Q4 2020 Earnings Call
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Anytime I would now like to remind everyone that this conference call being recorded.
I'll now turn the call over to Eric holder VP of Investor Relations Corporate planning. Please go ahead.
Hello, and thank you everyone for joining us today on the call as Dave powers, President and Chief Executive Officer, and stay 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 the bank to 95.
All statements made on this call today other than statements of historical fact are forward looking statements and include statements regarding the impact of Copel 19 on our business and industry changes in consumer behavior in the retail environment.
So our brands and demand for our products changes to our distribution and inventory management strategies, and our anticipated financial performance cost savings and liquidity position.
Forward looking statements made on this call represent management's current expectations.
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 and it's as you see filings including in there.
Risk factor section of its enormous report on form 10-K 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 intention or obligation to update any forward looking statements.
Please note that throughout this discussion there may be references to certain non-GAAP financial measures for comparable prior year results. These non-GAAP financial measures referred to results before taking into account nonrecurring charges that are not believed to be core to our ongoing operating results.
Our non-GAAP financial measures are not adjusted for constant currency.
Well, we are not reporting any non-GAAP financial adjustments for the fourth quarter of fiscal 2020, a reconciliation between our reported GAAP and non-GAAP results for the prior year can be found in our earnings release. It is posted on our website under the investors tab.
That I'll now turn it over to date.
Thanks, Aaron good afternoon, everyone.
Our fiscal year 2020 came to an end communities around the world, we're experiencing impacts from the spread of Cowen 19 pandemic.
On behalf of the Deckers organization I'd like to extend our thought to everyone affected by the virus and share our deepest gratitude to all the individuals on the frontline that this crisis.
Actually the healthcare workers and first responders.
I'd also like to thank all of our employees for their efforts. During this unprecedented times the entire Deckers organization I understand that this is a very difficult time for many people.
I'm proud of our employees have brands have risen to the occasion to search you made an easing need through programs such as our better together initiative that we launched the support over 19 endemic relief efforts.
Sure Monetary contributions were working to support small businesses in our community and the individuals they employ.
In addition, our brands contributing in kind donations of product today, we have donated over 10000 pairs of shoes to first responders sexual workers.
Chris We believe doing good central to the success of our employees brand in organization as a whole well continue to do our part supporting those they need to these trying times. We're all in this together.
Given the extraordinary circumstances, today's dialogue is going to follow infrastructure than our past earnings calls.
Well line I'll begin with the discussion on how we're responding to and navigating through the crisis.
And give an update on the status of our operations as well, let's walk through some of the trends we're seeing the business to the first half of our first quarter.
And finish with a condensed overview of our fourth quarter fiscal year 2020 performance.
Which one clearing some details on the pandemics effects in our business in the fourth quarter.
Steve will then review the numbers in more detail and expand in some of our Kobin 19 related action items after that well be happy to take questions.
Oh, My goodness perspective, Cobiz 19, pandemic has had and well continue to have widespread effects across our entire industry.
However, I believe deckers is well positioned to whether these impacts but the foundation of the organization we have created over the past three years.
We have built a resilient portfolio of healthy brands delivered levels, our operating profit that our top tier among our peer group and most importantly, we maintain a robust liquidity position of over $1 billion between our cash balance.
Well borrowings under our credit facilities.
As we plan for fiscal year 2021, and beyond our leadership team is focused on protecting the progress we made in our brands as well as our position as a best in class organization.
We have developed numerous scenarios in evaluating the pandemics potential impact on our business with an eye on the timing of when a consumer reemerges and to what we would call normal.
Our scenario planning has produced action plans, intending to mitigate related headwinds well at the same time preparing us for the future state of business.
Our positioning our brands to deliver a compelling experience and what we anticipate will be a much different consumer landscape and selling environment.
With that it might we've taken the following actions to empower the Deckers organization.
Sorry, stronger exiting the pandemic, including protecting our brands.
Maintaining the effectiveness are about our organization and preserving our strong liquidity position.
Reallocating marketing spend to prioritize digital growth, while supporting strategic areas of brand level investment.
And adjusting inventory buys to reflect more conservative scenarios of consumer demand.
Focused on skew productivity and high velocity product parents.
And learning from new ways of working including working remotely and leveraging technology.
In addition to these actions we are holding frequent discussions with our wholesale partners as we work in tandem to support the health of our brands. We continue to monitor updates from health officials expert agencies on local authorities to inform our decision making process.
Steve will provide more details later in the call. It how these actions inform our fiscal 2021 planning.
From an operations perspective, our Moreno Valley distribution Center has continued to operate since reopening. This DC is operating at a modified and slightly limited capacity due to increase social distancing measures taken us precaution to maintain employee safety.
The safety of our employees is our top consideration as we make adjustments to our operations.
As a result, we may experience some challenges as we approach peak months of shipping late in our second quarter and early in the third quarter. These are all factor is relevant to our scenario planning.
We're also making adjustments to the operations of our retail store fleet to appropriately accommodate upturn in health and safety measures in order to protect our retail store employees as well as our customers visiting our physical locations.
Our intentionally reopening at a measured pace and using the early learnings to shape our broader go forward strategy.
Direct to consumer leadership is empowering retail associates educational tools and training related to the new working environment.
But the small number of doors that we have reopened we are encouraged to see a consumer actively reengaging with the brand stores.
In terms of stores open first as close as this week by region about 20% of North America stores are open and operating at a very limited capacity.
Roughly half of our mass doors are open approximately 20% of our stores in Japan are open and all of our own retail stores in China are okay.
So a portion of our stores have opened across the globe. Most of them are close from that for the majority of the 45 day period.
Outlining momentarily.
We'll continue to adjust store openings as well as our warehouse operations based on the guidance provided by health officials expert agencies as well as federal state and local officials.
Our sourcing standpoint, we have a network of financially strong and well managed strategic partners for material vendors to factories, but the health of our sourcing at materials teams have worked closely with our strategic partners to ramp up quickly. After the covert 19 related closures at this point, we didnt have any major concerns are sourcing perspective.
