Q3 2023 Deckers Outdoor Corp Earnings Call
In addition, the company reports comparable direct to consumer sales on a constant currency basis for operations that were opened throughout the current and prior reporting period.
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.
With that I'll now turn it over to Dave.
Thanks, Aaron Good afternoon, everyone and thank you for joining today's call I'm.
I am pleased to be here today, highlighting another record quarter for Deckers brands as our teams were once again able to successfully execute against our long term strategic objectives to deliver standout results in a dynamic consumer environment.
Our fiscal third quarter record setting results include $1 $35 billion in consolidated revenue, reflecting a reported 13% increase versus the prior year and diluted earnings per share of $10 48.
Key areas of progress during the third quarter included <unk>.
<unk> delivering record revenue of $352 million as the brand more than doubled its DTC business, while demonstrating momentum across the product line and significantly increased wholesale through both market share gains and select new strategic access points.
Doug increasing its mix of business and DTC to 60% up from 54% last year as the brand drove an 8% increase in the channel.
Total portfolio, DTC, increasing 19% versus last year to represent 52% of volume with both <unk> and <unk> contributing to this mix shift an all time high for the third quarter and.
In our international revenue, increasing 12% on a reported basis and growing 25% on a constant currency basis, when adjusting for the significant FX headwinds.
Deckers delivered exceptional performance in the quarter and continued progress with respect to our long term objectives.
Notably our brands commanded strong full price selling despite a highly promotional marketplace. During the holiday season, while our brands did experience more normalized promotions relative to extremely low levels in the past few years, we were able to avoid significant discounting due to the strength of consumer demand for our products as well as disciplined marketplace management.
Through our Omnichannel approach.
Thankful for the leaders throughout our organization, who continue to prioritize long term brand health and remain committed to our strategic pillars, allowing deckers to maintain top tier profitability.
Our brands are well positioned for calendar 2023, as we enter fiscal year 2024 and April Steve.
Steve will provide further details on our updated guidance for this fiscal year as well as how we're thinking about the arduous macroeconomic environment.
For now lets get into the brand highlights for the third quarter, starting with <unk>.
Global <unk> revenue in the third quarter was $930 million down 2% versus last year on a reported basis, but up low single digits on a constant currency basis.
Overall consumer demand for UGG was strong in the quarter as the brand delivered global gains in DTC across genders and categories driven by a 21% increase in acquired consumers and a 17% increase in retained consumers. The UGG brand's healthy DTC performance was offset by unfavorable foreign currency exchange rate impacts.
Our cross sell channels as well as lower wholesale revenue.
This wholesale decline resulted from the unique shipment timing dynamics discussed at the outset of this fiscal year, which included an expectation that the third quarter would be impacted.
Pacifically. These earlier shipments drove temporarily elevated levels of inventory in the channel as a result and in line with our marketplace management strategies, the UGG brands' attention shifted to selling through product already in the channel to strategically reduce marketplace inventory, allowing DTC to capture demand upside in limiting the need for excess <unk>.
Emotional activity.
From a style and franchise perspective continues to find success with fresh updates of iconic styles.
Throughout the year consumers have continued to migrate to fashion that are uniquely ujiji, such as the classic mini and Tasman as well as more versatile derivatives of these products. The consumer demand for these products was quite strong and certain style color combinations, even led to out of stocks.
Our measured approach to buying aimed at driving improved inventory levels combined with the high level of demand for these products led to some scarcity in the marketplace. We see this approach is an effective tool to fuel demand and we'll continue to optimize our pull model to balance future supply.
With respect to how these styles have performed we are encouraged to see the continued strength of adoption from the brands target segment of 18% to 34 year olds. Among this segment in the U S. The classic short remaining a top seller, but the strongest growth came from the classic mini and ultra many styles, which ranked second and third respectively.
Platform Classics were also extremely popular with this age group likely resulting from the brand heat generated through unpaid product gifting to a list celebrities, which helped drive the hashtag platform uggs as the brands number one social trending topic in the quarter.
Among 18 to 34 year old males in the U S. UGG brand consideration reached an all time high in the third quarter <unk> is increasingly seeing this segment of consumers adopt versatile slipper hybrids like the Tasman and classic slip on as consumers continue broadening the wearing occasions of iconic styles beyond these hybrids male consumers gravitated towards hair.
<unk> winter boots, such as the Butte as well as Weatherized versions of iconic styles like the new mill brand heat remains at an all time high based on the exciting new products designed for the brand's target audience supplementing.
Supplementing these fantastic inline products our teams develop each season.
Continues to build a fashion credibility through collaborations the most recent of which was with designer Shane Oliver the founder of Hood by Air change futuristic take on classics was covered by several high profile outlets, including Vogue complex in height piece.
These aspirational styles continued to drive excitement in the line and bring awareness to a new audience of consumers.
From an international standpoint AG showed growth on a constant currency basis, despite revenue being down versus last year on a reported basis. This was led by DTC is acquired and retain consumers in the channel each grew 38% versus the prior year International wholesale was down versus last year as <unk> lapped the supply chain disruption, which pushed additional <unk>.
<unk> into the prior year's third quarter.
Strength in the UGG brand's international regions is largely attributed to the successful ongoing marketplace reset activities completed over the last few years, which included a revamped approach to product and marketing, helping drive greater synergies and product adoption across the globe.
Overall, we are very pleased with the performance above this fall the brand continues to attract new consumers and drive more business through direct to consumer with a loyalty program that now has amassed over 7 million members worldwide.
