Q4 2022 Deckers Outdoor Corp Earnings Call
Potential repurchase of shares.
We're looking statements made on this call represent management's current expectations and are based on information available at the time such statements are made forward looking statements involve numerous known and unknown risks uncertainties and other factors that may cause our actual results to differ materially from any results predicted assumed or implied by the forward looking statements.
The company has explained some of these risks and uncertainties in its SEC filings, including in the risk factors section of its annual report on Form 10-K, and quarterly reports on Form 10-Q, except as required by law or the listing rules of the New York Stock Exchange the company expressly disclaims any intent or obligation to update any forward looking statements.
With that I'll now turn it over to Dave.
Thanks, Darren good afternoon, everyone and thank you for joining us today I'm.
I am excited to share our record breaking fiscal year 2022 results, which include a number of significant achievements.
The first time Deckers delivered over $3 billion in annual revenue and we did so just three years after reaching $2 billion.
In total we delivered fiscal 2022 revenue of $3, one 5 billion.
An increase of 24% over the prior year and nearly 50% above two years ago.
Aligned with our commitment to driving topline growth and healthy profitability Deckers delivered an operating margin just shy of 18%.
Lastly, we delivered earnings per share of $16 26.
Which represents a 21% and 69% increase over last year and two years ago, respectively.
As I reflect on this incredible expansion and evolution of our business over the past two years I look forward to seeing our brands build up this momentum and I'm, even more excited about the runway ahead.
Of course, none of this would be possible without our dedicated employees and exceptional leadership team collaborating to deliver in a difficult supply chain environment, while remaining focused on executing for the long term.
Because of these efforts our performance this year was well aligned with our long term strategies.
Five quality hooker growth.
Further diversify and elevate the UGG brand strengthen and build our DTC business and unlock the full potential of our international markets.
Specifically our progress in these strategic initiatives in fiscal 2022 includes growing <unk> revenue by 56% over the prior year to nearly $900 million.
Which represents 28% of the total portfolio revenue up from 22% last year and 17% two years ago, diversifying UGG revenue and highlighting the brand's success around the core with categories outside of women's classics now representing more than 65% of annual brand revenue up more than 10 percentage points from five years ago.
Leasing DTC revenue by 14% versus the prior year, and 65% versus two years ago, and expanding our international business, which grew 25% versus last year and 34% versus two years ago again, I am proud of our organization for the hard work that enabled accomplishing these exceptional results while navigating an extremely complicated.
<unk> environment looking ahead to fiscal year 2023, we are operating from a position of strength and leveraging the lessons learned over the last 18 months Deckers has incredible growth ahead, and I have the utmost confidence in the consumer demand for our brands and our team's proven ability to deliver on our goals, even amidst a complex macro environment Steve will.
To provide more details on our forward looking expectations later in the call in the meantime, I will share some details about fiscal 2022 brand and channel performance as well as some context around strategy propelling us forward in fiscal 2023, starting with the brand highlights global <unk> fiscal 2022 revenue increased 15% versus last year to $1.
982 billion.
This is the second consecutive year of driving double digit growth success in fiscal 2022 was driven by continued consumer adoption of the brands diverse product assortment as all major categories increased double digits over the prior year men's footwear grew to over $300 million.
After adding approximately $100 million over the last three years apparel and accessories combined increased 47% over last year now representing more than 6% of brand mix at more than $100 million in women's classics continued to drive incremental dollar growth through newness consumers adopting a broader assortment of UGG products is directly related to the <unk>.
<unk> ability to develop new franchises, while innovating existing franchises. The ultra mini is a great example of the latter first introduced in the second half of 2020 as a companion style are related to the brand's core Classic Museum classic short the ultra many has been viewed as something of a sneaker alternative with its greater year round, where ability as it supports it.
Lower ankle high profile, while still very new to the UGG assortment. The ultra many has already become a top five DDC style among both newly acquired and retain consumers and it was just outside of the top five styles among consumers aged 18 to 34 years old. The Tasman is another style that younger consumers are wearing as the stinker alternative the original Tasmin has been around for many years.
Now, but the UGG product team has developed this heritage style into a burgeoning franchise through the infusion of fresh colors, new prints and logo treatments, adding new lightweight and sustainable material options such as our UGG plush blend of up cycle, we'll and plant based <unk> cel for the Tasman LTA. The introduction of the task of fashion, leading platform version and.
Most recently the launch of an innovative rain clog the Tasman X. We are particularly excited about the initial response to the Tasman X, which was featured as part of a broader range campaign during the fourth quarter and received positive coverage in a number of fashion publications, including a few organic consumer unboxing viral videos on tictoc with its versatility year round realm.
Vince and broad consumer appeal, we believe the Tasman franchise can continue to be a key driver of further diversifying and Dcs analyzing the UGG brand from an omnichannel marketplace management perspective, the UGG brand's strategic priorities for the year played out as expected with domestic wholesale driving impressive growth through a diverse product assortment while refilling.
Channel inventories.
International regions growth rate exceeding the U S growth rate for the first time in four years and global direct to consumer increasing mid single digits on top of the more than 30% increase from the prior year. These results are a testament to Omnichannel marketplace management as the brand was able to drive strong growth across all channels. Despite logistics challenges impacting the timing of <unk>.
Liveries and availability of product. This also speaks to the consumer demand for <unk> overall, which remains quite high as evidenced in the fourth quarter, just completed outperformed well beyond our expectations in the fourth quarter as wholesalers accepted later than normal deliveries and DTC shoppers weighted beyond the peak holiday season for availability of key items that have been.
Stock across the full fiscal year 2022, we saw a number of favorable indicators for demand, including U S search interest increasing 9% over last year and 20% over two years ago. According to Google trends 18 to 34 year olds remaining the unbranded largest age bracket of consumers incremental purchases of multiple products at the same time.
By Tasman, New Mel and slipper combinations, highlighting our own for all mantra and an increase in the brand's loyalty program enrollment across every region with nearly 6 million global members at year end as the size and scale of the own rewards program continues to grow I want to highlight a few key metrics that emphasize the value of these loyal consumers such as <unk>.
