Q1 2021 Deckers Outdoor Corp Earnings Call
Randy first quarter fiscal 2021 earnings conference call.
At this time, all participants are in listen only mode.
Following the presentation, we will conduct a question and answer session instructions will be provided at that time for you to queue up. So question. If anyone has difficulty hearing the conference. Please press Star then zero for the I Burger assistance at that time I.
I would like to remind everyone that this conference is being recorded I will now turn the call over to Aaron cooler VP Investor Relations and corporate planning.
Hello, and thank you everyone for joining us today on the call is Dave powers, President and Chief Executive Officer, and Steve Clashing 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 our forward looking statements within the meaning of the federal Securities laws.
Our 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 includes statements regarding the impact of cobot 19 on our business and operations business partners and industry changes in consumer behavior in the retail environment strength of our brands and demand for our products changes to our product allocation distribution.
And inventory management strategies changes to our marketing plans and strategies investments in our business and our anticipated revenues product mix gross margin expenses 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 because.
But he has explained some of these risks and uncertainties and its SEC filings, including in the risk factor section of its annual report on form 10-K, and quarterly reports on form 10-Q.
Except as required by law or the listing rules of the New York Stock Exchange the company expressly disclaims any intent or obligation to update any forward looking statements.
With that I'll now turn over to Dave.
Thanks, Aaron and good afternoon, everyone.
The happens Deckers organization I hope everyone is doing well in staying safe has the Coburn 19 pandemic continues to have devastating effects from around the world. We remain committed to prioritizing the health and safety of our employees customers and the communities where we operate.
And our May call, we detailed our strategic approach to managing the business through this pandemic.
I believe the work we had done so far this year and over the past few years has created an important foundation. So we still expect there to be additional hurdles to overcome later this year as we approach to peak season for our largest brand.
Before I share our results for the quarter I'd like to express my sincere gratitude to our employees for their continued commitment to working through these challenging circumstances, helping to deliver a solid first quarter.
For the first quarter fiscal year 2021 revenue was up 2% versus last year to $283 million gross margin increased over 300 basis points to 50.3% and we delivered a loss per share of 28 cents.
Many of the trends we outlined in our May call remain largely consistent through the balance of the first quarter.
Direct to consumer business was robust throughout the quarter driven by triple digit online growth in both the okay and HOKA only on a brands. However, this was mostly offset by the headwinds experienced from both owned retail store closures as well some wholesale doors remaining close during a portion of the quarter.
Our first quarter performance benefited greatly from the organizational foundation, we've invested in over the past few years.
In addition, certain areas of our business benefited from the shifting consumer behavior as a result to the pandemic with our ongoing key strategies amplified an accelerated by some of those trends.
Omni channel capabilities have been a key area of investment with a distinct focus on bolstering our ecommerce competencies, we've added new targeting efficiencies analytical tools upgraded talent and enhanced global accessibility with our online platform. Thanks to these investments our digital marketing in E. Commerce teams were able to efficiently and effectively.
Transition content to authentically realign with the new marketplace reality is created by the pandemic, including efforts to engage with consumers to virtual events and programs.
I was able to adjust its planned for pride to create a virtual prom for all event in partnership with Tommy Dorfman.
Okay had originally planned a series of in person events surrounding the launch of the Clifton edge, but the brand transformed those plans into the virtual you could in challenge in partnership with Strother.
As our brands adjusted plans for in person events to virtual they also shifted marketing mix towards the top of the funnel in an effort to reach a new and diverse set of consumers. These are just a few examples of how our brands. We're nimble in optimizing sell through of the powerful product and narrative by modifying their marketing plans and the changing marketplace conditions.
Beyond our investments in digital and PR. Another key area of focus has been reducing the company's reliance on core of product.
Has successfully diversified its product mix through investments in innovation and design to go to counter seasonal assortment that complements the core product offering while continuing to manage the brands domestic allocation and segmentation strategy.
And lastly, we've invested and we'll continue to invest in the HOKA brand to drive global growth and build on the brands momentum to increased brand awareness and consideration.
The strength of our ecommerce and digital marketing platforms fueled by adaptive marketing tactics created demand for counter seasonal products and continued HOKA momentum driving deckers success in the first quarter.
Shifting to the brand highlights from the quarter, starting with the fashion lifestyle group.
Global OCG revenue in the first quarter was down 10% versus the prior year to $125 million driven by a 49% decline in wholesale which was primarily caused by the cobot 19 related wholesale door closures.
Partially offsetting the decline in wholesale the UGG brand experienced a 53% increase in its direct to consumer business as E. Commerce was able to more than make up for the loss volume from our owned retail store closures online strength was fueled by an accelerated shift to consumer demand to online platforms and supported by the investments we have put behind our ecommerce business, resulting in.
In a triple digit increase in both acquired and retain consumers as compared to last year.
We understand that some of these newly acquired individuals' likely previously engage with the UGG brand through a brick and mortar experience, but we welcome the shift in consumer purchasing to our online platform and we'll continue investing in the channel.
Correlating to the sizable customer acquisition the brands are substantial acceleration of of loyalty enrollments in the first quarter as compared to last year, we are especially encouraged by the UGG brand incremental loyalty additions as members typically purchase the brand more frequently and a more likely to purchase multiple product categories.
For the first quarter loyalty members accounted for nearly 40% of direct to consumer revenue, which compares to 28% for the same period last year.
From a regional perspective, the domestic business maintained the momentum experience throughout fiscal year 2020 with revenue growing in the first quarter fiscal 2021 as compared to last year.
Domestic performance was fueled by 18 to 34 year, we'll consumers purchasing online as I've dotcom saw a significant increase in consumers within this age group representing over 40% of total online purchases in the quarter.