We feel great about the brand's ability to offset more normalized promotional activity through a strategic shift in channel mix, which also helped to reduce marketplace inventories heading into the spring 2023 season.
We expect to finish the fiscal year in a position of strength as demand for the brands compelling products that are resonating with consumers globally has never been stronger <unk>.
Shifting to <unk> global.
Global revenue for the third quarter was $352 million, representing an increase of 91% versus last year on a reported basis another quarterly revenue record for HOKA.
Just two quarters ago, we celebrated hooker achieving $1 billion of revenue on a trailing 12 months basis and with the quarter. Just delivered the brand has now eclipsed $1 billion of revenue over the last nine months ended December 2022.
<unk> growth in the third quarter was driven by share gains with run specialty accounts in the wholesale channel as product flow improved this year relative to last allowing <unk> to increase sell through.
Added points of distribution with select strategic accounts as the brand has been slowly expanding throughout the year.
Global DTC revenue more than doubling versus last year, as consumer acquisition and retention increased 95% and 109% respectively.
And a favorable comparable period as wholesale shipments were disrupted in the prior year due primarily to port congestion.
We believe the fly human fly marketing campaign has been a key catalyst for the HOKA brand's DTC strength throughout the year, which has driven a higher growth rate than wholesale and each quarter. Thus far this fiscal year.
During the third quarter targeted marketing Activations in Chicago, and New York City helped drive a 22% increase in brand awareness of 27% increase in consideration and a 33% increase on purchase intent in these markets over the next six months. We also believe these markets have seen a halo effect from the additional brand visibility.
<unk> created by pop up stores, which have continued to perform well for HOKA.
In particular, we saw significant gains among 18 to 34 year old consumers, who in the U S and EMEA drove the largest year over year increase of any age group during the third quarter.
We have been increasingly encouraged by the broad product adoption from females in this coveted demographic who appear to be actively searching hooker dot com for what is new and exciting on a regular basis, giving us confidence in the investments we are making to build brand awareness globally. The all new Solomont Cross trainer is the perfect example of this trend.
<unk> launched earlier this fall without significant marketing dedicated to the shoe, but still landed in the top five of styles purchased by females, aged 18 to 34 years old in this quarter.
<unk> is also resonating well with males. In this demographic, but we see a great deal more opportunity to further expose the brand's product depth by testing access points to specialized in serving this target consumer.
Importantly, even with the expansion beyond run specialty distribution. The brand is hyper focused on delivering in that core channel as well.
According to aggregated U S run specialty store data.
During December Hooker increased market share by five percentage points versus last year.
Delivered the highest average product turns and maintain a gross margin well above the channel average.
In terms of our wholesale partner access points in the third quarter. We are extremely proud of the HOKA brand's performance as it continued to build market share in a highly competitive marketplace.
With the strength of consumer demand for the brand HOKA was able to maintain its high percentage of full price business, even with the incremental access points with strategic accounts.
So early days in some of the brands new doors the feedback on hookup performance has been exceptional.
On the product side Hooker has continued to introduce award winning footwear in October <unk> was featured in the 2022 men's health sneaker rewards with the Bondi eight being chosen for the most comfortable cushion in the how to Gore-tex noted as the best hiking Sneaker Boots. In addition outside magazine published its winter gear Guide for 2023.
Selecting them a <unk> speed for as the best shoe for fast and rugged trail runs.
All of US at Deckers are excited for what is to come for the HOKA brand starting with a couple of innovative product launches planned for the fourth quarter and more to come in fiscal year 2024 and beyond it.
In terms of consolidated channel performance in the third quarter, we saw strong growth in both global DTC and wholesale but the majority of revenue growth was driven by global DTC, which increased 19% versus last year on a reported basis and 22% on a DTC comparable basis Didi.
<unk> strength was driven by impressive global consumer acquisition and retention across the entire portfolio, which increased 44% and 38% respectively.
From a dollar growth perspective, global Hooker DTC volume more than doubled and DTC increased 8% on a reported basis versus the prior year driving over $100 million of combined incremental revenue.
On the wholesale side consolidated global revenue increased 8% on a reported basis versus last year.
Growth was driven by HOKA brand market share gains in existing points of distribution as well as incremental business from added doors with select strategic accounts for.
For the total portfolio. The increased total volume was partially offset by lower wholesale shipments for <unk>, where the brand focused on selling through existing inventory to reduce the need for promotional activity.
Evidence of this success and illustrating the underlying brand heat during the season AG wholesale unit sell through in the U S increased mid single digits and fall 'twenty, two as compared to fall of 2021.
With the exceptional demand our brands, we're able to capture through DTC combined with the strategic actions taken on the UGG wholesale front, our third quarter DTC mix increased from 50% last year to 52% this year.
In the third quarter, our brands achieved the highest DTC mix ever for our historically largest quarter, which represents great progress towards our long term objective of a 50% mix of DTC business for the entire fiscal year across the portfolio.
Alongside our disciplined Omnichannel approach I would like to shout out our amazing design teams that continually bring compelling new products to market. The combination of these talented teams create the exceptional experience with our products that consumers have come to love and expect from our brands.
With that I'll turn the call over to Steve to provide further details on the third quarter performance and an update on our fiscal year 2023 guidance.
Thanks, Dave and good afternoon, everyone.
Adding to Dave's remarks, I would like to express how encouraged we are with the performance of our brands as we continue to operate in a very dynamic consumer environment.
