Q1 2024 Deckers Outdoor Corp Earnings Call
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Okay.
Good afternoon, and thank you for standing by and welcome to the Deckers brands first quarter fiscal 2024 earnings conference call.
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I'll now turn the call over to Aaron <unk>, Vice President Investor Relations and corporate planning. Please go ahead.
Hello, and thank you everyone for joining us today on the call is Dave powers, President and Chief Executive Officer, and Steve Fasching, Chief Financial Officer before we begin I would like to remind everyone of the company's safe Harbor policy.
Please note that certain statements made on this call are forward looking statements within the meaning of the federal securities laws, which are subject to considerable risks and uncertainties.
These forward looking statements are intended to qualify for the safe Harbor from liability established by the private Securities Litigation Reform Act of 1995.
All statements made on this call today other than statements of historical fact are forward looking statements and include statements regarding our current and long term strategic objectives changes in consumer behavior strength of our brands demand for our products product distribution strategies marketing plans and strategies disruptions to our supply chain.
The stakes are anticipated revenues brand performance product mix margin expenses inventory levels and promotional activity and the impact of the macroeconomic environment on our operations and performance, including fluctuations in 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.
Looking statements involve numerous known and unknown risks uncertainties and other factors that may cause our actual results to differ materially from any results predicted assumed or implied by the forward looking statements.
The company has explained some of these risks and uncertainties in its SEC filings, including in the risk factors section of its annual report on Form 10-K, and quarterly reports on Form 10-Q, except as required by law or the listing rules of the New York Stock Exchange the company expressly disclaims any intent or obligation to update any forward looking statement.
Yes.
On this call management may refer to financial measures that were not prepared in accordance with generally accepted accounting principles in the United States, including constant currency.
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 in thinking about its core operating results.
With that I'll now turn it over to Dave.
Thanks, Darren good afternoon, everyone and thank you for joining us I'm pleased to be here today to discuss another strong quarter for Deckers, starting off fiscal year 2024 on the right path as we build towards delivering another year of great results.
Our results give us increased confidence to achieve our updated outlook for full fiscal year 2024, which includes a raise to our prior expectations.
For the first quarter, our performance slightly outpaced our expectations with revenue, increasing 10% versus last year to $676 million gross margin improving more than 300 basis points, including beneficial brand and channel mix dynamics and diluted earnings per share growing 45%.
<unk> to $2 41.
Revenue growth versus last year was driven by our key areas of focus with global Hygge, expanding 27% to deliver $420 million global DTC, increasing 35% to represent 37% of portfolio revenue.
I'm, 30% last year and international delivering strong growth as anticipated we had some offset to the growth in the quarter due to timing dynamics in U S wholesale with accounts choosing to receive product spread later into the year as.
As opposed to a frontloaded preference we saw in the last couple of years.
As we look to best manage our wholesale account product flow. We also continue to monitor marketplace inventory levels to maintain a healthy omnichannel presence that services our end consumer in the best way possible and preserves the premium nature of our brands.
Our ability to propel the targeted opportunities of global HOKA Global DTC and international hug further demonstrates the success of our Omnichannel marketplace management and strategic investments, we will continue to remain nimble and execution as we always have to deliver strong results on both the top and bottom line.
With the continued execution of our long term vision, we believe deckers is emerging as a leading creator of compelling consumer connections through highly desirable products that infused disruptive innovation across both fashion and performance.
As a reminder, our long term strategic vision remains focused on building <unk> into a multibillion dollar major player in the performance athletic space growing the UGG brand by connecting with consumers through elevated experiences and a segmented product offering.
Expanding our DTC business through consumer acquisition and retention.
And driving international growth through strategic investments.
Steve will provide further details around our increased forward looking expectations later in the call in the meantime, let's dive into the brand and channel performance for the first quarter of fiscal year 2024.
Starting with the brand highlights.
As mentioned global Hook, our revenue increased 27% versus last year to $420 million, a quarterly record and the first time the brand eclipsed $400 million in a single quarter.
The hooker brands, well managed ecosystem of access points continues to flourish.
<unk> was the primary growth driver in the quarter, increasing 63% versus last year and accounting for approximately two thirds of total brand growth Dd's.
DTC growth was broad based as each region grew the business more than 50% versus the prior year.
Global consumer acquisition increased 58% global consumer retention increased 57% and 18 to 34 year old consumers in the U S increased to 68%.
This exceptional DTC demand resulted in an improvement in gross margin as Hogan maintained high levels of full price selling and continues to benefit from shifting a greater proportion of revenue mix to DTC.
While the Hooker brands DTC business is still predominantly e-commerce, our select retail stores are augmenting the brand's presence by increasing awareness and brand engagement with a physical presence in key strategic markets.
<unk> personal consumer connections through community oriented experiences and broadening category adoption by showcasing the depth of the hooker product offering.
For these reasons, we expect to continue testing potential permanent locations through pop up stores.
We are excited about a couple of new doors that are in the pipeline and look forward to sharing more soon.
From a wholesale perspective hooker continues to drive growth and manage the marketplace to build market share in existing points of distribution maintained high levels of full price sell through increased category shelf space through differentiated products and expand brand awareness with a broader consumer demographic.
Okay has preserved high levels of full price sell through and remains one of the fastest turning brands within the majority of its wholesale accounts.