That members account for approximately 40% or more of revenue in all regions, where the program has existed for more than one year and then members spend approximately 40% to 50% more than non loyalty consumers fiscal 2022 was another strong year for the UGG brand and I'd like to thank the team for their hard work and dedication to delivering back to back years of exception.
Growth on the heels of the growth delivered over the last two years, we are placing an emphasis on maintaining the record levels of brand heat across global markets to do this we expect to elevate the brands through disciplined and strategic global marketplace management prioritize the consumer experience at DTC to build loyalty.
Edit to amplify the assortment driving fewer but more powerful product stories, and attracting new consumers through innovative fashion collaborations I'm proud of the great work. The team has delivered and look forward to continued progress toward our strategic goals in the upcoming year moving on to <unk> global revenue in fiscal 2022 increased 56%.
<unk> versus last year to $892 million with improved supply, enabling the delivery of strong growth in the fourth quarter Hooker drove yet another year of record breaking results with plenty of exciting runway ahead. So Luca team continues to build a balanced business across the brands ecosystem of access points, which has enabled growth in every region across all channels.
More specifically from a channel perspective for the full year HOKA global wholesale accelerated increasing 55% versus the prior year with volume that is now larger than the brands entire business in fiscal 2021, and global direct to consumer increased 58% versus last year with strong gains in acquired and retain consumers with.
The rapid growth in consumer adoption of HOKA distribution management remains a critical component of driving awareness with and attracting new consumers.
On the wholesale front I would note that the majority of growth in fiscal 2022 came from market share expansion with existing run specialty and outdoor retailers versus opening new points of distribution while.
<unk> has opened new distribution with strategic partners and even expanded door counts with these accounts in certain instances. The brand continues to be highly disciplined about expansion OCA has a superb group of wholesale partners, who have continued to support the brand strategic vision enhanced brand credibility and awareness with core consumers and helped broaden the scope.
Consumers that hooker reaches further to that point I'd like to provide a little more context around the HOKA brand's growth opportunity at wholesale in the upcoming year and beyond which includes quarter. Our brand strategy building market share in run specialty while in certain locations Hooker has ground to the number one or two brand we have identified several regional growth opportunities.
In pockets of the U S as well as overseas.
Volume expansion with strategic partners that have opened in the last two years with the opportunity to increase door counts overtime and opening a select number of doors with new strategic accounts. One of these new strategic relationships I'd like to highlight is foot locker.
OCA in foot locker have shown mutual interests for several years now and over that time created a distribution plan that aligns the interest of both parties. We are excited to be opening HOKA, an unlimited number of foot locker doors, beginning this summer with the intent to increase the brand's exposure with young consumers in key markets, where <unk> is lacking presence with existing distribution.
We know from our experience with the foot locker team has a clear perspective on their consumer and believe this valuable partnership can have a considerable impact on HOKA awareness with the 18 to 34 year old audience complementing the hooker wholesale business. The brand's direct to consumer channel has continued to acquire new consumers as well as drive repeat purchases with existing.
<unk> in fiscal 2022, HOKA global direct to consumer acquisition increased 50% versus the prior year and retention increased 62% versus the prior year, while acquiring new consumers is an important metric as we expand hooker awareness, increasing customer retention as a critical component of maintaining brand strength and building loyalty.
Ultimately DTC is where hogan can best showcase the breadth and newness of the brand's innovative product assortment, including apparel and provide a convenient consumer experience to drive repeat purchases over the last year Hooker drove a more than 40% increase in the number of consumers, making multiple purchases as well as those purchasing across multiple categories. The whole.
<unk> remains the primary acquisition point for new consumers. The HOKA brands digital marketing Activations are also driving GTC acquisition with targeted consumers.
The specific focus on the 18 to 34 year old consumer the HOKA brand's digital tactics have been successful in growing the mix of these consumers by two percentage points over last year and six percentage points over two years ago. <unk> is also seeing a fantastic consumer response of the brands pop up retail locations, New York has been our strongest performer.
But we're also excited about the recently opened pop up store in Chicago, and a relocation in Los Angeles, where we opened a store in Venice, California.
We believe <unk> can deliver a premium experience at retail locations by showcasing the breadth of the brand's product offering and driving community engagement over.
Over the longer term, we see an opportunity to open a limited number of permanent locations in key cities around the world, including our first U S location in New York City by the end of fiscal 2023, the HOKA brand's new strategic wholesale distribution targeted digital marketing Activations and pop up retail stores in key markets are collectively designed to accelerate consumer <unk>.
Acquisition around the world through increased awareness.
Our integrated approach to managing <unk> distribution continues to serve the brand well and driving balanced global growth across the HOKA ecosystem of access points.
On the product front HOKA continues to develop an assortment designed to ignite interact fleet within all humans. The brands inclusive approach to product management includes evolving heritage franchises to be accessible to all types of athletes elevating performance.
Performance through new innovations and expanding the consumer audience through new categories.
<unk> made progress on all three of these strategies in fiscal 'twenty, two by introducing the Bondi X, which is both an evolution of the heritage Bondi style and an elevation of performance with the addition of a propulsive carbon plate to the brand's most cushion drive.
Rail blazing with the all new speak up five the lightest and most Grippy version of the brands number one trail shoe.
Reinventing the mark using a lower profile outsole it delivered soft cushion with an up tempo ride built for speed and capable of being an everyday trainer.
Disrupting the hike category with an a cap a franchise, which is a performance hiking shoe that feature and sneaker like comfort and launching the all new <unk>, which is designed to seamlessly transition from gym workouts to daily runs to casual wear and I'll hook up continues to develop a compelling product assortments that has built with all types of ethylene some mind share.
The spectrum of performance front is to extreme hikers and trail explorers as well as those looking for everyday all day comfort I want to congratulate the <unk> team on delivering another phenomenal year of growth, which we expect to continue in fiscal 2023 through continued market share gains with existing wholesale partners expanded awareness with new consumers at the <unk>.