Internationally, Oh declined versus last year, primarily related to covert 19 store closures, the multiyear marketplace reset in Europe, and the brand having a smaller ecommerce presence relative to the U.S. market, making it more challenging to offset the volume loss from retail stores.
In terms of product highlights the UGG brand experience global success with that slipper business through innovation of emotional and comfortable product that resonated with a broad range of consumers. We believe the gains in OCG slippers were due in part to cobot 19 related work from home mandates as people CECO casual and comfortable shoes to were in their homes. In addition to the.
Fluff franchises continue expansion and momentum.
The fluff, yes slide was the brands top rank style in terms of revenue in the first quarter for the second here in a row and his companion style. The Oh, Yeah was number two and its introductory season, both styles are resonating well and driving meaningful growth in both women's and kids sizing, suggesting somewhat of a money and meet trend in fact, the fluff and no year styles.
Drove nearly half of the total purchases by 18 to 34 year old consumers.
We believe that this hybrid slipper sandal phenomenon that created is here to stay as a brand continues at cycle of innovation to deliver authentic product updates for new and existing consumers.
Beyond the fluff franchise, many of the heritage to deliver styles, such as discussed co cat and Tasman experienced nice growth, which we believe was both incremental as well as some pull forward demand from later in the year.
We are excited about the other brands recent performance with spring and summer product, especially given the brand has not typically have been top of mind for the consumer this time of year.
According to Google trends hug experienced a 76% increase in search interest during the first quarter underscoring the progress that design team has made developing product that resonates with consumers during the spring and summer months.
We have team is targeting the conversion of newly acquired consumers to repeat purchases throughout the balance of fiscal 2021.
Turning to the performance lifestyle group, which is comprised of HOKA Teva Ensign look.
Beginning with HOKA global revenue for the first quarter increased 37% versus the prior year to $109 million HOKA was able to grow both wholesale and direct to consumer channels, primarily due to the size and strength of its domestic ecommerce business as well as the rapid expansion of distributor volume internationally.
Expansion of the HOKA brand internationally has been a great indicator of the accelerating consumer appetite for HOKA outside of the U.S., specifically within Europe, we feel the brand is resonating due to the frequent introduction of compelling product and powerful storytelling globally.
Digital growth in customer acquisition had been a focal point of building the hokey ecosystem over the past few years.
With the accelerated shift to online purchasing our investments in digital have become even more critical.
During the quarter HOKA direct to consumer experience triple digit revenue growth aided by a similar triple digit increasing customer acquisition as compared to last year like Doug. We believe some of the online consumer acquisition may be attributable to consumers, who are purchased HOKA before at wholesale but due to store closures they've now migrated to our web site.
Given the brands marketing strategy has traditionally included in prison based activities. We're thrilled by the HOKA team's ability to accelerate online engagement and further cement the brands digitally led approach there has been numerous initiatives to help drive digital engagement with the Hooker brand in the first quarter, including the brand sponsorship of the virtual Iron Man Racing series as.
Well as the HOKA partnership was struggling to create the he could in challenge.
And continuing its sponsorship of the argument racing series virtually HOKA was able to stay connected with its core consumers and potentially reached a new audiences, who maybe following ironman events are most other sports are on hold.
He couldn't is about moving forward together in bringing out the best in each other it's a relay style running race that originated in Japan over 400000 people across the globe participated in the you could in challenge, which helped create a new method of connection with consumers in the absence of in person events and afforded HOKA the opportunity to learn more about its consumers.
The challenge was designed to coincide with the launch of the Clifton edge, which is the latest innovation from HOKA and he has seen strong consumer demand since its introduction in early July, particularly in Europe. The HOKA brand proved to be in a position of strength during a period, where many brands struggled to grow proving the brand power. It is developing we'll look to come.
Can you fueling the hooker brands momentum for the balance of fiscal 2021 and beyond.
Moving to Teva global revenue in the first quarter was down 8% versus the prior year to $35 million type of performance included a notable acceleration of its direct to consumer business in the back half of the quarter.
For the quarter DDC represented 39% of that type of brands revenue, which was up from 19% in the previous year.
And the overall revenue declined in the quarter the brand experience global growth with its universal franchise styles, but now feature straps made from recycled plastic.
For Sunoco global revenue in the first quarter declined to $13 million.
Similar to Teva sooner because amplifying its focus on sustainability subsequently at the end of our first quarter. So nook introduced its new sustain a sole collection. The collection is the brands most eco friendly shoe to date featuring recycled materials throughout the entire construction of the shoe.
With respect to channel performance overall, we saw significant strength with our online channel in the period, while physical retail experience disruption from the pandemic conditions adversely impacting both owned retail and our wholesale business.
Global good direct to consumer revenue increased 74% versus last year in the quarter.
Direct to consumer gains in the first quarter were driven by the strong consumer demand of our brands online in particular with both oak and hook up more than doubling ecommerce revenue year over year again, we believe a portion of this incremental online demand continues to be spurred by consumers actively seeking products that provide comfort for the work from home environment combined with an interest.
To exercise in the outdoors due to the meaningful disruption of our retail store base throughout the quarter, we're not reporting a comparable direct to consumer sales figure.
Global wholesale revenue decreased 27% versus last year for the first quarter, we experienced lower wholesale revenue across all brands in our portfolio, except HOKA, which was able to offset a domestic decline with higher international revenue.
The pressure experienced in wholesale was primarily the result of pandemic can do store closures across the globe. However, despite the decline of wholesale revenue. Our partners also experienced growth within their ecommerce channels, which suggest our brands are taking market share from the competition.
According to NPD is retail tracking service for the month of April through June each of our brand growth rates were more favorable than the overall marketplace.
Before handing off the call to Steve I'd like to give an update on the status of our operations and highlight a few dynamics to consider for the balance of fiscal 2021.