We continue to tightly manage marketplace inventory and closely monitor hooker key performance indicators in the channel to ensure their brand maintains its premium positioning across its ecosystem of access points.
As excess consumer demand materializes, we prefer that hooker satisfies upside through the brand's DTC business, which is what we saw happened this quarter.
We are encouraged by the momentum that hooker has sustained across the distribution landscape and continue to make investments to build awareness and affinity for the brand across key markets.
In June <unk> launched the second edition of its fly human fly Global marketing campaign and is already seeing the benefits of this upgraded rollout.
This edition of the campaign was designed to reinforce that <unk> for joyful and inclusive performance at its highest level.
As campaign content and Activations continue to rollout across the globe.
<unk> has seen a powerful response from consumers in the first few weeks, including robust growth in online engagement across social channels and digital platforms, especially with the release of the campaigns local film titled Murmuration, which embodies the brand ethos of moving together.
Eitan detention brought directly to hook, a dot com with the vast majority of digital campaign asset clicks, yielding first time visitors to our brand's ecommerce platform globally.
More than doubling the conversion rate of polka dot com landing page visitors.
And significant impressions from out of home Activations.
We are optimistic about the reach and broad appeal of this campaign as hooker continues to introduce itself to new consumers around the world.
And the brand is as visible as it's ever been with connected television advertising Billboards special running events and several compelling activations in the pipeline.
On the heels of the fly human flight campaign rollout HOKA launched the all new Mark X, which was designed for propulsive everyday running and features high rebound cushioning and a <unk> <unk>.
<unk> media content was seamlessly weaved into the fly human fly launch and Hooker further celebrated this innovative product creation with several regional activations to aid market awareness.
Including a demo run in Germany, where participants were challenged to run as far as they could for 30 minutes.
<unk> in France across a two kilometer loop unless Butte Shimon the college event in Eugene, Oregon hosting demo community runs to celebrate the U S track and field Championships and a two day, who can experience clinic at a retail store in Japan, and a pop up location in Thailand.
These global events combined with the connected television social media and digital out of home content have created significant energy behind the HOKA brand's latest shoe innovation.
The <unk> was treated as an exclusive launch in our own DTC channel and with our run specialty partners as we continue to work towards greater segmentation of the hooker brands compelling product line.
Just a few weeks into the second quarter. The <unk> is close to cracking the top 10 sellers globally on <unk> Dot com and we're getting great feedback so far from a run specialty partners.
<unk> continues to build a bigger business through the expansion and increased adoption of his lineup of innovative product we see the market acts as an incremental addition to the already stellar portfolio of footwear led by the brand's most popular styles Clifton and Bondi.
The market is a great example of franchise development, where the team has innovated upon the original Mark which continues to perform exceptionally well by introducing this snap beer and more competitive version the <unk> X.
It is with this approach to product line management at Hoag is able to broaden the aperture of polka consumers, while maintaining pinnacle positioning and the performance athletic space.
Hogan has an amazing roster of athletes around the world who are competing at the highest level and achieving incredible results wherein commercially available versions of our shoes.
During this past quarter HOKA athlete Cold Watson finished first in the canyons endurance 100 K.
Wearing the hooker tectonics carbon plated trail running shoe.
Congratulations to cole who with this victory punches ticket to the <unk> Montblanc Oaxaca sponsored event to be held in Chamonix, France at the end of August .
Moving to global revenue in the first quarter decreased 6% versus last year to $196 million.
As expected this decline resulted from lapping earlier wholesale shipping patterns over the last couple of years in the U S.
Doug was able to offset this challenging compare in the U S with the strength of the brands International regions.
International strength was broad based across multiple regions and in both wholesale and DTC channels.
In particular, our EMEA region, as well as China, which benefited from lapping lower demand from Lockdowns in the prior year drove above average growth.
These regions found success, attracting consumers with more transitional styles like the ultra many Tasman and classic many as well as seasonal franchises like the Golden Star in La cloud.
We are encouraged by the continued progress of international regions to increase the adoption of key global franchises year round.
One of the excitement behind these franchises is being driven by the brands more focused approach to product marketing, creating greater global alignment of key stories.
With this more focused approach huggers, maintaining high levels of brand heat with more consumers actively searching for the brand.
During the first quarter online search interest across Europe increased 60% versus last year with outsized strength in the UK and France. The same is true in the U S where search interest increased 21% versus last year. According to Google trends.
Doug brand momentum also benefited from this springs Fieldhouse activation at Coachella.
The Fieldhouse first launched in the fall of 2022 is a multi sensory community experience dedicated to making self expression comfortable for all.
Doug invited individuals from around the world to experience. This latest iteration of the field House, which was designed as an oasis for creative and Palm Springs, California.
The Fieldhouse was decorated with signature artwork from New York City based artist Kid Super who partnered with <unk> to design a quick strike collaboration of the Tasman X.
This global activation drove significant press coverage with the likes of influential publications, such as Esquire Teen Vogue Daily mail and height piece.
As a result of the UGG teams continued brand activations and compelling products, our global DTC increased 6% versus last year.
Experienced consumer demand both in stores and online, but we have been particularly excited by the interest of consumers who are shopping in person, especially during the spring and summer seasons.