We are fortunate that our two largest brands are very healthy and proving resilient and a highly competitive marketplace due primarily to their differentiated and compelling product offering.
While <unk> continues to drive incredible growth has again shown this quarter <unk> was able to deliver relatively flat reported revenue as compared to last year's record revenue and a much more difficult consumer and macroeconomic environment that included a significant foreign exchange rate impact.
In constant currency, the UGG brand delivered growth of low single digits in the quarter.
Our organization's continued commitment to long term strategic decision, making and disciplined approach to spending and an unchartered environment propel deckers to yet another record quarter.
Now, let's get to the specifics of the third quarter financial performance third quarter fiscal 2023 revenue was 134 6 billion representing.
Representing an increase of 13% versus prior year.
On a constant currency basis revenue grew 17, 5% versus last year.
Growth in the quarter was driven by continued expansion of HOKA, which more than doubled its global DTC business through impressive increases in consumer acquisition and online retention and increased wholesale revenue by 83% versus last year due to market share gains and select increased points of distribution.
With strategic partners.
<unk> also benefited from an easier comparison to last year's third quarter when wholesale shipments were disrupted by inventory delays that resulted from port congestion.
Gross margin for the third quarter was 53%, which is up 70 basis points from last year's 52, 3%.
The most material drivers of gross margin in the quarter were a significant benefit from reduced freight costs, which was partially offset by unfavorable foreign currency exchange rates as compared to the prior year period.
Additional gross margin impacts in the quarter included benefits from favorable channel mix with DTC growing faster than wholesale favorable brand mix as the sales of our HOKA brand increased.
And price increases implemented at the end of last year.
These were partially offset from more normalized promotions and closeout activity for us relative to minimal discounting last year.
SG&A dollar spend in the third quarter was $350 million up 7% versus last year's $328 million.
As a percent of revenue SG&A was 160 basis points lower than last year, primarily due to benefits in the quarter from foreign currency re measurement, but it still remains a headwind in the fiscal year to date through December and a lower ratio of marketing to sales as we shifted the timing of HOKA.
Campaign spend into the fourth quarter to align with the launch of spring 2023.
Our tax rate was 23, 7%, which is higher than last year's 25%, primarily due to jurisdictional mix of business.
These results combined with favorable interest income relative to last year, and a lower share count drove earnings per share to $10 48.
Which is more than $2 and 24% higher than last year's $8 42 per share turning to our balance sheet. At December 31, 2022. We ended this fiscal third quarter with 1.0, $5 8 billion of cash and equivalents.
Inventory was $723 million up 31% versus the same point in time last year, primarily to support the continued growth of the HOKA brand, which was light on inventory in the prior year due to factory delays with some offset from inventory being down year over year.
And during the period, we had no outstanding borrowings.
During the third quarter, we repurchased approximately $45 million worth of shares at an average price of $350 and 25.
As of December 31, 2022, the company had approximately $1 $4 6 billion of remaining authorized for share repurchases.
Now moving to our updated outlook for full fiscal year 2023.
We are increasing our full year revenue guidance to be up 11% to 12% from our previous range of up 10% to 11%.
This increase now equates to a full year revenue range of three five to 353 billion.
This is being driven by HOKA upside as the brand continues to exceed expectations in DTC and build market share across global wholesale access points.
Reflecting this update polka growth is now expected to increase in the low 50% range for the fiscal year 2023, as compared to fiscal year 2022, implying more than $450 million of incremental revenue versus last year.
The HOKA brand's increased fiscal year revenue guidance now implies a second half growth rate in the high 40% to low 50% range with total dollar volume that is slightly greater than the first half, reflecting the brands balanced revenue across the year.
Due to last year's supply chain disruption that impacted quarterly wholesale revenue timing the HOKA brand's growth rate in the fourth quarter will be lower than the brands typical run rate with that said, we expect to see continued robust DTC demand from consumers driving strong growth in that channel.
<unk> revenue is still expected to be down mid single digits on a reported basis, implying a year over year decline in the fourth quarter as the brand lapse abnormal events in the prior year.
As a reminder, in the fourth quarter of last year, <unk> had late arriving fall inventory, which wholesale customers with historically cancel but instead kept their orders preferring to procure inventory on the earlier side for the future seasons. This resulted in additional growth in the prior year fourth quarter that is.
Not expected to be repeated additionally.
Additionally of DTC benefited from back order product that shipped in January last year.
Further.
Of all our brands August the most globally exposed brand and as a result continues to face the most significant headwinds from an unfavorable foreign currency exchange rates as compared to last year.
Beyond our increased revenue outlook for full fiscal year 2023.
Gross margin is still expected to be approximately 55%.
SG&A as a percentage of sales is still expected to be approximately 33%.
Operating margin is still expected to be in the range of 17, 5% to 18%.
Our effective tax rate is still expected to be approximately 22%.
And our increased diluted earnings per share is now expected to be in the range of $18 to $18 50.
As a reminder, due to the disruptive nature of how the second half of last year played out the company pushed hard to improve the availability of our products earlier this year and that strategy has served us well.
And due to this push more product shipped earlier this year and that combined with currency headwinds have placed pressure on the reported percentage growth in the fourth quarter with that said, we believe viewing our increased expectation for the full fiscal year more holistically is a better measure of the progress our brands are making in this <unk>.
<unk>, we are delivering on what we said and have continued to increase our full fiscal year outlook. Despite a harsher impact from foreign currency fluctuations as compared to initial expectations at the outset of this year.
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 supply chain disruptions can.
