Deckers Outdoor Corporation

Good afternoon and thank you for standing by. Welcome to the Decker's Brands second quarter fiscal 2025 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, VP, Investor Relations and Corporate Planning.

Hello, and thank you everyone for joining us today. On the call is Stefano Carotti, President and Chief Executive Officer, and Steve Fasching, 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, capital allocation, anticipated impacts from our brand and marketplace management strategies, changes in consumer behavior, strength and performance of our brands, demand for our products, product and channel distribution strategies, including direct to consumer, plans for and the launch timing of new products, marketing plans and strategies, our supply chain and logistics, our anticipated revenues, product mix, margins, expenses, inventory levels, and promotional activity, the impacts of the macroeconomic environment on our operations and performance, including fluctuations in foreign currency exchange rates, and our ability to achieve our financial outlook. 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 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. Also, during the second quarter, the company affected a six-for-one forward stock split as referenced in the company's release on September 13th, 2024. The share per share and resulting financial amounts mentioned on this call has been adjusted to reflect the effectiveness of the stock split, including prior period metrics. 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 Stefano.

Thank you, Erin. Good afternoon, everyone, and thank you for joining today's call. I'm delighted to report on our impressive second quarter results today. And with this being my first call as CEO, I'd like to share my approach to driving Decker's continued success. The business has come a long way over the past few years, and we're executing on the long-term strategy established throughout my tenure with Decker's. As we look ahead, we'll hone in on four guiding principles to help us build upon our recent wins and amplify the power of our brands and organization while remaining true to our proven fundamentals. Starting off, our consumer-first mindset harnesses insights and feedback to create distinctive products that resonate with a growing audience. Next, our brand-led philosophy for product creation and marketplace positioning leverages our unique brand codes for consistent, elevated experiences that prioritize long-term brand health. Third, we're innovation forward, committed to creating leading edge performance technologies and unique designs that deliver tangible consumer benefits. And finally, we're globally driven, aiming to diversify and build international markets for a more balanced business expanding regionally and strategically through various channels. In this new leadership role, I intend to build upon our established foundation, These guiding principles have fueled our success for years, and we are enforcing them as cornerstones of our future growth. With our strong operating model and strategic focus on key opportunities for Agenhoka, we're well positioned to drive long-term brand health, prosperity, and sustained success. Now let's dive into the highlights of our second quarter, which include revenue growing 20% versus last year to $1.3 billion, healthy gross margins of 55.9%, and diluted earnings per share increasing 39% to $1.59 compared to last year's $1.14 per share. These excellent results reflect the continuous strength of our full price demand enabled by innovative products that resonate with consumers, disciplined global marketplace management, and thoughtful product segmentation. Key revenue drivers behind Decker's first half growth of 21% versus last year include HOKA increasing 32%, AG growing 13%, Total Company International increasing 28%, and Total Company BTC and Wholesale both growing more than 20% above last year. With this impressive first-half growth, the Hoka brand achieved an exciting milestone, eclipsing $2 billion in revenue over the trailing 12-month period for the very first time. I'd like to congratulate our entire global team for their tireless efforts in building the special brand. Overall, Decker's first-half results demonstrate our team's execution around the globe. Our brands are well-positioned for the holiday season and on track to achieve an increased outlook for the full fiscal year. Steve will provide more specifics later on in the call. But first, I will share a few brand and marketplace highlights from the first half of fiscal 25. Beginning with brand highlights. Global HOKA revenue in the first half increased 32% versus last year. HOKA performance continues to be driven by the strength of full price demand across multiple categories around the globe. The HOCA team has continued to refine their multi-category offense, which is powered by core focus to win the road, dominate trail, and develop fitness and performance lifestyle. HOCA has made great progress in each of these areas through the first half of the fiscal year. Specific to the road category, HOCA continues to deliver healthy growth in heritage franchises like Clifton Bondi, while bolstering the assortment with significant newness, incorporating technical advancements that are being well received by consumers and wholesale partners. We're especially encouraged by the early reads of the brand's most recent introductions, Skyflow and Mach X2. Skyflow, which as a reminder was introduced in mid-July as a co-exclusive with our specialty partners and DTC channel, has received high marks for ride, fit, and feel. Positive global feedback from our partners has highlighted the Skyflow's additional contribution to the existing HOKA road offering. MOC X2 incorporates updated geometry inspired by the HOKA brand's pinnacle road racing shoe, the Cielo X1, as well as an upgraded plate and a more aggressive rocker profile, which results in a lighter and faster shoe. HOCA celebrated its launch with a Mach Speed Challenge on Strava, leveraging the brand's new Fifth Avenue flagship store in New York City for consumer engagement with additional activations at the Berlin Marathon and the upcoming Frankfurt Marathon and Oxford Half. In the trail category, HOCA continued to see broad adoption on the versatile transport franchise, complemented by two powerful updates during the most recent quarter, including the sixth edition of Speed Goat, our most popular trail franchise, and the Texan X3, a commercialized version of the Texan X prototype worn by the last two champions of the HOKA-sponsored UTMB race. For those of you unfamiliar, UTMB refers to Ultra Trail Mont Blanc, the pinnacle event of the global trail running competition, a grueling 106-mile ultramarathon through the French Alps with over 30,000 feet of elevation gain. Just two months ago, our very own senior manager of HOKA product engineering and amateur athlete Vincent Bouillard won UTMB in his first attempt at the race, becoming