We believe this dynamic is partly attributable to the development and greater adoption of transitional franchises that embraced the brand's heritage DNA and have greater year round wearing occasions.
Maintaining this momentum the entire AG product portfolio benefits, especially in our stores, where consumers can feel and directly engage with the broader product offering.
For this reason and align with our focus to elevate the UGG brand and an influential international market subsequent to quarter end, we opened our newest flagship store and the high tourist traffic Harrods Youku shopping district of Tokyo.
With the first quarter behind US we remain confident in executing the UGG plan, we outlined for fiscal year 2020 for.
Evidenced by the continued momentum of global markets as consumers actively search for hug growth of global direct to consumer with improved margins from full price business.
And strength of iconic silhouettes like the ultra mini and Tasman driving year round excitement.
Entering the second quarter. The <unk> team is working hard to stage its global omnichannel marketplace to connect with consumers through engaging experiences in the autumn winter season.
To execute this vision hug will be expanding on in embracing the celebration of culture and community by creating meaningful experiences such as the fieldhouse that serve as an invitation to develop an emotional connection with the brand.
This fall <unk> celebrated its brand heritage through consumer centric moments around the world with new winter lifestyle themed feel house executions and exciting new winter product aimed at capturing more of the winter fashion and resort focused consumer.
Shifting to our discussion of consolidated channel performance global direct to consumer drove first quarter revenue growth, increasing 35% versus the prior year on a reported basis and 33% on a comparable basis.
Strength in the channel was driven by continued increases in hooker consumer acquisition and retention globally.
Coca consumer growth was robust across regions and various age demographics with outsized growth among international markets in the 18 to 34 year old cohort, which remain key targets for us.
The UGG DTC business also experienced growth driven by more than 20% increase internationally that benefited from China catching up from Lockdowns in the prior year the strength in China resulted from increased adoption of both sneakers and sandals styles.
From a wholesale perspective global revenue was down 1% as gains in <unk> were offset by O U S shipment timing realignment to pre pandemic cadence as well as a continued focus to manage the marketplace inventory of our brands to maintain high levels of full price selling and this more promotional consumer landscape.
Overall, we are pleased with these channel results, which reflect the power of our marketplace management strategies that continue to benefit and our wholesale partners DTC business and ultimately Deckers bottom line.
With that I'll hand, the call over to Steve to provide further details on our first quarter financial results as well as our increased outlook for fiscal year 2020 for Steve.
Thanks, Dave and good afternoon, everyone as David just covered Deckers delivered strong results in the first quarter and demonstrated great progress towards our full fiscal year and raised outlook.
OCA was the driver of growth in the quarter led by strong performance in the DTC channel and continues to elevate its presence globally as represented by international growth.
As anticipated our global revenue was lower than last year, primarily due to lapping earlier sell in during the prior year.
But the brand maintains high levels of consumer interests, capturing increased demand through our DTC in the quarter.
As we continue to operate in a very dynamic consumer environment, we remain committed to executing against our strategic priorities and maintaining our disciplined approach to managing our business. We are encouraged by the demand signals. We are seeing and believe our portfolio of leading brands continues to resonate with consumers globally.
With that let's get into the details of our first quarter fiscal year 2024 results.
Revenue was $676 million up 10% versus prior year poker revenue increased 27% versus last year due to the exceptional demand experienced across the brands DTC channel and global ecosystem of access points.
Gross margins for the quarter was 51, 3%, which is up 330 basis points from last year's 48%.
First quarter gross margin benefited from lower freight costs.
Greater mix of HOKA brand revenue and an increased mix of DTC business with slight offsets from unfavorable foreign currency exchange rates compared to the same period last year and select closeouts of seasonal inventory.
SG&A dollar spend in the first quarter was $276 million, which is up 16% from last year's $238 million.
SG&A growth was driven by reinvestment in key areas of the business in support of our growth targets, which includes strategic marketing, including the spend intended to amplify HOKA awareness in leading international markets.
Supply chain footprint to match the growing scale of our organization.
Enhanced e-commerce capabilities and talent across the organization, including areas, we've delayed and the enterprise support functions.
Our tax rate was 21, 9%, which compares to 21, 3% in the prior year.
These results coupled with higher interest income and a lower share count as a result of our share repurchase program drove diluted earnings per share of $2 41 for the quarter, which was 75 above last year's $1 66 per share representing growth of 45%.
Turning to our balance sheet at June 32023, we ended June with $1.05 billion of cash and equivalents.
Inventory was $741 million down 12% versus the same point in time last year, and we had no outstanding borrowings.
During the first quarter, we repurchased approximately $25 million worth of shares at an average price of $485 and 95.
As of June 32023, the company had approximately $1 $3 billion remaining under its stock repurchase authorization.
Now moving on to our updated outlook for fiscal year 2024.
With the HOKA brand's DTC business exceeding our expectation in the first quarter, we are increasing our full year top line revenue guidance to be approximately $3 98 billion.
From our previous range of approximately $3 95 billion.
This increase represents full year growth expectations of approximately 10% versus the prior year.
As a result of this update we now expect HOKA growth to exceed 20% for the fiscal year 2024 compared to fiscal year 2023, with the majority of growth anticipated to come from the brands direct to consumer business.
<unk> revenue is still expected to increase low single digits, driven by international expansion and a focus on driving more business to DTC.
