Q2 2023 Deckers Outdoor Corp Earnings Call
Conference call. Please press star zero for operator assistance at any time.
I'd like to remind everyone that this conference call is being recorded I will now turn the call over to Erinn Kohler, Vice President of Investor Relations and corporate planning.
Hello, and thank you everyone for joining us today.
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 uncertainty.
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 current fiscal year and long term strategic.
<unk> changes in consumer behavior strength of our brands and demand for our products product distribution strategies marketing plans and 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 levels and promotional.
Activity, our potential repurchase of shares and the impact of the macroeconomic environment on our operations and performance, including fluctuation of foreign currency exchange rates.
Forward looking statements made on this call represent management's current expectations and are based on information available at the time such statements are made forward looking statements involve numerous known and unknown risks uncertainties and other factors that may cause our actual results to differ materially from any results predicted assumed or implied.
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.
On this call management may refer to financial measures that were not prepared in accordance with generally accepted accounting principles in the United States, specifically, including constant currency.
The company believes that these non-GAAP financial measures are important indicators of its operating performance because they exclude items that are unrelated to and may not be indicative of its core operating results.
Further the company reports comparable direct to consumer sales on a constant currency basis for operations that were opened throughout the current and prior reporting periods.
With that I'll now turn it over to Dave.
Thanks, Aaron Good afternoon, everyone and thank you for joining today's call Im.
I am pleased to be here with you today to discuss the strong results delivered by our portfolio of compelling brands as we make continued strides towards our long term strategic vision EBIT amidst a challenging macroeconomic environment.
For the second quarter revenue increased 21% versus prior year to $876 million in.
In the quarter, our two largest brands drove compelling revenue growth of 6% and 58% respectively. Steve will provide further details on the strength of our second quarter later in the call, but for now I'd like to focus on how our first half results demonstrate deckers progress towards longer term goals. As a reminder, our long term vision is to build.
And to a multibillion dollar major player in the performance athletic space.
Further diversify the UGG brand's product geographic and seasonal mix.
For our DTC business through consumer acquisition, and retention and drive international markets through strategic investments, while maintaining top tier levels of profitability for the company overall.
With a continued focus on moving our in demand products into the marketplace. Early ahead of the UGG brand's peak selling season and while at the same time fueling your own demand for the HOKA brand. We are pleased with the progress we have made thus far against our annual outlook for the current fiscal year as.
As we continue to track our progress are reflected in our first half results of fiscal 2023, which thus far have delivered consolidated revenue growth of 21% versus last year and 64% versus two years ago.
<unk> revenue growth of 57% versus last year with the brand now representing 44% of consolidated revenue up from 35% last year and 28% two years ago.
Revenue growth of 3% versus last year with international driving growth aligned with our strategy despite currency headwinds.
And a 63% increase in DDC acquisition versus last year for Hooker and a 54% increase reflecting the strength of the demand of our brands, which propelled revenue growth of 26% for the first half.
Results like this demonstrate the success of Deckers multi pronged approach to creating growth and proactively managing our own brands to progress towards our long term vision, while delivering quality profitability.
<unk> is able to deliver on our objectives, while managing through external factors because of our flexible operating model omnichannel capabilities and our nimble organization.
<unk> brands are well positioned for the second half of the fiscal year and I am confident in the team's ability to continue executing.
Steve will provide further details on our updated thoughts on guidance and your macroeconomic environment later in the call, but for now let's dive into the brand and channel performance highlights for the second quarter and first half.
Starting with a reminder, and spangenberg joined our company earlier this year to leave the fashion lifestyle group, which includes the <unk> and <unk> brands.
<unk> wealth of experience and is already having an impressive impact on <unk>.
Leader with passion and a clear vision that puts the consumer at the center of everything the brand is doing and align with the UGG brand strategy implemented over the last few years.
It's focused on refining a few key elements of the brands approach to product and demand creation, which include expanding the base of consumers through a clear strategic vision of brand purpose and experience prioritizing the design DNA product proposition.
Editing and focusing on products and experiences to maximize consumer impact and elevating the pinnacle expression of bug.
Looking forward to seeing more advanced vision integrated into the UGG brand's bright future ahead.
Moving to get other brands first half results global revenue in the second quarter increased 6% versus last year to $477 million for the first half revenue increased 3% over the prior year, we've been talking for some time about the diversification of our product and the brands focus on developing franchises to complement core.
Classics.
The UGG product team has done a fantastic job broadening the consumer appeal beyond classics, while also ensuring classics remain the pinnacle expression of <unk>.
Keeping classic special is central to our UGG marketplace allocation and segmentation strategy that spans multiple countries and critical to augment painting high levels of brand interest around the world.
From a product standpoint has quite literally elevated core classics through the introduction of fashion forward platform versions of the brand's most iconic styles.
Generating tremendous press coverage from being spotted on top models and going viral and Tic Toc.
Platform classics are already trending in the top 10, amongst new consumers and 18 to 34 year olds in the fall season is just getting started.
<unk> with excitement building around the platforms. We've also seen a significant demand uptick in the original core classics that inspire them as DTC revenue from the classics Ultra many in the classic mini and the first half increased more than 200% and more than 60% versus last year, respectively.