<unk> launches its first major global marketing campaign later, this summer driving acquisition and replenishment activity through our direct to consumer channel and introducing innovative products with the brand's signature hunker rod turning to Teva global revenue in fiscal 2022 increased 17% versus last year to a record 163.
Million.
Growth. This year was driven by the brand's leadership and sports sandals and progress building share in closed toe categories highlighted by the success of the hurricane and the remember franchise. Our wholesale drove the majority of growth for Teva in FY 'twenty two the brand was able to comp the exceptional DTC growth experienced in the prior fiscal year success at DTC was driven by a significant.
<unk> increase in retained consumers, which the brand we will look to replicate in the upcoming year shifting to cooler Bora global revenue in fiscal 2022 decreased 9% versus last year to $69 million.
Due to the disruption of wholesale deliveries that resulted from pandemic related bottlenecks. Despite this the cooler bar brands DTC business increased 35% over last year is now three times the size of DTC volume two years ago, and finally <unk> global revenue in fiscal year 2022 increased 3% to $43 million. We are pleased with.
The brand's performance driven by a greater mix of full price business and an increase in higher price point items with respect to channel performance in fiscal year 2022, both wholesale and DTC drove double digit growth over the prior year, reflecting the strength of our Omnichannel brand management for the year global wholesale revenue increased 31% over last year and 39.
Percent over two years ago with four out of five brands posting double digit increases. This year wholesale dollar growth was primarily driven by the momentum of global HOKA as the brand continues to gain market share refilling the marketplace inventories for domestic accounts and the UGG brand's international markets returning to growth benefiting from the marketplace reset.
<unk> over the past few years that cleaned up distribution in EMEA and localized product and marketing strategies in China. Overall wholesale revenue represented 61% of total revenue, which is up from 58% last year, but down from 65% two years ago.
We expect to drive continued growth through wholesale working with best in class partners, who are showcasing our brands and attracting new consumers around the world from a direct to consumer standpoint revenue for the year increased 14% over last year and 65% over two years ago to $1 2 billion we.
We experienced year over year gains in both physical retail as we lapped closures during the prior year and online where we have focused our investments to drive new consumer acquisition and increase retention importantly, our DTC business is growing globally and across multiple brands as both domestic and international DTC increased double digits over last year and.
Four out of our five brands experienced growth on top of the exceptional increases achieved in the prior year with HOKA and our accounting for the vast majority of dollar volume gains with that I'll hand, the call over to Steve to provide further details on our fourth quarter and fiscal 2022 financial results as well as our initial outlook on fiscal year 2023, Steve.
Thanks, Dave and good afternoon, everyone as you've just heard our company's performance in fiscal year 2022 was outstanding as we drove top line growth above 20% and maintained top tier operating margin in the high teens, despite increased costs, resulting from global supply chain disruption.
<unk> has added just over $1 billion to revenue in two years driven by the strength of demand for our brands, specifically HOKA, which has grown more than 50% for three consecutive years, and which has increased double digits in back to back years.
Our long term strategies have continued to provide a strong foundation for driving profitable growth and we are proud to maintain exceptional operating margin levels. We believe that with continued investment behind our key strategies Deckers can drive profitable growth over the long term.
Cited about the year ahead, but first let's get into our fourth quarter and fiscal year 2022 results.
In the fourth quarter revenue was $736 million up 31% versus the prior year growth was driven by improved hooker inventory availability that allowed the brand to deliver both record quarterly revenue of $283 million in full year revenue that was above the high end of our guidance range.
Better than expected outperformance as we saw an extension of the holiday season with consumers willing to wait for delayed DTC shipments of product in high demand.
And fewer wholesale cancellations due to the continued strength of the UGG brand as accounts showed a preference to hold greater levels of key seasonal inventory as a hedge against future potential supply chain disruption that could occur in the upcoming year and as a result, we expect this to impact <unk> orders in this coming fall gross margin in the fourth quarter.
<unk> was 48, 7% a 450 basis point decrease from the prior year period.
The lower gross margin was primarily related to an approximate 490 basis point impact primarily from increased ore usage and higher ocean rates unfavorable.
Unfavorable channel mix as wholesale growth outpaced DTC and unfavorable foreign currency exchange rates with partial offsets from hooker margins benefiting from price increases and favorable brand mix.
<unk> for the quarter was $277 million or 37, 7% of revenue versus last year's $244 million or <unk> 43, 5% of revenue.
The increased spend was primarily related to higher headcount marketing and performance related compensation.
These results along with a lower tax rate and share count resulted in diluted earnings per share more than doubling last years at $2 51.
Our fourth quarter results underscored the exceptional performance demonstrated by our brands throughout fiscal year, 2022, where deckers eclipsed $3 billion of revenue for the first time.
For the full fiscal year 2022 revenue increased 24% versus last year to 315 billion.
Our company added over $1 billion in top line revenue over the last two years delivering a nearly 50% increase over fiscal year 2020.
As compared to our guidance revenue was $90 million above the high end, primarily due to outperformance in <unk>.
Revenue growth versus the prior year was driven by our two largest brands has increased 15% to $1 92 billion.
With growth, primarily driven by wholesale refill in the U S and a return to growth within the brands International regions as we signaled at the outset of fiscal year 2022.
And <unk> increased 56% to $892 million with growth driven by all global regions and channels of distribution.
Gross margins for the year were down 300 basis points versus last year to 51%. The decrease in gross margin was related to an approximate 370 basis point decrease from freight primarily due to increased <unk> usage and higher ocean container rates and unfavorable channel mix as wholesale growth outpaced direct.
Consumer with partial offsets from a greater mix of hunker revenue fewer closeouts and favorable foreign currency exchange rates.
For the full fiscal year, we incurred freight costs that were more than $100 million above the prior year, excluding the impact of higher volumes.
SG&A dollar spend for the year was 1.043 billion.
Up 20% versus the prior year $870 million.
SG&A represented 33, 1% of revenue in fiscal year 2022, as compared to 34, 2% in fiscal year 2021.