From an employee standpoint across North America, Europe, and Japan, or corporate teams have temporarily transitioning to our work from home environment, where possible by defined role I'm pleased with how our employees have stepped up and proven to be highly productive and that's new and dynamic environment.
Well look to health officials expertise, who sees and local authorities to identify bought the tiny one returned Austin and what adjustments will be necessary to provide a safe space, including the appropriate social distancing measures.
I'll now walk through our first quarter fiscal 2021 performance today as compared to last year, which includes April 1st through May 15th.
Well these trends relate to what we're currently experiencing during the historical seasonality of our business. This time period only represents roughly 5% of our annual sales volume and does not necessarily indicative of the dynamics that we anticipate for future periods.
On that note as we move later in kind of first quarter, our business becomes more wholesale where did that marketplace dynamics for the upcoming month remain fluid.
Overall, the business is trending down single digits quarter to date as compared to last year with wholesale trending down in the mid 30% rage and dessert and direct to consumer trending up in the high 40% range.
Oh sales trends are being driven by store closures as many wholesalers are not taking your shipments a product while stores remain closed we remain a close contact with our wholesale partners as they work together to support our brands.
Our brands are experiencing different impacts from the current wholesale environment and this is the low period of volume for Oregon, cooler Bora, well, our HOKA own aonea, Brent spread more evenly throughout the year.
For HOKA, we've made adjustments to our product launches the inventory purchasing to better align our wholesale partners to capture consumer demand with existing inventory.
Able to reopen stores and work to best leveraged our online presence.
All right direct consumer business as I mentioned, the majority of 125 stores remain closed, but we're seeing triple digit ecommerce growth driven by full price selling at both okay, HOKA, helping to offset some of the ball I am loss from retail.
I would note that the first quarter is traditionally a lot worse period, a direct to consumer volume and the mix of HOKA ecommerce is disproportionately larger because I told the D.C. volumes that another corners.
We have been very encouraged by the consistently strong interest in our again HOKA brands as evidenced by Google trends over the last two months with search interest up 73% over last year and HOKA search entrust growth being second highest among peer brands.
We think this speaks well to the power of our brands that consumers are actively searching and buying our products during a historically low period of consumer demand.
We're also is experiencing a substantial gain at new customer acquisition online, which has been great news as we know that customer entering our online database I have a higher lifetime value and purchase frequency than those purchasing and stores.
We're especially excited about customer acquisitions as this is typically a lower volume period for the brand and our strategy aims to convert these new customers and to repeat purchases down the road and the holiday period.
I would like to caution, though as we move into the second and third quarters retail volume typically becomes more impactful to our overall result, and we do not expect E commerce to fully capture lost retail sales volume in the event that's stores humane closed or limited in operation.
From a global brand perspective, our corner today performance by brand across all channels compared to last year through may 15th include.
Down mid single digits due to lower wholesale shipments, resulting from doors remaining shot as well as the impact of our own retail store closures. However, we are very encouraged to see the pent up demand being captured through our ecommerce channel.
Okay, and the low 30% range and no 45 days a small portion of the full year, we're going to continue fueling the brand with the goal of sustaining growth above fiscal 2020.
And tell us and so knock down in the low 40, and mid 30% ranges respectively. These brands are experiencing a heavier impact due to the seasonality of their businesses with koolaburra, representing an immaterial volume during this period of the year.
Well, we feel positive about the trends, we're seeing the business, there's still plenty of hurdles to overcome and a challenged consumer environment with social dispensing practices in place and recessionary concerns that could pressure discretionary spending.
Moving into our discussion on fourth quarter in fiscal year 2020 performance revenue in the fourth quarter fiscal 2020 was down 5% versus last year to $375 billion with the shortfall driven by an approximate 25 million dollar headwind from unforeseen cobot 19 impacts.
As a reminder, we provided fourth quarter guidance about January thirtyth and that at that time, we had only anticipated preliminary estimates of covert 19 impacts in our China business.
To provide a little more color and our performance was impacted by this event and the fourth quarter.
Our prior guidance anticipated, China headwinds approximately $5 million for the quarter compared to last year, mostly driven by store closures and our performance alignment this expectation.
At the pandemic spread to Europe, we saw significant deterioration of the quarter to date growth rate trend in the region shifting from over 20% over last year at the end of February to just 6% over last year at the end of March.
At the United States shut down in mid March we have been trending around 3% over the last year through March 15th I saw this declined to 8% below last year by the end of March was combined impact to retail store closures as well as reduced wholesale shipments.
Despite the fourth quarter impacts full year fiscal 2020 performance remained strong as revenue grew by 6% versus the prior year to $2.133 billion and earnings per share increased 9% versus the prior year to $9.62.
Decorous fiscal year 2020 performance as a result of having great brands that are built lasting relationships with consumers and continue to build awareness momentum through targeted focus investment.
Complemented by a disciplined approach to managing expenses.
Turning to the brand highlights during fiscal year 2020, starting with the fashion lifestyle group, which is comprised of our outlook and Koolaburra brand.
For full year fiscal 2020 global sales declined by 1% versus last year to $1.5 billion to $1 billion.
Considering lost revenue in Q4 due to cope with 19.
Looking at roughly flat to last year, which is inclusive of a large headwind related to the European marketplace reset in progress.
In contrast to the headwinds on the brands and international businesses.
Grew by 5% in the United States for the second consecutive year.
Brand strength in the U.S. has been driven by high levels, the brand heat through PR and targeted marketing investments driving brands search and trust.
8% as compared to last year.
[noise], winning with younger consumers SDDC purchasers, aged 18 to 34 increased by 29% versus last year.
Increased loyalty membership in purchasing as enrollment in of rewards increased 60% and revenue from members grew 19% as compared to last year with members spending more on average and diversified product mix as the fluff Yeah do mail franchises, both drove significant growth.
Well look to build on the strength of our domestic business as we weathered the evolving economic and retail landscape in fiscal 2021 and look to capitalize on the brand strength as work from home becomes the new normal for many of our consumers.