Beyond classics against continued to find success with hybrid styles of which the latest and greatest example has been the Tasman for the first half of this year. The Tasman has been a top five style for <unk> overall and the number one style of purchase at GTC, we've been encouraged to see the Tasman being adopted as a genderless style of movement being led by the UGG brand's 18 to 34.
Our old cohort as the second most popular and most popular style among female and male consumers in the age group respectively.
Further to the Tasman popularity and the prevalence of platforms you introduced the platform Taz last year and the style is already in the top 10 amongst 18 to 34 year olds. We're excited about the continued opportunity with this franchise as it speaks to the UGG brand's growing year round appeal and increased category diversification driver.
Driving the success of an early attention to this fall with the brand teams enhanced global marketing campaign strategy that leans into the consumer feedback derived from our recent brand survey with.
With concrete consumer feedback across the global markets provided by the surveys.
Design. This year's campaign dubbed it feels like hug to deliver a unified brand message via local influencers that recast specifically for each of these individual key markets, which leans into the feeling and comfort that are core to the brand's DNA beginning with an influencer event in Paris that coincide with the UGG collaboration with opening ceremony.
And continuing on to our collaboration with six PM that was featured during fashion week, Milan that feels like a campaign was launched on the runway and broadcast globally through social engagement by a community of ambassadors and consumers who love the brand.
We're seeing tremendous response from consumers. Thus far is in the second quarter search interest for the U S increased 11% versus last year with two thirds of the UGG dot com visitors new to the site.
18 to 34 year old Cypress theaters, and EMEA more than doubled versus last year.
Asia Pacific DTC business grew 11% versus last year, and global DTC retention increased 50% versus the prior year.
Consumer response has been positive globally for the UGG brand.
First half revenue was driven by international regions as the U S lab significant wholesale refill activity from the prior year.
Additionally, some of this year to date growth overseas as due to lapping supply chain latency in the first half of last year, but we feel the UGG brand's international regions returning to growth is proof of the successful marketplace reset initiatives implemented over the last few years.
All in all the UGG brand is positioned well for holiday with inventory availability, having improved relative to last year in key markets across the globe. We're encouraged by the results. We've seen early in the season, but as always remain cautious with our busiest periods still to come.
Shifting to Hooker global revenue for the second quarter increased 58% versus last year, but a $333 million a.
Our quarterly revenue record for HOKA, leading to our first half revenue increase of 57% versus last year.
<unk> growth continues to be driven by the brand's exceptional global ecosystem of access points, which is building market share through increased awareness and benefiting from strategic door count increases.
While greater market share with existing accounts is responsible for the majority of poker growth. This year. The brand has made some notable addition to access points, which include expanded distribution with strategic growth accounts.
<unk> owned and operated stores to build awareness and serve the motto brand China market to.
Two stores in Japan, and five pop up stores in the U S.
Each of these access points are designed to build HOKA brand awareness and increase consumer access to new geographic locations.
In addition, the HOKA brand has rolled out exciting out of home fly human flight campaign content and highly visible cities around the world, helping to drive a 145% increase in search terms in New York and Los Angeles.
With these efforts we have seen the HOKA brand's DTC growth rate accelerate from the first quarter into the second.
Overall for the first half Hooker has driven exceptional increases in DTC retention and acquisition, increasing 70% and 63% respectively across global markets.
All of these actions are driving incredible increases in brand awareness over the last two years HOKA awareness across all consumers has improved nine percentage points and even crossed the 20% threshold with the awareness among runners even higher according to Deckers proprietary brands tracker study.
Outside of the U S awareness is much lower with most regions sitting in the low teens percentage, but seeing similarly explosive growth and awareness, which highlights a significant opportunity for continued HOKA brand expansion.
<unk> the global marketing campaign HOKA Global event sponsorships have continued to help the brand maintain and build performance credibility with extreme athletes around the world. One. Recent example of this is the HOKA brand sponsorship of the Ultra Trail Du Mont Blanc, <unk> World series, and the brand's first year sponsoring the <unk> series.
Saw positive results has achieved a 34% share of shoes tracked on race participants, which is well above last year's total.
Additionally, HOKA athlete Ludovic Palmeraie placed first in the 145 kilometers Tds race that chamonix than in this year's <unk> series.
The <unk> trail shoe to conquer the courses diverse terrain.
The HOKA brand's alignment with the ultra competitive <unk> series highlights the brand's focus on becoming a leader in the growing outdoor trail and hiking segment.
The aforementioned speedboat is the HOKA brand's top trail shoe co.
Coinciding with the <unk> event in order to complement the <unk> HOKA launched them a five day speed for which is an innovative update to our heritage styles designed to broaden the brand's footprint and trail early.
Early reads from consumers purchasing them a fact, they have been exceptionally strong across global markets, which is exciting for <unk> as the brand focuses on building market share and the trail category for hiking Hogan now has two franchises in the copper and the Ana Kappa that are experiencing immense growth and building market share.
Thus far in fiscal year 2023, both of these hiking franchises have made their way into the top 10, most purchase styles for HOKA.
