouse executions and exciting new winter product aimed at capturing more of the winter fashion and resort-focused consumer. Shifting to our discussion of consolidated channel performance, global direct-to-consumer drove first quarter revenue growth increasing 35% versus the prior year on a reported basis and 33% on a comparable basis. Strength in the channel was driven by continued increases in HOKA consumer acquisition and retention globally. HOKA consumer growth was robust across regions and various age demographics, with outsized growth among international markets and the 18- to 34-year-old cohort, which remain key targets for us. The UGDDC business also experienced growth, driven by a more than 20% increase internationally that benefited from China catching up from lockdowns in the prior year. the strength in China resulted from increased adoption of both sneaker and sandal styles. From a wholesale perspective, global revenue was down 1% as gains in HOKA were offset by U.S. shipment timing realignment to pre-pandemic cadence, as well as a continued focus to manage the marketplace inventory of our brands to maintain high levels of full-price selling in this more promotional consumer landscape. Overall, we are pleased with these channel results. which reflect the power of our marketplace management strategies that continue to benefit our wholesale partners, DDC business, and ultimately, Decker's 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 increased outlook for fiscal year 2024. Steve?