The team has made compelling progress and the brands domestic business over the past three years and is focused on protecting the brand sanctity that they worked so hard to build.
Moving to Koolaburra global revenue in fiscal year, 2020 grew by 58% versus last year to $70 million.
The Koolaburra brands performance was fueled by another year of strong full price sell through at market share gains within the domestic family value channel.
We're also experienced success with this licensed home business and has plans to expand to license loungewear. This fall in an effort to further extend the brands lifestyle appeal.
Given the value proposition of the brand, we believe koolaburra will be poised to capture demand from budget conscious consumers in the coming year moving to the performance lifestyle group, which is comprised of the HOKA Teva and set up brands.
Starting with HOKA global revenue for fiscal year, 2020 increased by 58% versus last year to $353 million.
The hookup brand far outperformed our expectations from the outside of this year HOKA growth has been consistently balanced across the globe and the brands domestic and international businesses and across both wholesale and direct to consumer channels. This balance has been achieved during the team's dedication to what we referred to as the HOKA ecosystem, which provide the unit.
Personally elevated consumer experience across all regions and channels of distribution.
Leveraging the organizational expertise that exist in a multi brand portfolio HOKA brand has quickly evolving digital presence to become a core strength and represent the ultimate access point of the brand.
Good digital has become a serious driver of both customer retention and new customer acquisition.
Both retained and acquired customers nearly doubled year over year, and the HOKA brands global direct to consumer business.
Okay, Great success in fiscal year 2020 is the result of great heritage products, New product innovation and continued refinements at the HOKA ecosystem, attracting new consumers.
HOKA has significant momentum and while broader market trends might limit the brands incredible growth rate in fiscal year 2021, we're going to continue investing at HOKA to fuel our brand led and consumer informed marketplace strategy.
Turning to our Teva and set up brands global revenue in fiscal year, 2020 was $130 million and $51 million respectively.
The tethered to note brands are attracting consumers with innovative product introductions that future sustainability stories.
This includes tevas strap into freedom campaign, highlighting their use of recycling materials now one nearly all their original sandals traps.
Similarly center continues to offer eco friendly options, including their begun collection.
Amplify these efforts and embrace the ever changing serve specialty space. The Sanuk brand has recently streamlined operations to work directly with our internal innovation department known as Deckers laughs by collaborating directly with directors labs recruiting cost efficiencies in the business well also reinvigorating the snuck brands innovation.
Engine.
With respect to channel performance global wholesale sales increased 7% for the full fiscal year fiscal 2020 performance were driven primarily by domestic strengthened the HOKA, okay and Koolaburra brand.
Domestic wholesale has now grown over 9% for two consecutive years based on the strength of these brands.
For the year International wholesale increased low single digits due to HOKA brands expansion being partially offset by the ongoing European reset of the UGG brand that is similar to the strategy, we successfully implemented and the other brands domestic wholesale marketplace.
We also experienced negative pressure from foreign currency exchange rate.
Global direct to consumer sales increased 3% for the full fiscal year comparable sales for full fiscal year increased 5% versus the prior year. Please note that our DTC comp for fiscal 2020 has been adjusted to exclude the final weeks of March retail volume as a result of cobot 19.
For the full year DDC performance was driven by global growth off the hook up brand as the brand nearly doubled its E commerce volume year over year and domestic strength of the brand online.
We've been intently focused on enhancing the adoption of our brands online over the past few years and this will be a primary focus in fiscal 2021 with a disruption of the retail landscape.
With that I'll hand, the call over to Steve to provide more details on the fourth quarter and fiscal 2020 results.
As well as some additional thoughts on fiscal 2021.
Thanks, Dave and good afternoon, everyone.
Before we jump into our fourth quarter in fiscal year 2020 results as well as an overview of our approach to managing the business in this unprecedented environment.
I'd like to take a moment to highlight the strategies, we've implemented over the past few years.
The actions we've taken the built a more efficient business and created a strong framework and solid footing to navigate the current uncertainty.
More specifically, we've implemented the other domestic wholesale marketplace management strategy, reducing the risk of excess inventory in the wholesale marketplace and lowering the risk of default with the smaller and healthier account base.
Built a strong partnership for the Hookup brand in the run specialty channel driving awareness in customer affinity well also capturing accelerated demand through direct to consumer.
Invested in digital infrastructure and marketing for all our brands to deliver a compelling consumer experience.
Shifted cost structure by reducing fixed costs and investing in variable categories.
Consolidated our factory base to work with financially strong partners with diversified operations outside of China.
And made a targeted improvement to Teva instead of profitability.
The flexibility of our operating model is serving us well during these challenging times, allowing us to effectively navigate the current environment.
We believe that are passed an ongoing efforts provide the foundation to proactively manage through the cobot 19 disruption.
We're working from a relative position of strength as compared to our peers due to the significant operating enhancements we've made over the past few years.
Our actions drove improvements of over 600 basis points to our non-GAAP operating margin as compared to fiscal 2017 and more than doubled cash and equivalents to $649 million at the end of our year fiscal 2020.
Now moving to our results well we ended the year with revenue slightly below our January guidance. The main driver of the shortfall was the impact of the global pandemic in the final weeks of March.
Despite these headwinds deckers still delivered a third consecutive full year of mid single digit revenue growth and top tier operating margins among peers.
Our full year fiscal 2020 revenue came in at $2.133 billion, representing growth of 5.6% over prior year.
On a constant currency basis revenue grew by 6.5% as compared to last year.
The hookup brand contributed the majority of the year over year increase up $129 million with Koolaburra contributing an incremental $26 million over last year with Sunoco and owed revenue offsetting some of the gains.
Absent fourth quarter impacts of the Koby had 19 pandemic. We believe owed revenue would have been roughly flat to last year. Additionally, with the results achieved oat bran revenue in the year was flat to the prior year on a constant currency basis.
Overall these results were below the high end of our guidance range by $27 million with for fourth quarter revenue coming in at $375 million down 4.9% from last year, the lower than expected revenue was predominantly driven by approximately $25 million headwind related to the koby had 90.