Moreno Valley distribution Center continues to operate at a limited capacity due to increased social distancing measures taken as a precaution to maintain employee safety.
Our Marino Valley DC team and third party logistics partners continue to work through the challenges associated with shipping higher levels of product sold through our ecommerce channel. In addition to the increasing volume of wholesale shipments as we head into peak season.
As a result of these conditions, we anticipate higher costs associated with employee safety and increased payroll costs related to DC employees.
We continue to adjust our retail store fleet operations and compliance with updated an ever changing health and safety standards.
To provide some context for our retail store operations during the first quarter approximately 20% of our stores were opened for the entire 90 day period. The average store was opened for roughly half the quarter as if this week approximately 95% of our global stores are open but in most cases operating in a limited capacity.
Given the ongoing an uncertain pandemic conditions, which include meaningful local and regional differences and restrictions imposed on retail store operations. We've received potential risk of additional store closures were limitations during peak periods.
Similar to our owned retail stores many of our wholesale partner stores were closed for much of our first quarter, but have since reopened with limited operations. We have continued to work closely with our wholesale partners to identify areas of risk and make the relevant adjustments to our order book.
Given the significant portion of business remaining in this fiscal year.
As well as the uncertainty around economic conditions and consumer sentiments, we still anticipate cancellations to outweigh reorders.
In terms of our sourcing during the first quarter, we operated with reduced capacity due to the implementation of social distancing measures and we continue to experienced travel restrictions between country borders and production facilities.
However, these disruptions have been mitigated thus far and at this time, we're not experiencing any major sourcing disruptions.
Given the first quarter is historically very different from other three quarters in terms of channel and brand mix and the first quarter was especially unique this year due to the marketplace conditions, resulting from the cobot 19 pandemic. We know that this will not be a typical year.
I'd like to ticket moment to recognize some of the dynamics, we're observing and that should be considered for the balance of fiscal 2021.
In the first quarter, just completed approximately 49% of revenue came from direct to consumer heavily weighted towards ecommerce, which has significantly above last year and our typical quarter.
38% of revenue came from HOKA, which is well beyond last year and the average quarter.
And less than half of the revenue came from August which typically represent over 70% of total company revenue on a full year basis.
While we expect direct to consumer and HOKA revenue to increase as a proportion of our total revenue in fiscal 2021, we do not expect to repeat the levels of penetration experience in this first quarter.
Additionally, though we're optimistic about the UGG brand start to fiscal 2021. The brand has a long way from its peak holiday timeframe, which we are expecting to be highly competitive and feature increased levels of promotional activity across the marketplace.
Starting in the second quarter wholesale is expected to become a more impactful portion of the brand revenue, especially as we move some customer shipments forward to help alleviate potential pressure during the third quarter at our distribution centers.
Given the number of unknowns, we continue to approach the other brands peak season with appropriate caution to summarize our portfolio of brands delivered an excellent quarter and an exceptionally challenging environment I'm proud of our teams for their dedication and disciplined to achieve our best first quarter results of the past nine years.
Despite the first quarter traditionally being our lowest revenue quarter I'm encouraged by the resiliency of our brands and look forward to building on that momentum for the balance of fiscal year 2021, and beyond the ongoing pandemic will undoubtedly present adversity throughout the year, but I'm confident in our team's ability to manage the effects on our business with that I'll now hand, the call over to.
Steve to provide more details in our first quarter financial performance and provide some additional color on our strategy to manage the balance of fiscal 2021.
Thanks, Dave and good afternoon, everyone as Dave just detailed we're extremely pleased with the organizations performance admits tough marketplace conditions and as of June Thirtyth. The organization maintained its strong liquidity position above $1 billion aided by the performance of our portfolio of brands that drove positive cash flow for the first quarter.
And is inclusive of untapped credit revolvers totaling $470 million.
Our strategic approach to managing through the pandemic and its economic impact served us well in the first quarter, we will stay the course and continue managing our business tightly by leaning on our strong operating model, while also fueling our brands to drive competitive games in market share.
Now for our results first quarter revenue was $283 million up 2% versus last year and slightly above the trends we outlined for the first half of the quarter on our me earnings call as compared to last year revenue growth was driven by HOKA, which increased $29 million over the same period last year.
Offsetting the HOKA brand growth with a $14 million decline in AWG, a $5 million decline instant book, and a $3 million decline and Teva as compared to last year.
Given the difficult marketplace dynamics during the first quarter, we were pleased to see our online channels ability to capture consumer demand as physical store locations largely remained close. In addition, our online results benefited from efforts to drive consumers to our compelling product offering in our historically smallest revenue.
The quarter.
Gross margins in the first quarter were up 330 basis points over last year to 50.3%. This result was aligned with our view of the business as a favorable shift in channel mix resulted from reduced wholesale volume, including a reduction of Closeouts and an increased penetration of E commerce.
We also benefited from the HOKA brands growth and its corresponding increase mix of total company revenue.
Moving to asked today, our dollar spend was $150.3 million down 7% from last year's spend of $161.4 million. The decrease versus last year was driven by variable category reductions with the bulk of the year over year savings attributed to reduced travel and shifting a portion of marketing.
Spend to later in the year the combined effect of these items represent approximately $10 million of reduced operating expense in the quarter.
Income tax benefits were lower than last year due to a smaller net loss. This year, indeed discrete tax charge and the current quarter with last year benefiting from a onetime tax refund.
Our first quarter performance resulted in a loss per share of 28 cents as compared to last year's loss per share of 67 cents.
The 39 cents improvement versus last year was driven by.
Higher revenue mix of HOKA, including benefits from a greater proportion of DTC sales.
Higher revenue and profitability from our domestic business as DTC performance was able to offset declines in wholesale.
Variable expense savings primarily related to travel and markets.