<unk> and related expenses labor shortages inflationary pressure changes in consumer confidence and recessionary pressures further strengthening of the U S dollar and geopolitical tensions.
As we approach the end of our fiscal year I wanted to provide further context around the state of our business on logistics the level of disruption delays and corresponding freight costs relative to the same point in time last year has continued to improve though they remain elevated versus pre pandemic levels.
While the ongoing outbreak in China is not currently impacting footwear production or transit times in a material way we are experiencing some minimal operational hurdles and we will continue to Washington situation closely.
In terms of inventory, we have continued to see improvement in the ratio of inventory growth to sales growth over the last few quarters as we signaled in our expectation throughout this year, while still working to optimize levels. We feel good about our current inventory position, which is up over last year to satisfy increased <unk> demand.
We still anticipate unique year over year comparisons based on disruption in the supply chain as well as the dynamics of the HOKA brands, increasing mix of both revenue and inventory, especially as it's more even quarterly revenue cadence compared to.
Regarding promotional activity as we have discussed over the last few quarters. The marketplace has become increasingly influenced by higher levels of markdown activity, while our brands have maintained a high percentage of full price business. There has been a return to more normalized levels of promotion experienced prior to the pandemic.
Particularly with the UGG brand HOKA is largely avoided additional discounting beyond the historical model update flow.
Given the dynamics of the marketplace, which is dealing with higher channel inventory, we are well positioned having managed inventory into the wholesale channel, while leveraging our DTC capabilities selling earlier and at higher margins gaining share and exceeding our original expectations on the year.
On currency, we've continued to experience impacts on our results from unfavorable foreign currency exchange rates in the fourth quarter, we are expecting an approximate impact of $20 million to revenue and are expected headwind for the full fiscal year 2023 remains at approximately $100 million.
Finally, as we finish out our fiscal year 2023, and look to deliver another exceptional year. We're also reflecting on the actions we took to manage our expense base and the tradeoffs made to deliver these results. While we are not yet providing guidance for fiscal year 2024, and as our business is.
And we will continue to review and invest in those areas that will drive the organization forward, especially as we start to see gross margin expansion in this highly competitive environment. Those further investments will support talent innovation technology and enterprise infrastructure, which are all critical to our continued.
Success.
Thanks, everyone and now I'll hand, the call back to Dave for his final remarks.
Thanks, Steve we are proud of our strong results and ability to navigate a challenged consumer landscape through our marketplace management strategies tailored to each of our unique brands.
Exiting the holiday season, we are encouraged by and have great confidence in the strength of our brands and the exciting future ahead with.
With the brand heat, we're seeing on HOKA and UGG in particular, we feel deckers is well positioned both brands operate on a pull model and we believe the strong relationships. Our brands have built with key wholesale partners will serve us well.
Decorous strategic brand marketplace management, Omnichannel capabilities and flexible operating model continue to be the driving forces behind our company's sustained success, but.
But decorous success is ultimately made possible by the hard working employees, who go above and beyond to deliver consistent results aligned with our long term strategic goals.
Thank you everyone for joining us on the call today and thanks to all of our stakeholders for your continued support.
We look forward to sharing more as we continue to build towards decades exciting future.
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 session. We ask the question you May Press Star then one touchdown.
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Star two.
We ask that you please limit yourself to one question and one follow up.
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And at this time, we will pause momentarily to assemble our Austin.
And our first question today will come from <unk> <unk>.
<unk>.
<unk> BNP Paribas. Please go ahead.
Hi, everyone. This is <unk> on for Rod.
You guys hear me okay.
Yes, we can hear you.
Alright, thanks for taking our questions.
Wanted to start on the wholesale side up 8% in the quarter I think last quarter you talked about.
<unk> being down slightly in Q H.
Can you maybe just talk about what youre seeing in that channel, how it's progressed versus 90 days ago.
Okay.
Yes, youre talking about.
Second half or Q3, Q4, specifically youre talking about the quarter.
Wholesale up eight in the quarter.
You spoke to wholesale being down slightly in two H on the last call.
Any any color you can give on whether that's still the view or if something has changed.
Yes, I'll, let Steve get into specifics, but I think a lot of this and you will explain this in more detail as the call goes on but it's just the timing of deliveries versus last year. So that's a big part of the dynamic and then shifts between Q3 and Q4, but Steve I don't know if you have more color on the yes I think.
When we get into the quarterly discussion, it's a little bit about what we alluded to at the beginning of the year we knew that.
Coming out of again in Q4, just to remind everyone where we.
We ship product last year in Q4.
That was going to impact Q3, and Q4 of this year in terms of wholesale growth. So we took.
The opportunity to sell product in <unk>.
Wholesale customers.
Participating and wanting to hold some of that product that they didn't sell in Q4.
Which we knew would impact.
Q3, and Q4 of this year. So I think as we see Q3 and Q4 play out its much to our expectations and a little bit better which is why we are increasing our full year outlook, we knew kind of between quarters. There would be some disruption in the current year again, why we didn't guide quarterly.
But I think.
To see strong demand with our wholesalers this is a bit of.
Impact from endemic and supply chain disruptions experienced last year is still playing through this year.
It is interesting how we see wholesale growth.
In the current year, but we knew that right.
Little bit back to the point I made in the prepared remarks, which was we were going to take every opportunity to get product in early in the year to make sure that we have an opportunity for strong sell through during the season, which is exactly what we've seen.
And our our brands continued to perform well and resonate with customers.
So both on the upside and especially as you can see in the numbers on the hooker side, So again really.