Beyond our updated revenue outlook for full fiscal year 2020 for gross margin is still expected to be approximately 52% representing a more than 150 basis point improvement relative to last year.
SG&A is still expected to be approximately 34% of revenue as we reinvest gross margin improvements in key areas of the business.
Operating margin is still expected to be approximately 18% our effective tax rate is still projected to be 22% to 23% and we are increasing our diluted earnings per share expectation now to be in the range of $21 75.
$222 25.
The 65 <unk> increase is related to the increased expectation for HOKA DTC and an increased expectation for interest income as we benefit from working capital improvements, including inventory management driving higher cash balances that are earning at a high.
<unk> interest rate.
Please note this guidance excludes any charges that may be considered onetime in nature and does not contemplate any impact from future share repurchases.
Additionally, our guidance assumes no meaningful deterioration of current risks and uncertainties, which includes but not limited to supply chain disruptions constraints and related expenses labor shortages inflationary pressures changes in consumer confidence and recessionary pressures.
Foreign exchange rate fluctuations and geopolitical tensions.
We remain confident in our disciplined operating model well positioned brands robust financial profile and ability to remain nimble as we adapt to evolving marketplace dynamics.
Thanks, everyone and I'll now hand, the call back to Dave for his final remarks.
Thanks, Steve fiscal year 2024 is off to a nice start with Coca continuing its strong momentum and the balance of our brand portfolio on track to our full year expectations.
While keeping our long term strategy is top of mind, we are operating fiscal year 2024, with a sharp focus to prioritize DTC growth across all of our brands, while managing wholesale marketplace inventory to drive online acquisition and a high level of full price selling.
Expand HOKA brand awareness globally.
Lead with UGG products that are proven to resonate with global consumers.
Thoughtfully manage inventory to align with consumer demand and invest in enterprise infrastructure in key strategic growth areas.
We believe deckers unique ability to infuse exciting innovation into both fashion and performance products is why our differentiated brands are able to create lasting consumer connections.
This along with our financial discipline agile operating platform exceptional marketplace management and purpose led culture allow us to continue to deliver best in class results in exceptional shareholder value.
On behalf of our management team I would like to thank our employees for their continued dedication to delivering results and making deckers a great place to work and.
And then I would also like to thank all of our stakeholders for their continued support.
With that I'll turn the call over to the operator for Q&A operator.
Sure.
Thank you we will now begin the question and answer session.
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Today's first question comes from Jay sole with UBS. Please go ahead.
Great. Thank you. So much my question is on HOKA you talked.
<unk> talked about obviously really strong DTC performance for <unk> in the quarter can you just talk about a little bit what you saw at wholesale and then talk about what youre seeing for the rest of the year.
It really just going back to the quarter. Firstly can you just talk about some of the drivers of the overgrowth just a cross channel in terms of product that would be great. Thank you.
Yeah. Thanks, Dave So yes, obviously, we are super excited about.
The continued momentum of polka broad based it's just continuing to.
Peter and exceed expectations for us and we're really optimistic about the rest of the year.
DTC growth as you saw for both brands with exceptional wholesale for HOKA is about where we expected it to be for this quarter. A couple of puts and takes here and there by channel and region, but generally speaking.
Right in line with our marketplace management expectations, We love how this flywheel is working for US we're creating awareness out in the marketplace at a top level of the funnel awareness is increasing dramatically for the brand up 20% over last year and.
And thats driving all channels, but particularly as designed into DTC. So.
There is some noise out in the wholesale channel with markdowns and promotions from other brands a lot of inventory in the channel. So we're managing that tightly by purpose.
But again as I say raising awareness at a high level and seeing the brand interest coming directly to our DTC business is super exciting for US obviously, it's our most profitable sale. We gained all of the data from that.
And it creates even a stronger flywheel going forward in the marketplace as we expand globally.
Some of the things that are driving hooker for the quarter. This was a hooker driven quarter as expected right. So this isn't a big quarter for a lot of the top selling styles for the company.
Overall for the quarter were driven by HOKA again, the Clifton and Bondi continued to be the front runners here.
<unk> has been.
We received extremely well globally, we're looking to get more inventory in that franchise and continuing the upside of that franchise going forward.
And then also in the <unk> side of things that business is still very strong and.
In places like Rei or we're the number one running brand and also in hike.
And then in the international regions, particularly in China, we have a very strong hike business. So we're going to continue to go after that we've got some new innovations launching we just launched the mark.
<unk>, which has been received very well with the paper plate. It a little more attainable price point, and then continuing to update franchises throughout the year with some very very exciting launches of existing upgrades, but also some new product coming into Q4.
Got it okay. Thank you so much.
You bet.
Thank you and our next question today comes from Lorem vascular SKU with BNP Paribas. Please go ahead.
Good afternoon, and thank you very much we're taking my question and congrats on such good results.
Hey, Steve I would love to ask about your hope that DTC strategy I think in the 10-K. It's noted that you have.
<unk> stores I believe those are permanent stores predominantly located in Asia.
Correct me, if I'm wrong, but.
Can you provide a little bit of color of how these stores are performing and what lessons are you learning from the store that you just opened up in permanent store you opened up in New York and how many stores do you envision for the brand over the next couple of years.