With partial offsets coming from lower AWG international wholesale revenue year over year declines in Teva and Sonac no tax benefit this year and reduced interest income compared to the same period last year.
Our balance sheet continues to remain strong and as of June thirtyth cash and equivalents were $662 million up from $503 million at June Thirtyth last year and up from $649 million at March 30, Onest of this year, making the first quarter net cash positive.
Inventory was down 8% to $435 million as compared to $473 million last year.
Inventory levels were down partially as a result of the intentional phasing of leader receipts in order to more closely aligned with the timing of anticipated demand as we move into later quarters.
And we had no material short term borrowings under our existing credit lines, which had been available balance of $470 million.
We did not repurchase any shares during the first quarter as we paused share repurchase activity, placing an emphasis on liquidity and cash management.
Share repurchase activity remains pause for future periods, although we may commence future repurchase activity under our existing board authorization as management deems appropriate.
Finally, given the continued uncertainty caused by the co bid 19 pandemic, we will once again not be providing specific guidance for fiscal year 2021 at this time.
However, I will reiterate the major themes of our business in briefly outline our management thinking.
We continue to approach fiscal year 2021 with expectations that total company revenue will decline year over year, though we believe HOKA will still experience growth, albeit at a lower rate than the brands, 37% increase in the first quarter.
The fashion lifestyle group will face headwinds related to further international softness in additional wholesale cancellations.
And as our wholesale business approaches our peak period, and we begin shipping higher volumes of product it will be increasingly difficult for our E commerce business to compensate in the same proportion we saw in Q1 with a continued disruption of the retail landscape.
Our gross margins, while we saw a meaningful improvement in the first quarter. We don't anticipate these channel and brand mix dynamics to continue for the balance of fiscal 2021.
As the wholesale and distributor proportion of the business will increase.
And we May also see promotional pressure in the marketplace as we move into the peak holiday timeframe.
Expenses will continue to be managed tightly as we work to preserve liquidity, but we will use the success, we are seeing to dial marketing up as appropriate to continue driving consumer engagement.
And we will face higher costs related to distribution fulfillment as additional safety measures and higher labor costs will be incurred.
So as we looked at the remainder of the year. We recognize there will be continued challenges ahead, resulting from the new realities created by the co. Good 19 pandemic.
We are managing through these challenges that includes social distancing measures in place at our Marino Valley and third party logistics distribution centers.
Our critical focus is on maintaining employee safety as we are addressing increasing demands on our fulfillment capabilities.
This will ultimately result in the organization facing higher expenses to ship less product to help mitigate some of the workload impacts related to these challenges, we're partnering with wholesalers to potentially shipped some product earlier, which could result in the cadence of revenue looking different than previous years.
Additionally, given the ongoing economic pressure, we do not yet know how our core product we will sell in this environment consumer sentiment looms large as a tough variable to predict in this uncertain economic environment with higher unemployment uncertain government action and the potential for further shutdowns, we remain cautious in our.
Broached the planning the brand peak season.
I'd also highlight that August still facing brand he challenges internationally interactions to reset the European marketplace will continue to be a drag on fiscal 2021 revenue.
With the first quarter now behind US we are encouraged with our performance and are still in a position to play offense with our healthy and in demand brands, but will remain diligent and course, correct where necessary as we stated on our May earnings call. The strategic approach, we have outlined to manage our business through this pandemic is it.
Acted to result in short term pressure on operating margins.
But we maintain belief that this strategy will best enable our brands to emerge in the position of strength as we move beyond the pandemic.
Thank you and I will now turn the call back to Dave for his closing remarks.
Thanks, Steve as I reflect on the quarter's performance I remain encouraged by the power of our brands and their ability to capture consumer demand online.
While myself and the management team are aware of the tough Road ahead, we believe the foundation of our operating model provides organization a unique opportunity to build market share as others are forced to take a more defensive approach.
We plan to build on the first quarter success of our ecommerce and digital platform to accelerate gains in the channel continue fueling the HOKA brands momentum and build awareness through digital engagement with consumers.
Protect the marketplace management progress, we've made and Oh by leaning into key styles and converting newly acquired customers to repeat purchases and stay true to the Deckers organization values by innovating and developing creative solutions to challenging marketplace conditions.
Our company brands and balance sheet are well positioned to manage through this crisis.
We will remain flexible to adapt to changing circumstances and make decisions in the best interest of our brands.
I'd also like to take a moment to recognize our longest tenured board members John M. given as he plans to retire in the current quarter.
I want to thank John for his 20 years of service on our board of directors John's contributions, including his time as our chairman and his leadership of the audit Committee have helped build the successful organization that we have today John's leadership will be missed and I'm thankful for his continued friendship.
As we make this announcement John asked me to express his gratitude for the trust and support of Deckers stakeholders throughout his many years of service to the organization, we wish John the best in his retirement.
Before handing off to the operator for Q Nay I'd like to acknowledge the social movement happening across the United States over the past few months the foundational belief of the Deckers organization is better together, our core values compel the organization to take an active stance against racism discrimination and intolerance of any form.
Deckers is an anti rates this organization and we are actively taking steps to become better allies through continuous evaluation and improvement of internal practices investments in education, and continuing to build a more inclusive workplace.
Thank you to all of our employees for their exceptional efforts and commitment to our strategies on behalf of Deckers I hope everyone stays healthy and safe.
With that I'll turn the call back over to the operator for QNX operator.
Okay.
We will begin that question and answer session. Please.
Please limit yourself to one question and one follow up.
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Our first question is from Camilo Lyon.
BP I can't go ahead.
Thank you good morning, good afternoon, everyone. How are you.
Good.
Doing well thanks to unwell so.
So thank you for all the detail and they shop on the court on the tough environment.
I guess I wanted to for first focus on.