We believe this is because of the unique hooker DNA that says these franchises apart with their lightweight platform and maximum cushion that compares favorably to bulkier products from the competition.
Importantly, while we are seeing really strong growth in new categories of focus such as trail and hiking HOKA is also delivering exceptional growth and results with core running styles like the Bondi.
With the support of the increased global brand awareness as I mentioned earlier the brands launch of the eighth evolution. The flagship Bondi franchise was even more impactful is the Bondi eight was the top selling style globally in the second quarter.
More than doubled last year's Bondi seven volume among 18 to 34 year old consumers and.
It was a top five DTC style across deckers entire portfolio of brands for the first half despite just launching in August .
With this latest addition, bondi the brand's most plush ride got softer and more comfortable with the lightest hooker phone to date and an all new extended shell geometry, featuring rear crash pads that provide a soft imbalance transition built for long distance and just a few months of selling the bond <unk> has already been named the best Road running shoe by both the self.
Certified sneaker rewards as well as the GQ fitness awards congratulations to the <unk> team for the continued success and balanced growth across global regions and product categories. We look forward to delivering more exciting and innovative products throughout the rest of this fiscal year and beyond from a channel performance perspective, the first half was strong in both Ho.
<unk> and DTC fueled by a 39% increase in consumer acquisition and 44% increase in retention first half global direct to consumer revenue grew 26% versus last year.
<unk> continues to be a significant driver of consolidated DTC growth and the brand's growth rate even accelerated from the first quarter into the second overall, increasing 66% versus the prior year for the first half.
Doug also contributed to the first half DTC growth as the brand returned to growth in Q2, leading to a 4% increase for the brand in the first half on.
On wholesale global revenue in the first half increased 20% versus last year.
Strength in the wholesale channel was primarily driven by HOKA, gaining global market share and the brand benefiting from select additional doors with strategic accounts.
Also contributed to first half wholesale growth in the brands international regions.
Our first half performance highlights the strength of our Omnichannel marketplace management strategies that have allowed our brands to build market share with strategic retailers, while capturing DTC demand at the same time.
And while we continue to see great demand in the marketplace for our brands as we move into the back half the environment is evolving quickly, which may present challenges outside of our control. However.
However, our teams are focused on the variables that are within our control as we work towards this year's objectives.
With that I'll now turn the call over to Steve who will walk you through further details on second quarter performance as well as the context of our reaffirmed full year top and bottom line guidance.
Thanks, Dave and good afternoon, everyone.
Steve just covered Deckers delivered strong results in the second quarter to finish the first half of fiscal year, 2023, and a position of strength.
Drove another quarter of exceptional growth and continues to elevate its presence globally.
While there is plenty of heavy lifting ahead and we are now operating in our historically largest and most complex fiscal corner I am confident in our teams demonstrated ability to execute on our plans even as macroeconomic challenges persist most notably the continued strengthening of the U S dollar.
We will lean on our omnichannel capabilities flexible operating model and strong balance sheet to remain nimble and navigating any dynamic marketplace shifts that may occur as we provide our brands the opportunity to continue building long term sustainable market share.
Now, let's get into the details on the second quarter results.
Second quarter fiscal 2023 revenue was $876 million.
Representing an increase of 21% versus prior year on a constant currency basis revenue grew 25% versus last year growth in the quarter was primarily driven by the expansion of hunker, which increased 58% versus last year delivering record quarterly revenue of $333 million and a <unk>.
3% reported increase in international regions as the brand benefited from marketplace recent initiatives implemented over the past couple of years as well as lapping disrupted wholesale shipments in the prior year.
Gross margin for the second quarter was 48, 2%, which is down 270 basis points from last year's 59%.
Roughly half of the decline in gross margin was driven by unfavorable foreign currency exchange rates with additional impacts from higher promotional activity for <unk> as compared to last year's exceptionally low levels with the brand primarily utilizing higher margin DTC closet events to move through excess spring season.
Tori.
Higher ocean freight rates, which was partially offset by benefits from the reduction in airfreight usage <unk> price increases and favorable brand mix with <unk> driving the majority of growth.
SG&A dollar spend in the second quarter was $294 million up 23% versus last year's $239 million.
As a percent of revenue SG&A was 50 basis points higher than last year, primarily due to higher advertising spend as a percentage of revenue.
Our tax rate was 21, 2%, which compares to 21% for the prior year.
These results culminated in a diluted earnings per share of $3 80 for the quarter, which is <unk> 14 cents above last year's $3 66 diluted earnings per share.
Turning to our balance sheet at September 32022, we ended September with $419 million of cash and equivalents.
Inventory was $925 million up 45% versus the same point in time last year, primarily from HOKA brand as we bring product in to continue momentum with the brand and during the period, we had no outstanding borrowings.
During the second quarter, we repurchased approximately $50 million worth of shares at an average price of $290 as of September 32022. The company had approximately $1 5 billion remaining authorized for share repurchases.
Now moving into our updated guidance for fiscal year 2023, we are reaffirming prior consolidated revenue operating margin and diluted earnings per share guidance. Our full fiscal year 2023 guidance now includes reaffirmed reported revenue growth of 10% to 11%.