Higher dollar spend was primarily related to increased marketing to build global awareness of the UGG and HOKA brands increased compensation cost per added head count to support our scaling organization and higher warehouse costs to support the growth of our brands.
This resulted in a full year 2022 operating margin of 17, 9%, which is at the high end of our original guidance range of between 17, 5% and 18.
Despite the freight costs being well above what we anticipated at the outset of the year, we were able to deliver this operating margin result through disciplined management of variable expenses.
For the year, our tax rate was 20%, which compares favorably to last year's 23, 7% tax.
Taxes were lower this year, primarily as a result of certain discrete tax benefits recognized in the fourth quarter and a higher proportion of international revenue.
With these results Deckers delivered another record diluted earnings per share of $16 26, which compares to $13 47 in fiscal year 2021. This result is more than $1 above the high end of our guidance range due to the strength of our fourth quarter the $2 79.
Increase as compared to last year was primarily driven by global Hawk and Hooker revenue growth net of increased marketing a lower tax rate a lower share count, reflecting the benefit of our most aggressive annual share repurchase to date.
And favorable foreign currency exchange rates on net revenue with partial offsets from higher freight costs from both airfreight utilization and climbing ocean rates higher compensation costs with increased head count.
Greater warehouse costs and variable expense growth in line with revenue growth.
Turning to our balance sheet at March 31, 2022, we ended the year with $844 million of cash and equivalents inventory was $507 million up 82% from $278 million at the same point in time last year and up 63% versus two years ago more closely aligned with the sales.
Both are 48% for the same period.
And due to the significant increase of ocean freight rates in the second half of fiscal year 2022. This inventory includes approximately $50 million of embedded incremental ocean freight and during the period, we had no short term borrowings for.
For the year. These results returned to invested capital above 35%.
During the fourth quarter, we repurchased approximately $90 million worth of shares at an average price of $292 51.
For the entire fiscal year 2022, we repurchased over 1 million shares for approximately $357 million at.
At an average price of $341 77.
At March 31, 2022, the company still had $454 million remaining under its stock repurchase authorization.
Before moving to our outlook for fiscal year 2023, I'd like to provide an update on the status of our logistics network and the actions, we're taking to mitigate any macro supply chain impacts on our business.
Prolonged transit lead times port bottlenecks related to trucking scarcity and ocean container shortages were the most material impact to our business in fiscal year 2022, and we expect some of these pressures will continue as we begin fiscal year 2023.
I am pleased to report that delays and port backlog have improved we remain cautious given the scaling sides of our business risks that current or future COVID-19 outbreaks or other global events have a domino effect across the supply chain and the potential for port labor disruption to occur later this summer.
As such we continue to prioritize receiving inventory into the country of sale and thus expect inventory balances to remain elevated during fiscal year 2023 given.
Given the momentum of our brands and our strong balance sheet, we are comfortable carrying higher levels of inventory to ensure demand will be fulfilled from.
From a factory production standpoint, we've been successful in securing additional production lines with existing partners as well as on boarding new partners. We believe this will support our plan to continue fueling the growth of our brands and anticipate that this new production will allow us to begin to see expanded capabilities and capacities as we ramp into fiscal 2020.
Three and beyond.
On the cost front, we continue to see higher prices across the supply chain, but in some cases, we have seen some moderation from an ocean freight perspective, we anticipate this to be a headwind to the first half gross margins as we lap last year's first half lower costs. Additionally, we've been monitoring inflationary pressures on materials, but Billy.
Leave that impacts from ocean freight and materials inflation can be mitigated by the price increases we implemented for <unk> in the fourth quarter of fiscal 2022 and planned increases for us beginning in fall of 2022.
Beyond that we continue to anticipate using airfreight in fiscal 2023, but almost exclusively for the HOKA brand as we will work to fill production gaps caused by factory disruption, while we will experience savings from less air on the UGG side, we still anticipate using hooker airfreight during the year, which we do not intend to <unk>.
<unk> through pricing action.
With all that in mind, we are taking concrete steps to mitigate the impacts on our business from persistent supply chain disruption, including placing orders and taking possession of inventory earlier for in demand items.
Hearing greater levels of inventory on key styles during this disruptive period.
Using airfreight to strategically position hooker for the global market share gain and improving our supply chain logistics capabilities.
Some of these strategies will increase costs and reduce certain efficiencies in the short term. We believe these decisions support driving profitable top line growth over the longer term shifting to our outlook for the full fiscal year 2023, we expect year over year top line revenue growth of 10% to 11% leading to revenue in the range of <unk>.
345 to $3 $5 billion with OCA growing in the mid to high 30% range, reaching the $1.2 billion milestone on the low end.
<unk> growing low single digits accounting for the wholesale revenue that shifted into the fourth quarter of fiscal year 2022 that we anticipate will sell through during the upcoming fall season in wholesale and DTC growth at a similar rate, reflecting the impact of strategic growth initiatives across our brands.
Most margins is expected to be approximately 51, 5%, which is 50 basis points higher than last year. The increase over last year anticipates less air freight and benefits from select price increases within HOKA and UGG with headwinds from foreign currency exchange rates and continued impacts from higher ocean rates.
SG&A is expected to be approximately 34% of revenue higher spend is primarily related to investments in talent and capabilities to scale the business and remain competitive in the marketplace increased marketing to build global awareness and broadened the brand's consumer appeal and increased travel as markets open up with.
With these gross margins and SG&A expectations, we expect an operating margin in the range of 17, 5% to 18%.
Which is similar to fiscal 2022 levels and approximately 150 to 200 basis points above pre pandemic levels. Despite persistent cost pressures related to supply chain disruptions and aligns with our commitment to remain top tier among our peer group, even as we continue investing behind long term initiatives.
We're projecting a tax rate of approximately 22% to 23% all of this results in an expected diluted earnings per share in the range of $17 42 to $18 and 25.
Capital expenditures are expected to be in the range of $100 million to $110 million.
Which is elevated versus prior years, as we scale infrastructure to align with our growing organization.