Pleased with our performance again don't want to get hung up on quarterly percentage changes because really we're measuring the health of the business on the year and Thats our outlook on the rates for the year.
And I think just as a reminder, Q3 last year, we were in some cases start for inventory and we brought inventory and we could've sold in Q3 brought it in and in Q4 for both again HOKA.
And wholesalers, we're happy to take it at that time, and particularly for <unk>. They were happy to fill up on kind of core styles. Knowing that they were carried into Q3. This year and that dynamic has played out but now are copying those increased shipments in Q4 of last year, but overall as Steve said the brands are very healthy full price sell through at our <unk>.
<unk> partners is strong and.
And the demand from them is still there, but keep in mind, they're also working through.
Inventory situation a lot of promotional activity in the marketplace.
And then you are working through their own inventories. So they are careful about who they bring in for brands.
Fortunately our brands are very very strong so they are prioritizing us, but they still have a lot of inventory from other brands to work through in this environment.
Okay got it very clear.
And then on OCA, if I could just ask a follow up you mentioned expanding through strategic access points on wholesale.
Just give a little more detail on that what the opportunity looks like there to expand.
In the wholesale channel outside of specialty running and kind of what the strategy is there.
Yes happy to talk about that and this is I would say on a global scale. We are very selective of who we sell <unk> and wholesale.
Always prioritizing the run specialty channel, that's our bread and butter.
Anticipate the brand but.
Strong in places like Rei, we've expanded doors and <unk> in the third quarter and as we mentioned in the call that is growing very well.
We're in a handful of foot locker doors, but right now we're not really looking to expand to many more doors.
In wholesale we are focused on healthy sell through and expanding categories.
And then as we saw in Q3.
DDC is exceptionally strong and we want to continue to.
Drive growth strategically and wholesale create awareness getting in front of the right consumers, but ultimately drive as much business as we can through DTC because for all the right reasons margin because it's a consumer data lifetime value.
So it's a healthy balance.
This is a good reflection of our strategy towards ultimately being at 50% DTC Company you can see how this is working in this quarter.
Thank you so much.
Okay.
Thank you and the next question will be from Jonathan Komp with Baird. Please go ahead.
Yes, hi, good afternoon, I wanted to ask first just about the UGG brand. It looks like you've had some incredible heat for a few of the styles that were hard to get from the consumer side. So I'm curious just how you view.
Availability and your plans for things like the platforms and the ultra and then what type of response that you're seeing from wholesalers, who maybe didn't have much of that product, but presumably would want some.
At some point looking forward.
Yes, I can share with you my inbox of emails and people looking for those titles.
So I think.
Can you take it up to a higher level as we are managing through our inventory in the UGG brand.
We pulled back a little bit on how much we invested in some of these new styles not anticipating how strong the consumer demand with them for them would be so.
The platform styles the task the ultra many those styles in many cases sold out to the piece and so.
We missed some opportunity there the good news is that the wholesalers and want more of the consumer wants more.
We realize that these extended classics.
More.
Iterations of core classics.
Keep our brand DNA intact.
Are resonating very very well with particularly younger consumers, but I would say all consumers and that on a global scale. So.
You can feel confident that we're going to continue on that path in developing these styles take advantage of the platform trends et cetera, as we continue through the year and beyond so good news is that core classics remains strong and healthy.
But some of these new iterations, we're better than we expected.
Which is great news and there's demand on the table in the consumers' hungry for them.
That's great and then maybe a follow up question is on HOKA.
A little bit of a similar question could you just maybe elaborate.
The strength of the 18 to 34 year old demographic.
Change there maybe accelerated adoption and then just Steve when I look at the Holdco revenue typically the fourth quarter is a little higher than the third quarter in dollars. So I understand that year ago comparison looks different but.
Any reason why the fourth quarter of $1 would be down from the third quarter.
Thanks again.
Yeah. Thanks, John So yeah on the Hooker side, we're very happy with these results I think in the early days of <unk>, we were selling obviously the core runners and beyond and then some people were using it for comfort and longevity reasons.
And the younger consumers werent really adopting and as part of their own yet, but we've seen that shift.
Changed dramatically in the last year or so.
In the 18 to 34 year old category was our fastest growing consumer segment.
So it's working as.
As we planned probably a little better than we planned it's happening a little faster than we planned but some of the activities. We're doing the co lab with folks like free people et cetera.
Marketing, but youre seeing.
Teenage girls and boys trading from traditional athletic brands into <unk>.
And raving about it so it's very exciting.
And it just expands the breadth of our brand from ages 18 to 80.
And I think the marketing and the product teams are doing an exceptional job of.
Trading right product for that consumer putting it in the right place and showcasing at the right way and some of the extended work we're doing on the lifestyle side taking.
Core styles, but different.
Different treatments different materials different colors that are more kind of lifestyle focused.
That's working extremely well too. So we think that this is a big unlock for the brand long term, we want to be healthy and meaningful and important to this younger consumer.
And we're seeing that play out which is really great.
Yes, and John This is Steve on the Q3 Q.
Q4, <unk> dynamic again, it goes back to a little bit.
Dealing.
With disrupted supply chain last year right. So there is a dynamic on the year over year comparison in Q3, and Q4 and then to your point on kind of Q4 versus Q3 this year.
As we've had more inventory availability, we've been putting that into the marketplace.
At the same time, we know as Dave said, there is more products in the marketplace. So we want to control the marketplace.
We will look and see how the brands continues to grow it's going to continue to grow a little bit.
