Q1 2023 Deckers Outdoor Corp Earnings Call
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I would like to remind everyone that this conference call is being recorded.
I'll now turn the call over to Amy Poehler, VP Investor Relations and corporate planning. Please go ahead.
Hello, and thank you everyone for joining us today on the call is Dave powers, President and Chief Executive Officer, and Steve Fasching, Chief Financial Officer before we begin I would like to remind everyone of the Companys Safe Harbor policy.
Please note that certain statements made on this call are forward looking statements within the meaning of the federal securities laws, which are subject to considerable risks and uncertainties.
These forward looking statements are intended to qualify for the safe Harbor from liability established by the private Securities Litigation Reform Act of 1995.
All statements made on this call today other than statements of historical fact are forward looking statements and include statements regarding changes in consumer behavior strength of our brands and demand for our products changes to our product allocation and segmentation and distribution strategies changes to our marketing plans and strategies changes to our capital allocation strategies the impact of the COVID-19 pandemic.
On our business and supply chain are anticipated revenues brand performance product mix gross margins expenses inventory and liquidity position, our potential repurchase of shares and the impact of the macroeconomic environment on our operations and financial condition.
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, Aaron Good afternoon, everyone and thank you for joining us today I'm excited to dive into another quarter of exceptional results, which represent a strong start to fiscal year 2023, and further progress towards our long term strategies.
First quarter revenue increased 22% versus last year to $614 million.
We delivered earnings per share of $1 66.
Revenue growth was primarily driven by <unk> as the brand achieved its first ever $300 million quarter.
With strong HOKA growth, we were able to deliver another profitable first quarter as we continued to reduce the historical seasonality of our portfolio through the expansion of year round Hooker demand and further diversifying the category mix.
Importantly, our first quarter results demonstrated momentum behind our long term vision.
To build <unk> into a multibillion dollar a 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.
We're making clear progress in each of these initiatives.
The first quarter Hooker delivered global revenue of $330 million, an increase of 55% versus last year.
Product mix shifted into sandals away from seasonal fall styles.
Regional mix shifted towards international regions as these markets drove year over year revenue growth.
Global DTC across all brands grew 15% as a result of increasing consumer acquisition and retention by 13% and 28% respectively and.
And revenue from international markets increased 36% versus last year, which includes earlier distributor shipments.
These highlights reflect the strength of Deckers marketplace management, and omni channel capabilities across our portfolio of exciting brands.
Our disciplined approach to managing brands markets and distribution channels continues to serve us well because we create the future of Deckers.
While the macroeconomic environment is evolving quickly I am confident in our consumer demand of our brands and our team's ability to remain nimble and deliver on our goals in this dynamic environment.
Steve will provide further details around our forward looking expectations later in the call in the meantime, let's dive into the brand and channel performance for the first quarter of fiscal year 2023.
Starting with the brand highlights global HOKA revenue for the first quarter increased 55% versus last year to $330 million.
This is a significant achievement that resulted in hooker global revenue and a trailing 12 months ended June 30th breaking the $1 billion barrier, which with much more growth ahead the.
The HOKA brand's exceptional growth also delivered a new milestone for deckers as a whole with HOKA revenue representing more than 50% of total portfolio quarterly revenue for the first time with its year end demand that utilizes infrastructure during off peak periods and full price selling at premium price points, the HOKA brand's growing scale.
Is improving Deckers overall quarterly financial and operational performance, the HOKA brand strong quarter future to outstanding revenue growth across the brands far reaching global ecosystem of access points.
Highlighted by international markets, increasing 66% versus last year led by the strength of the EMEA region, which was partially influenced by the timing of sell in for our distributors as we strategically build new markets U S, increasing 49% versus last year with DTC growth, leading wholesale global DTC increase.
<unk>, 58% versus last year, driven by continued momentum with retained consumers as well as the continued acquisition of new consumers and global wholesale increasing 53% versus last year as the brand increased market share at existing accounts and benefited from select doors added to strategic accounts.
We are excited by the positive brand indicators and continued share gains that hook is building upon across its entire global distribution network.
Few highlights include <unk>.
Increasing market share within the U S run specialty while commanding higher retail prices.
Focused styles accounting for at least half of the top 10 styles. According to aggregated U S run specialty store data.
Doubling revenue in France led by gains in Paris, which was our third fastest growing European city during the quarter and.
In APAC driving the highest regional DTC growth rate led by strength in both China and Japan as these countries benefited from stores aiding awareness with consumers.
Across the globe <unk> stores have continued to build excitement with a new audience and drive compelling levels of traffic and purchase activity.
This is especially exciting in China, which has been a slow build as hope it took some time to find its voice where the consumers local to the region.
With a refined visual merchandising strategy enhancing the consumer experience, our China stores are now driving higher conversion rates and we're better equipped as we open additional locations in the region.
In the U S. The retail team continues to work towards opening the Hooker brands first permanent location in New York City during the spring of calendar year 2023.
This is an exciting endeavor as the Hooker store will feature an elevated design that is fit for our premier performance brand.
In the meantime, hookers opening a second New York City pop up location near Lincoln Center within the next months.
Chicago location, which was opened in the last three months is seeing excellent traffic and driving strong conversion, giving us even greater confidence in the consumer appetite for hooker retail stores.