<unk> anticipating between 345 billion and $3 5 billion.
With HOKA now expected to increase up to 50% versus last year, helping offset larger currency headwinds as a result of a continued strengthening of the U S. Dollar.
And <unk> is expected to be down mid single digits on a reported basis, primarily due to negative currency impacts.
Gross margin now expected to be approximately 55%, which is a reduction from our prior guidance, primarily due to increased currency impacts as well as some additional promotional activity.
SG&A as a percentage of sales now expected to be approximately 33%, reflecting variable savings to help offset further gross margin pressure that we have now incorporated opt.
Operating margin range is still expected to be in the range of 17, 5% to 18%.
Tax rate is now expected to be approximately 22% and diluted earnings per share is reaffirmed in the range of $17 52 to $18 35.
Please note this 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 from the ongoing COVID-19 pandemic on our operations and economic conditions, including supply chain disruption constraints and related expenses labor shortages.
Inflationary pressures change in consumer confidence and recessionary pressures further strengthening of the U S dollar and geopolitical tensions.
Now for some additional context on the state of our business as we approach the busiest part of our year from a logistics standpoint, we are still experiencing delays in the timing of container arrivals remains difficult to predict but we feel good about the improvement in transit times, which has led to a reduction of inventory in transit on both a dollar and <unk>.
Central basis as compared to last year.
Additionally, I am pleased to report that container costs have come down, but would caution that we won't start to see that improvement in our gross margin for a few quarters with that said the headwinds we've experienced from ocean freight in the first half are expected to turn neutral for the remainder of this fiscal year.
With the improvement we've seen on transit times, and our strategic prioritization to bring inventory in earlier and hold higher levels in the country of sale, we no longer expect to use a material level of air freight in this fiscal year.
Additionally, with the strength of our brands and ability to move through some promotional inventory during the corner, we have seen our year over year inventory growth rate moderate as compared to recent quarters with inventory levels, 45% higher as of September 30, compared to the same date last year at which point inventory levels were built.
Loan normal operating levels.
While we are still chasing the exceptional demand for our brands, particularly with the opportunity we've outlined for HOKA, we're likely to see inventory growth outpaced sales in part to hedge against future disruption.
On the promotional environment, given how clean we have been over the last few years with very little promotion across our portfolio of brands. We have experienced increased levels of promotion. So far this year related to clearing some excess inventory largely spring season product and shifts in the macroeconomic environment.
Embedded in our updated guidance for the full year, we expect more promotional activity relative to the exceptionally low level of promotion in prior years.
Further on gross margin I'd like to touch on currency as this is increasingly been a topic of interest for the first half we've seen a currency revenue impact to the tune of approximately $30 million and a 110 basis point impact to gross margin.
With our business being second half weighted and no signs of a weakening dollar we are anticipating a second half revenue impact of approximately $70 million, primarily impacting the UGG brand in total we now expect currency to negatively impact our gross margin rate by approximately 140 basis points.
For the full fiscal year 2023. This increased currency headwind is the primary driver of our change in our updated gross margin outlook.
As our top and bottom line guidance has been maintained despite the continued strengthening of the U S. Dollar being incorporated we are reflecting an underlying operational raise from our variable levers to remain on track with our original full year outlook, excluding the negative impact of currency now projected in fiscal <unk>.
2023, our guidance would indicate gross and operating margin expansion in comparison to the prior fiscal year. This currency neutral margin expansion would be driven by reduced airfreight usage competitive marketplace price increases and brand mix benefits with the growth of OCA being partially offset by <unk> <unk>.
First half ocean freight pressures as well as increased promotional activity.
So clearly there is much to overcome for the balance of our fiscal year I am confident in the strength of our brands and ability to leverage our flexible operating model to deliver the compelling guidance, we set out at the outset of this fiscal year.
Thanks, everyone and now I'll hand, the call back to Dave for his final remarks.
Thanks, Steve we are excited about the strong results delivered in the first half of fiscal year 2023, but again, it's important to acknowledge that we are still operating within an uncertain environment, where things can change quickly and the bulk of our fiscal year is still ahead with that said Deckers is fortunate to have two of the strongest brands in the footwear space that continued who.
Gage and attract new consumers every day.
The UGG brand's diverse product assortment is positioned well for holiday.
Led by elevated platform classics, which are driving heat and excitement around the core as well as the continued interest in more transitional hybrid styles like the Tasman and ultra many paired with a compelling marketing campaign that is resonating across global markets, we expect <unk> to perform well this holiday season.
Our powerful brands paired with strategic marketplace management, Omnichannel capabilities and disciplined financial management gives me the confidence that our organization can achieve the compelling guidance set forth for fiscal year 2023, even in the face of macro pressures that will impact the broader retail space.
Of course, none of this would be possible without the dedication and hard work of our employees, who I'd like to thank in advance of our busiest period of the year.
I'd also encourage everyone listening to take a look at our FY 'twenty two corporate responsibility report that we'll be launching next week and will be posted on Deckers dot com further highlighting our company's efforts to do good and do great in the communities, where we operate and beyond.