I can speak to that and then Steve you want to get into specifics, but yes. This is <unk>.
Like we're doing with everything else everything else in our marketplace, we like to test and learn and when we see positive signs I would like to go fast and capture opportunities and so far very good on retail Fortunately for US we know how to run retail stores based on our legacy of <unk>.
Retail steroids stores over the last 20 years, we have the operations globally to do it and we're leveraging that platform exceptionally well.
The stores that we have opened both pop ups and permanent are exceeding or on plan.
No concerns at this point, but.
But we do want to take it slow and we want to make sure that we're not overextending ourselves we're going into markets that.
Are accretive to the overall marketplace strategy, but are also creating.
Creating awareness to important consumers and kilos key locations around the globe we.
We need retail to work in China, we can't have any distributor business with partners. If we don't know how to do retail there well. So we're we're fine tuning that but so far the partners are pleased we're very positive and optimistic about our own retail stores there as well.
I'm excited to open our first permanent store in New York City feedback from that has been exceptional and I think for US now it's really about fine tuning the experience for the consumer in the store. So the operations behind the scenes, we have dialed, but we wanted to make sure. This is an exceptional.
Experience for the consumer beyond just the product, we're looking at holding events and run clubs and making sure that there is engagement with the community in these stores as well to drive renewed interest or a renewed sorry, I should say repeat visits from existing customers, but also creating awareness.
And it's showing the full breadth of the line for new customers to the brand so.
After a good start small in the scheme of things at this point, but.
We see upside here and as far as size of stores and how many we don't have a number put on that yet it all depends on how the marketplace evolves, but DTC is our primary objectives here and.
Using our stores to grow online and vice versa.
But you'll see a handful of key stores being opened in key cities and locations as we go in and continuing to leverage our pop up and test model before we make long term commitments.
Alright, and then Steve just on the number you're right <unk> are the company owned stores. So that does not food retail partners that we have in Asia or with some of our distributors. So.
Those are not included in the store count so the 16.
Sorry, <unk> are included our store.
Our company owned not inclusive of some of our retail partners as well and then just as Dave said I think the performance of those has exceeded our expectations both from a revenue and a profit standpoint, and we use the pop ups to inform us on locations. So as we see pop ups performed very well it gives us a good indication.
Store location and the opportunity for a permanent location, so and we will continue to operate in that manner and we continue to look at areas, where we can continue to expand kind of the wholesale retail store presence.
Very helpful. Thank you for all that color and then just as a follow up I think Stefano was elevated to chief commercial officer in April just curious to know if you.
You have any update with regarding permanent find for brand presence or hotel.
And then just another sneak sneaking in one more question, you've got $1 billion of cash on the balance sheet can you just remind us your capital allocation strategy the audience.
Yeah, So just with Stefano Super excited to elevate him to that role well deserved and as we've spoken in the last call I believe the HOKA business is in excellent shape under Stefanos leadership. He knows this space incredibly well.
And we're excited about the fast tracking of innovation and.
Marketplace management, that's happening there no news to report on the on.
On the hook of full time president replacement.
But I would say trust that we're confident in the business until we do and we'll be excited.
<unk> announced that when the time comes and then just on the capital allocation question No change in terms of how we're thinking about it clearly.
Like to operate from a position of strength to have an incredibly strong balance sheet, especially in current times I think that serves us well.
Constant conversation with our board in terms of how we're looking at capital allocation, but as we've indicated over prior quarters.
We have been and look at share repurchase is a great way to return value to our shareholder base. So we'll continue.
To look at that and evaluate that but yes in terms of how we're thinking about no change.
And we will continue to have conversations with our board.
Very helpful. Thank you very much.
Okay.
Thank you and our next question today comes from Sam Poser with Williams trading. Please go ahead.
Good afternoon. Thanks for taking my questions Erin I think two of the five have been answered. So can you give me can you give me a wholesale for every brand. Please.
Sure So we'll see.
Sales for each of the brands, including distributor at a global scale. So that's $121 5 million.
Our <unk> $260 8 million Talbot, $35 1 million $6 5 million and then you have some other.
Okay. Okay. Thank.
Thank you.
Either.
Dave.
Steve.
On the <unk> DTC.
Can you give us some idea of what.
What you are looking at for the full year there.
Given that is going to be the big driver of this.
Are we going to have.
Let me give you a four handle on it a five handle on it.
Yes, I think we'll do it.
Okay.
Good question right clearly, we've seen DTC performed slightly above our expectation.
In Q1.
Reflected that in the raised guidance for the year and we're continuing to watch that as part of David articulated that's a little bit.
Part of our strategy is to manage the wholesale marketplace tightly.
And we will let some of that excess demand come over into our DTC channel.
And we'll fulfill there, but a little bit harder to gauge how that consumer shows up.
But we're confident in our ability to grow DTC.
And with <unk> specifically.
We'll see how the year plays out but what we're encouraged by is a strong start to the year.
<unk> continued to see growth in our DTC business and growth with our polka DTC business and then we'll see how the year continues to play out.
Yes, I think one thing to note is we hope so.
Sam we do have hard comp coming forward in the next three quarters to something to be aware of but I think we're learning what's possible with our DTC engineer and so this is very encouraging signs for us the thing to keep in mind also as wholesale is a bit of uncertain entity right now.