We will take a disciplined approach to opening a limited number of doors, but we're excited about the opportunity to engage with consumers in key cities around the world further on direct to consumer across global markets. Hooker continues to increase the number of acquired and retained consumers that remarkable levels compared to the prior year.
During the quarter DDC acquisition increased 48% and retention increased 58% versus last year with gains among 18 to 34 year old consumers far outpacing these increases.
This led to a four percentage point increase in the mix of 18 to 34 year olds among individuals purchasing from <unk> Dot com.
We're seeing incredible momentum behind Hygge as the brand continues to inspire humans to fly over the Earth. The HOKA brand ethos is echoed through its new globally integrated marketing campaign. The fly human fly. This campaign was thoughtfully designed as an invitation for humans around the world to experience the hooker Rod as part of the campaign <unk> launched the <unk>.
Fifth edition of the Mark which has quickly become a top five style for the brand as well as a completely redesigned consumer web site.
The upgraded website features a brand new aesthetic that elevates product presentation with greater technical detail and enhances the visibility of brand values and storytelling throughout the site.
<unk> human fly has been live for just over a month now and we've been very pleased with the consumer response and feedback from our wholesale partners.
The fly human fly landing page on <unk> Dot com, 83% of visitors were new.
Shall lines with the campaigns intent to reach a new audience. We believe this campaign will have a significant impact on building awareness of <unk> as we expand the brand into a multibillion dollar major player in the performance space over the long term.
Speaking of performance I'd like to congratulate Hooker sponsored athlete Adam Peterman for winning the 100 mile 2022, Western States risk. This was an incredible feat for Adam having this has been his first time ever competing in a 100 mile race <unk>.
One while wearing the recently launched <unk> five which is a completely redesigned version of the brand's most popular trail shoe with less weight and enhanced traction with Bieber Mega gripped to inspire confidence in any terrain.
Like these emphasized the HOKA brand's leadership as a premier performance brand, enabling athletes to achieve peak levels of performance and.
Another congratulations to Adam and all the other athletes who competed in this year's Hocus sponsored Western States 100.
Moving to <unk> global revenue in the quarter decreased 2% versus last year to $208 million.
Outperformance was driven by higher international wholesale and distributor sell in that was offset by category shift dynamics impacting the brand's global direct to consumer business.
The UGG brand's international regions continue to experience benefits from the marketplace allocation and segmentation strategies implemented to build brand heat and increased demand overseas with core fall product limited in the marketplace and was able to drive full price sell through during the past holiday season, and generate open to buy opportunities in the spring season, driving the quarter's results.
<unk> captured.
Captured incremental market share with transition styles, such as the ultra mini and coquette as well as the newly launched sport, yes handled all of which are driving sell through.
Briefly touching on the category dynamics impacting our global DTC over the last couple of years. The fluff franchise experienced increased relevance as consumers turned to hug for comfortable and stylish hybrid slippers to we're in the home <unk>.
Expecting shifts in consumer behavior towards outdoor wearing the UGG product team continued to evolve the franchise with the introduction of more spring summer and outdoor ready styles, which included the sport Sandal sandals were the standout category for <unk> during the quarter showing a strong demand for the brand outside of the fall and winter timeframe.
While successful in shifting consumer adoption from heritage Fluff franchise styles into beach ready styles, the lower average selling price in the sandal category created a revenue headwind relative to the exceptional volumes of fluff.
During Q1 in the last two years.
That said the fluffy I continues to be as top style among required and retain consumers, including with 18 to 34 year olds.
Across our global direct to consumer even though revenue dollars or below last year due to these product mix shifts demand for our remained robust as the brand experienced increases of 8% and 13% in acquired and retain consumers respectively versus the prior year Importantly, international DTC acquisition and retention gains are trending well ahead.
Out of these global figures as we continue to build brand heat overseas.
Key styles driving new consumer acquisition globally include the aforementioned fluff, yeah, and support you as well as the Klim and Golden Star fashion Sandals, and the Tasman franchise, which continues to be on fire. We are encouraged by the continued consumer interest in broader adoption of the UGG brand's diverse product assortment.
Overall, the first quarter represented a solid start to the year for <unk>. We believe <unk> is well positioned to drive a successful fiscal year 2023, and I'm, even more excited for the brand's future. After our recent announcement of an spangenberg as the president of fashion lifestyle.
And as a proven leader with meaningful experience building brands across our industry. Most recently, serving as Nike's chief merchant.
And has already hit the ground running in the last few weeks as she begins to immerse herself with all things <unk>.
And engage with our talented brand team and cross functional business partners.
In her new role and will be building upon our strategic priorities for <unk>, focusing on product diversification consumer adoption and franchise evolution across our omnichannel marketplace.
I'd like to welcome and thank the <unk> team for the cross functional collaboration and teamwork that enabled the brand to maintain a strong positioning in the market as we work to fill this role.
From a channel performance perspective in the first quarter global wholesale segment revenue, including distributors, who is the primary driver of growth increasing 25% versus last year.
Strength in these channels resulted primarily from continued global market share gains for HOKA as well as the benefits from added doors with strategic accounts.
<unk> also contributed to wholesale revenue gains based on the continued adoption of the brands diverse product assortment among international regions, which continue to benefit from marketplace reset activities.