Thanks, everybody for joining us here today and thank you to all of our stakeholders for your continued support we look forward to continue sharing the exciting future ahead of Deckers.
With that I'll turn the call over to the operator for Q&A operator. Thank.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys and to withdraw your question. Please press Star then two.
In the interest 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 Laurent <unk> from Exane BNP. Please go ahead.
Good afternoon. Thank you very much for taking my question and congrats on such solid results in this environment.
Steve I wanted to ask about the implied <unk> guide.
On a reported basis looks like 3% maybe on a cc basis, it's still up six 7% tell me if I'm wrong, there, but can you maybe unpack that a bit.
Youre expecting wholesale to grow or not grow versus strength in DTC and I know you don't typically guide by quarter, but any nuances, we should consider between <unk> I know you've had shifts in revenues over the years.
Shipments.
But anything that we should consider.
As we modeled the rest of the year.
Yes sure.
So just to give a little bit of perspective on the back half and you're right. We don't give quarterly guidance. So.
I think how we're seeing the year play out and I know everybody's models are a little bit different but it is it is I think laying out to the way, we expected which is much more growth in the first half. So I think remember the context of last year. Our first half was very disruptive in terms of inventory and product availability and so.
When you see the big percentage increases in the first half of this year. We are as we intended to do shipping out more product earlier in the year.
It's benefiting clearly you can see from the growth numbers as well.
Last year as we started to see more inventory coming in in the second half of the year. It was setting up a bigger half last year.
So we are now comping against that bigger half that you saw last year. So that's why you see from a percentage basis.
The second half with lower.
Percentage growth, because we're comparing against a bigger second half.
We're still seeing significant growth with OCA clearly in our guidance again, not quite the same level of percentage increase.
But remember we had a very big.
Quarter last year, and that was not only applicable to hook up but as well so.
Again, we're not breaking out quarters.
But as I said the year is playing out much to our expectation embedded in our updated guidance is an operational improvement and thats largely coming from increases related to help them. So we're continuing to see strength.
I mentioned it in my updated guidance in terms of now seeing growth for the full year of hook up to 50%. So before it was.
Kind of 40% to 45% so youre seeing that I think the other thing remember is last year was more growth with wholesale as we were finishing the June last year.
So we're comping against a replenished year.
Year last year in the wholesale business, so you're going to see slightly lower percentage growth.
The wholesale business, but.
But overall.
Lending very strong demand signals very strong.
The year is playing out well and a strong start to Q3.
So again as we've said before and again. This is part of the reason, we don't give or did not give quarterly guidance. This year is because of the disruptive nature of last year.
And we knew that there would be movements between quarters, and we knew that first half was going to be much bigger growth. This year.
With percentage increases lower but still strong dollar growth.
And I would just add onto that we've been spending a lot of time.
Planning the back half of the year and we're really proud of the fact that we're able to maintain guidance. Despite some really significant headwinds on the margin front potentially from a promotional standpoint with significant FX headwinds as well and we've aligned as a leadership team across the organization.
We feel confident that we can still deliver despite some of these significant headwinds and thats our objective.
And we're going to optimize the strength of our brands right now to deliver is healthy.
Margin and promotional free season that we can.
Very helpful. Thank you very much and then as a second question follow up on Doug.
I think Dave you mentioned that international grew 20% reported I'm, just going to kind of ballpark at that on a cc basis would probably up over 30%.
Maybe can you unpack that.
What's driving that is it is in Japan and Europe .
Then I guess, maybe maybe the U S number was probably down low single digits.
For this quarter was there something with regards to cancellations or just the linked third on the DTC side anything on that would be very helpful. Thank you.
Yes, sure we're really.
We're really pleased with how things are playing out internationally, we've been working at transitioning those markets much like we did in the U S. A few years ago, and we're starting to see fruits of that work in a positive way, particularly around diversified classics in the UGG brand and younger consumers and so the marketing campaign the.
Key styles and platform styles.
Really.
Resonating well in those regions, but I think a key factor is is that we are showing up more local than we are a global brand. So we're working closely with.
Key influencers in the regions, that's not something we've generally done this aggressively in the past before we've got some great partnerships.
With local Influencers and celebrities.
And also fashion Institute in China that is giving us access to local designers to collaborate with and we're showing up more with more of a local.
Understanding of the consumer versus.
Purely just kind of peanut butter spread a global campaign. So we're getting surgical on the regions both in assortment and distribution, but also the consumers that we're going after and leveraging.
Now those local relationships as best we can and Thats driving very healthy business right now. So it is good despite some of the challenges obviously at a macro level in both Europe and in China right now.
Our brands are still coming in are performing well.
Like I said, it's great to see that turnaround and we see it continuing a little more challenging in <unk> in the U S. Just some of the wholesale.
Nuances with shipping and things that we've had last year versus this year, but overall, it's off to a really good start and like I said in this environment is tremendous to see the international region is doing so well.
Very helpful. Thank you very much.
Okay.
The next question comes from Tom Nicole from Wedbush Securities. Please go ahead.
Hey, Thanks, very much for taking my question.