only the fifth runner ever to break the 20-hour mark. His victory is an inspiring story which is emblematic of the HOKA brand's accessibility and the passion our people have for what they do, proving that even those who aren't full-time athletes can compete at the highest levels. Okay, moving on to HOKA brand's regional market performance in the first half. HOKA continued to experience solid growth around the globe. Our focus to build awareness in underpinned trade and international markets has driven results as international revenue growth outpaced the brand's healthy growth in the U.S. Through the first six months of the fiscal year, HOKA drove particularly strong international growth across all channels, with DTC outpacing wholesale. We continue to see great progress across all key international geographies as Hokkaido market share in the road and trade categories within Europe, according to Sarkana, engage with local consumers through elevated community building activations at the brand's retail locations in Paris, London, Tokyo, and Shanghai, and increase share of shoe counts at key long-distance running events across Asia. At the same time, the U.S. delivered balanced growth across DTC and wholesale. aligned with our strategy for this fiscal year. Within DTC, Hoca continued to drive growth through increases in consumer acquisition and retention. While in wholesale, Hoca benefited from select door increases with key partners who experienced a positive back-to-school season with Hoca, saw great early reads with consumer engagement and new accounts, and kept run specialty front of mind with the successful co-exclusive launch of the Skyflow. HOKA has exciting new innovations ahead, and we anticipate continued success and growth for the brand through the holiday and beyond. Shifting to UGG, I could not be more pleased with the UGG brand's year-to-date results. Global revenue in the first half increased 13% over last year. UGG performance was driven by success across key initiatives, including evolving and elevating iconic franchises to resonate with today's consumers, which is reflected by the year-round momentum for the brand's most popular models, building icons highlighted by the increased adoption of the golden and low-mail franchises across shoulder seasons, and amplifying international, which deliver growth above the global brand average. The Tasman and ultra-mini franchises continue to experience full price demand from consumers around the world, enhanced by our product team's dedicated focus to keep these franchises special. ZEV team has done this by allocating core colors and championing new seasonal colors, building complementary silhouettes like weather hybrids and platform variations, and driving heat through aspirational collaborations, including recent launches with Colleen Estrada and Gallery Department. I've been experiencing momentum with the Golden and Lomel franchises. In the first half, both of these landed in the brand's top 10 styles ranked by revenue, each contributing meaningful year-over-year growth. Additionally, both of these styles are driving consumer acquisition and encouraging sign for Diag Brand's continued evolution. We view both franchises as highly wearable year-round, with opportunities for expansion coming to the product assortment for Spring 25. Diag Brand is also expanding its reach to male consumers, focused to win with product that infuses the comfort expected of UGG with confidence and style. Recently, UGG announced Grammy-nominated musical artist Post Malone as an ambassador for our men's business. UGG will activate this partnership as part of a global campaign including digital videos and a field house experience in Los Angeles. Moving into some regional highlights for the first half as we head into the peak UGG season. As expected, growth of the first half has been led by international regions, which have maintained high levels of demand through lean inventory management. Europe's season is bearing last year's trend, with an earlier start to ag season and consumer demand. This has driven exceptional DTC growth in the region, with first half revenue nearly doubling compared to two years ago. Wholesale performance was also robust, fueled by premium partnerships that elevate brand presentation and enhance consumer experience. Turning to Asia, despite a more pressured consumer environment, Ag continued to perform well through the first half across wholesale and DTC. The Ag brand's business in the region has continued to benefit from the success of transitional styles that resonate year-round, especially with the emergence of the Golden Collection. In the U.S., Ag continues to perform well, with the majority of first-half revenue growth coming from wholesale sell-in, as we allocate more product to the channel and our partners are looking to get into stock earlier. Wholesale sell-through was strongest among accounts that primarily serve younger consumers, as UGG remains a popular brand among the 18 to 34-year-old cohort. I want to thank and congratulate the entire global UGG team for their accomplishments thus far in fiscal 25. Looking ahead, UGG is well positioned to maintain consumer demand through the peak holiday season with attractive and elevated product assortment. Although we expect a more promotional environment, than the exceptionally low levels experienced last year. We're confident UGG will maintain premium levels of full price selling as it delights consumers this holiday season. Moving to Decker's first half channel highlights in the global marketplace. Aligned with our strategy, revenue growth in the first half has been well balanced across DTC and wholesale. Beginning with DTC, First half global revenue for the channel increased 22% versus last year on a reported basis and 19% on a comparable basis. Horca continues to drive most of the incremental revenue over the prior year, increasing $100 million with broad strength across the United States, international markets, online, and within the brand's relatively limited fleet of retail stores. AgDTC also drove strong results in the first half across both digital and physical consumer touchpoints, overall increasing 11% over last year and contributing an incremental $25 million of revenue. As expected, strengthening the ag brand was primarily driven by international markets, with the U.S. also contributing to the growth. From a global wholesale perspective, revenue for the channel increased 20% versus last year, Both HOCA and UGG drove meaningful wholesale growth, increasing 33 and 14% respectively. Regionally, international outpaced domestic from a growth rate perspective, but both regions delivered meaningful incremental revenue above the prior year. In all, our teams have continued to maintain a healthy global marketplace, allowing HOCA and UGG to sustain high levels of consumer demand. Thanks, everyone. I'll now hand it over to Steve to address our second quarter financial results and provide an update to our fiscal year 25 guidance.