Deckers Outdoor Corporation

Good afternoon. Thank you for standing by. Welcome to the Decker's Brands third 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'd now like to 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 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, 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 DTC, plans for and the launch timing of new products, marketing plans and strategies, disruptions to our supply chain and logistics, our anticipated revenues, product mix, margins, expenses, inventory levels, promotional activity, and our anticipated rate of full price selling, the expected timing of adjustments to certain brand operations, 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. Please note, as previously disclosed, The company affected a 6-for-1 forward stock split during the second fiscal quarter. The share per share and resulting financial amounts mentioned on this call have been adjusted to reflect the effectiveness of this stock split. 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 opened 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. It's great to be here with you today to discuss our superb third quarter, the largest and most profitable in Decker's history. Ag and Hoka continue to drive our success as both brands are creating unique and innovative products with purpose that are increasingly embraced by consumers worldwide. Highlights of our record third quarter performance include revenue growing 17% over last year, to $1.8 billion, gross margins improving to 60.3%, and diluted earnings per share increasing 19% to $3. We are very proud of the exceptional quarter just completed, thanks to the hard work of our global teams. I want to especially recognize employees supporting our distribution centers, retail stores, customer and consumer experience, e-commerce, marketing, planning and allocation, merchandising and sales, who collectively contributed to the successful execution of our largest quarter ever. Once again, our brands were able to maintain a high degree of full-price business while competing with more promotional brand in the global marketplace, choosing to prioritize brand health. As we continue to manage and build our brands and business for the long term, we're even more encouraged by what Decker's has delivered over the last nine months. Our fiscal year-to-date performance, as compared to last year, includes significant revenue growth in key areas, with HOCA increasing 29%, UGG growing 15%, international markets rising 28%, and balance increases of 19% across the DTC and wholesale channels. The shape of our growth and evolution of our business is directly tied to our long-term strategies and guiding principles, which provide the foundation for how we manage our brands to maintain a pull model of demand. Overall, Decker's third quarter and fiscal year-to-date performance has exceeded our expectations. Our increased revenue outlook for fiscal 25 now calls for 15% growth, which would be our fifth consecutive year of growing mid-teens or higher. Steve will provide further details on third quarter performance in this updated outlook later in the call. But before that, I will share brand highlights from the third quarter. Starting with Doug. Global revenue in the third quarter increased 16% versus last year, to $1.2 billion. From a channel perspective, UGG delivered balanced revenue growth of 16% versus last year across both direct-to-consumer and wholesale. UGG DTC channel highlights in the third quarter include strong growth across all global markets, gains with new and existing consumers as the brand experience double-digit increases in both acquisition and retention, a 25% increase in UGG reward members, and encouraging progress for AgMens with growth outpacing total brand growth in the channel. In the wholesale channel, Ag experienced growth across all regions with the majority of the increased revenue coming from international markets. Close partnerships with influential retailers continue to elevate the Ag brand and enhance global exposure with target consumers. During the third quarter, Ag collaborated to create special corner shop takeovers with Selfridges in London and Nordstrom in New York City. Both of these partnerships were activated with onsite events and media that drove great brand buzz and connections with consumers. Across the global wholesale marketplace, we believe that UGG was a top-performing brand in the holiday quarter, highlighted by exceptional levels of full-price sell-through that drove healthy margins for our partners and lean inventory in the channel exiting the month of December. We believe the ag brand success around the world results from a purposeful product assortment that is informed by consumer insights and infused with ag brand codes. This approach has driven consistent product performance throughout the fiscal year with progress in key segments, including icons reimagined with the Tasman and ultra-mini franchises continuing to experience strong global adoption from consumers, hybrid versatility as the emerging golden and low melt collections experienced rapid sellouts, while the weather hybrid collection more than doubled versus the prior year. A new winter lifestyle highlighted by the many different success in the US and EMEA. The UGG team continues to build brand heat and relevance through powerful collaborations. During the quarter, UGG was able to reach a new audience, and elevate the inline assortment through the release of two highly sought-after collaborations with Los Angeles-based fashion brand Gallery Department and UK-based skate brand Palace. These partnerships featured iconic styles such as the Tasman and the Ultra Mini, which gained global exposure from being spotted on influential professional athletes and music superstars. The success of these iconic styles is closely linked to the emerging hybrid styles in the assortment. The Golden Star Clog continued to see strong global growth in the quarter, and we saw consumers in the U.S. and in Europe embrace the Lomel as a lifestyle sneaker, landing the style in the ad brand's top 10 during the third quarter. Adding to our enthusiasm for the ad sneaker success We've just added sizing for men's and kids and also launched a companion style, the Lolo Mel, that hits lower to the ankle and is built with greater versatility for warmer months. Another hybrid collection that performed well in the quarter was YAG Brand's Weatherized Hybrids, featured as part of our men's-focused marketing campaign starting post-Moulin. This campaign drove significant increases in search and engagement with over 3 billion impressions in the