On direct to consumer global revenue for the first quarter increased 15% versus the prior year.
DTC growth was driven by significant increases in consumer acquisition and retention for the HOKA brand, which was partially offset by the category and seasonal dynamics unique to the UGG brand that I covered earlier in the call.
Overall, our direct to consumer business continues to benefit from the HOKA brand's growing influence, especially in quarters outside of historical peak selling periods for agg.
Quarter, just completed hooker represented 53% of DTC revenue, which is up from 39% last year and 27% two years ago with nearly all of the HOKA brand's DTC business occurring through E Commerce, our most profitable channel. This brand shift dynamic is accretive to our bottom line.
With that I'll hand, the call over to Steve to provide further details on our first quarter financial results as well as our reaffirmed outlook on fiscal year 2023.
Thanks, Steve and good afternoon, everyone as David just shared our first quarter results demonstrated great progress towards the fiscal year guidance that we outlined in may when we advanced a number of key initiatives for our business. This quarter HOKA was the primary driver of performance as the brand continues to build global market share.
Revenue came in slightly lower than last year, primarily due to category shifts occurring during the quarter as well as lapping earlier selling during the prior year, but we feel the brand is well positioned to deliver another strong year and are excited for what lies ahead under <unk> leadership.
With ongoing uncertainty in the macroeconomic environment, we're continuing our disciplined and responsible approach to managing our business and we will remain nimble to react to this dynamic environment.
Our demand signals lead us to believe that our portfolio of brands, we will continue to resonate well with consumers and though not immune to the macroeconomic headwinds deckers has historically demonstrated an ability to course correct when necessary.
We remain committed to our long term strategies that have continued to serve us well and will build upon the strong operating model. We have built over the last five years now let's get into the details of our first quarter fiscal year 2023 results.
First quarter fiscal 2023 revenue was $614 million up 22% versus prior year poker revenue increased 55% versus last year accounting for nearly all of this quarter's revenue growth due to the exceptional demand experienced across the brands global ecosystem of access points and improved <unk>.
Inventory availability for the first time ever OCA represented more than 50% of total portfolio quarterly revenue and over the last 12 months ended June 30, the brand has delivered over $1 billion of revenue.
Gross margins for the quarter was 48%, which is down 360 basis points from last year's 51, 6%. This is aligned with our first half direction that anticipated headwinds from higher freight costs from ocean and air as well as impacts from unfavorable foreign currency exchange rates that we anticipate will pressure margins.
For the remainder of this year. Additionally, first quarter gross margin was impacted by product mix and normalized promotional activity for US is the brand sold more sandals and discounted select styles in line with pre pandemic activity and channel mix shifting towards the wholesale and distributor segment in particular.
Our international distributor business that shipped product earlier than in years past.
These headwinds were partially offset from benefits from increased revenue mix of OCA as the brand commands the highest gross margin in the portfolio during Q1 and benefits from HOKA price increases.
SG&A dollar spend in the first quarter was $238 million, which is up 20% from last year's $199 million as a percentage of revenue, we delivered 60 basis points of leverage to help offset freight and FX impact to gross margin.
Our tax rate was 21, 3%, which compares to 21, 9% in the prior year. These results drove diluted earnings per share of $1 66 for the quarter, which was <unk> <unk> below last year's dollars 71 per share.
Turning to our balance sheet at June 32022, we ended June with $695 million of cash and equivalents.
Inventory was $840 million up 83% versus the same point in time last year and important to note that last year's inventory levels were below normal operating levels as a result of supply chain disruption and during the period, we had no outstanding borrowings.
During the first quarter, we repurchased approximately $100 million worth of shares at an average share price of $260 and <unk> 12.
As of June 32022, the company had approximately $354 million remaining under its stock repurchase authorization.
Subsequent to quarter end the board of directors approved an increase of $1 2 billion on top of the companys existing share repurchase authorization, which now in total represents more than 15% of our market capitalization highlighting the board's confidence in our long term strategic plan.
Now for supply chain update over the last several quarters, we've shared an update on the status of our logistics network and our continued mitigation efforts as we navigate macro supply chain disruption. We are pleased that there have been relative improvement in this area in Q1, but I will share some brief thoughts before I touch on our fiscal year 2023.
Outlook Transit times have improved relative to last year, but we are still experiencing latency and lower visibility into the timing of inventory with nearly 40% in transit and thus are continuing to prioritize holding inventory in the country of sale for.
For example, during the first quarter inventory generally arrived earlier than anticipated as a result, we shipped more product out however, with low visibility into when certain shipments will arrive, we're comfortable holding higher levels of inventory to enable our brands to meet the significant marketplace demand we are seeing.
So difficult to predict the timing of when inventory will land, we expect that heightened inventory levels will continue throughout this fiscal year on.
On the cost front, we are confident that the price increases implemented in the HOKA and UGG brands will offset freight headwinds and help bolster second half margins to deliver our full fiscal year 2023 guidance given the earlier arrival of inventory, we now expect to use less air freight than originally anticipated for the HOKA brand. However.
As the dollar has continued to strengthen we are anticipating greater currency headwinds and this reduction in planned airfreight should help offset these currency pressures.