I guess on the on the.
FX side I mean, it sounds like you were it not for FX changes over the last three months you would have been raising guidance.
Hey.
Is there anything.
Do you make.
Any pricing adjustments or anything like that given how dramatically the.
The exchange rates have shifted in kind of the.
The relative values in the different markets kind of changed dramatically or.
Can you just kind of take the.
Changes in FX rates and what they've done.
The prices and the margin rates of those businesses and just kind of run with it from there.
Yes, Tim this is Steve.
Good question I think Youre correct.
We did say this is yes.
On a constant currency operational basis, we are increasing our outlook that increase has been offset by the stronger U S. Dollar. So that's why we're holding guidance it is.
An offset to the increase that we're seeing in the business in terms of price increases.
Have introduced pricing this.
This year we.
Some other price increases on selected hug that are starting in Q2.
It's difficult in season to change pricing.
And therefore, there really isn't an opportunity once you're in season to adjust pricing. It is something that we can look at going forward, but it's not anything that will impact this year.
And we've taken quite a quick follow up.
I'm just kind of a quick follow up on.
Last year in Q4, I recall, you said that you had a bunch of.
Stuff that you had shipped to the port of <unk>.
We'll sell channel and.
Yes.
Wholesale partners are planning peso pack it away and relief for holiday 2022.
Does that have kind of a meaningful impact on the back half or.
Keep in the back half.
It causes.
Pretty difficult compare in fiscal Q4 sites.
Wanted to touch on that on that yes. It's a good question. So in terms of and especially related to Q4 again, we're not giving that kind of a quarterly Q3 Q4 breakout but to your point in Q4, I think the thing to recall last year.
As we were experiencing significant supply chain disruption ship buildup at the ports can.
Congestion at the Port we were not able to ship product as much as we would have liked in Q3.
That a lot of that started to clear up in Q4. So we were shipping more product in Q4 last year than what we would normally do in a regular year you would've seen some more of that in Q3.
The other is we saw a good demand on the DTC side in Q <unk>. So that was another buildup in the quarter. So we're still building on that business again, it's overshadowed by the strength of the U S dollars and the significant impact of foreign currency. So you don't necessarily see that level of growth because on the international front.
We do get hit.
With the currency. So we are comping, a very strong back half last year, especially in Q4.
And so again, it's not changing necessarily the shape of the business for the back half there is some quarterly cadence between the two quarters, but we are building an exceptionally strong back half last year. This year. It just gets a little bit overshadowed by the strength of the U S dollar and currency impact.
Got it thanks, very much but for mark in the holiday season.
Alright, Thanks John .
The next question comes from Jonathan Komp from Baird. Please go ahead.
Yes, hi, good afternoon. Thank you, Steve maybe just to follow up on the gross margin assumptions for the second half could.
Could you maybe just talk about how your promotional assumptions changed for the second half if at all.
Versus the way you maybe previously thought embedded in the gross margin and then.
Bigger picture any change in your confidence that you should be low <unk> gross margin business over time.
Yes, I think.
The last answering the last question first it depends it depends on everything thats going on so the gross margin decline again on a full year guide because thats, what we provided the 51, 5% to 55, the large majority of that is currency driven.
So when you do your model and you calculate what we just delivered in the first half and you calculate your second half.
The large bulk of that decline is driven by the.
Further strengthening of the U S dollar.
Just one other item to recall as Q3, and Q4 are big quarters for us with Q3 being the biggest so we are going to feel more of that currency impact in.
In Q3.
Because we have more business wholesale direct business.
On the international front. So that is there is a slight component and increased promotion factored into that.
Yes.
Again, the large majority of the change or reduction is driven by foreign currency.
Got it understood and then maybe David switching to OCA.
Could you share a little bit more on your reaction to what you've seen following the launch of the marketing campaign. This summer I know you mentioned a pretty impressive improvement in awareness just curious how marketing has contributed to that and as you think for <unk>.
The balance of this year and into next year. What are you looking at in terms of what could be the most incremental for growth going forward here for HOKA.
Yes, I would say.
Marketing, we're very happy with how the fly human flight campaign has been received globally. It's been very well received from all of our partners around the globe, it's resonating very well with the consumer we share.
Some of the metrics in the prepared remarks and those results are incredible.
Only in New York to have that kind of uplift on additional marketing spend and we are shifting more money to top of funnel and experiencing with different mediums.
And we're learning and law and it's paying off so we're going to continue to do that as you know we've said for many years now we're going to continue to invest in our brands.
Through marketing and talent and this is just a great indication of when we get a powerful.
<unk> Global campaign.
For this brand and move some more money to the top of the funnel.
A very positive impact and so that's a new learning for us we're going to continue to lean into that and explore different ways of connecting with our consumer.
I think for <unk> going forward, we have some exciting launches.
We're launching the Clifton nine coming up in Q4, that's going to be a major launch for us.
And we're continuing to have a very healthy and exciting pipeline of product, but as we've talked about before we're dominant in run and trail, we need to bolster our opportunities and hike.
And we're getting tremendous response from some of them are lifestyle distributions such as free people.