Last call you talked about mid quarter performance at the legal is down mid single digits.
He added that ended the quarter down 10.
And then you also talked about some forward shipments that what moves into this quarter. It sounds like as you're trying to alleviate some of the burden than your Tc.
Could you just articulate a little bit more around what happened in the quarter and if at all that's influencing how retailers are viewing their fall into orders.
With you, particularly domestically.
In light of the backlog I think last time being flat.
Right, Yes, Camille I'll take that one.
I think as we look at what happened in Q1 and.
On the business, we were down and that was really driven largely by wholesale being closed for the good good portion of the quarter and so we thought thing really.
You know kind of ramp backup in the business in terms of.
What we were seen in I think thats, what led to a delivery in the quarter, a little bit better than kind of where we were at call. It mid may. So we finished the second half a quarter little bit stronger the reference that we're making in terms of you know the second quarter, which is typically a high wholesale sell in quarter.
The cadence of that quarter tends to be more back half Q2 loaded so thats really when we see historically the wholesale accounts.
Beginning to take their orders.
We've been working with them to you know in light of the social distancing and capability.
Issues that we're going to have at our Dcs to take things earlier, we're beginning to see some of that take hold so.
In Q2, we are beginning to see some wholesalers give us signals they are taking product earlier.
We expect that to kind of continued through the quarter and thats, where it changes the shape of the quarter a little bit.
So we'll see how that how kind of how that plays out. It is all part of our strategy of taking some of the pressure off the peak period that will allow us to be more focused on.
Fulfillment of our DTC channel.
As well as potentially if we're able to get a follow up orders on the wholesale so.
It will work in progress.
Think we've seen a strong start to the second quarter. We know this year looks different than last and we're just trying to smooth that out where historically again, we feel a lot of pressure on the back half of the quarter, we're trying to smooth out some of that out to the earlier part of the quarter.
Got it that's really helpful. Thank you and I guess the second question.
Relates to really the expense management and the shift some marketing.
Similar sort of UBS line of questioning.
You know the maybe if you can just highlighted how much of that Mark was marketing pushed out I guess is that that's probably going to be concentrated in the second quarter second fiscal quarter, maybe early third quarter.
But just a sense of what that is and then.
From a higher level.
You know the ability to to.
Hey, good expenses down like this.
You know is there something that you realize that you have become more efficient where they can start to carry forward more.
Going.
As we go through the year. This year next year in years beyond to create a faster leverage coins.
In the business model.
Decamillo I'll take that one so a few things just on marketing. The first thing that was really encouraging for US is we found that our demand that the demand for our brands was was very strong, particularly and HOKA and so we were able to actually pulled back on some of the marketing spend.
As the demand for online.
Business is already there a couple of other things. We did is we due to the social this is saying there was a lot of creative work that we would normally do in Q1 that we just weren't able to do in this environment, but we did shift a lot of the marketing dollars to top of funnel and more PR related and user generated content. So.
I think the teams have done a phenomenal job being flexible an agile and really managing the efficiency and effectiveness our marketing spend that I think that was demonstrated.
Pretty solidly in Q1 with their ability to ship to be of the moment with the conversation that's going on amongst our consumers to shift the marketing spend on a daily sometimes hourly basis to maximize return and then just be smart with where we're investing it to make sure we're getting the spend and it's worth our time in Q1 and what we found is.
There was some opportunities too.
Keep that powder dry for later in the year, particularly Q2 in Q3 with the strengthen the demand of our brands there in this environment. So.
We're going to continue to use that as a lever to adjust spend and profitability as we go forward.
But as we said before we're going to continue to use this opportunity to invest in our brands and drive the power those brands and growth with the goal of creating more awareness consideration in acquisition and also taking share.
And then just also Camille on that point aside from the marketing we indicated that.
Large portion of the savings in the quarter was related to travel will be able to continue to save that kind of in the current environment.
But it will be.
Offset as we talked about in the prepared remarks with increased costs related to our fulfillment.
And DC cost, so you're going to see as Dave said increases.
In Q2, Q3 related to marketing as we invest in that and redeploy some of those Q1 dollars.
Worth see higher costs related to fulfillment and distribution center costs, and we will have some savings related to reduced travel.
Okay. So overall, we should expect to continue to see as you know dollar growth for the balance of the.
I think thats farewell to probably look at it.
Yes in line with other this trend, but we do have the availability in certain areas to flex.
Depending on the on the business trend, but theyre the ones that we do need to make sure. We spend is on the DC to be able to deliver product to our customers into our account.
And then just a follow up on my first question I don't I don't I was just just was there any change to the order book as you as time unfolded since the last call and and stores reopened then.
Wholesale partners that a little bit better sense of demand not only in Maryland storage on their online channels, but demand for your brand.
Yes, I would say Camille first into the demand for the brand still remains very strong we have seen some counts.
What are they.
Inventory in their stores they have to folks that had omni channel capabilities, where they could ship from store they depleted the store inventories, but since there to slow to open reopen those stores as some of them not open at all yet.
I haven't had to refill the inventory at a store level there maintaining it obviously for their ecommerce business, but that's another dynamic that we're gonna have to keep a close eye on.
As we move through the quarter.
Got it thanks, so much guys. Good luck.
Right.
Our next question from Jonathan Komp some back go ahead.
Yes, hi, Thank you I wanted to start their first thought as inventory just a follow up.
I want to ask about how you're feeling about inventory levels across the product lines for prerogative and OCA, maybe it looks like a few areas a line that better light today and just.
As a follow up to the order dynamics are you seeing retailer trying to shift some of the risk back to you in terms of hoping to chase business later in the year.
Just any color there would be helpful.
Yeah sure John.
As we look at inventory clearly we're pleased with.
8% kind of production.
Coming from.