Now turning to our guidance and with these dynamics in mind, we are reaffirming our full fiscal year 2023 guidance, which as a reminder includes revenue growth of 10% to 11% versus last year gross margin 50 basis points higher than last year anticipating approximately 51 five.
Sent.
SG&A and approximately 34% of revenue and operating margin in the range of 17, 5% to 18% of.
Tax rate in the range of 22% to 23% and with the share repurchase executed during the first quarter just completed diluted earnings per share will now be expected to be in the range of $17 52.
To $18 35, reflecting.
Reflecting a 10% increase.
While we have maintained our overall guidance I'd like to highlight a few additional items contemplated within the guidance, which include stronger HOKA revenue growth now expected to increase in the 40% range versus last year, reflecting upside from greater inventory availability, which aligns to our expectation of using.
Less air freight than originally anticipated and incremental foreign currency headwinds, primarily affecting our growth due to the brand's wholesale business model and concentration of planned growth from the international regions.
This reaffirmation of guidance excludes any charges that may be considered onetime in nature and does not contemplate any impact from additional share repurchases. Additionally, our guidance assumes no meaningful deterioration of current risks and uncertainties, which include but are not limited to further impacts of the ongoing COVID-19 <unk>.
<unk> pandemic on our operations and economic conditions, including supply chain disruptions constraints and related expenses.
Labor shortages.
<unk> pressures changes in consumer confidence and recessionary pressures further strengthening of the U S dollar and geopolitical tensions.
While macroeconomic uncertainty persists, we believe in the power of our brands and continue to see positive signs of consumer demand Deckers has a history of remaining nimble displaying a unique ability to react as marketplace dynamics evolve and we are well positioned to deliver compelling revenue growth and top tier operating margins.
Thanks, everyone I'll now hand, the call back to Dave for his final remarks.
Thanks, Steve we are quite pleased with the start to fiscal year 2023 is our portfolio drove revenue growth above 20% in the first quarter and our organization continued to make progress against key strategic initiatives.
I want to congratulate the entire <unk> team and all of the shared service individuals that support the brand on reaching the $1 billion revenue milestone. This is a huge feat for HOKA, but also for deckers as a whole to have a second brand in our portfolio to reach this significant point of scale.
The exciting part for our company is that we believe OCA has much more growth ahead as the brand stays laser focused on our strategic expansion plan.
The brand's fly human flight campaign is just the beginning of our journey to build awareness and broaden the consumer aperture for HOKA.
From a talent perspective, we are fortunate to have bolstered our executive leadership team with the recent promotion of Angelo Apache to Chief supply chain officer, and the hiring of an spangenberg as president of fashion lifestyle I'm excited to be working closely with both of these experienced leaders and look forward to their contributions that are sure to further enhance deckers workplace culture.
And drive success against our long term strategic initiatives.
I'd also like to thank our executive leadership team and all of our employees for remaining flexible and staying focused on our goals while managing through transitions.
With our strong portfolio of brands dedicated employees and disciplined management of the business I don't think I've ever been this excited for the opportunities ahead for Deckers.
And I view the board of Directors recently approved increase to our share repurchase authorization, which in total now represents more than 15% of Deckers current market capitalization as an impressive vote of confidence in our company brands people and strategic plan for the future of our organization.
Big Thank you to all of our stakeholders for your continued support.
And with that I'll turn the call over to the operator for Q&A operator.
Thank you we will now begin the question and answer questions to ask a question.
Alright, and then one on your Touchtone phone. If you are using a speakerphone. Please pick up your has a beautiful facility.
That didn't mean, Dan your question morphine at this and you would like to withdraw your question. Please thank.
Thank you.
In terms of time, please limit yourself to one question and one follow up.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Jonathan Komp with Robert W. Baird. Please go ahead.
Thank you good afternoon I wanted to.
Just first on the UGG brand I'm curious to maybe get your thoughts on just the overall health of the.
<unk> brand in the marketplace. Maybe this is more of a domestic question.
But just levels of inventory comfort with.
Orders that you may have with your wholesale partners and just overall thoughts on how you expect AGA to fare in the current environment.
Yes. This is Dave I can answer the beginning of that we're pleased with how well it's performing is down a little bit for the quarter as expected and that's largely due to us trying to lap.
Fluffy AD business from last year.
You can attribute to pretty much all of the miss or the decline versus last year I should say.
To the fluff franchise, and we've made up some ground on that with.
Sport, yes, and some of the other classics slippers, which are doing well, but at a lower <unk>.
<unk> point, so as an example on our E Commerce web site in the U S sale.
Sales were down for our brand, but units were up so it's a quarterly dynamic we're working through the tail end of the <unk> business.
But the core business across the globe is still strong and healthy our order book is strong and healthy and we feel that we are 10th of the grid and the rest of the year and we certainly have the inventory in place to do that and Steve can talk a little bit more about the inventory but.
The good news is we have inventory here its here earlier.
And we're able to get it to our accounts earlier so.
Set up from a brand perspective going into the back half of the year is still looking good but.
We're being a little bit cautious here because it's still early in the year and Theres a lot of concerns about over inventory in the channel and the consumer but as far as the brand health goes globally, we're still.
Seeing very positive signs order books that are still looking healthy and we have inventories should the business be there to be after.
Yes, I think John just to add onto that as Dave said.