In the U S and so it's extending the reach of our brand, it's bringing in younger more fashionable consumer.
And really it's hitting on all cylinders. So it's just a matter of where we want to focus our lunches, where you want to focus our marketing spend and drive the upside surgically over the next six months, but there is a lot of opportunity here. We're just really optimize focused on optimizing margin and sell through in creating awareness at a top level.
Great. Thank you very much.
Thank you.
The next question comes from Jay sole from UBS. Please go ahead.
Great. Thank you so much Dave I wanted to follow up on the <unk> question I think in the opening remarks, you mentioned that your long term vision is to build <unk> into a multi billion dollar brand maybe can you just elaborate on.
How has your vision has evolved over the last three months, what you see as the potential for <unk> and if you could put any numbers around that multibillion dollars 2 billion $3 billion anything around that would be helpful. And then Steve just on the guidance for the year I think you said down mid single digits, but you could could you give us a constant currency guide for hub.
The.
For the full year. Thank you.
Yes. Good question, Jay I think obviously for for OCA.
The growth on growth that we're experiencing now the scale of that business the multiple categories that were doing.
Doing very well in <unk>.
And the expansion into more lifestyle product and distribution.
Always still performance product.
Or just finding more opportunities the awareness, we said in the script of the brand for non runners is only around 20% it's single digits in the international regions.
And so when you start doing the math on awareness increases the category opportunities head to toe.
The global markets, both in our Omnichannel distribution.
There is there is clearly a path to a multibillion dollar opportunity.
And as I've said before we don't see this as just a running brand. This is a running trail hike.
Brand that is more like a <unk>.
The north face or Solomon. Eventually then it is more like a brooks. So we are.
Re looking at our category approach, we're bolstering up some design.
Product management talent and our teams are elevating our marketing functions.
We're going to stay aggressive because we feel we have a tremendous opportunity to create the next multibillion dollars performance ramp.
And then Jason this is Steve.
Sure.
On a constant currency guidance, it's more like very low single digit decline.
Got it Okay and then can you just talk about October and sort of the weather compares versus last year. How is October started it was last year was negatively impacted by weather in November is that fair to say specifically in the U S and what's your sort of your expectation this year. Thank you.
Yeah go ahead.
So far so good I mean, we spoke about some of the early launches of the ultra mini platform products, both in the ultra and although it hasnt been.
I mean, we're seeing just incredible response to those products and we've gotten great press from.
There are a lot of the runways in.
In Europe and also in New York.
Influencers are wearing our product in a compelling way I think the advertising the marketing campaign is resonating very well with our consumer we are getting really good feedback on that.
And the sell through of these extended classics as exceptional so.
We're pleased and again, we're heading in with a lot of confidence that we're heading into an environment that is seemingly going to be very promotional.
But we're going to try to optimize full price sell through as best we can and come out clean and healthy.
Sounds great. Thank you so much.
Thank you.
The next question comes from Sam Poser from Williams trading. Please go ahead.
Thanks for taking my questions also before I get to your questions.
Aaron can you give us the my normal question. Please on the wholesale revenue is by brand.
Sure Sam that counts as one question.
Because you should just could you just tell everybody upfront.
Okay, Sam section on wholesale 361 for the quarter Hooker <unk> sales of $2 23.
20.
Five other brands call it 28.
In DTC is $2 39 of the 875 in total.
And then okay. Thank you okay. So now for questions.
The bat the FX Youre looking for what what are the FX headwinds in total that youre looking for the back half I'll just ask all my questions together.
What are your replenishment of expectations for <unk>.
Built into your guidance for the third and fourth quarters and.
Well just do those two and I got one more.
Yes, so on the second half as we said in the call script, there is $70 million currency headwinds.
For the company in the back half of the year.
And then in terms of replenishment on.
The growth on the gross margin, though on the gross margin what's that what's the headwind on the growth like.
Just where the back half.
For the full year.
Correct, one for Dion background.
Okay.
Hello Hello.
Yes, yes, it is but its double check that real quick.
So we get the right input.
Yes, so one turn on the first half impact.
And then 140 on the full year impact and then you can back into the second half impact.
My math isn't good but.
And then.
Yes.
And then with the.
With.
What percent of the business in the third and fourth quarter is international versus U S and how does that breakdown from a wholesale to DTC scenario because it looks like the DTC business I would assume that's very U S centric.
Yes.
The demand just looks like it's exceptionally strong so I mean, how are you thinking about.
Wholesale and DTC from a you can do a currency neutral or whatever just in for the balance of the year, especially DTC.
Yes, so second half wholesale we're looking down a little bit so again it all bran.
Global.
And then DTC we're looking.
So roughly speaking kind of low single digits down on the wholesale second half.
And high single digit ish on the DTC back half.
But I would assume that would mean that of wholesales down a lot just given how strong it was last year and the FX, that's offset by high increases balanced different with <unk> is that fair way to think about it.
Yes.
Again part of that wholesale dynamic to the earlier question is because last year. We had a lot that went out in the second half we had a lot that went out in Q4, specifically, especially as we were replenishing depleted wholesale inventories with incoming inventory arrived in Q4.
