Deckers Outdoor : Q4 2021 Conference Call Transcript

Corrected Transcript

20-May-2021

Deckers Outdoor Corp. (DECK)

Q4 2021 Earnings Call

	Total Pages: 26
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Deckers Outdoor Corp. (DECK)	Corrected Transcript
Q4 2021 Earnings Call	20-May-2021

CORPORATE PARTICIPANTS

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

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OTHER PARTICIPANTS

Camilo Lyon	Jim Duffy
Analyst, BTIG LLC	Analyst, Stifel, Nicolaus & Co., Inc.
Jonathan Robert Komp	Paul Lejuez
Analyst, Robert W. Baird & Co., Inc.	Analyst, Citigroup Global Markets, Inc.
Jay Sole	Dana Lauren Telsey
Analyst, UBS Securities LLC	Analyst, Telsey Advisory Group LLC
Sam Poser	Laurent Vasilescu
Analyst, Williams Trading LLC	Analyst, Exane, Inc.

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MANAGEMENT DISCUSSION SECTION

Operator: Good afternoon and thank you for standing by. Welcome to the Deckers Brands fourth quarter fiscal 2021 earnings conference call. At this time, all participants will in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [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.

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Erinn Kohler

Vice President-Investor Relations & Corporate Planning, 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 facts 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;

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Deckers Outdoor Corp. (DECK)	Corrected Transcript
Q4 2021 Earnings Call	20-May-2021

the impact of the COVID-19 pandemic on our business, our anticipated revenues, brand performance, product mix, gross margins, expenses and liquidity position and our potential repurchase of shares.

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 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. Before diving into the business, I'd like to express my gratitude for the progress towards ending the pandemic's toll in the United States.

However, countries around the world are still struggling with dangerous outbreaks. Many of our employees have friends and family members that are currently being impacted by the devastating COVID-19 surge within India, Nepal and other South Asian countries. Our hearts go out to everyone who has been affected by this pandemic over the past year and a half. And on behalf of Deckers, I wish for everyone's health and safety moving forward.

As I reflect on this past year, I am continually impressed by the tenacity and resiliency of the Deckers organization and the dedication demonstrated by our teams as they continue to deliver exceptional results. FY 2021 results were driven by the exceptional brand and marketplace management of our leaders but also by the global operations, retail and supply chain teams who allowed us to fulfill the demand for our brands. By continuing to be aggressive with HOKA globally and capturing the opportunity in UGG, we were able to exceed expectations in a challenging environment and have accelerated the pace of growth for our brands.

Today I'm excited to share the results of a record-breaking year for Deckers. We saw a strong finish to fiscal 2021 with full year revenue increasing 19% versus last year to over $2.5 billion and earnings per share increasing 40% to $13.47. FY 2021 performance was driven by expanded awareness and adoption of HOKA around the world as more consumers experienced the benefits of the brand's innovative products, consumers actively seeking UGG for its unique combination of fashion appeal and the unmistakable feeling of the brand, best-in-classe-commerce capabilities that enabled consumer acquisition in a disrupted physical retail environment, strategic prioritization of brand strength and demand creation through disciplined marketplace management and the grit of our employees who overcame significant macro challenges and operational pressures to deliver exceptional results.

Many of these items that drove performance during the year were the results of our long-term strategies that remain top of mind as we transition into fiscal 2022 and beyond. As a reminder, these include accelerating consumer adoption of the HOKA brand globally, building UGG as a year-round global lifestyle brand through our diverse product offering, executing our digital first approach by growing direct-to-consumer acquisition and retention online with a specific focus on gaining closet space with 18 to 34 year old consumers, tailoring distribution strategies unique to each of our brands in order to properly balance brand health in conjunction with sustainable growth which includes the recent reset activities for the UGG brand internationally, and focusing

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Deckers Outdoor Corp. (DECK)	Corrected Transcript
Q4 2021 Earnings Call	20-May-2021

spend behind these key initiatives to drive optimal returns on investment while maintaining top tier levels of profitability.

While we believe that remaining committed to our long-term strategies was the primary enabler of our success this year, Deckers also uniquely benefited from certain circumstances resulting from the pandemic. Fiscal 2021 revenue exceeded our pre-pandemic expectations as we saw an acceleration of certain growth opportunities.

With brands scaling faster than previously anticipated, we now need to accelerate critical investments to scale our supply chain and logistics infrastructure as well as bolster our teams with additional talent to prepare for emerging opportunities. Fiscal 2022 will be another positive step in the evolution of Deckers Brands as we strategically invest behind core infrastructure needs and seed opportunities that will enable sustainable long-term revenue and earnings growth.

Over the long term, we're investing in major drivers of our business, including building HOKA to a $1 billion plus global performance brand that represents a significant portion of total company revenue, driving our direct-to- consumer business towards 50% of our global revenues, scaling international markets across brands and seeding opportunities beyond footwear. Steve will provide more details on these investments as well as our forward- looking revenue and margin expectations later in the call. In the meantime, I will share some details around fiscal 2021 performance at the brand and channel levels as well as provide some context around fiscal 2022 building blocks.