U.S. alone for both the product collection and brand overall. Through high-impact out-of-home content, media placement with Amazon Thursday Night Football, ESPN, and Spotify, and a 10-day experiential retail pop-up store that culminated with a VIP performance by Post Malone. This campaign represents great progress in our journey to increase connections with male consumers around the world. Even propelling the Tasman weather hybrid to become the UGG brand's number one men's style in China this past quarter, a region where the brand continues to make solid headway. At the same time, we're seeing strong adoption of our UGG men's product among professional athletes, a group that often shapes the future of fashion. Altogether, this was a splendid quarterfrog, as the brand continues to perform in a league of its own. Heading into the final stretch of fiscal 25, UGG is delivering on the objectives we set for the year, with balanced growth across channels, driven by outsized growth from international markets, and maintained strength in the U.S. We believe the special brand can continue to deliver sustainable growth through distinctive and ownable category segments that are uniquely UGG. Congratulations to Anne and her entire UGG team on these amazing accomplishments and the bright future ahead. As UGG has continued to solidify its positioning as a leading global lifestyle brand, I would like to provide an update regarding the Kulabura brand. To maintain focus on our most significant organic opportunities, we're planning to phase out the Kulabura brand's standalone product collections and operations. As part of this change, we expect to sunset Kulabura.com at the end of this fiscal year and wind down Colobora in the wholesale channel throughout the calendar year 2025. We'll provide a more complete update on this forthcoming change during our year-end call in May as part of our forward-looking guidance for fiscal year 2026. Okay, shifting to the Hoca brand. Global revenue in the third quarter increased 24% versus last year to $531 million. From a channel perspective, HOKA delivered impressive revenue growth versus last year throughout the global marketplace, as DTC increased 27% with strong growth across every region, and wholesale grew 21%, primarily driven by outside increases from international distributed markets as we prepare the marketplace for upcoming key franchise upgrades. HOKA DTC channel highlights in the quarter include accelerated growth in the APAC region, with China contributing the largest incremental dollar revenue of all international regions, persistent gains in consumer acquisition and retention, the latter of which was particularly strong, indicating a high degree of loyalty from existing consumers, an increased mix of business from trail categories, which drove outsized growth in part due to the introduction of the Caja Frost weather collection. The Caja Frost collection features the Hoka brand's first cold weather rated styles. including a $280 hiking boot and $200 slip-on moccasin, both of which are trail-ready with a Vibram MegaGrip outsole. The consumer response was excellent around the globe, driving impressive sell-throughs and generating great buzz for the brand, including being named the Best Multifunctional Hiking Shoe of 2024 by Gogo Shanghai, an influential annual publication of lifestyle awards in China, and a must-have item for a weekend in the mountains by Italian Vogue. In the wholesale channel, our primary focus during the quarter was to set the stage for the Bondi 9 launch by moving through existing inventory of the Bondi 8 while also driving high full price sell-throughs across the lineup of innovating products we've introduced throughout the year. As brand awareness and consumer appetite for HOKA continues to build, we're excited to be adding select doors with our strategic partners worldwide in conjunction with the start of our spring 2025 season. During the third quarter, the HOKA team did an outstanding job in driving consumer engagement with the brand through events and activations around the world. Key global moments included HOKA being the second most worn brand at the Foot Locker Cross Country High School National Championships in the U.S., hosting HOKA FlyLab experiences at the Frankfurt Marathon in Germany and the RMM 7.3 World Championships in Taupo, New Zealand, and producing a benchmark consumer experience at the Shanghai Marathon, where HOKA was the fifth most worn brand. As you can tell, our marketing teams are working hard to maintain and build performance credibility while growing global brand awareness through activations in key cities. The Hoka brand's shoe count achievements are made possible by the Hoka product team's laser focus to build product solutions that deliver transformational experiences for consumers around the world. Hoka has two exciting products launching in the fourth quarter, which are the Bondi 9, and a 2.0 update to our fastest and most technically advanced race shoe, the CLRX1. Having just launched a couple of weeks ago, we are very pleased with the early consumer response to the Bondi 9. With the new premium midsole, increased tack height, a 3D molded collar, this franchise has been upgraded from top to bottom, providing a soft yet resilient ride for everyday miles. The Bondi 9 release is the Hoka brand's most globally integrated launch date, supported and enhanced by our Everybody Bondi marketing campaign with out-of-home content on high traffic displays in key cities around the world, a Bondi nine-week fitness challenge that culminates in participants completing a nine-mile run, partnering with local and global influencers, including decorated U.S. Olympic gymnast Suni Lee, and activations at regional and global events, such as the Miami Marathon, Paris Half Marathon, and London Winter Run. While the Bondi 9 represents a significant upgrade to one of our most accessible franchises, we've also enhanced our pinnacle ratio, the Cielo X1, making it faster and smoother for the highest performing athletes. In the 2.0 version of the Cielo X1, we've tweaked the rocker and geometry to provide greater stability without adding weight, enabling greater speed through the tow transition. Commercially available in February, This issue that we have been testing with our athletes for months now and have high hopes to see on podiums in the future. Hoka has an exciting future ahead with a strong pipeline of new innovations and a growing global marketplace to serve the brand's increasing demand. Thanks, everyone. I'll now hand it over to Steve to detail our third quarter financial results and provide an update to our fiscal year 25 guidance.