Key areas of investment include additional warehouse space capital projects and refreshing certain existing retail stores as well as opening strategic new locations for HOKA and <unk>.
Our fiscal 2023 guidance excludes any charges that may be considered onetime in nature and does not contemplate any impact for additional share repurchases. Additionally, our guidance assumes no meaningful deterioration of current risks and uncertainties, which include but are not limited to <unk>.
Further impacts of the COVID-19, pandemic on our operations and economic conditions, including supply chain disruptions constraints and related expenses.
Labor shortages inflationary pressures changes in consumer confidence and geopolitical tensions.
With continued uncertainty in the world and disruption still impacting the supply chain, we will not be providing quarterly guidance, but similar to last year, we expect to drive full year growth and be profitable in all four quarters with the quarterly cadence will likely be different than last year as we expect more pressure in the first half of the year compared to last.
Some of the items driving quarterly differences year over year include lower gross margin is expected in the first half of the year as compared to last year due to higher ocean freight expense planned.
Planned increases to marketing investments in the first half to support Hooker launching its first major global campaign, alongside new product introductions and hire talent costs related to investing in our workforce and adding head count.
With these impacts and a strengthening U S. Dollar, we expect lower profitability in the first quarter as compared to last year. Thanks, everyone. I'll now hand, the call back to Dave for his final remarks, Thanks, Steve fiscal year 2022 represented another phenomenal year for Deckers as our portfolio of brands delivered revenue and earnings growth above 20%.
We continue to drive progress towards our long term vision to build <unk> into a multibillion dollar major player in the performance athletic space further diversify the UGG brand's product geographic and seasonal mix grow our DTC business through consumer acquisition and retention and drive international markets through strategic investments. These strategies continue.
To benefit our organization's focus enacted the Northstar guiding to continued development of our portfolio of powerful brands, while maintaining top tier levels of profitability, our consistent delivery of exceptional results often overshadowed the progress our organization continues to make in doing good and doing great and the communities, where we operate we have made great progress.
With decades gives us our employees contributed more than 14000 volunteer hours in fiscal year 2022.
D AI initiatives as we've improved byproduct representation among our leadership teams to 21%, which is up from 12% two years ago I'd like to thank our employees for their dedication and hard work that continues to drive decades into the future.
Thank you to all of our stakeholders for your continued support.
Before I turn over the call I'd like to acknowledge our announcement earlier that Wendy Yang will be stepping down from her role as president of performance lifestyle effective as of the end of this hasnt the end of this month.
On behalf of the entire Deckers team I want to thank Wendy for her leadership and contributions over the past seven years with HOKA and Teva and their strongest position to date I am confident in our ability to continue our positive momentum.
I look forward to the future with this talented team and wish when do the best.
While the company conducts the leadership search Stefano <unk>, our president President of Omnichannel will assume wendy's responsibility on an interim basis.
When he will remain with the company in a consulting role through August 15th 2022 to ensure a smooth transition.
As we are now ready to take questions again, I would like to say how proud I am of the Deckers organization and our accomplishments over the past few years, we have delivered impressive results and have built a strong foundation for the future our future opportunities are more exciting than ever and I look forward to the journey ahead with our team with that I will turn the call over to the operator for Q&A operator.
Sure.
Thank you.
We will now begin the question and answer session.
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Please limit yourself to one question and one follow up.
At this time, we will pause momentarily to assemble Iraq okay.
Our first question comes from Mr.
Exane BNP Paribas. Please go ahead.
Oh, good afternoon, and thank you very much for taking my question and congrats on such a great finish to the year.
I wanted to ask about pricing.
When you think about the 10% 11% growth for the year.
Hearing a lot of brands take up pricing.
Should we assume that there is high single digits.
So for this year any guardrails on that would be very helpful.
Yes, Great question generally speaking I would say the best way to think about it is across the board across all brands globally. There is about a 6% to 8% increase on prices heading into this year and it's been surgical by brand by style by region.
But we think that thats.
Right for the brand and gives us upside.
The offset some of the headwinds in margin from freight charges and is in line with expectations in the market and still competitive and we're going to continue to evaluate that and look for opportunities.
We always do but.
Across the board is generally around eight to 6% to 8%.
Very helpful. Thank you very much guys and my second follow up question is with regards to Hookers grosses, Hi, <unk> can.
Can you give us any update on.
On how many doors youre currently at a Dick's sporting goods.
When you said a limited number of doors at foot locker can you just give us some guardrails.
And on that like how do we think about wholesale versus direct to consumer growth I think you've mentioned like wholesale still be the driver, but just trying to put some guardrails around that after the full year's results.
Yes, I would say consistent with the way the HOKA brand has been managed to date very strategic.
Very thoughtful on how fast we go and which counts we grow with Dick's sporting goods. The business. There is very very strong, but we are still in less than 20% of the total doors and not really looking to expand that aggressively anytime soon.
And as you heard in the script. We also have this open foot locker and a handful of stores as well so early days, but we want to as we said all along we want to.
When with sell through we want to be in the right locations with the right partners for our consumers and build a quality sustainable business over time so.
We are looking to expand.
Wholesale, but it's really more in the accounts, we're already in we still see a lot of upside in the run specialty channel, even though in some cases, we may be the number one running brand and have 20% market share in that channel. There is still a lot of upside there globally and then the key partners that we've talked about with Rei Dick's and foot locker we're.
We're going to grow strategically with them in a way that builds a strong sustainable business and target the right consumers overtime. So and then DDC is obviously our main focus in.
The pop up stores that we've done with HOKA.
We're very excited about those we see an opportunity for those locations to grow around the globe.
Strategically as well as we look at our marketplace strategy to augment the awareness that we're building in wholesale but create a really powerful experience for our consumers and get them to understand the full breadth and the excitement of this brand so lots of reasons to be excited.
We have opportunity in wholesale e-commerce and retail.
And we're going to look holistically across the three of those channels to decide going forward, what's the best way to build this brand and a sustainable and strong way going forward, but I will say, we're very proud of the productivity of the doors. We're in globally I think that's a true testament to the strength of the brand. We're yes, we're selling in but the strength of our sell through is what's.