And that's really as you said kind of driven by the strong performance that we've seen online so product resonating with consumers and selling through very well online.
The you know we have increases in HOKA as that brand continues to grow very rapidly we want to make sure we have inventory to support the growing level of sales. So we've seen an increase in inventory related to the HOKA brand.
I've been in reference of where you're seeing some product then this year. What we have done is intentionally shift more product to later last year, we were receiving product earlier.
So from a timing perspective, we're going to see inventory coming in a little bit later this year versus last year, that's contributing to the improvement and lower inventory that we're seeing this year. So from an overall inventory position, we're comfortable with where we're at.
We've got inventory to support the level of sales that were delivering and you know, it's making sure we're bringing product in where we see that picked up in sale. So that's been an area of focus.
And in cases, where we are bringing more inventory and to support the level of online sales that we've been seen so feel good about where we're at and we're continuing to manage it very closely.
Yeah, and then just to add in on the wholesale shift or shifting risk to us I mean, we are seeing a.
Bigger demand and drop ship and that's something we're evaluating closely from a cost and.
Effectiveness perspective.
And then wholesalers are also cautious so they're they're making sure that they're only bring in inventory if and when they need it certainly.
Okay, and even Teva, our strong brands in their portfolios and there's still a lot of demand.
But they are being more cautious overall and managing their inventory levels between stores and warehouse for ecommerce.
Yeah and related to that John just on that too you know as we talked about again prepared remarks, you know we're working with wholesale accounts so to your point yes.
Some would like to differ but given the current environment that we're operating and limited capabilities that we potentially havent Dcs, we are encouraging wholesalers to take that product earlier, because it will be hard you know if they try to push it off to our peak period, and we're fulfilling a direct to consumer sales at the same time.
You know, it's going to be hard to do that so we're working with them.
We're getting positive I would say response in terms of a willingness to actually take some product earlier this year.
Okay, Great and then maybe more of a product focused for.
The second half the calendar year here.
Just curious first on not arguing the core because and as.
Dave if you have any thoughts to share on.
Headwinds or Tailwinds that you see yeah as you look at the business.
And then more broadly part for I'll get HOKA, just some of the extension more towards lifestyle that you.
You've talked about him about the apparel side can you just give an update on plan for both of those and what you're expecting.
Yes happy to you know, it's really interesting to see the shift in categories within the UGG brand and traditionally as you all know we've been.
Traditionally heavily reliant on the core franchise.
And obviously this time of year the businesses smaller.
Particularly driven by core so we've seen a significant shift with the phenomenon of the flood franchise I do think that.
Has somewhat created this this slipper sandal hybrid category that we're seeing tremendous success, then we're going to continue to drive that we're chasing inventory.
And colors, there's an incredible amount of new product iterations and colors continuing to drive throughout the quarter, we're expanding that into spring and summer next year. So that is a category that we're going to go after aggressively and continue to dominate that category.
And whats great about it is we're seeing a younger more diverse consumer.
Dot thing that category, particularly online. So that's very very encouraging as you know we've been working at spring and summer for some time now we now have an honorable position in there that's resonating, particularly in the U.S. is starting to hear gain leg and international.
Classics this business is still important.
What we have done with the back half of the year as reduced inventory and things like fashion boot, we're still expecting people to be working from home and going out less than more reliant on comfort at home.
We do think that work from home and we'll have that probably could have I should say a positive impact on the classics business that people are more casual and I just wanted to get outside.
But we're continuing to manage the mix of categories and inventory.
And feel really good about the trends that you're starting to see within these new developing category.
As far as lifestyle actually both HOKA and did have good sell through their lifestyle product in this quarter. Although both are very very small for us this time of year.
But we are encouraged by what we saw in HOKA with the catalog drop and a reaction to that and some of the product online. So theres a good signs of opportunity there for the HOKA brand and then we have a significant our most significant lunch I would say ever this fall for Doug with some new product that we think is going to be pretty exciting.
Compelling and you'll see that in partnership with Nordstrom and select doors.
And our flagship store that we'll be opening in the tail end of the calendar year on fifth Avenue and certainly on our ecommerce site. So.
This year is really about you know test the waters fuel kind of reaction, we get from some of the new products and lifestyle and for both HOKA end, Doug and then ramp up from there, but so far we're optimistic about the potential and what we're seeing in the reaction to the consumer.
Okay. That's really helpful. Thank you.
You bet.
Our next question.
Net cash from Wells Fargo go ahead.
Okay.
Hey, good afternoon, guys. Thanks for taking my question.
Hi.
Ill, let ask about HOKA.
You said that you would expect the growth for the balance of the year to be slower than what you saw on one.
Which sounds a little counterintuitive given.
Yes.
Impact.
Q1.
I would think that.
Well normal wholesale environment.
Well to do better.
About the air so.
Is there any particular reason why you would think that Alco would slow and then also just I'll ask about the the tough split Dick's sporting goods.
Okay.
Yes, so I think at this point, we're very pleased obviously with the results to poke at this quarter performed better than we expected back in May we were talking about it.
The success of the HOKA ecosystem, which we call it which is really about balancing strategic access points for our consumer with.
The account and staying focused on a reduced are tight distribution at wholesale and then really leveraging that to create awareness and excitement, but ultimately driving consumers to our website.
That we can cultivate for the long term.
We're going to continue down that trend I think what you see in the rest of the year is reflected in how we've talked about is just the uncertainty that we.
In the environment with regards to wholesale I still think we can drive excitement and ER revenue in E commerce, but on a global scale. The wholesale is still the area that we're still cautious about slid brand has also delayed a couple of the product launches and to make sure that.
We can execute and keep the marketplace clean due to some of the store closures in wholesale that's serving us well I'm sorry, we're still optimistic we're still planning on having a growth here, but we're just being a little bit cautious with the uncertainty on how things are going to pan out in the back half of the year.