Pandemic.
These headwinds were driven by approximately $20 million related to wholesale shipments as the final two weeks of March typically include high volume shipping of spring summer product and we experienced disruption from both the temporary closure of our West Coast distribution center as well as wholesale partners closing stores.
In $5 million in lost direct to consumer sales as we close the majority of our retail locations in mid March.
Gross margins for the full fiscal year was 51.8% up 26 basis points to last year. The increase in gross margin was driven by margin expansion in our performance lifestyle group brands.
Lower domestic wholesale promotional activity.
And less close out volume.
Partially offset by negative currency pressure from foreign exchange rate fluctuations.
The increase of brand promotional activity outside of the U.S.
And channel mix headwinds due to wholesale dollar growth outpacing DTC.
This result includes the strong performance of gross margins in the fourth quarter, which came in slightly above our implied guidance of 51.5%.
With outperformance largely driven by gains in our performance lifestyle group.
From an expense standpoint, our full year spend was up 7.4% to $765.5 million compared to last year's gap spend of $712.9 million and up 7.3% to last year's non-GAAP spend of $713.3 million.
As a percentage of sales expenses de levered against the prior year, which was aligned with our guidance as we executed reinvestment plans behind our key initiatives, including investments in marketing to drive brand heat and awareness in HOKA, both mens and womens non core styles.
Building, our technology tools and talent base to advanced analytical capabilities and drive efficiencies in how we connect with consumers.
And using innovation to develop incremental opportunities that can add value to our brand portfolio.
These results are inclusive of actions, we were able to take during the fourth quarter in conjunction with the lower revenue we were experiencing.
Additionally, in the fourth quarter, we benefited from the reversal of accruals related to performance based compensation as well as a lower tax expense, resulting from jurisdictional mix and timing of certain tax items.
Our effective tax rate for the year was 19%, which was largely benefited from a state refund and other onetime discreet items, which compares favorably to a 19.6% in the previous year.
The impact of these results drove earnings per share of 57 cents in the fourth quarter ultimately delivering a full year fiscal 2020 earnings per share of $9 in 62 cents, which compares to last year's $8.84 in our guidance range of $9.40 to $9 in 50 cents.
The 78 cents increase to last year was driven by higher sales and profitability in the performance lifestyle group and the fashion lifestyle groups domestic business and benefits of share repurchase interest income and a lower tax rate with offsets coming from lower sales of old internationally due to.
The ongoing marketplace reset in EMEA and higher spend related to investment behind building technology tools and the talent base to advance our analytical capabilities turning to our balance sheet at March 30, Onest 2020, we ended fiscal 2020 with $649 million in cash.
Appeared to $590 million cash last year with additional availability of $469 million to borrow on existing lines of credit inventories were up 11.8% at 312 million compared to last year at 279 million note that inventory growth over.
The last year would have been below the rate of sales growth if not for the revenue impacts experienced in the fourth quarter due to cope at 19.
And then looking at our inventory position, we're comfortable with the quality of our inventory on hand, as a high proportion represents core product with low levels of markdown risk.
During the fiscal year, we repurchased $190 million worth of shares, but as we did not repurchase any stock in the fourth quarter, we still have $160 million remaining authorized for repurchase as of March 30, Onest 2020.
And with the current near term uncertainty and emphasis on liquidity and cash management, we've decided to pause any share repurchase activity for the time being although we may commence share repurchase in future periods as we deem appropriate.
And for the year. These results once again returned invested capital above 20%.
Switching gears to our global backlog, which includes bulk orders and represents an order book snapshot as of March 30, Onest 2020.
Backlog was up 4.6% versus the prior year at March 30, Onest 2019.
Given the current state of the economy, we do not believe backlog represents a true indicator of performance and we're not planning our business based on backlog subsequent to March 30, Onest, we've experienced some cancellations related to co bid 19 disruption.
As a result, our total backlog as of mid May inclusive of all brands has declined to be roughly flat as compared to last year.
Well, we haven't seen a large amount of cancellations to date, we anticipate there will be additional cancellations and thus are taking a cautious approach in planning the back half of fiscal year 2021.
Overall, we are forecasting cancellations to outweigh reorders.
The backlog does not include any indication of direct to consumer expectations and as mentioned earlier the retail environment remains unclear.
Finally, moving onto our forward looking expectation for fiscal year 2021, given the ongoing and fluid economic environment related to the co bid 19 pandemic, we will not be providing specific guidance for full fiscal year 2021 at this time.
However, I will outline the major themes in how we're managing the business in these uncertain times.
Well, we're not providing guidance we are approaching fiscal year 2021, with the expectation that total revenue will decline year over year, but we believe the hookup brand will still experience some growth, albeit at a rate lower than we've seen in our first quarter to date trend.
The fashion lifestyle group will face headwinds related to the continued international softness in wholesale cancellations.
Inventory levels will be elevated as we carried core product from spring and summer season disruption as well as delay product launches to protect the health of our brands.
And expenses will be tightly managed as we look to conserve our cash balance.
As Dave mentioned, we've already taken some actions to reduce expense in fiscal year 2021, but we've also developed a number of scenarios to adjust spending based on the timing of expected economic recovery and our operational performance along the way.
We have had meaningful discussions with our key wholesale partners to help inform our partnership in planning inventory buys in peak season volume.
We believe a conservative approach in fiscal year 2021 will set up a strong return to our operating model in year fiscal 2022.
Prior to the spread of the pandemic, we had been planning a continuation of our operating model, which included increased investments in our key initiatives to drive further topline growth.
Now that we are operating in a much different climate, we've reduced planned expenses related to our prior expectation of revenue growth and plan to redeploy a portion of our existing expense base two areas with the highest return.
More specifically some of the adjustments that we've made include reducing costs associated with travel and brand conferences.
Reducing SK you complexity with an edit to amplify strategy that drives savings in our supply chain.
Finding efficiencies in the workforce, including the implementation of a hiring freeze and foregoing merit increases.