Inventory in the channel.
A lot of estimates, it's going to be a promotional back half of the year. So the way. We're looking at this is we're trying to focus on the total consumer opportunity regardless of channel.
We have inventory available for our DTC business, if wholesale continues to be a little bit more challenging our promotional will.
We're confident that they'll come to us and with our marketing campaigns at the top of the funnel, we can drive more direct.
Our traffic directly to our channels and DTC channels, but this is certainly very encouraging it's right in line with our strategy to get to the to get the whole company at 50% DTC down the road and now we're going to continue to hammer hammer away at it.
Thanks, and then lastly.
Youre.
You're investing a lot in the SG&A, but you tend to roll. It forward I mean is this going to be another year like normal wear.
We don't really see that leverage on all of that SG&A until we come out of the you can't really roll it out of the fourth quarter again that we're looking at it the same way.
Yes, I think the way we're looking at Sam's, we're coming out of a year last year, our FY 'twenty, three where we held back.
On some of those SG&A investments and that was to offset some of the headwinds that we're experiencing on the gross margin effects. So that was in.
And intentional pulled back to really deliver on our commitment to get to 18% operating margin. So this year as we're seeing some of that gross margin expansion. It is affording us kind of that opportunity to invest so we are looking at it.
That's embedded in our guidance for the year of the approximate 18% operating margin. So again with that gross margin expansion taking that opportunity.
To invest in some of the things that we held back on last year and we'll see how how we're doing I think Q1 is a demonstration where we have invested a little bit more and so youre seeing a little bit of an increase on that SG&A as a percentage of revenue in the quarter.
So we'll continue to see but I think it's important that we continue to invest in these brands part of that as I mentioned strategic investment in polka marketing. We know that there is an incredible opportunity out there and this is an opportunity for us to continue to build international brand awareness.
And then just on kind of infrastructure and talent, we are in a competitive.
<unk> and <unk>.
With how well we're doing it's important for us to remain competitive.
In that space as well so those are all things that were considering but again, we are delivering in my mind exceptional operating profit levels and so it affords us the opportunity with this gross margin expansion to make those investments.
Yes, and I think from my perspective, I want to make sure that we have the operations.
At Deckers to be to take this business to $5 $6 billion over the coming years and so we want to make sure that I've said to my leadership team that we need to focus on infrastructure investment innovation systems data accessibility global supply chain investments Dcs.
So we are ready for the growth when it continues to come.
And in the past some quarters, we've pushed out marketing spend because we didn't need it to hit our numbers, but we're rethinking. This we're much more strategic now we want to make sure we're doing.
More activity at the top of the funnel connected TV et cetera, we have some great creative from both HOKA and <unk> that you'll see.
Connected TV this coming season in fall.
And the ELT is completely aligned on where additional SG&A opportunities are going to go and how we prioritize them. So if.
If we see signs that there is opportunity to free up some more spend for some of these strategic initiatives Steve.
Steve and I are looking at a quick we're allocating the money fast. So the teams can can get on with it and create more upside, but I am excited about the opportunities of marketing for.
For <unk>, specifically, but also <unk> and augment and some new exciting product launches coming this fall for both of them on the marketing side too.
Thank you continued success.
Thanks Sam.
Thank you and our next question today comes from Janine Stichter with <unk>. Please go ahead.
Hi, good afternoon, everyone and congrats on the great quarter. Thank you for taking my question I wanted to ask about the wholesale environment in the U S really with a brand I understand the tough multiyear comparisons you have there I'm just wondering what you're hearing from your wholesale partners both on their broader ordering patterns and then specifically on sell through for US certainly hearing it's tough out there and then also one.
Do you care more about the untraditional franchises it sounds like they're working really well on DTC, but wondering what the appetite is for that product to wholesale. Thank you.
Yes, good questions.
The funding quarter for us because we're dealing with deliveries into wholesale get ammonia for fall, we have some leftover from spring and overcoming particularly this quarter for <unk>.
We're comping a lot of fluff business from last year. So it is a bit of a little bit noisy, but the good news that we're seeing in here.
The consumers are reacting brand interest is up dramatically, especially in 18 to 34 year olds.
Styles that we have invested in and with heavy inventory.
This coming fall the Tasman and.
Ultra mini and platform styles, we sold out of those styles last year.
Getting back in inventory now that we're already selling through very well. Despite the heat waves are going around across the country. So the indicators that we are seeing for the UGG brand consumer interest consumer buzz excitement around these franchise styles.
A couple of new styles that we just launched early.
A sneaker and then.
It's more of I forget the name of it but then ujiji style that has a net upper on it those.
Those are in the top 10.
<unk> dot com. So a lot of reasons to be excited wholesale partners. They know they need to be successful. This season. They know that there is opportunity in these key styles that we're getting after.
And those are the things that we have focused our buyers advise on for them.
The other key thing to keep in mind is we have reduced our SKU count dramatically in agg. So last year at this time, we were over 600 skus heading into fall. This year were just over 400, and so we've cleaned up the assortment we funnel their inventory into these key styles that we know there's high demand for.
And we're getting the marketing.
Behind those styles to really drive high level of interest in sell through.
On the traditional styles.