Starting with the brand highlights. Global UGG fiscal 2021 revenue increased 13% versus last year to $1.717 billion. The brand's success in FY 2021 was primarily due to US consumers actively seeking UGG products all year long with search interest increasing 27% over fiscal 2020 according to Google Trends, which led to accelerated consumer acquisition online as the brand added over 2.5 million new consumers to its global e- commerce database and captured the critical 18 to 34 year aged consumer in the US, which increased 83% to the elevated fashion appeal of the brand.

And lastly, more consumers purchased multiple UGG products than ever before as the brand saw an 85% increase in consumers purchasing two or more products during the year. We believe much of the brand heat that created momentum for UGG in the US resulted from the brand's strategically managed distribution network, authentic PR activations, fashion collaborations, targeted digital marketing and a compelling product offering that has expanded the fashion relevance of UGG brand DNA across new categories.

As evidence of the UGG brand's success with a diversified assortment, fiscal 2021 product performance was driven by the expansion of the Fluff franchise as the brand drove demand to both the original Fluff Yeah as well as complementary styles with similar slipper/sandal hybrid attributes, increased adoption of the Neumel franchise among men, women and kids, the introduction of the Ultra Mini and Classic Clear boots, which were particularly popular with younger consumers, development of the Tasman into a fashion slipper/sneaker as UGG featured the style in a number of recent collaborations helping to raise the hybrid style's profile, the brand's first ever ready-to- wear apparel collection which featured fashionable sportswear and outerwear pieces and heritage slippers having greater year-round relevancy as many people were working from home and seeking the comfort of what we've referred to as the feeling of UGG.

These styles that drove UGG growth this year made up the majority of both the brand's top 10 styles purchased by acquired consumers as well as the top 10 styles purchased by consumers 18 to 34 years old. While women remain the primary purchasers of UGG products, the brand's mix of gender continues to shift towards men's and kids' products. Part of this shift is due to many consumers purchasing UGG for the whole family.

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Deckers Outdoor Corp. (DECK)	Corrected Transcript
Q4 2021 Earnings Call	20-May-2021

In the US, as compared to last year, UGG experienced an 88% increase in DTC revenue from orders containing both men's and women's product and a 117% increase in orders containing both kids and women's product. With more purchasing for the whole family, both men's and kids' footwear increased as a percentage of total UGG brand business.

While the US business has been driving UGG category diversification over the past few years, we have been encouraged by the adoption of new categories within international regions over the last year as well, such as the Ultra Mini which was a top five style in its introductory season, the Classic Clear which was ranked second new style in terms of dollar volume, Fluff franchise volume was 2.5 times larger than last year and sneakers were a standout in our Asia-Pacific region.

Improvements in new category adoption are largely attributable to localized marketing activations meant to build UGG brand heat internationally and attract younger consumers to the brand. Our targeted digital marketing efforts are paying off as UGG experienced a significant increase in e-commerce traffic from visitors aged 18 to 34 in both the UK and China during FY 2021. These early indicators of success and our plan to further invest behind localized marketing tactics give us confidence that UGG will rebound and return to growth in the brand's international markets during fiscal 2022.

UGG has a difficult task ahead in lapping a record year where we benefited from the pandemic driving greater attention to the brand. However, with our planned investments in demand creation, we have confidence the brand can drive top line revenue growth in fiscal 2022 by fulfilling wholesale demand as we reset the marketplace with fill-in product and satisfy some of the missed opportunities in fiscal 2021 due to inventory shortages, maintaining momentum with the younger consumers around the world and driving repeat purchases from consumers new to the brand in FY 2021, recovering lost volume in EMEA with the goal of lapping fiscal 2020 revenues and maximizing demand capture through DTC, increasing local investments in China to elevate the brand and accelerate revenue growth, all while working to lap growth on heritage slipper products that benefited from the pandemic.

Shifting attention to HOKA. Global revenue in fiscal 2021 increased 62% versus last year to $571 million. The growth of HOKA over the past year was a testament to the brand's methodical approach to managing a consistent brand message and introducing innovative products that resonate across the global distribution landscape.

HOKA continues to exhibit balanced growth across its ecosystem of access points with every region and channel of distribution increasing volume above last year. The increasing scale of HOKA is undeniably impressive. But even more importantly, the brand is growing in the right way and making meaningful progress towards strategic initiatives.

In a year of uncertainty, HOKA initially doubled down on key franchises with the goal of amplifying hero styles to bring new consumers to the brand. As these styles drove consumer acquisition, HOKA was successful in driving more repeat purchases in alternate products. This is the result of the HOKA team's development of innovative products built for speed such as the Carbon X 2 and Mach 4, the outdoors with the Speedgoat and Challenger for trail running and the Kaha for hiking and recovery featuring the ORA flip flops and slides.

In addition to providing great products for all athletes, HOKA has also created meaningful partnerships to build the lifestyle relevance of its performance products. One such partnership includes the brand's recent launch with Free People, which helps expose HOKA products to consumers who may not otherwise discover the brand.

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