Disproportionate in percentage terms again because of how we're making those comparisons to last year, but this is a little bit to our marketplace management. We also have new models that are being introduced in Q4. So there is some change in some of the wholesale deliveries in the quarter.
But again this is a brand is continuing to grow overall solid growth plan for the year, a little bit choppy between quarters.
And strong demand that we continue to see that.
Wholesalers are demanding products, so managing the DTC business managing the wholesale business managing the marketplace, recognizing what's going on there.
I wouldn't get too concerned over the Q3 Q4 dynamic.
Got choppy quarters going on in this year.
I think from a consumer perspective, they don't know the quarterly ins and outs, but there they are seeing the product that's selling through very well at full price and the demand is certainly there.
And I think you have to pull back and look at the full year results of this brand and especially the way both of our brands in Q3 performed in a very challenging environment FX pressures promotional environment and to come out with this rate of high level high price full price sell through.
Healthy margins and still momentum in demand in the marketplace.
What we're focused on and so we see this continuing in the brands as I said before I have never been in a better place the brand heat that we see in <unk>.
<unk>.
Exceptional.
And we're going to continue to build on that and invest in these brands for the long term.
And then I think just the last thing I will move on.
Thank.
<unk> that we're seeing for hope it's highlighted in again are raised.
For our full year outlook that raise is being driven by the increased demand that we're seeing.
Yes.
Then just speaking to the strength, we continue to see.
With OCA and how it's resonating in the marketplace and particularly international.
That's great. Thanks again.
Thanks, John .
The next question will be from Paul <unk> from Citi. Please go ahead.
Hey, Thanks, guys curious maybe.
If you can talk about a little bit more detail in terms of how much of the growth is being driven by.
Existing accounts versus your new distribution partners any any more color you can give around that and then second just.
Curious how much is pricing and a driver in the sales change at each brand and maybe whether that looks different within DTC versus wholesale.
Yes, good questions I would say for <unk>. The majority of the growth is coming from existing accounts outside of some expansion in Q3, and Dick's stores, there really wasn't a lot of expansion in new doors globally. So we're continuing to gain market share. It you saw that in the prerecorded comments.
And that's happening across the board, it's not just in run specialty so strong full price sell through healthy margins for the retailers great presentations in wholesale.
But we're getting better at it as we go in the wholesale accounts are realizing the power of this brand and so the majority of that is coming from existing accounts at this point.
Which again goes back to the brand marketplace management, and just speaking to the right consumer.
What was the other question sorry.
So pricing, yes, sorry.
We have raised prices in both brands this past Q3 and coming into the fall period, and we didn't see any really any resistance to that.
Obviously, evidenced by the sell out of some of these styles in some of the price increases in OCA, we haven't really seen a slowdown in sell through and so I think the product is worth it the brand is meaningful and important to these consumers then.
They were willing to pay full price, even though some of the prices were higher.
What was the magnitude of the increase year over year, if you can share that.
Yes, I think it was like overall is about 8% across both brands.
Got it.
Thank you.
Unlike styles.
<unk> electric.
We didn't do we didn't raise price on every correct alright, yes, we raised price on certain select styles as today's point that was call it around 8% on the style.
And it wasn't all at the beginning of the year.
Some styles on <unk> at the beginning of the year and then it was some product in the fall.
And is that an even higher number when you adjusted for mix and you're introducing higher priced styles into the assortment generally.
Okay.
The pricing is up a little bit, but not I would say.
Significantly different no.
And we're also doing.
More slippers, and Tasman that a little bit lower price in the classic and some of the minis.
Made it may affect the total average price across the board but.
I think we are providing excellent value and quality for the price that I think the consumer is that and it's resonating strongly with them and they're willing to pay us.
Got it thank you and good luck.
Thank you.
And the next question will be from Tom Nitpick from Wedbush. Please go ahead.
Hey, everybody. Thanks for taking my question.
I just wanted to ask you about.
So obviously in the last couple of years have been.
Fairly wonky.
Colgate stuff and supply chain and the dynamics around wholesale, but I mean when.
When we when you kind of think about.
On a more normal basis on a long term basis, how should we think about the <unk>.
Growth of that brand I mean, what is it.
We think mid single digit grower high single digit grower under normal times like.
I think given how long do you think within the last year.
Sure.
It's hard to sort of wrap your head around what the sort of normal algorithm for this brand.
Yes, I mean, certainly we're still we're still dealing with the normalization of the business from Covid and some of that is related to refilling the marketplace of inventory coming off the peak balancing that out and so right now where we sit right now we're probably looking at low single digits just to be prudent.
And as we reset the marketplace.
I am very.
Excited about the product pipeline and the new leadership under and in the way the design teams and the marketing teams are collaborating globally for this brand we're getting better at this.
Every day and so I think the opportunity is there, but we're still we're still trying to navigate and make sure. We set the marketplace correctly right now it's extremely well managed globally.
Inventories are clean and healthy we have some inventory a little bit to work through here and there but.
The long term outlook for this brand I think is exciting but.
But I would say, where we sit now in the shorter term, we're looking at low single digits.
Knowing that the environment in the global macroeconomic situation is still a little bit challenged.
Different in HOKA, because thats more of a hyper growth.
And so a lot of people I haven't heard of the brand yet across the globe.
<unk> is obviously a household name and it's about fine tuning the product assortment being meaningful to each of the consumer segments and managing the marketplace globally, while driving a healthy DTC business to improve margins.
Understood and if I could just follow up on margins real quick so.