One of the one of the top selling styles globally discuss that and so we're still seeing a lot of interest and renewed interest with younger consumers in some of our core classics, but what's really encouraging is the iterations of the platform styles.
Leveraging the Tasman the new mill. These ultra many styles and then new iterations that we're going to be launching in the fall and holiday. We've just been through a great deal of work on Atlanta.
And the marketing teams leadership on resetting.
Our brand positioning and defining our brand codes and design and applying those two are our core classics and iterating off of those with new materials and new.
Outsold in different shapes is bringing some really exciting product to market and I think youre going to see some of that start to happen. This fall and continue through spring and next fall as well.
Great and I'm asking count reduction is there any potential gross margin savings that may go along with that.
Yes, short and long term right and so I just reviewed with the leadership team yesterday, the fall 'twenty four line and the teams all said to us with.
This is.
We're doing less work in the styles that were spending more time on are getting better and better and more exciting and so I think youre going to see it both in.
Focused youre going to see it in quality and aesthetic and design and Youre ultimately going to see a margin opportunity a little bit as well, we haven't flushed that out yet and we don't have it in any of the guidance or anything but certainly when brands go through this work. There is there is certainly opportunities from Argentina.
Great. Thanks, so much.
Keith.
Thank you and our next question comes from Paul <unk>.
Citi. Please go ahead.
Hi, guys. This is Kelly on for Paul.
Got a couple of questions for you.
First on the gross margin in the first quarter. It looks like it came out a little bit light of expectations and that's despite.
Look at DTC driving a beat so just curious.
What the driver of that was I think you've mentioned I'd like to close out the seasonal inventory curious what that was.
Not not plan believes acquired any color there would be great. Thanks.
Think Kelly this is Steve I think on the quarter we.
Pretty much delivered kind of to our expectation I know some of the models may have been a little bit higher than we were.
My guess is where you may have been a little bit higher with around a promotion assumption and potentially a foreign currency assumption. When we look at kind of the 330 feet Thats a pretty substantial b.
In line with what we were thinking just to give you some sense of how that broke down the freight channel mix and brand was around 450 basis points of it and that was offset by about 100 basis points, which was a mix of promo in foreign currency. So it's just depending on how you factored that into your model, but generally speaking.
In line, but yes, as we mentioned we did do some closed out of seasonal items in Q1, which is impacting that that gross margin was that across.
And HOKA.
Yes, it was.
Some of both in the quarter.
Got it.
And then on the.
So.
Wholesale grew low double than in the first quarter.
Thanks, Chad.
Distributor transition impacting that is there any way to quantify so we could kind of understand that the underlying wholesale growth and how that should.
Trends for the rest of the year.
The Italian distributor transition one specific right does it carry forward any color.
Domestically versus international on that on the wholesale growth side in Hooker and then lastly on that just from that door perspective, youre sort of gross door.
New door openings for hooker.
And then.
On a net basis. Thank you.
Sure.
<unk>.
Got it.
Yeah.
To help you.
So you are right. We did do an Italian distributor conversions. So that is impacting our year ago Q1 would have picked up the distributor order, which would have covered multiple quarters in a wholesale model. So youre seeing some kind of delay of those sales in Italy, we have not.
You talked about how much that is but not a huge number and a Q1 impact but.
Safe to say within millions of dollars in terms of what the impact was that youll see pickup in the wholesale business later, so that was.
Excuse me impacting some of the wholesale distributor growth.
In Q1.
Then the other parts of your question or.
Wholesale in general in door count.
So dor.
Alright.
Is domestic.
Yes, so what we're looking at just in terms of was it specific to hook in door count.
Yes wholesale.
I think so.
Okay.
Yes, I think the way we're looking at as we on our prior call. We talked about kind of no global net new doors, we're going to continue to evaluate and see what that looks like as we're probably seeing some growth in North America and some declines on the international businesses were cleaning up some of that distribution and then.
We will continue to monitor so that was kind of a point in time as we see demand in performance with these doors within accounts will continue to evaluate that but no real change in strategy, but no change in strategy.
Got it thank you.
Thank you.
Thank you and our next question today comes from Jonathan Komp with Baird. Please go ahead.
Yes. Thank you Dave I wanted to follow up on a comment you made I think you said.
You are building the infrastructure to be a five to 6 billion consolidated revenue company would that be on sort of a three to five year horizon I don't know any thoughts on that and I guess thinking about the next couple of $1 billion of revenue how would you see that split.
Across the brands I'm, just curious if you had any more color.
On those comments.
Let me grab my LLP I'll share with you.
No Thats just generally speaking is my job as CEO I need to be looking three to five years out and based off where we are today and.
On the cusp of hitting $4 billion Mark.
My head is like Okay. So how do we get to five and six what's it going to take from a team perspective and infrastructure infrastructure perspective.
Category expansion all of those things so when I put out say five or six vessels generally thinking hey down the road, we're going to get to these numbers I don't have anything to share with how that is but certainly if you put.
The pieces together you can see it happening as well with the current growth we're seeing.
And Hooker I think youre going to see a resurgence of UGG over the coming years under <unk> leadership.
And hopefully we get Teva to be a meaningful number in the coming years as well so it's within line of sight for sure, but I would.
I would not want to put a timeline or a brand mix in any of that yet it's early days, but the opportunity. We see is for this company to be a $5 6 billion business over time for sure.