Really exciting for us.
That's great to hear best of luck as you start the year.
Thank you.
Our next question comes from Jonathan Pong with Baird. Please go ahead.
Yes, hi, good afternoon. Thank you I wanted to maybe ask first on the UGG brand just thinking about the low single digit guidance for the year could you maybe just quantify the wholesale timing impact that you called out and whether or not you'd be sort of mid single digit underlying and then when you think of the building blocks for that could you maybe just share more color.
Given the commentary you had.
Some of the brand diversification and strengthening international what you are seeing to give you confidence in that underlying growth.
Yeah sure. John This is Steve I'll go first so on the <unk> Youre right. When you consider what we did in the fourth quarter again demonstration of how strong the brand performed how relevant the brand was we also did see.
Strategic partners wholesale accounts, who took inventory in knowing that they werent going to sell it through in fourth quarter. So as we expect they will carried in knowing that there are supply chain disruptions there.
They are happy to carried into our fiscal year, 'twenty, three which we expected to sell through we do see that more as an impact in kind of Q3 Q4.
And Youre right. So the underlying growth on that is more mid single digits versus the low single digits.
That we were kind of thinking.
Yes.
Theres still a lot to be excited about hug I mean double digit growth two years in a row in this environment and some of the supply chain challenges we've had.
There's still a lot of upside, but we are taking a little bit more of a cautious approach in the short term to kind of make sure that we are resetting appropriately coming out of Covid, but.
When you look at the UGG brand I mean, we're attracting a younger and more fashionable and diversified consumer there is still growth in womens footwear, both in classics and extensions in some of the fashion, particularly in spring and summer.
Men's kids and apparel those all have double digit growth opportunities into this year and beyond we're excited about the reset.
Positive results in Europe and Asia.
<unk> got some new leadership and the team in marketing and product management, and we'll bring be bringing on a new leader.
Soon.
Ramping up the innovation pipeline. There is just a lot to be excited about but we wanted to do this strategically thoughtfully.
And in partnership with our commercial leaders in the regions to really attack the marketplace and an elevated and consistent manner.
Yes, that's really helpful. And then maybe a broader question on their total topline growth profile I know before Covid you talked about several years, where you saw I think it was a low double digit combined revenue growth.
Any thoughts as you look out beyond this year is that sort of the right algorithm, especially.
After this year when pricing falls off a bit tight.
Tied into that is this sort of a one year step up in the G&A investment in what do you expect to get leverage after this year. Thanks.
Yeah. Thanks, Jon I think Thats, a good way to look at it now again, we're in a year of a lot of uncertainty. So a lot to work through but I think we're thinking along those lines and so yes. This is a year of investment coming on the heels of two years of significant top line growth.
Kind of work through this year, but I think generally how you. How you said it is kind of a good way to think about it and then we'll see how this year progresses.
Yes, there is a lot of investments still to make in the business to I mean, do you think about the international growth setting up retail footprint to expand into hooker and elevate our game and agg appear.
Apparel resources resources et cetera, and we've made some investments this year, we're going to continue to do that in line with the growth of the business. So hopefully the supply chain headwinds the cost side of that subsides over the next year or two and we can reinvest some of those savings back into the business too.
That's really helpful color. Thanks again.
Right. Thanks, John Thanks, John .
Your next question comes from.
All lines with BTG. Please go ahead.
Hi, this is mckenzie and on per kilo.
Thanks for taking our question.
My first question is just more generally how your wholesale partner youre viewing back half winners.
Our views have changed at all from say 90 days ago.
Any thoughts on discussions with your partners is the only helpful.
Yes.
Partnerships there is still very healthy.
We worked really hard on these relationships with our key partners and I think that served us well over the last couple of years with supply chain disruptions and lack of availability.
Visibility to inventory.
I think it's.
It's an ongoing challenge, but I'm proud of the way our teams are managing through it and we haven't heard any real major.
No major issues for many of our wholesale partners, obviously, they want as much product that can get as fast as they can so that's really what the conversations are about it's more about how can we get it.
Versus hey, we we wanted to do cancellations were not seeing any of that at all.
Yes.
Perfect that's helpful.
And then just on gross margin.
I think the.
Hey, compressed a little bit more than mere modeling. So just understanding maybe the puts and takes to gross margin. This quarter and then maybe is it safe to say that.
Q4 is maybe the trough for gross margin contraction, knowing that it will still be challenged in the first half I'm just trying to understand how it all next.
Next year gross margins kind of.
At all versus this year.
Yes, so I think on that we can see that on the Q4 hit Youre right. It was a little bit more and that was really driven by freight and that and within the freight there was the ocean combination, but there was also more air freight as we used air to bring in the HOKA product, which really helped drive the topline on the hope.
Sales for the quarter. So that was an important element to be able to get that product in.
As we said going forward our expectation is we will incur some headwinds with ocean freight in the first half of the year as we're lapping a year that didn't have that freight and then we do expect to reduce our air freight usage.
Sitting on a better inventory position this year going going into FY 'twenty three.
Our expectation is that we will need to use less airfreight, which.
Should help margins this year versus last year.
And the other thing I would add just a little color on <unk>, we're still in a chase mode on demand is still exceeding supply but our.
Our supply teams have done an incredible job finding more capacity for us in Vietnam and beyond for the HOKA brand and we're going to see the effects of that start to kick in probably in the second half of this fiscal year.
Which would help us finally get us to the point, where we're caught up to the demand, but we are still in chase mode, right now, which is great, but we're missing some opportunities because of it.
Great. Thanks, so much.
Thanks, Kevin.
Our next question comes from Jay sole with UBS. Please go ahead.
Great. Thank you so much for taking my question.
Dave You mentioned Europe and <unk>.
Retail I want us to maybe see if we can dive into those topics a little bit.
Europes specifically on <unk>.
<unk> been working really hard because he has been working really hard on resetting that business seems like it's poised to break out this year.
But the question is do you see some of the macro factors disrupting that.
On HOKA retail so what's your vision, you're it sounds relatively new.