Order books, holding up we're seeing strong demand for the brand. So we feel good about that as we said on inventory, we're going to bring inventory in earlier. This year. So kind of on message. We are delivering on that that is contributing to an IND.
Increase in our inventory levels, which again just remind to everybody at last year's levels were unusually low and below normal operating level. So youre, okay with the inventory where it stands.
That will continue to build but we're well positioned from that standpoint to fulfill the orders that we have.
And we're continuing to see consumer response to it so still very positive on how August performing in the outlook and then just to remind everybody we're coming off two strong years of growth.
And as we said well documented through last year.
It was replenishing depleted levels of inventory in the channel. So we're comping strong growth as well as replenishing inventory and feel comfortable about that.
Yes.
Okay, Great and then maybe just one separate question on <unk>.
Dave I think you mentioned.
Broadening the aperture of the brand and I wanted to just follow up and get your thoughts maybe both near term any any specific initiatives and then longer term.
What are your views of that comment and the opportunity for HOKA.
You see today.
Yes, it's really related to two things one is just expanding the reach of the product to reach new consumers and then also expanding our reach internationally, particularly in China, but this is this is that its core running brand and we have incredible authenticity.
And they're a very important brand in that space and we'll maintain that authenticity as we go forward, hence the western states and the <unk> and the Iron Man Championships that is the core of this brand and always will be but we obviously see expanding opportunity.
In trail and hike.
And then in walking and also lifestyle. So.
We are well aware of the fact that there is a broad base of consumers that are purchasing the <unk> brand across age groups demographics and end use and so with the new fly human flight campaign that we launched.
Reestablishing, our authenticity and ultra sports with the events.
Events that I mentioned and at the same time speaking to a broader based consumer that is into the brand forward for a lifestyle perspective, or walking perspective, or just overall comfort so.
We welcome all of those consumers, we consider them athletes they are on their feet. All the day they need performance footwear and we are working on ways to establish.
More communication and engagement with those folks while staying true to the authenticity of the brand.
That's more on a product standpoint were not necessarily opening up new distribution to go after those consumers.
We're pleased with the business index, but we're in less than 20% of their stores.
Just starting to go into foot locker.
And opening more stores globally, particularly in China, where we're seeing a broad base of consumers coming into our stores and on our website.
Really loving the brand, but it's also incredibly exciting on the.
The lower age spectrum is 18 to 34 year olds are increasingly purchasing the HOKA brand. We're starting to hear comments about people are trading they're all white.
<unk> for all the way to <unk> and so that's very encouraging for us as well and we have a lot of optimism going into the account footlocker account to see what we can do with younger consumer there too.
That's great color. Thanks again.
Great. Thanks, John .
Okay.
Our next question comes from Bruno.
Excluding <unk>.
Good afternoon. Thanks for taking my question as well I'm just going to do my normal question can you give us how you sort of talked a little bit about it earlier, but can you give us wholesale revenue by category.
Category or brand Oh please.
Okay I'm sorry, this is Aaron.
Wholesale distributor net sales.
Give me just that component by brand.
Sure.
That was $138 million.
$232 million.
$47 million so Nick.
$11 million.
All other which includes <unk> 2 million.
So that gets you to your total wholesale footwear for $429 million.
Thank you very much.
And then.
A couple of quick two more you lost a bunch of sales in <unk>.
Even though had a good quarter in the third quarter of last year. How are you seeing the third quarter of this year now that your inventories flowing better and then with hoak.
Sure.
Doing $330 million can you give us some idea of the cadence to get to the 40% increase that youre thinking about because $330 million is well above any quarter, you've ever had and is that a new normal or.
What how should we think about the flow of revenue there to get to the 40%.
Yes, so I'll start with Doug and then I'll, let Steve tackle the <unk> question. So we're optimistic about <unk> in Q3 as you said, we were light on inventory last year, we potentially missing sales last year.
The good news is that we have inventory obviously in the channel earlier, and we have more inventory coming so from an inventory standpoint, I think we're going to be in very good shape for Q3.
Theres just a lot of questions out there is still on the consumer level promotions et cetera, we're not.
We've been the last couple of years for <unk> in Q3, we've been very very clean minimal promotions tighter on inventory, we see a little bit of return to a normalized season, but we're not.
<unk> or modeling in heavy promotional activity at this point.
We want to protect the health of the brand and not Chase top line, because we think we can make up a lot of revenue if we need to.
On the year with OCA, but as far as how the setup look we're in inventory position, we have exciting new product launches in the UGG brand.
Theyre going to resonate very well and we have a new campaign holiday campaign that we're working on right now so as far as tackling the opportunity. We're in good shape I think the question is the macroeconomic environment globally, and what that's going to do to not necessarily just the brand, but the wholesale partners, who are tighter on inventory as well or heavier on <unk>.
Tori in general.
And then Tim on the Hooker question, what we've said and kind of indicated in a strong quarter, one performance, where we ship more product with increased available availability of inventory in June and that was largely driven by HOKA and so that gave us an opportunity to ship product more than.
What we kind of anticipated could happen with the availability of inventory that was largely <unk> driven right. So I think what youre seeing in the quarter as our ability to get that product into the market a little bit sooner than what we expected, which is always encouraging and we will closely watch the sell through.
But thats whats driving some of this timing issue.