Thank you didn't talk a bit about normalizing promos, but.
Or are normalizing discounts or whatever but.
On the gross margin does it seem like there would be some kind of good guys over the next.
12 months as well.
Great Rolling off.
FX.
Turns from a bad guy to a good guy in channel mix and brand mix et cetera.
It seems like there is a fairly bright gross margin outlook, how should we think about the.
Job drop through to EBIT margin I know you want to invest in the growth of the brands, but can we see.
EBIT margin.
Creep higher over time.
Yes, Steve I'll take that one we're not we're not giving guidance yet.
Going a little bit to what I said in the prepared remarks. So we are experiencing improvement in gross margin youre seeing it in Q3.
As you model it and Youll see it in Q4, that's largely coming from the freight. So you are right. We are seeing freight rates come down.
In the current quarter Q4, we're going to benefit from that we're seeing that increase overall there is still is.
FX headwinds so for the year as you can see in our guidance. We are lower on a gross margin basis, we'll continue to see some improvement with ocean freight, but it's going to be at lower levels than what youre seeing come through in the current quarter. So there will be to your point a little bit of a tailwind we will see what happens with currency right currencies turns.
More beneficial to us.
And kind of mid to late Q3, we're seeing some of that but it's still down from a year ago. So to your point.
We will see what happens there is a potential there.
For some improvements that could contribute to.
The gross margin, but as I also said, we tightened our belt this year to deliver on what we guided.
<unk> held off on some investments within the business to continue to deliver within that range of guidance.
And so we're evaluating and while we haven't given guidance on next year. We do expect there will be some gross margin expansion and we're going to use that to invest in the business.
Especially in the competitive nature of where this business is and what we're doing with our brands and so that investment is critical.
Keeping us relevant and leading.
And this data so that is clearly something we are going to do with some of that gross margin expansion now as I've said before right. When there is an opportunity we see strong business is there opportunity to reflect some of that upside, yes, and we did do that a couple of years ago, but first we're going to make sure that we're looking at some of this gross margin expansion investing it.
In the business, because it's proving well, we're delivering exceptional results were well above many of our peers in terms of our operating profit. So we got to keep continue to invest in this business. So yes. There is but there's also investments that we have to make in the business.
Understood. Thanks, guys.
Best of luck this year.
Yes.
And the next question will be from John Kernan from Cowen. Please go ahead.
Yes.
Hi, This is krista zuber on for John .
Just wanted to circle back on the inventory question in terms of kind of where you see or what your level of comfort is on the inventory levels by channel DTC and wholesale.
Thank you.
Yes, I think the so speaking to our inventory.
This is something we indicated at the beginning of the year that it was something that we would be working through this year and I think we've demonstrated that inventory levels have improved.
As we've said in the prepared remarks again inventory level on.
Actually decreased.
Again signaling some of the work that we've been doing in the improvement efforts that we've been making.
What we're also doing is increasing our <unk> inventory so when you've got a quarter that is growing 90%.
Inventory to service those sales so we have been increasing inventory.
I think in terms of as we look out further there is still opportunity to optimize inventory levels, but when we look at the relationship of inventory to sales growth is coming much more in line.
We feel comfortable about our inventory, there's always room for a little bit of improvement will continue to work on that improvement as things begin to normalize, especially with the supply chain, but where we sit today with everything that's going on with the growth of our brands, we feel comfortable about our inventory position and we'll continue to work to optimize those levels.
Yeah, and I would say from a channel perspective, I think the channels are in good place with inventory, we were able to fill the bucket so to speak and over the last year and we're getting back inventory in key styles in HOKA.
So I think it's in a very healthy place and that's reflected in how DTC.
<unk> wholesale growth in the quarter.
Still healthy sell throughs globally, so again credit to the teams managing the marketplace in this environment.
But I would say from a brand health in our marketplace and our market channel perspective.
Things are in good shape and in addition to what Steve said about how we are managing in our neuro levels.
Okay.
Thank you.
Okay.
And the next question is from Sam Poser with Williams trading. Please go ahead.
Good afternoon, Aaron I know and thank you guys for giving part of what I always ask what Aaron can you give us the whole thing please for wholesaler DTC.
Hi, Sam sort of thing so for the quarter.
Global wholesale including distributor by brand is what I'll give you so far.
That would be $374 million for health at $224 million.
For Teva 25 million person up $3 million and then that gives you other which is predominantly corporate farah $20 million.
Thank you.
And Steve I, just wanted to I want to commend you I think you should run for president.
The answer to John <unk> question.
So I'm going to ask it again could you give the.
If you look at the DTC business and if you look at the wholesale business historically.
Q4, <unk> has accelerated from Q3. So the question is do you anticipate that Q4, <unk> revenue will be higher than Q3.
Well I think John to answer that question.
You take the numbers and given what we sold in as well as what we saw through our DTC.
We're not expecting that on Q growth on Q3 again, we've got dynamic at all.
Our underlying between quarters right and that's what I want to be careful that people aren't so focused on Q3 Q4 as I said, we're managing this business for the year is why we have not this year, giving quarterly guidance.
We know we've got dynamics within quarters, this year, where we're trying to get more product in early.
And that as I said before has worked well for US right. So we want to make sure we have the.
Yes.
<unk> perspective of how the business is trending now when you then look at mix right. That's going to play an impact on revenue reported so when we're looking at volumes volumes are a little bit different.
Due to the channels that we're selling in our guide equates to similar volume levels, but again I want to be careful that people aren't so focused on a Q3 Q4 dynamic.