Savings related to store closures and operating stores in a more limited capacity and reducing or eliminating other discretionary expenditures.
These adjustments give us the ability to dial up or back the planned marketing investments aimed at feeling global hokum momentum depending on the curve of economic recovery.
Our focus is to preserve the sanctity of our brands as was the organization we've built to support our strong operating model.
This operating model is what allows us to make better decisions with an offence focus mindset and will ultimately established the foundation for success on the other side of this pandemic.
With our healthy cash position of $649 million that included no debt under our credit facilities as of March 30, Onest 2020, and $469 million available on our existing lines of credit Deckers is in a competitive liquidity position and is poised to combat the economic pressures, resulting from the.
Co bid 19 pandemic.
Our focus is to make disciplined financial decisions in the best interest of the organization, while protecting the momentum and health of our brands.
We're taking steps designed to put the company in a position to emerge from this crisis with a healthy balance sheet, including a strong cash position with the following considerations in mind. It current pause on share repurchase and disciplined inventory management.
Oh paired with a focused investment in key drivers to ensure we capture demand where possible ultimately emerging with continued strong brand position.
Again, I'd like to reiterate that with healthy and in demand brands. We are in a position to play offense and build on the momentum of our brands over the past few years, we've demonstrated the ability to course, correct, where necessary and our fiscal year 2021 will be no different.
As we execute our strategies, we may experience some short term pressures on operating margins, but it's our belief that this strategy will best enable our brands to emerge stronger as we move beyond this crisis.
With that I'll turn it back to Dave for his closing remarks.
Thank you Steve.
As I reflect on the years performance My key takeaway is recognizing the strength of our brands along with an appreciation for their commitment to staying purpose driven.
The power of each brand lies within the authentic connections the forward with their respective consumer base.
Each of our brands remains open for business and are here to serve consumers. During this uncertain time.
Special Thanks to our employees in the front lines, including our warehouse teams retail associates and customer service agents, who continued to deliver and serve our customers needs extraordinary circumstances.
As we look towards adapting operations to endure the near term challenges, we're doing so with our sites on the future.
We are evaluating a business strategically and intend to emerge from this pandemic with new opportunities an additional strength in the deckers portfolio.
As we navigate forward I am confident that the Deckers organization will embrace challenges adopting new ways to collaborate thrive and inspire each other as we build in our foundation to become stronger.
Through it all we will develop ways to improve our business, including innovations within our planning production and the delivery of compelling product to the market.
As we have all these operations will be mindful to preserve the progress we've made it will stay true to their underlying strategies.
The Deckers organization will overcome near term hurdles, while setting our site on the goal of emerging stronger.
With that in mind, we will continue to fuel the whole good brand with digital marketing campaign in virtual touch points to engage with consumers.
Focus on what matters.
Leaning into key styles and protecting marketplace management progress.
Enhance our E commerce capabilities and digital presence in the omni channel atmosphere, as we look to accelerate even faster during and beyond this crisis.
And stay true to the Deckers spirit, becoming better together as we evolve and innovate in the face of challenge looking to continually developing improve our operations and community.
Overall in the current environment, our company brand and balance sheet are well positioned we will manage the business with a high level of flexibility throughout the rest of the year.
Thank you to all of our stakeholders on behalf of the entire organization hope everyone is being healthy and safe during these times.
With that I'll turn the call over to the operator for culinary.
Operator.
Thank you.
I'll begin the question answer session to ask the question you may affect that mine.
Yes.
If he think speakerphone. Please pick up your handset people are pressing the keys to tie. Your question. Please press Star then.
Please limit yourself to one question and one follow up.
Our first question today comes from Jonathan Komp with Robert Baird. Please go ahead.
Yeah, Hi, Thank you I hope everyone is doing well and healthy I wanted to maybe just started off.
Broader question on the wholesale environment, Denise shared some detail there I just want to get a sense of your handle on the state of things you know inventory and even some of the discussion about orders trends that you're expecting just you know anyway to frame up the range of variance or any other color that you can give as you think about the bell.
Until the year on the wholesale side.
Yes.
With that.
Well I don't want to say I hope everybody I recall is safe and happy with their family.
Yeah.
We are we have always been favorable after year built very very far away.
And I will say the team on a weekly daily basis.
Conversation with the partner to navigate through that what's happening right now.
Third.
Recall that correct.
Right now is actually performing very well with healthy perspective.
The order book and holding pretty well for the back half a year and what we're hearing from our wholesale partners.
Perfect. It is.
There is still confident.
And he brand for them in the back half year.
They need to be successful holiday timeframe and we all know.
And the current trend that happening with.
Well you have programs Liberty than your mail things are progressing well so.
Certainly there's challenges with store opening but we are seeing are.
Britain partner very strong uptick.
Alright.
Some of that wasn't Stuart.
Stores opening hopefully here.
Hello.
The two improvement there, though the outlook right now theme.
Good we're confident about it.
Good day.
The year everything that we are being mindful that monitoring.
So far for five or six weeks ended the quarter I think you might be for.
And then.
I think what we're finding is both coke and.
I mean can be really important Brad.
On the work from home comfort.
Perspective.
No that when people think.
Second home.
Casual they pick up for it.
And then you know like I said that you all know or I'm doing homework.
Sizemore.
That's right.
Anyway.
Okay critical Brad and I think youre seeing.
We will trends data came out of your reference.
The brand or demand.
Our challenge with wholesale store opening that our store openings.
We think the outlook, what we said today.
Yes, Dan just to add on to that a little bit is I think you're referencing.
Where we gave the quarter to date update and talked about wholesale being down.
30%, that's really because stores are still close so.
Wholesalers that have a strong online presence they are doing well and sell through is doing well.
What we're seeing.
That's where we're also seeing a strong E commerce business on our side.
So more so what we're seeing is the result of the wholesale being down is still stores being close with our wholesale account.
But those that are doing business online are actually doing very well and sell throughs well, yes, I think it keydata says a small portion our total year, so while they try to right now.