Again going back to why we're not giving quarterly guidance, we're just seeing timing shifting between quarters and so it's very difficult with what we're dealing with to kind of precisely.
So when things are going to go but when we have an opportunity to move product out a little bit earlier than what we anticipated we're going to take full advantage of it and thats really what <unk> seen with OCA in this quarter.
One last thing do you expect the DTC business to output.
Outgrow.
<unk> sales this year given sort of the.
Some of the maneuvers that at the end of last year.
And the wholesale shipments.
Yes, I think right now the way, we're kind of looking at things as equivalent between those channels. So.
Still early and we will see but right now the way we're looking at is kind of equivalent.
Thank you.
Okay. Thanks, Tim.
The next question comes from Robyn.
Zane BNP. Please go ahead.
Good afternoon. Thank you very much for taking my question I wanted to follow up on <unk> and the global marketing campaign.
Were there any key learnings you can share with us from that campaign and can you remind us.
I think in the 10-K.
For fiscal year 'twenty, two marketing was about 8% of sales meaningfully up over.
A few years ago, 5%, which is great to see.
Steve where do you think marketing goes for for this fiscal year and can you maybe talk a little bit about the nuances the spread maybe in terms of marketing spend as a percentage of sales differed between the two big brands.
Yes, I'll talk a little bit about.
This is the first global campaign that the brands ever done so we felt it important to.
Refresh the messaging and the communication from the brand and we've obviously evolved our thinking as to what this brand can be for folks globally.
We've been on a track of inspiring athletes all around the world of all types to get active and be there for them and so this is a way for us to bring all the different product launches that we go through whether it's the Clifton our Bondi or speed go do you have a little bit more consistency in the look and feel of the campaign to have a consistent tone of voice.
And to be more consistent with global consumers around the globe.
We're very pleased with how it's been received we are getting very positive feedback from our wholesale partners.
We're getting very very positive kpis on our website the amount of new visitors for the quarter was up tremendously and very healthy for us.
As you see in some of the retention.
Acquisition figures are all heading in the right direction.
And we think this is a foundation and a story that we can continue to build on head to toe and build real power.
And an aspirational positioning for the brand. So so far so good I think we need to add in a little bit more greediness, if that's the right word into the campaign and.
Pull off some of the <unk>.
Good performances in athletes in the <unk> and Western States.
Iron man and leverage those influence theres, a little bit more on the campaign, but we do feel the platform is right.
The redesign of the website has proven to be very successful so far.
<unk> page.
<unk> time, and dwell time and conversion rates are up.
So we're very pleased but its very at the beginning of a long journey with this campaign.
But so far we're seeing great adoption globally and positive reaction from consumers and wholesale accounts.
Yes.
Steve just on the marketing spend over the past few years, we have been increasing marketing spend.
As it relates to brands, we spend more in marketing.
On a proportional basis to sales on HOKA do other brands that is part of what's driving our overall marketing increase in marketing as a percent of revenue increase what we're seeing as Dave just articulated is great productivity with our marketing spend.
And what's contributing to building brand awareness.
Talked about quite a bit.
<unk> brand awareness is still relatively low in comparison to other brands and so with the marketing spend with the campaigns that we're launching we're seeing great productivity and how that's driving consumer awareness of the brand and building brand awareness. So it's a lever that we're using very efficiently and productively and we will continue to do that in.
As you've seen with the global campaign and as Dave said, we'll continue to refine.
And continue to build awareness through those campaigns.
That's great great to hear and then as a follow up question I think you mentioned in your remarks, Dave on foot locker and maybe you can give a little more granularity.
What type of consumer you're seeing there what's the response.
Bonds and then Steve I think in your 10-K, we signed another lease for it pretty significant distribution center.
Sure it could be up and running over the next year or two.
Followed by the Indiana distribution center last year.
Just maybe kind of frame up.
The need for that is that is that really focus on the multibillion dollar target for HOKA.
Is there a channel effort there between wholesale and DTC any color on that would be very helpful. Thank you.
Sure Tycho.
Lockup her so weird.
It's early days, we just put the product in foot locker, it's in a handful of.
Position stores that we feel are right for the consumer going after which is younger.
More athletic minded, but still passion mining consumer.
In stores that we think the foot locker group can represent the brand positively and then we're online with some styles as well so.
Too early to share any results, but I will say that we're pleased with how the launch has gone. We're pleased with the feedback we're getting from foot locker as I mentioned, we're seeing younger consumers.
More increasingly adopt the brand.
So we feel good about it long term so far so good with the launch.
We're going to take our time and maintain the discipline that we always have with expanding distribution much like we've done with Dick's.
But both of those are strategic and reaching consumers, where they want to shop in.
In environments that can showcase the brand in a positive way and they're both doing that.
And we're going to continue to monitor and see.
How things go but there is no major plans to.
Drastically increased door count and were still in less than 20% of Dick's stores.
And you can see the results, we're getting through our own DTC channels, So very healthy right now.
We will continue to monitor these and trickle out distribution.
And just on the distribution centers Laurent.
<unk> as you mentioned to expanding our presence in space available that is in part to handle.
The growth that we anticipate with the business and specifically kind of help handle the additional growth in the HOKA business, we do have levers as well. So there we have other arrangements and <unk>.
We can change distribution patterns.
But.