For that France, but still certainly strong important brand for for our wholesalers those that can open stores and have an online business.
But continuing to drive the ecommerce business as a priority.
With regards to Dick's, it's going very well its been about 11 stores right now that's what we're taking a slow cautious approach, which we want to focused on high sell throughs.
Quality sales with the that partner.
And again, it's something we're Ericsson continue to evaluate but its after good start fixes happy where Harvey and we'll evaluate that within the mix of ecosystem go forward.
Okay, Thanks, very much and stuff like right.
You bet. Thanks.
Our next question.
Sam Poser from Susquehanna. Please go ahead.
Good afternoon, Thanks for taking my questions public through his great. A couple of things. One can you give US you mentioned it with dogs did you give us the wholesale.
Or the direct to consumer year over year increased five grams. Please for the quarter, although I have a couple of more.
The wholesale you said the Doug.
Brandon gave you gave US you gave us the of the Oleg wholesale you gave us the wholesale increase in her prepared remarks could you give us the wholesale revenue increased for the balance of the brown.
For our non dog brands is what you're asking for right for Teva Hocus, the nuc and the other and other yes.
Yes sure so.
Poker was up 10% on the on the wholesale.
Teva on wholesale was down 30%.
Right.
So it was down wholesale 50% and other brands was small to mid it's nothing small dollars.
Okay. Thank you.
And then could you.
Can you give us a little more color on this.
Shifting shift.
And our you give and and in order to get the.
Retail or are you are you having them take not only goods earlier in the quarter, but are you trying to have them shift some receipts from Q3 into Q2 as well.
And are you working with them by giving them extended dating on that product in order. So they go with it.
Yep, Yeah, so what were.
Kind of yes to all the involved what we're doing is within the quarter, we're trying to move things earlier, right, which which we're working on and seeing some.
Progress on that front. Additionally, as we get into Q3 were encouraging them to look at taking deliveries in Q2, that's still a work in progress we're continuing to work on that and you know where we're seeing a willingness to take product earlier.
We're working with them to help facilitate that.
So and it really kind of depends on the circumstances and the customers but.
You know, where we can get them to take it earlier, we're definitely willing to provide and work with them and accommodate in that.
So if we think about that the two quarters separately for wholesale.
From a like from a year over year basis do you expect.
Q3 to be.
Like better, but I mean.
Down because of the shifting down less than Q4 or up less or however, you ought to look at it then I mean, sorry, Q2 publicly Q3.
Board on how should we think about that sort of between quarters without telling US you don't want to guide, but I mean should we think about.
Q2 out of year over year basis, being better than Q3 or vice versa.
Yeah. So again looking at the quarters I think without giving guidance just how we're looking at because we don't yet know how much traction we're going to get in terms of how much of that product may shift out of Q3 Q2, ideally what we would like to see is more product then say what you saw a year ago kind of coming into Q2.
Which would be then a lower for that business Q3, So that October through December quarter. The more we can get moved into Q2 are our September ending quarter. You know we would like to do we don't know how successful we're going to be at that.
Clearly wholesale customers want their product, we would like them to get it and make sure that they have it and they are ready for the selling season. So I can't answer that question. You know Thats why were part of the reason, we're not giving guidance, but we are trying to move more of that Q3 wholesale into Q2, where we can't.
And two more things that's that's one because you want to make sure you're going to handle the direct to consumer during the holiday number one that's number one and two on a separate issue.
Good news, where how where are you on chasing that very strong slipper in slide business with dogs right now and.
I, just where are you with that because I feel that the man you also talked about the amount of their big bird good.
Yes. So we just couple of things in that Tim I cant underscore enough the importance of us focusing our Q3 D.C. efforts on our ecommerce business. The spike that we expect to get an ecommerce had a short period of time the last call. It six to eight weeks of the calendar year.
Got to be intense and with social distancing challenges in our Dcs, we really need to get as many wholesale out quarters out as soon as weekend. So we're we're hopeful that our partners will be supportive of that we're seeing success. There, but this is such a hard year to call with regards to timing and what's going to happen in the quarter.
So we're doing every everything we can to make sure that that happens, but we're really trying to make sure that were ready and able to service ecommerce business.
That peak period, because it's so critical and a lot of handling on the individual orders with regards to the fluff franchising I'd say, we're in pretty good shape. We we were bullish on this from an order perspective, we've been supporting this category shifting inventory in our buys from other categories into this.
As well as I said, there's a lot of new newness coming in drops that will help fuel the excitement and and demand. So we do feel good about our position on that certainly the demand is is very high and that's super exciting and we see that continuing not just in Q2 in Q3, but also into Q4 as well.
Thank you very much because in the success.
Thanks, Sam Thanks.
Our next question James So from you'll be yes go ahead.
Great. Thanks, so much if I wanted to ask you about hoping you mentioned youre pleased with some of the growth you saw in Europe and.
Some of the storytelling there was sort of a factor in that can you just talk a little bit about those stores you're telling it.
Some of the size of Coca Europe, now and what you see the prospects are for future growth going forward.
Yes, essentially what we were seeing in Europe is a few things. One is we do have an emerging and strong E commerce business, there, but it's still small in comparison to the U.S.
E Commerce internationally is something that we're focusing on and really trying to build the growth percentages there very strong, but it's still small or is this a little business. We did mention distributors in the.
In the script, we have a very strong distributor in the northern part of Europe.
I've been less affected by the co that situation. So their orders are still strong.
In helping in the quarter.
But the brand is certainly resonating we launched the Clifton edge this last month.
Europe was very successful with that launch and there was great demand for that product over there, but essentially what you're seeing globally really not just Europe is executing on a playbook. That's a brand has put together.