Actually the context the situation we're all there.
We have a long ago, and what we don't know yet what level of reward.
Wholesale continue to mid tightly.
And then just a follow up on HOKA and that.
Directional color around the growth you're expecting this here can you just expand a little bit more on the drivers that you see I know you talked about pulling back on.
Some of the launches, but but maybe maintaining flexibility on marketing and I know you have some some new apparel product at a limited portion in the marketplace. So maybe just comment a little bit more on that on the drivers you see there.
Yes, I think you know there are couple of things that are happening for Hogan one other thing we want it to do first and foremost we want to protect the positioning.
Second the distribution at the Grad built over the last three or four year.
Before we see HOKA being around for a long time being very important brand imagery for a long time and we're taking a long range approach to that so what the team did push that out all the launch of the product for that allow for our partner that ourselves to sell through inventory.
Product authority in the pipeline at full price.
Do you paid attention to though it ran at all marketplace.
No discounting other brands that because we managed inventory tightly.
No reason.
Through our margins are high and our partners.
In April that average retail market.
And then staggering some of the launches throughout the year can be a in line with where the demand is and the inventory level.
Oh ecosystem.
We'd like to call the combination of strategic partner than our online business.
Performing very well and we're driving more visits to our E Commerce site, which is great because we're acquiring work in February.
That's running out margins a little better this quarter.
Right now well so still optimistic we know that you're going to be headwinds for the brand, but right now full price selling as girl.
So he did a growth brand, even though this year will be challenging.
Getting back to high level.
Right well beyond.
The goal of protect the brands maintain distribution.
Making full price selling.
More of a pull model from consumer and.
Continues to do that with powerful larger than we had some great innovative launches coming through in the next week.
Okay, Great best of luck.
Thanks.
The next question comes from tenant that Duffy with Stifel. Please go ahead.
Thanks, Good afternoon, guys I hope you and your family they're doing well.
I'm sorry, Dave.
Oh I wanted to ask a few times in your prepared remarks, you mentioned planning for a new normal and future state of the business.
Can you share in the post pandemic world and maybe how you're thinking about the new normal and future state of the business specifically for the arc, Brad and some other things you're doing to prepare for that.
Yes.
Jason it's around that.
Due to normal I think everybody's trying to figure that out and for US There's a couple of things.
Employee standpoint, we are seeing a positive result for the work from home scenario a situation.
Both in the ability to stay connected and make decisions that.
Great and been beneficial for the team.
It also allows us to be more efficient RFS.
We do travel so they're the same from an operational employee workforce perspective that will probably continue that along with her.
Leveraging technology to reduce travel using three and a imaging for our sales samples and reducing cost there. There's a lot of it that the things that we knew and we're working on but we've had the opportunity right now for technology to accelerate.
From a business standpoint.
We've been saying for last few years now.
In April it really strong strategic wholesale partners.
Leveraging them to access the consumer.
At the different demographics of our consumer base is that's emerging.
Really continuing to feel or do you see that though.
We shifted pretty dramatically the marketing efforts to be much more in tune with what's happening in the consumers now we're getting a lot more user generated content leveraging T. R and we're getting fantastic response to that so.
Against this shift to faster a product to market faster adjustment digital marketing and scaling to fuel I'd business over time, and continuing with the strength of franchise style.
Where the real upside for the brand long term.
I think you know this is the first time, we've seen this kind of reaction to the unbranded spring and summer.
I really believe that even without the situation.
Lots sandal franchise would have been an exciting product in this environment and so those are the type of thing where continued doing I would say bigger more powerful.
Brad you may want to leveraging our partners to reach consumers with new product and it really feeling the.
For a long range.
Great. Okay can you elaborate some on the merchandising strategies for this fiscal year with <unk>.
And you talked more about balancing newness with concentrating the merchandising assortment and known high velocity style.
Yes, so there's two key to that one is we wanted to review the inventory its style that were seasonally light seasonal liability. So.
That we're in and out one time style really scheme of things.
Worn generally generating a lot of volume vacated went back in the first week.
They stepped down back in mid March across all of our Brad We went through an adjusted by really reduce.
I agree with that going into the back here to protect.
Our level of Martin liability and inventory in the channel, but more importantly, it really focusing on the big driver.
So I think you're going to see continued unit and things like our franchise.
Coming out in June the pride launch.
Launch for that product in September and we have a lot of the plan.
But what we've realized is the combination of DNA encumber fashion is our formula.
Got it.
Right.
Your style of a bigger.
They are in fact I go forward and now we also have our Harold lunch, but here are we talking about.
You know we're doing a pretty.
Aggressive launch that was originally planned we're still going to do it the other key wholesale doors.
For it but were big anymore, focusing the plan.
I want to go away.
Very helpful. Thank you.
Yeah.
Next question comes from Camilo Lyon with BTG. Please go ahead.
Thank you hi, guys how are you.
Yeah.
Matt.
Thank you. Thank you sub a couple of questions.
So you talked about your backlog.
Through mid may be flattish.
And you also said the you're contemplating are expecting more cancellations to happen, but you haven't seen knows yet to a large degree.
It's a couple of questions on that can you tell US you know at what point in the year well you stop accepting cancellations were getting other than that you know window, where where a couple of months away from from from shipments of false start until unfold.
And it seems it's early days, but it does seem that as stores start to reopen.
The trends are less bad than initially feared generally speaking so I'm just curious to know how you're thinking about.
Hey, thinking about that.
Yes. Good question I think you know if that goes.
You kind of how we're scenario planning.
Hey.
Phil accounts are still opening it up we want to see.
Stores open up and what the demand is it goes back a little bit for the first question. We're working I think initially and it's still early on and kind of a higher proportion of ecommerce sales in the first part of this quarter than it should the wholesale but with the strength of.
He Congress is giving us confidence in products sell through and wholesale accounts that are selling online.
Strong sell through.
So at this stage, we think it's still early to kind of call. It a in terms of when we called the line in terms of cancellation, we are working with it now I understand.