So we have our main facility in Marino valley were increasing space.
The Midwest as you mentioned, we also have some distribution through <unk> on the East coast that we can also look at it so it's helping US plan for the future. We know these things take time, what I would also say is we're introducing more automation.
And so a big part of what we're developing in the Midwest is an increased automated fulfillment centers, so being able to be efficient as we get those up and running efficiently. So more to come on that but that's how we're looking at that.
That's great to hear thank you very much for taking my questions.
Alright, thank you.
The next question comes from Jim Duffy with Stifel. Please go ahead.
Thank you good afternoon.
Really nice job guys.
Hey, I wanted to ask about the state of wholesale channel inventories in the specialty running channel Hoak has clearly been a share gainer.
But the category has been very strong.
You feel hocus caught up on having inventory in equilibrium in that channel now and then Im curious if youre seeing any indications.
Of moderating growth in the category that that's catching some of the other brands wrong footed on inventory.
Yes, Jim This is Steve good question.
Watching that carefully and as you mentioned, we are growing our presence.
Inventory has increased we are not at the at some inventory levels of some of the others, but our productivity is much higher than other brands. So.
Run specialty is highly productive I think we are probably the most productive brand in many of those outlets.
That's leaning too.
Significant turnover of that inventory, so our ability to fulfill it.
I think again as inventory increases as we have more inventory available we're going to continue to feed that channel.
There is more opportunity I think and our teams believe that as well. So we're going to continue to take advantage of that and now, especially with a better inventory position, we're better positioned to continue to go after that business.
I think also we're hearing a little bit.
Some of the run specialty accounts are full in general with not just inventory, but all their inventory. So there is a limited capacity to be able to bring in additional inventory, but as Steve said the productivity of hooker versus others is exceptional.
Retail high margin full price sales.
So, but we have the inventory now and on the way to be able to manage that channel much better than we have in the last two years that were really in chase mode.
The other brand indicators super encouraging five of the top 10 styles, that's really impressive.
Yes.
And the other thing on that is we are working on in a more innovative launches. So we're going to bring innovation and.
New ideas to market faster and we're going to use utilize that channel to do some test and learn along the way as well and get some new innovative products out faster utilizing DDC in the run specialty channel at the beginning of calendar year 2003.
Great.
I also wanted to ask about the addition of Anne Spangenberg.
The particular skill set that and brings to you that makes it well suited to lead the fashion lifestyle Division.
What are the areas you're most excited about her opportunities that have an impact.
Yes, we are collectively as the LP as a board and as an organization very excited to have Ann joined the company. He has been here now almost three weeks she's hit the ground running she's been a fantastic addition to the ELT I would say first and foremost she is the right kind of leader for decades.
He is an inspirational leader season empathetic leader.
She's got incredible experience over her years and Nike.
All within merchandising and storytelling and brand building.
She spent three years on the ground in China Redeveloped in repositioning that market.
And oversaw a just a massive business for Nike and so.
Cord talent that we love about in as she is an exceptional merchant first and foremost.
She understands and appreciates products sees and understands how to bring product to market in a compelling way with head to toe storytelling.
It is footwear and apparel.
And she is not from the fashion space, but.
We have a full team of people who are experts in that space and what we're really looking for here is an inspirational leader, who can get the best out of out of that team.
And at the same time really editing and.
Amplifying our storytelling.
Which is something a lot of people learned from Nike over the years and so we think that the combination of her leadership of merchandising experience the global.
Execution that she was overseeing at Nike.
Gives us great leadership for this brand and can unlock the true potential of this brand going beyond the 2 billion that's out now.
Very good thank you guys.
Thank you.
How much.
Our next question comes from John Freeman.
Please go ahead.
Excellent. Thanks for taking my question congrats on another great quarter.
Yes.
Could you talk to price increases.
You realized in Q1, and what you're planning for the back half of the year and the impact to gross margin that you are planning. Thank you.
Yes, John This is Steve we haven't changed anything from what we've said previously so we have introduced at the beginning of this calendar year price increases related.
To hope, we're seeing that drive some of the gross margin improvement.
Clearly that has been and has been offset with the higher freight.
Helping mitigate some of the pressures.
And we will continue to face that really into the next quarter. What we've also said and haven't changed our stance on is price increases unrelated select product for us that will really kick in in our Q3 again that was part of what we indicated on our initial guidance. So we haven't changed anything there so no change.
In terms of how we're thinking about price increases we're going to continue to monitor that but our prices are pretty well set for the seasons.
It would be more a future.
Opportunity not not anything we would expect in this year, yes, I think for <unk>, specifically, we raised prices in about 30% of the line for Q3 so.
But in places, where we think we can get it and we've heard that from our wholesale partners that we can get that as well.
Got it and maybe just one quick follow up you mentioned specialty running being a little bit full on the wholesale.
Side of things for <unk> anything else any other detail you can give it.
It relates to the wholesale channel for both again and hope we have heard some updates from some of your peers in the sector.
Does sound like there's some caution building in that wholesale channel.
Yes, I mean from what I'm hearing I wouldn't necessarily say, it's caution, but I think.
Wholesalers are filling up on inventory they've been light for many of their key brands over the last couple of years and they are filling up.