Yes, I appreciate that color. Thank you and then maybe related.
Picture question on category expansion, how are you thinking about.
Style fitness other categories, especially.
It looks like Theres, some very favorable reviews.
That.
The transport acts as a new category.
It looks like a heart should it get a hold of so just curious how youre thinking about top broader category expansion potential for OCA.
Yes, we are in the transport myself right now and had trouble finding it honestly so.
That one surprised us I was actually a little bit skeptical about how that was going to be received in the marketplace.
Not necessarily positioned as a performance shoe, although I do run at it and work out and so its very versatile and I think it's showing us that there is more aperture and appetite for HOKA too.
Being meaningful in the lifestyle space, whether that is color ups or fabric changes or design details on some of our franchise styles.
Pull things out of the vault tenures.
10 year old now we have things actually in the vault customers ask for but there is opportunity for new styles like the transport and the transport X that we've tested this year.
And we think that there is there is an emerging opportunity in lifestyle, it's not just people wearing.
Running show anymore.
She was made for all day, where that feel like running shoes, but have a little bit of a different aesthetic and we see a massive opportunity there not only within the HOKA brand but.
Working on launching a new brand to actually in the spring timeframe.
To go after some of that opportunity as well so.
As far as category growth right now if you ask Stefano and the team were focused on being maintaining our dominant dominant position and run we want to be number one in hike and trail over the coming years, we think that's a tremendous opportunity and that's an important category that's growing within the category, but also has lifestyle implications is.
Well and then really cultivating the lifestyle distribution and consumer with performance product that has a little bit of a different aesthetic.
If you think about down the road different categories, we're exploring other categories as well and those things take time to develop so we're having the teams on the sidelines to look at different opportunities different categories, whether it's cort.
<unk>.
That may be but we're thinking that way for the long term, but right now we're really focused on run hike in the lifestyle opportunity.
That makes sense just last one for Steve if I could your gross margin. This year Youre still guiding a couple of hundred basis points below your peak and if I compare to back then.
Revenue contribution is double than mix. So just how should we think about that opportunity to get back to 53%, 54% gross margin overtime.
Yes, I think if youre looking back kind of two years ago.
Big difference will be around just a promotion assumption so that was.
Pretty clean I would say very clean selling in terms of hardly any promotion.
As we're looking at the <unk> contribution increasing we're going to continue to see an increase as we see a higher proportion of DTC.
Increase we'll also see gross margin expansion, so what youre seeing I think this year from where we were a couple of years ago.
Some more assumption around promotion and we will see how that plays out this year and then going forward beyond that is higher proportion of OCA should continue to give us some gross margin expansion opportunities as well as the higher proportion of DTC business.
That's great. Thank you.
Yeah.
Thank you and our final question today comes from Dana Telsey with Telsey Group. Please go ahead.
Hi, Good afternoon, everyone. Dave you had mentioned Teva and Chinook well what is happening with those two brands now how do you see that progress. This year and then as you think about inventory levels are certainly seem very clean how are you looking for the progress of inventory going forward. Thank you.
Yes, Thanks, Dan and good question, we don't talk very often about <unk>.
For the quarter results there as it makes sense there's questions about them. We recently have reorganized our smaller brands Kevin's for Nook and.
Some incubation work that we're doing under an emerging brands group, where we're leveraging resources and were resetting those brands. So.
We have a new leader there Lee Cox, who spent a lot of time on the HOKA brand early days. He is point together long term strategy for.
Both those brands and right now Theyre doing brand work so.
Resetting their positioning tightening their positioning their proposition understanding who their consumers are deeply and elevating their innovation pipeline. So I would say the biggest opportunity right now that we see down the road in the short and long term as Teva.
We've looked at a number of brands externally that we could acquire and quite honestly nothing that none of them look as good as <unk>.
It's a beloved brand, it's got a great 30, plus year history, and a lot of heritage product.
And it is healthy in the marketplace. It's got great margins and we think that that is a brand that we can invest in for the long term. So right now it's just about resetting the marketplace Thats why youre seeing some degradation in the topline and both have been sooner because we are cleaning things up.
And we're basically getting gearing those up to go back at it with a new and improved version of both brands, but the Teva opportunity.
Is continued within sports sandal and we are working on trail sandal for that brand, they're going to be launching early next year, which we think will be incredibly exciting trail running sandals and then also expanding into close to one year round business through our innovation engine. So you won't see dramatic changes in this year.
P&L trading perspective, but you will start to see improvement going into FY 'twenty five both on the topline and Bottomline, particularly for the Teva brand. That's the bigger opportunity and then we have some ideas of what could be in.
We'll see if those play out over the next coming years as well.
And then Dave just on the inventory the way we're thinking about it so to your point, we have made significant improvements from.
From our year ago period, which we had more elevated inventory a lot more in transit inventory. So as that has resolved and improved we're in a much better position. This year Youll continue to see that improvement continue in the quarters of this year won't necessarily be to the same percentage extent, but we were.
We're making improvements kind of all of last year.
And so youll continue to see us.
Make improvement not necessarily to the same level that you saw in Q1.
Got it thank you.
Okay. Thanks Dana.
Thank you.
Gentlemen, this concludes today's question and answer session and today's conference call.
Thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful evening.