Where their product is what the product is going through we have will add to that both online and physical presence there how to use but they're learning from their online sale.
To help formulate an opinion kind of on physical store.
The long ago, I think we learn more in the last couple of weeks, we continue to see strong sell through and I think it given some of our wholesaler confident and how it's performing so yeah.
Yeah, not providing guidance, but we were thinking about a year and being cautious about what potentially could happen recognizing we're still in.
The small part of our year, so first quarter, representing less than 12% of our business.
That being a little bit cautious.
We do have inventory.
We can fulfill orders, but we want to be a little bit cautious in terms of what were ordering.
And we'll we'll use what we're seeing.
The kind of it.
On how to think about kind of backlog from cancellation, but at this point, we just felt prudent to be a little bit quiet.
We expect that we'll see some more cancellations, but as we indicated and the change in the backlog.
We have the cancellation.
It would probably thing it's a good part.
We would happen as towards real but yeah, we did we.
Initiated our lab by for the holiday season.
Weaker so at a lot of conversation.
The wholesale team validating you know a assumption from some of our wholesale partners and where we decided to Atlanta, we're going to bite to the order.
Happy by a little bit more Chris on the outside.
I'm good quarter for carrying over to the orders, but we are expecting to see some cancellations.
But the order book is also shifting between partner.
With more online right there.
Doing better than people with metal more score relevant door.
Oh store related.
Got it hit within the mix.
But the order book as we said there looks good and we're buying to that overboard.
We put ourselves in it.
That's great and then Mike. Thank you for that collects it's very helpful. Actually and then my follow up is.
If you take so you've given great color on the wholesale order book in how are you planning and how you'll build to orders inventory.
Are you, taking a comparable approach to the DTC business.
It's now almost 40% of the business. So you know you taking a little bit more they proactive approach in allocating.
More or better inventory to your DTC channel.
Yeah, we made summit.
Obviously between.
We're have been per store.
So.
Right.
And E commerce.
Well, we think that trend will continue.
One of the big benefit of having a good economic business right now require a lot of new consumer.
And a lot of new younger consumer they both okay.
Can go back to and all your timeframe. So we're optimistic that we're going to continue to have a strong online.
And my business shifting inventory, but we can share to easily between online at retail and then we are playing out for some more potential close out.
Through our cancellations that we can fall through the <unk> well higher margin.
Little bit more conservative there, but we do think in key styles franchise.
That there is up by <unk>.
<unk>.
<unk>.
So that is it safe to say that your DTC plan is a little bit less conservative than what your wholesale.
Plan is.
Yeah, I think so yeah there.
Right.
Thank you guys. Good luck.
Right.
Next question comes from Sam Poser with SAP Hana. Please go ahead.
Oh good afternoon. Thanks for taking my question I guess, just a follow up.
On the wholesale side of things, especially with HOKA.
On the on on your partners direct to consumer business under partners ecommerce businesses are utilizing a good deal drop ship right now so so you're basically reacted directly to their customers demand through their website. So are you doing up a bit about at the moment.
Yeah, we're doing small fortune.
Other smaller independents that we're doing some of that but not a big part or <unk>.
But were.
Sure.
And then.
And then near term Steve are you seeing sort of big because of the way the business is going and such a shift to E commerce and and so on or are there any structural.
Gross margin headwind split up in the near term just because of the state of the market not Miss because you have.
It's it would be more on the the clubs.
Situation <unk> merch margin.
Yeah I mean.
I would say on the near term right it and again, what we've seen in the quarter to date.
With a higher proportion of E commerce right gross margin.
Our contributing.
To an improvement in margins over the higher gross margins associated with that so that will shift the bulk of the remaining orders shifted kind of wholesale and then I think we'll we'll have the as we emerged from that kind of economic pressure, but in terms of.
The margin.
As a higher proportion of our business in the first few weeks a quarter been more heavily on E. Commerce, we're seeing some margin improvement there will be a little bit leadership as we see more wholesale being fulfilled in the back half first quarter and then you cannot provide a guy but you know as we look at about the the year, we'll see how.
No. They develop in terms of promotion and then in terms of how we're thinking about the organization as we talked about it is shifting some resources E commerce.
To help drive increased traffic that we're seeing there so.
We're finding efficiencies in the organization.
Some of that in our ecommerce infrastructure to facilitate increase.
Traffic and demand that we're seeing.
Yeah.
Right now I mentioned earlier, we're still seeing full price selling.
Right.
To maintain a.
What we can.
We are predicting that will be more and more promotional environment of the back half.
But right now.
You know we opened a clause.
Memorial Day weekend timeframe.
Product that we want to go after we go into the back half of your clean.
So you might be a little bit of that in the marketplace.
Files that are really important for the.
Core business.
And we'll manage through that.
But he said.
Right right now.
The higher margin today, but we had a lot of.
Yeah, and then the other thing that we've talked about right, which we demonstrated last year you. The marketing. So we've increased our marketing spend around that and we'll continue to use that as a lever as we evaluate them out there continue to come in.
And then just two more things you alluded to sort of new channels of distribution and I've been hearing that some of the sort of more athletic weep, you're starting to maybe build up.
Assortments with some of the more athletic retailers that happened the generally.
A decent digital platform as well can you give us some color on on what's going on there and then one of your major accounts earlier than the season decided to get promotional probe a little bit of Todd.
You know how are you reacting if people if if if if your wholesale partners.
You know do something <unk> brands.
Yeah, Great question, we've been saying, while the second thing about right. The thing that work is performed so.
You know we've been from a price.
For a conversation or.
Okay.
Border and that that we're going to approach.
The.
Yes.
Yeah were shorter term headwind for the economy and Iran.
But we're in for long haul we want to Brad.
A quality way.
We're not going to change.
Revenue in.
To get there and that's the approach for HOKA generally speaking, we said that distribution.
Distribution.
Correct.
I guess, but a good footprint as well driving.
We did open.
Recently for the first time, we didnt like three or four years ago.
Quickly and that was before people really are as good luck with all though but the tests so far than going very well, we're very pleased with that and we're going to continue to.