Logistics is still a challenge for brands and wholesalers space is becoming a challenge and so we're hearing a little bit about that out there in the marketplace, which is why we think it's good that we've got inventory in early and we were able to get inventory into the channel to capture that space.
So I think it is going to be a dynamic this year that wholesale is going to have to work through.
As they try to fill up their inventories and get back in the right position.
Heading into the rest of the year so.
We don't see it really affecting our business yet demand is still strong brand health is strong we're not hearing about crazy cancellations or anything it's pretty normalized.
We still feel good about our chances, but that is a dynamic that we're hearing about.
Understood. Thank you.
Alright, Thanks, Jeff Thanks, John .
Your next question comes from Paul Knight Janney.
Please go ahead.
Hey, Thanks, guys I'm curious I mean, I'm curious if maybe you could talk a little bit more about the trends you saw on the DTC side of the business for each of the brands as you kind of progressed throughout the quarter, if things kind of held steady throughout if you saw sort of ups and downs in the business on the DTC side or maybe a deterioration as you.
As you moved along again, both for <unk> and <unk>.
And curious if you can just talk about the inventory a little bit more.
I think you mentioned your.
You had a high percentage of goods in transit just curious what the comparison was.
Versus a year ago.
Inventory looks like in terms of units on hand versus versus last year.
Yeah, So I'll talk about e-commerce, a little bit.
As you saw from the HOKA results very healthy quarter for US we did see a lift with the new campaign and the launch when that kicked in and so that helped in the back half of the quarter created a little more excitement a little more awareness.
First time visitors, who was in the 70% range and so very healthy business that continues to be repeat purchase theres, new consumers younger consumers coming to the site.
Better Kpis as I mentioned on the landing pages and conversion on those pages. So that's really good and it is broad based it's across all categories is not really a standout.
Amongst the group is just the whole brand is seeing that level of interest in adoption.
Within the real challenge for DTC as I mentioned is within the slippery category.
And it's a combination of.
The fluff business slowing down dramatically from where it was a year ago still needed by the pandemic.
So that's slowed down, but we've made up some ground with the sport yes.
But it's at a lower price point, so as I mentioned revenue in DTC was down or ecommerce was down for <unk>.
But units were up so I think it's as I said at the point in time dynamic I still think the core business. So I know that the core business is still strong heritage slippers still strong.
And men still strong a little softness in kids, but that was also politically related so.
Aside from that the brand is.
Still performing.
An expectation in the categories that we needed to and as I said as we get into Q2 Q3.
<unk> dynamic will be behind us and it will be a more normalized business.
And then.
Paul just a little bit on the inventory in terms of the in transit percentage wise, we're a little bit better but on a higher dollar amount. So we have.
Higher dollar amount still in transit and I think that's important to note and then.
Embedded in that.
Inventory this year versus last year is about $70 million more of additional freight.
As rates increase throughout last year. So we're dealing with a significant amount more of freight embedded in those higher inventory values as well and then the other with a large percentage increase related to <unk> as we're ramping the hooker inventory to support the growth in that business that's contributing to.
The higher inventory balance and just to remind everyone.
The average price on OCA is greater than the average so that's contributing to a lift as well.
Did you say did you give a breakdown of HOKA versa inventory.
No we don't.
Okay.
Alright, Thanks, guys. Good luck.
Alright, thank you.
Our next question comes from Jay So and hopefully the last question.
Please go ahead.
Yes.
Great. Thank you for taking my question.
You gave a bunch of the key factors that impacted the gross margin in the quarter is it possible to give us a little bit more.
<unk>, how much the supply chain costs affected the gross margin in basis points and then on the supply chain you mentioned, you're starting to see some improvement can you give us a sense of how much it's improved and what kind of visibility you have into the trajectory of those challenges maybe getting easier as we go through the fiscal year.
Yes sure Jay. So this is Steve so of the 360 basis point decline versus last year in the quarter 200, roughly 260 of it.
As increased freight so that's related to both ocean and air because we did use some error in Q1.
Which a year ago, we didn't we didn't start using air freight.
Last year until later in the year, so that'll be where we're going to have some headwinds in the first half of the year versus tailwind when you get into the <unk>.
Later part of the year so.
Roughly 260 on rate there was about 50 basis points related to FX and then everything else, we're kind of all the other things that we stated.
Yes, and just to remind you the freight again as we've talked about is inclusive of air.
And ocean.
And then the second part of your question was.
Just on the supply chain.
Some improvement.
How do you think it trends from here faster, yes, so what we're seeing and this is what's contributed to the strong first quarter. We have seen an improvement as we mentioned in the prepared remarks, so product is flowing in.
A little bit sooner than what we anticipated so we're seeing things.
Hello.
The visibility is still limited as I mentioned in the prepared remarks too. So we're still trying to get better gauges on arrival of inventory. Good news is on the West Coast Port Labor negotiations, that's still ongoing so we haven't seen disruption related to that but again still ongoing so we will keep a close.
I on that so again seeing inventory come in better which is good gives us an ability like we demonstrated in the quarter with June with HOKA and ability to move it out.
And b be in a better position than we were a year ago.
Order to kind of meet some of the demand. So we'll see how things go we're continuing to work on that continuing to look at ways to improve but encouraged by some of the improvements that we have seen but continuing to look for further improvement.
Got it okay. Thank you so much.
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