Deckers Outdoor : Q1 2023 Conference Call Transcript

Corrected Transcript

28-Jul-2022

Deckers Outdoor Corp. (DECK)

Q1 2023 Earnings Call

	Total Pages: 22
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Deckers Outdoor Corp. (DECK)	Corrected Transcript
Q1 2023 Earnings Call	28-Jul-2022

CORPORATE PARTICIPANTS

Erinn Kohler	Steven J. Fasching
Vice President-Investor Relations, Corporate Planning & Business	Chief Financial Officer, Deckers Outdoor Corp.
Analytics, Deckers Outdoor Corp.
David Powers
President, Chief Executive Officer & Director, Deckers Outdoor Corp.

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OTHER PARTICIPANTS

Jonathan R. Komp	John Kernan
Analyst, Robert W. Baird & Co., Inc.	Analyst, Cowen & Co. LLC
Sam Poser	Paul Lejuez
Analyst, Williams Trading LLC	Analyst, Citigroup Global Markets, Inc.
Laurent Vasilescu	Jay Sole
Analyst, BNP Paribas Exane	Analyst, UBS Securities LLC

Jim Duffy

Analyst, Stifel, Nicolaus & Co., Inc.

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MANAGEMENT DISCUSSION SECTION

Operator: Good afternoon and thank you for standing by. Welcome to the Deckers Brands First Quarter Fiscal 2023 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, and instructions will be provided at that time for you to queue up for questions. [Operator Instructions] I would like to remind everyone that this conference call is being recorded.

I'll now turn the call over to Erinn Kohler, VP, Investor Relations and Corporate Planning. Please go ahead.

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Erinn Kohler

Vice President-Investor Relations, Corporate Planning & Business Analytics, Deckers Outdoor Corp.

Hello and thank you, everyone, for joining us today. On the call is Dave Powers, 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 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

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Deckers Outdoor Corp. (DECK)	Corrected Transcript
Q1 2023 Earnings Call	28-Jul-2022

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 Factors 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.

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David Powers

President, Chief Executive Officer & Director, Deckers Outdoor Corp.

Thanks, Erinn. 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 multibillion-dollar major player in the performance athletics space, further diversify the UGG brand's product, geographic, and seasonal mix, grow our DTC 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 HOKA 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 Deckers' 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 Deckers. 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.

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Deckers Outdoor Corp. (DECK)	Corrected Transcript
Q1 2023 Earnings Call	28-Jul-2022

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 HOKA 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 ended June 30 breaking the $1 billion 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 this year-around demand that utilizes infrastructure during off-peak UGG periods and full-pricesell-in at premium price points, the HOKA brand's growing scale is improving Deckers' overall quarterly financial and operational performance.

The HOKA brand's strong quarter featured outstanding revenue growth across the brand's far-reaching global ecosystem with 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 to our distributors as we strategically build new markets.

US 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 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 US run specialty while commanding higher retail prices. HOKA style is accounting for at least half of the top 10 styles according to aggregated US 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 DTC 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 the 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 the 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 US, 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, DTC acquisition increased 48% and retention increased 58% versus last year, with gains among 18- to 34-year-old consumers far

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Deckers Outdoor Corp. (DECK)	Corrected Transcript
Q1 2023 Earnings Call	28-Jul-2022

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 just echo 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 mark, 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 for 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 multibillion-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 a recently launched HOKA Speedgoat 5 5, which is a completely redesigned version of the brand's most popular trail shoe with less weight and enhanced traction, with Vibram Megagrip to inspire confidence in any terrain.

Results like these emphasize that HOKA brand's leadership as a premier performance brand, enabling athletes to achieve peak levels of performance. [ph] Another (00:10:45) congratulations to Adam and all the other athletes who competed in this year's HOKA-sponsored Western States 100-mile.

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 continued to experience benefits from the marketplace allocation and segmentation strategies implemented to build brand heat and increased demand overseas.

With core fall product limited in the marketplace, UGG was able to drive full-pricesell-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 Yeah 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 Yeah sandal.

Sandals were the standout category for UGG during the quarter, showing a strong demand for the brand outside of the fall and winter timeframe. While successful in shifting consumer adoption from heritage Fluff franchise

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