Alright. Thank you very much continued success.
Alright, Thanks, Dan.
The next question comes from Dana Telsey from Telsey Advisory Group. Please go ahead.
Good afternoon, as you think about the progress in the channels of wholesale and DTC.
Mentioned on one of the last calls about extended distribution. What are you seeing this and for <unk> in terms of distribution and where youre looking to possession and then on the DTC side when you talk about <unk>.
Eliminating goods to your own channel given it somewhat given its more productive what are you seeing more of the strength coming from and how you're planning DTC both of them, but whether its outlets or full price going forward. Thank you.
Yes, good question Dana so.
There really isn't expanded distribution happening so.
We're sticking to our tight distribution.
Framework that we have globally, we're working hard at establishing that closing more accounts and opening.
So we're not really in an expansion mode for distribution and we're trying to consolidate work with the strategic players that we have tremendous relationships with an optimized DTC.
<unk> a little bit different we obviously want to optimize DTC and we are doing a great job with that but.
But we are strategically expanding.
Two doors not in a massive scale, but I'll give you. An example in the U S coming up.
And then Q3 this fall we're.
We're going to expand up to a 100 doors in.
DSG with Dick's Sporting goods. So we are slowly opening up more doors with that account and expanding a little bit we're testing foot locker.
And then so but beyond that there really isn't much distribution.
Expansion for each of our brands, what we're seeing is higher rates and productivity and full price sell through and the accounts we have.
Those accounts are.
This sporting goods and foot locker are new.
And we're still learning a lot, but the growth that we're seeing in existing accounts and the productivity in those doors.
Exciting similar to what we're seeing in DTC and then we're going to continue to strategically.
Fully expand distribution, because we don't really need a lot more distribution right now with the demand we're seeing in the channels, we have and we want to enter into any new distribution and our quality brand building way.
From a DTC perspective, we use that strategically one of the beauty of our the beauty of our omni model is that we can shift pretty easily between wholesale and e-commerce and retail.
We use the DTC channel strategically too.
Exit some goods at a high healthy margin, but also use that as an acquisition for new customer retention and so youll see a little bit more now that we have some inventory we were so tight last year inventory that we didn't have hardly any excess you'll see a little bit more on our <unk> and hooker.
Websites, perhaps than you've seen in the past, but that strategic because we make more money in those sales on our own account and we get the consumer data versus discounting heavily in the marketplace. So we want to control. This as much as we can strategically use DTC as an engine to drive.
Growth in profit and also acquisition.
Thank you.
Okay.
Our last question is from Jim Duffy from Stifel. Please go ahead.
Thank you Hello, guys really nice work from an operational standpoint, I am sure that hasnt been easy so kudos to the team.
And my question.
Wanted to focus on.
Product diversification you highlighted some great progress can you speak specifically to diversification traction in international markets is it lagging North America.
To take of styles like the Tasman in the many than a U S centric phenomenon or is that also showing and international markets any perspective, you could provide there would be great.
Yes, no great question and it's interesting because.
We've had such success with more fashionable styles.
The fluff was a big.
Acquisition opportunity for us with younger consumers and there's a lot more fashion and fun, but what are you seeing right now is the excitement around our classics extension. So the team has done a tremendous job of taking our core classics, which we.
As you know we've managed incredibly well over the last three years pulling back and distribution allocating inventory and now we're going back to these accounts with a more expanded classic offering which is right on trend the platform trend.
Out there in a big way that product is selling well globally.
As well as the Tasman It Hasnt has a little bit more behind on an international level, but generally speaking the diversification into heritage classics and kind of more fashionable product is serving this brand incredibly well, we're bringing in more diverse consumers are bringing in younger consumers people are purchasing more often international is a little bit behind.
On for example, China is having a moment now with fluff, where U S and Europe that was last year.
So it's just a little bit of a different cadence and some of the international markets versus the U S. But all of the product is resonating. The one difference in I would say the Asia Pacific region.
Is that they have a higher penetration of classics overall, but they also have a much higher penetration of sneakers in those markets, which have been resonating very well also which gives us more opportunity to lean into that category going forward, which is a big one for the UGG brand to capture so strategy.
Our strategy is working great youre going to see an expanded.
<unk> focus on classics and more functional product coming into next year, which we believe we will.
It will be accretive to margin and ASP and still some market share from others in that space as well so lots of opportunity. We've got some work to do on bolstering mens at the moment and putting more marketing.
That category.
But overall, the new products resonating well and are very optimistic.
Very helpful. And then just one more Steve you made some comments on difficult comparisons in the fourth quarter that seemed more specific point of clarification is there a HOKA element to that as well that we should think about.
Modeling brands.
Yes.
There is a <unk> element. So I think the important thing to remember there was in both Q2 and Q3 last year, we were really starved for hooker inventory and that really arrived in Q4. So we had.
Went up demand that was being fulfilled in Q4, and so you saw a big Spike in Q4 of last year and we're comping that this year. So yes that does play a part in Q4 as well.
Very good thank you guys.
Alright, Thanks, Dan Thanks, Jim.
This concludes our question and answer session and the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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