Okay, really primarily say online and probably 10 stores.
Hey, assortment, a little bit right now.
<unk>.
But I'm very pleased to see the reaction.
Where we sell the awareness is growing.
Dramatically for the OCA, Brad and in an environment like that <unk> some of the best friends out there.
<unk>.
<unk>.
Thank you.
Thanks.
<unk>.
The next question comes from Tom Nick with well Fargo. Please go ahead.
Hey, everybody. Thanks for taking my questions first I wanted to ask about the European reset.
Yes.
And that Mek and what's going on the last couple of months.
Change anything.
As far as the European reset goes does it accelerate it slow it down just any color you could give us.
Yeah, you know we talked about this in our last earnings call, we're going into this year.
A focus on resetting.
There's been some red meat issue.
In the channel cleanup that need to do.
For the plants built to do that we were looking at allocating resources this year marketing perspective <unk> okay.
You know we made some adjustments between the <unk> China.
Both of those out.
But really they of course and like I said.
The team.
Revenue.
That's just kind of the product.
Cleaning it up.
Really a challenge this year, obviously, they're getting pretty heavily affected across the region.
We're going to manage that but it's still retains the goal and I.
I think that Brad.
The classic.
A good though we are seeing more adoption of the.
Franchise.
The Pat I'm in a lot of a PR and social.
Celebrity oppose that we're getting right now.
At all it's starting to resonate nicely with the younger consumer over there.
So hopefully that will help with Brad <unk>, but from an inventory about my market perspective, we're going to manage it tightly with the goal a creating more of a scarcity model everything.
Got it and then just a follow up on HOKA, Yeah, right now that the wholesale distribution.
Independent smaller retailers.
Is there any concern about some of those retailers.
Not surviving the current locked down and what.
Potentially do where the growth trajectory.
Yeah, you know it's interesting we had a call with Alcatel team and some of the marketing folks yesterday, there they're using some of the new analytical capabilities that we created the company to really take an assessment of each individual account based on their geographic location where there.
<unk>.
The clothing.
Good thing measured where they're opening up and they're making assumptions on which store.
I think we'll we'll try to survive.
And so I can't surety that color, but.
No there were looking at that level of the teams are closely monitoring and working with a lot of Evercore partners.
Some of them may not make it and but I think overall wont be significant to the trajectory overrated dog okay.
That was a big player.
Oh my goodness in there.
<unk>.
So feel optimistic.
When they're able to reopen the velocity.
Yeah, and Tom just add to that.
You know in my prepared remarks, I made the comment about kind of OCA, we're planning a little bit slower growth. This year. So clearly yeah, we will be some disruption as or as a result overnight, but you know it's the short term kind of disruption to the brand so.
They said, we're going to manage closely we're going to work with a half were going to try to help without a where we can.
And yes won't make it but that business will transfer to some somewhere else so great online so.
The man there.
Yeah, I think that.
Okay.
Did that.
We are doing a little a few more dropship okay.
Again.
That is happening.
Alright sounds good.
Thanks, a lot and.
Yep.
Last question, Dave will come from Paul The June with Citi Research. Please go ahead.
Hey, guys. Thanks, I'm, sorry, if I missed the but did you give any calm growth rate per quarter to date by brand.
That's fair second just curious what percent of your skews sold to a wholesale partner ultimately sells through a store versus online and then last just curious what you've seen in China. I think you said those shut those stores are all open curious how does not just come back.
I think the first part of the question was what did we mentioned on kind of rapid growth quarter to date. So what we said what I would doubt we didn't we don't break out.
But I'd be down which is all count down mid single digits hook up low 30% range stepping down low fortys ciena down mid 30, but we don't necessarily break that out.
Yeah.
<unk>.
And.
E B gabi, which it sale.
40%.
Were they.
Yep.
Right and then and then.
And then a little companies.
And your comment, though triple correct.
And then you talked about you.
With that you sold at wholesale online but.
Correct get used to your selling you know you've got a big wholesale business I'm curious if you get a sense of what percent of those units that you sell through a you wanted your partners ultimately gets pulled through a store versus online.
Yes, they generally speaking probably 30, 40% range and normally buy right certainly in this environment <unk> five to <unk>.
<unk>.
Got it thanks, and then just China experience.
Oh, okay, they've been through that's right and a we're learning a lot from our China team in a manner over there they were shut down obviously earlier in the year about three months towards working from home.
A lot more serious.
Oh, the fact that I've been here they are back to work.
<unk>.
I'm not fully back there's still some work from home situation happening there, which is probably a their magic right. They're working closely with our wholesale partners who are all through having.
I want because they don't have ecommerce store and then the stores that were opening yeah that back on line, they're not to the level that they were.
Second to be to keep in mind.
Doors.
<unk>, China, very low volume, but E commerce business it picked up nicely.
They'll still be some headwinds through the or whatever.
Help our partners or some other three challenges at all.
Back into the product into the marketplace now both in the.
Category, but often.
But like cloud.
<unk>.
<unk> okay.
Well.
Back on track back up in operating but the consumer.
Response.
Phil slowly coming back I think it's going to be that.
Got you could I just go back to that 30% to 40%. The you mentioned, yeah selling online through your wholesale partner does that different much by brand.
It'll be a hopefully we'll have a higher.
The wire.
Yeah Yeah.
That would be.
<unk>.
Yeah.
Yes, correct, but generally speaking I think it all depends on.
<unk> Department stores.
30% to 40%.
Higher a smaller independents is online or whatever it is out of <unk>.
Got it.
Real quick.
I don't know.
While the industry that really thought about it but it's something that we're thinking about with the lack of Chinese tourist travel generally for the rest of year beyond Yeah. That's gonna have an impact on global businesses.
But they have a positive impact on the China. So we don't know what that looks like that something that we're monitoring closely but I didn't have you factor in the industry.
Great. Thank you good luck guys.
Right.
This concludes our question and answer session and also include back all right. Thank you for attending today's presentation you may now be.