What that really is reaching a diverse consumer through real life stories of art of our users.
There were a championing individuals' athletes.
Who are making bold statements in the world than in their lives and using HOKA to improve in change their lives and we're letting them tell their stories and we're partnering with people, who do that for us and so thats, creating.
A great level of awareness across a broad range of consumers and tapping into an emotional connection that is really powerful.
And we said from day, one we'll let the consumers speak about the product and let them talk about how it's affecting their lies in the performance of it.
Thats the formula that is resonating so we're continuing to do that with our fleet humans have HOKA storytelling.
Nothing into the virtual Iron man.
Some of our athletes and leveraging even some of the smaller running groups than on a local basis to use their content and their storytelling to really spread the word of the brand and create the authentic and meaningful connection with the consumer that were safe.
Got it thank you so much.
You bet.
Our next question is from Paul Quinn from Citi.
Research go ahead.
Hey, guys, Paul that's right and take questions. One I guess can you talk a little bit about the state and HOKA inventory within the specialty channel on how your retail partner, we've been able to sell through product as as their stores.
Reopen and then second you did mention the expect further channel challenges as a result of comment or are there any that did not show up and one Q that you're already seeing in Twoq you in terms of challenges over that more of the general statement being cautious.
Yeah I'll take the second one first I think.
Some of the challenges.
We thought we would see we didnt necessarily see it and I think what we are saying we talked about this in the script is.
I would call. It is there's an acceleration to the fluff franchise and HOKA and also Teva.
Given the work in home work from home environment, where people either from a perspective, you don't want to be comfortable and are seeking out footwear that is comfortable that still stylish.
But also they are trying to get outdoors and be healthy again, whether that's running or whether that's hiking or camping are going on family trips and national parks.
This has been an accelerator I think for both HOKA and have at the same time as Doug. So that's a dynamic that we saw our emerging but it proved to be a lot more powerful than we thought.
And so I definitely think we're benefiting that but certainly [noise].
If we didnt have the product that the brands created any innovation that we put into the marketplace.
Along with the emotional connection in the marketing, we wouldn't be able to capitalize on that so I think the brands have done a phenomenal job of taking advantage of the situation.
Being sensitive to the moment and connecting with consumers on an authentic and personal level.
In driving the health of the brands.
As far as HOKA inventory in the channel you know early on that HOKA team did a great job of pushing out deliveries so that the wholesale partners could sell through existing inventories they wouldn't get stuck with it.
And there have been very focused on executing.
A clean marketplace high full price sell through very little liquidation in the marketplace and that is continuing and I'd say the wholesale inventory situation for HOKA.
As well as or other brands as well, our very strong very healthy and not a lot of Mark downs, but again, we're cautious going forward.
Because we think the environment is still going to be very uncertain, but right now as it stands the marketplace wholesale.
Inventory is healthy and strong.
Yeah, Glenn ball.
Also just to add onto that you know I think.
Kind of what we're talking about too.
Keep in mind that the significant increase in volumes that were starting to talk about so no. One difference between Q1 and kind of later Q2 in Q3, we start getting into significantly higher volumes and so thats, where we want to make sure. We're in a position to be able to fulfill so when you hear us kind of all the things that were try.
Turning to do it is trying to mitigate some of that.
Peak demand period, and reducing the load on our DC.
Yeah got it thanks.
Okay. That's our biggest challenge crusher and then the other thing to just keep in mind, that's important for but I understand it's just the mix of this quarter versus the rest of the year, it's going to be very different. So it's not only a very different quarter the whole year in the mix of business and how in the cadence inflow of it is going to be.
Something that we haven't seen before but we're feeling good about how we're able to manage through that.
Got it. Thank you guys. Good luck.
All right. Thanks.
Our next question from Kim Bazzi from Stifel Go ahead.
Thank you.
Excuse me.
Sure.
The topic of ecommerce business, especially seeing protocols called giving the operations what are some of the other things you guys are doing to help true capacity as you get into that peak season, and I'm curious if it makes sense to incentivize consumers to purchase earlier as well.
Yes, we're the supply chain teams have done an exceptional job at managing not only the flow of product terminals for production standpoint, but also working with our partners and the sales team on DC bypass, though the the increase that we're seeing in DC bypass versus last year has been significant.
In a meaningful so thats the Super helpful Partners are willing in some cases have shown to be able to take some inventory earlier.
And so those are the tactics that we're using as far as incentivizing consumers to shop earlier, I think with new introductions of product, they're doing that and I think when we get into kind of core classic business that is real business driver in Q2 in Q3, we can look at that but we certainly don't want to get promotional or do incentive.
Is that are going to damage the brand or margins.
At the stake of getting people to shop earlier, but I think we'll get creative around it and just use the effective marketing PR tools that we've developed.
Able to drive excitement at the right times and try to get people to shop little earlier.
Thanks, I also wanted to ask your question, Okay, well, we'll reach it sounds like growth has been very strong with international distributors Historically international said about half the global carriers.
International carrying higher than the U.S. and then.
How do you split the mix for the whole compression of international between Europe and other regions.
Yes so.
From a unit perspective, I think where we're trying to go Jim as we're probably looking at equivalent units right that we have higher dollar revenue in the U.S. because of the distribution channels that we're using versus distributors internationally.
We are we are seeing growth in both.
So the international growth is coming on strong as units are catching up to what we're doing in the U.S.
And then the second part of your question again was.
Hi, this mix shift the international business, that's from Europe versus other region.
Yeah. So Europe is definitely our strongest international region for HOKA, No, Japan smaller market doing very well and you know really just starting to get into China. So Europe by far on the international front biggest than most mature, but still growing very rapidly.
Thank you.
Thanks, Jim.
This concludes our question and answer session.
Okay.
The conference has now concluded.
Thank you for attending today's presentation.
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