What kind of just give us an idea what kind of store format Youll see what the potential is and what the what the.
With the objective is there hope of retail.
Yes, Great question really excited about Marco the GM of Europe , and the progress that he and the team have made around it has been a multi year journey they've done a great job of cleaning up the marketplace and creating a scarcity around classics into.
Introducing styles like the fluff and that franchise to younger consumers. So.
The playbook so to speak that we have been employing in the U S is working.
Unfortunate that we've had supply chain challenges last year and now we have a macroeconomic challenge going on in that region. We're still optimistic we're still hearing positive.
Responses from our account and the fact that Theres still believing in agg and want the inventory we can get it.
But it is going to dampen our opportunity is a little bit and that's embedded into the guidance.
But suffice to say the brand is on a resurgence there we have work to do in individual markets.
Looking to really optimize Germany as an example.
We were in the market in December of visiting the market. The brand is strong, but we need to raise our game on how we look in front of the consumer and how we show up in DTC, a little bit but the good news is a lot of the trends that we're seeing in the U S around a younger consumer gravitating to the brand we are seeing that there as well.
And we think that we have a really strong run for the UGG brand going forward.
With regards to hooker retail definitely early days.
We got into retail really as a way to attack the China market. So we opened our first few stores in the China region.
Open popped up pop ups here in New York, and La and we just opened one in Chicago.
All exceeding expectations, all doing great and Theyre smaller format.
By design, but.
They are giving us great confidence that we can do some meaningful business.
Through retail for HOKA, but the real objective is to engage with our consumers and created further our ecosystem. So we are driving them into our brand.
Across multiple categories, bringing them online.
<unk> lifetime value. So we're not looking at this as hey, we want 200 hooker stores overnight, but they will play a strategic role in bringing the full breadth of the brand to consumers in key cities that we've identified.
And then we're going to maximize the opportunity in some of these key cities and then see where we go from there.
Got it okay. Thank you so much.
Thank you.
Your next question comes from John Kernan with Cowen. Please go ahead.
Yes, Thanks for taking my question and congrats on a phenomenal year.
Thank you.
So maybe just step back on the gross margin.
For everyone across the whole sector caustic resin here, whether it's raw materials Ocean air on the freight side.
Just wondering how the long term gross margin outlook has it changed at all if some of these costs remain structurally higher on the commodity and transportation and freight side. When we think about this new inflationary environment that we're in.
Yes, I think it's this is Steve Jon It's a big question and I think no one knows for certain how all this plays out I think an expectation is we should see improvement, but I don't think we're going to see that anytime soon right and that's really what we've modeled in.
So on that from a from a gross margin perspective.
We're assuming ocean freight does not significantly improve this year versus last although last year in the first half we were not expensing through the inventory at these higher levels of inventory. So FY 'twenty three will be a full year of expensing that higher ocean freight, we're using pricing to offset most of that.
<unk>.
So we're able to pick up a little bit through some of the pricing increases were not using as we said in our prepared remarks.
Price increases to offset the error, so as we move in and supply chain disruption improves margins should improve as we reduce our air freight usage and as we said again, we're planning to use less airfreight this year than what we used last year.
So I think that that kind.
One dynamic than on inflation we.
Haven't yet seen too much of that impact, although we know it's coming right. So we've been anticipating disruption some inflation. That's why we're bringing more inventory in earlier why youre seeing our inventory sit a little bit higher than where it has been an historic levels, but as we call out on a multi year comparison are.
Inventory growth is still in line with sales growth.
That will keep an eye on we're able to benefit a little of that through.
<unk> materials inflation by having the inventory now, but it is something that we're going to keep a close eye on because that is something that we expect could present itself as a headwind and again, we'll look at pricing structure.
So.
To answer your question I think it's too early to know long term how all this plays out.
We think the guidance as best we know today factors most of this in.
And then hopefully we start to see some improvement longer term, but our expectation isn't that youre going to see anything.
Improved much in our current fiscal year 'twenty three.
I guess, maybe one follow up is you talked about <unk>, becoming a multibillion dollar brand I think theres a lot of people that believe in that potential can you talk to what it looks like from a channel perspective is just starting to get their wholesale it feels like there's more opportunity on the wholesale side.
Talk to the DTC.
He is already how do we think about wholesale and DTC is focus scales too.
Multibillion dollars in revenue.
Yes, I think there is well there is two things to think about one is the category opportunity. So we really see <unk> as a performance brand and the performance brand across multiple categories. We're obviously rooted in running and Thats, where our authenticity comes from but where we're relevant and important and trail and hike and getting into.
<unk> fitness and other categories down the road head to toe. So when you think about the breadth and the soldiers that this brand has.
We see a multibillion dollar opportunity from a channel perspective listen we could we could light up wholesale today and dramatically increased.
The results of this business overnight, but we want to make sure it's sustainable and in this environment, where first party data is critical for success.
We're doing everything we can to drive a healthy DTC business at the same time. So right now we're looking at probably a 50 50 split because.
Internationally. There is there is more opportunities in wholesale and thats, depending on the market than DTC today, but we're very conscious of the fact that we're leveraging wholesale to introduce the brand and create awareness and have healthy sell through in the right account, but at the end of the day, we want that traffic to ultimately end up in our websites and our stores and <unk>.
We believe that that's the right.
Model.
Have the resources, we have the capabilities to make that happen and we're in this for the long haul and we want to see this to be a multibillion dollar brand that is meaningful.
Some of the top performance brands in the world over time.
Yeah, and I think also John on that as we've said.
Before brand awareness of Coca relatively speaking is still low below and so we can strategically use these wholesale accounts to build that brand awareness and then we do see a high conversion rate down the road, where they come to US direct. So this is it's a great way to build brand awareness using these relationships in the <unk>.
Strategic partnership.
To really get the brand out there in front of consumers.
One other opportunity that we've talked about within the UGG brand is the loyalty program, we have now almost $6 million.
Consumers I believe in our loyalty program.