Full year, right and we're coming out of a quarter, where we grew the brand 90% there is demand out there so.
Again, we're going to get product in we're going to get it in there we want to make sure. It has an opportunity to sell through and then we'll see what happens and then again.
Tremendous confidence and hope.
And but at the same time, we're managing the marketplace. We know that there are a lot of competitors that have a lot of inventory within the wholesale channel, we don't need to contribute to that confusion. We've got a brand that's red Hot that continues to perform well this goes to our marketplace management. So.
Brand is in great shape, I don't want people to get worked up about it Q3 Q4 dynamic that's not what I understand and I'm not trying to get worked up as we're trying to model this properly the.
The question, though is as you talked about I think Dave you spoke of one more after this switch is related.
With HOKA you spoke about some new some.
Excuse me.
Sounded pretty excited about that are launching in Q4 and now is this situation because of the.
Scenarios that Steve just mentioned that you would launch in direct to consumer first maybe in Q4, and then launch at the wholesale in Q and Q1 is that.
That way you are thinking about I mean as far as manage how we bring things to market.
No.
I mean, I'm, just trying to understand it because youre, bringing in brand new products in the managerial high the most retailers want your product that it really will probably take away from some other brand thats well from you and theoretically not make things worse.
Yes, I think what youre.
Looking at a little bit as some of those launches in Q4, it had to ship in Q3 to be in the marketplace yet.
Time, and no and then also I talked about the solar <unk> and also the new transit that just wants today those are small.
<unk> and small volume drivers in our first introduction so heavily weighted on DTC.
Sellers want to see performance in your own channels before they invest heavily so yes, they're exciting yes theyre new.
Yes, they'll steal some market share from competitors, but the scale of those on the business at that point at this point are still small and then some of that inventory is also shipped in Q3, which is why you see the 90% increase.
Got you and then on <unk>.
Doug.
Given the guidance I would assume.
That.
Youre going to have a big swing on wholesale in the fourth quarter, which is really about the big increase that happened in Q1 extra in Q4 last year, but can you just and since it is not.
On a relative basis. It's your second smallest quarter can you give us some direction on how to think about the wholesale for <unk> in the fourth quarter I mean does it have a negative.
Is it a negative 20 handle a negative 30 handle a negative.
Give us something there.
Because it sounds like the wholesale is going to be down much more than the DTC. The DTC is probably going to be down a bit.
Yes, I mean, I think DTC.
There was exceptional results in DTC in Q3.
Said some of those really hot styles have sold out or selling skus.
The Golden Star has been a new introduction in Q4 that.
As already selling out so theres hot demand for some of these styles, but as we've been managing our inventory levels. We we didn't buy as heavily into some of these new styles, yet not anticipating that kind of sell through.
On the wholesale side, yes, they still have inventory leftover from what they purchased throughout the year.
More in kind of the core classics Theyre still struggling with the hot new styles, just like we are in DTC.
See it down in the 20% to 30% range for the quarter.
But again, if you look at the market sell through and the health of the brand in the marketplace. That's what we're focused on.
It's tough I understand youre trying to model quarters, but its a funky dynamic wonky as <unk> already said.
But I think we've got to go back to like what is the health of this brand and how are things selling through and well again.
I mean, the UGG wholesale being down in Q4, you guys. So much that shifted from Q3 to Q4 last year and you brought more of that in Q3. This year and so so that's not really that's a different scenario than health. That's not expected. It's just more a matter of trying to triangulate where it is.
Yes, absolutely.
And our final question will come from Chris <unk> with Bank of America Merrill Lynch. Please go ahead.
Hey, guys good afternoon.
Can you talk a little bit about what youre seeing on the ground in China for both you can hook up businesses.
And if you can elaborate maybe on your specific expansion strategy for <unk>.
And then if there's any way to quantify the potential build back you can see in the business given the lockdowns over the last two to three years. Thank you.
Yes sure.
It's hard to comment on things right now in this quarter, but I think coming out of the.
Year to date, so far in China.
Listen I give our teams over there the leadership the management team the way they have managed the last three years.
In that marketplace with all the challenges.
From Covid and Lockdowns in consumers not being able to spend.
I think we're in exceptional shape and our brands as considering the marketplace.
So the brands are strong they are healthy they are in demand.
Marketing tactics that we're employing for both brands over there being more locally relevant.
Labs that were doing in the fashion partnerships.
Reaching a younger consumer.
Those are all checking boxes and performing extremely well.
I think what youll start to see and I was talking to the China team the other night.
Going to start to see consumers come back out and we feel really good about our chances for the finish of this year and heading into next year.
Keep in mind that China isn't a massive business for us yet we do have long term aspirations, but.
I think we're going to see that consumer come back not only domestically, but globally and that'll be an interesting dynamic.
For us in other brands.
But we like the way we're set up to like we like the way, we're managing the marketplace the way we're resourcing it.
And then specifically to <unk>.
So far so good we have invested in our own stores, we're working with partners on door expansion.
Creating awareness in the marketplace in an authentic way and we're going to continue on that path, because we see just tremendous opportunity for OCA.
In the long term.
And so far we're seeing good signs from our partners and our retail stores and gives us a lot of confidence that this can be a big success over time.
Thanks.
Is that right.
Ladies and gentlemen, this concludes our question and answer session and thus concludes today's call. We thank you. So much for joining Deckers brands' third quarter fiscal 2023 earnings conference call. When you may now disconnect. Thank you.
Okay.
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