Those are our best consumers they shop, most frequently to spend more money than somebody who is not in the loyalty program and this is an emerging opportunity for HOKA as well down the road that we can use to kind of further bolster the strength of our DTC channel.
Awesome, Congrats on a great year and outperforming most of your peers in the industry.
Alright, Thanks John .
Okay.
Our next question comes from Paul.
Okay.
Citi. Please go ahead.
Hey, Thanks, guys. The EBIT margin guidance that you gave for the year is similar to what you achieved this past year I'm curious, how you're thinking about each.
Each brand and where you expect holdco versus hub to shake out versus the prior year or if you are looking at both of them as being kind of.
And mine and then the second question I'm, just curious just from a very high level, which parts of your supply chain right now are getting better.
Zane getting worse.
Any any comments along the along those lines.
Sure Paul I'll go first just speaking about kind of the.
The gross margin guidance that we've provided similar to what we had in 2002, so as we talked about some improvement.
On the gross margin, but then also some investment so as we've always said.
We have shifted our operating model to be more variable so that gives us.
Flexibility in terms of when we see some headwinds to how we can potentially offset some of those headwinds which is exactly what we did in FY 'twenty two to deliver at the high end of what we gave a year ago.
So what we also know is that we tightened our belt.
And so going into a year, where we can get some.
A little bit of gross margin improvement it gives us an opportunity to also make some investments in the business and what we've said and you've heard me say it before us.
We are looking at the long term opportunities for our brands and so we want to make sure that we're providing the right level of investment and even with these results as we say.
These are among the best in our peer group.
We're flexible we're nimble we've got a nice variable.
Model that allows us to do that and so we will take these opportunities then we can expand a little bit of margin to also make sure. We're investing in the business for the long term.
Yes, and then I'll.
To answer your questions on supply chain, So just going down the list I would say our capacity is good right. We have the factory capacity that we need for all the brands, but particularly <unk>.
Increasing going into the second half of the year. So that's good shipping times are still a challenge we've had to put buffers into our lead times for product creation and then when we put our buys in so.
There is.
The level of uncertainty.
That comes with that but we're managing that through that well, but it is from the time of <unk>.
Inventory leaves.
Factory to our Dcs is still longer than we would like obviously port bottlenecks in particularly in long Beach, we're seeing a little bit of improvement there things are coming in a little bit faster, but I.
I hope Im wrong I personally think there's just a lull before we come into the fall inventory starting to ramp up again, so I'm optimistic that that will continue but I'm a little nervous that when we get into peak selling season, thats going to jam up again.
Inventory and visibility of that inventory and timing as to when it's going to come in still a challenge for our team the customer experience and the sales teams are having too.
Rebalanced orders against inventory availability so.
That's just a lot of heavy lifting that the teams have to go through.
We don't see a lot of improvement on that yet still because of the the challenge with the Port is we don't know, which containers is going to come in and when.
And then on the logistics side of it from our DC perspective, the investments we've made in the last couple of years.
Paying off a little bit of work to do and just stabilizing some of the newer Dcs in Europe in the Midwest, but we're excited that we have these underway.
Gearing up for continue.
Continued growth so I think the hope there is that the shipping lead times and the bottlenecks at the port.
<unk>, a little bit and I think other than that were really good shape and then I think just also to add we are keeping a close eye on the labor contract negotiations with West Coast Port workers. So that's just something else that we're very carefully watching and again why.
We're bringing in inventory earlier than what we normally do so something just to keep a close eye on.
I do think and I really believe that bringing this inventory orally and carrying a little bit is going to serve us well.
Because we need the inventory in the marketplace to be able to sell it and it's a very uncertain environment right now still probably more uncertain than it was a year and even last year ago two years ago.
So.
We're excited that we have this inventory coming in we're in good place, we just need to get it out to the marketplace now and just keep going after it.
Quick follow up on the inventory can you just say what the inventory increases by brand.
Yes, we didn't provide that what we can say is it's consistent with the larger brands is consistent with the average so increasing as we anticipate.
Kind of disruption and bringing more in but again on <unk>.
Two and three year comparison to sales it's in line with our sales growth.
Okay. Thanks, guys. Good luck.
Thank you.
Our next question comes from Tom.
With Wedbush Securities. Please go ahead.
Hi, guys. Thanks for taking my question.
Dave just I think earlier you were talking about still being in chase mode for OCA and expecting.
Yes inventory availability.
<unk> ability to be better in the back half of the year. So as we kind of modeled the year should we think that.
The growth is a little bit stronger for <unk> in the second half of the year or am I off base here.
Yes, I was referring more to Q4 results, we were chasing and Thats why we saw the we got the inventory and we aired it in and that got into the marketplace and we're still getting some of that inventory out to the marketplace.
Right now the teams are still out selling for next spring. So it's.
We're waiting to see what that looks like but the point I was trying to make is that.
The sales increases if the sales orders increase we have the capacity to meet him, but right now I wouldn't necessarily say that Q2 is going to be that much stronger than Q1, it's early days on that but we think.
Pegging ourselves at 30%, 35% growth for the year is right there is potential that could be higher than that but.
Early in the year in an uncertain environment. We think this is the right way to place the guidance.
Understood and then Steve if I could ask a quick one just.
Yes, I think yes.
Okay.
Scott from a much lower than it had been and you've got quite a bit of cash on the balance sheet and.
Now that you're investing this year.
Yes.
Something about like elevated inventory, but like how do we think about buyback and your willingness to maybe get a little bit more.
Aggressive on the buyback.
In light of the.
The valuation where it is today.
Yes, good question and as you know, we don't we don't necessarily comment on current activity, but I can't speak to the year, we just completed and as I said, it's the most aggressive share repurchase that we've ever done at prices higher than where we currently sit so clearly this is something that we're watching very closely active discussion on.
But yes, we recognize.
Where are prices at and where the company is going so that is something that we take into account very much though.
Sounds good.
Thanks, again and best of luck this year right.
Alright, Thanks, Tom.
This concludes our question and answer session as well as the conference for today. Thank you for attending today's presentation. You may now disconnect.