Q2 2025 Deckers Outdoor Corp Earnings Call
Speaker Change: Good afternoon and thank you for standing by. Welcome to the Decker's Brands second quarter fiscal 2025 earnings conference call. At this time, all participants are in a list-only mode.
Speaker Change: Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions.
Speaker Change: If anyone has any difficulties here in the conference call, please press star zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded. I'll now turn the call over to Erinn Kohler, VP, Investor Relations and Corporate Planning.
Erinn Kohler: Hello, and thank you everyone for joining us today. All McColle's Desano Caroti, 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.
Erinn Kohler: Please note that certain statements made on this call are forward-looking statements within the meaning of the federal security laws which are subject to considerable risks and uncertainties.
Erinn Kohler: These forward-looking statements are intended to qualify for the safe harbor from liability established by the private security's litigation reform act of 1995.
Erinn Kohler: 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.
Erinn Kohler: Capital allocation, anticipated impacts from our brand and marketplace management strategies, changes in consumer behavior, strength and performance of our brands, demand for our products, product and channel distribution strategies including direct to consumer.
Erinn Kohler: Plan 4 in the launch timing of new products.
Erinn Kohler: Marketing, Plants, and Strategies, our supply chain and logistics are anticipated revenues, product mix, margins, expenses, and inventory levels and promotional activity.
Erinn Kohler: The impacts of the macroeconomic environment on our operations and performance, including fluctuations in foreign currency exchange rates, and our ability to achieve our financial outlook.
Erinn Kohler: For looking statements made on this call represent management's current expectations, and our based on information available at the time such statements are made.
Erinn Kohler: For looking statements involved numerous known and unknown risks, uncertainties and other factors that may cause our actual results too differently from any results predicted, assumed or implied, by the forward-looking statements.
Erinn Kohler: The company has explained some of these risks and uncertainties, and its SEC filings, including the risk factor section of its annual report on Form 10K, and quarterly report on Form 10K.
Erinn Kohler: Accept as required by law or the listing rules of the New York Stock Exchange that company expressly this claims any intent or obligation to update any forward-looking statements.
Erinn Kohler: Also, during the second quarter, the company affected a 6-1 Ford Stock Split, as referenced in companies' release on September 13, 2024.
Erinn Kohler: The share, per share, and resulting financial amounts mentioned on this call have been adjusted to reflect the effectiveness of the stock split, including prior period metrics.
Erinn Kohler: 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.
Erinn Kohler: 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 periods.
Erinn Kohler: The company believes that these non-gap 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.
Speaker Change: With that, I'll now turn it over to Stefano.
Stefano: Thank you, Erinn. Good afternoon, everyone. And thank you for joining today's call.
Stefano: I'm delighted to report on our impressive second quarter results today.
Stefano: And with this being my first call as CL, I'd like to share my approach to driving the deckerys continues success.
Stefano: i
Stefano: The business has come a long way over the past few years and we are executing on the long-term strategy established throughout my tenure with Dekers.
Stefano: As we look ahead with hunting on four guiding principles to help us build upon our recent wins and amplify the power of our brands and organization while remaining true to our proven fundamentals.
Stefano: Starting off, our consumer first mindset harnesses insights and feedback to create distinctive products that resonate with the growing audience.
Stefano: Next, our brand-lust philosophy for product creation and marketplace positioning, leverages our unit brand codes for consistent, elevated experiences that prioritize long-term brand health.
Stefano: Third, we're innovation forward, committed to creating leading edge performance technologies in unique designs that deliver tangible consumer benefits.
Stefano: And finally, we're globally driven, aiming to diversify and build international markets for a more balanced business, expanding regionally and strategically through various channels.
Stefano: In the snowy-bigger ship roll, I intend to build upon our established foundation.
Stefano: These guiding principles has fueled our success for years.
Stefano: and we are enforcing them as cornerstones of our future growth.
Stefano: With our strong operating model and strategic focus on key opportunities for Agon Hoka.
Stefano: We're well positioned to drive long-term brand health, prosperity and sustained success.
Stefano: Now let's dive into the highlights of our second quarter, which include revenue growing 20% versus last year to 1.3 billion dollars.
Stefano: Healthy Gross Margins, or 55.9% and diluted earnings per share, increasing 39%.
Stefano: $1.69, compared to last year's $1.14 per share.
Stefano: The Executive Results reflect the continuous strength of our full price demand, enabled by innovative products that resonate consumers, disciplined global marketplace management, and possible product segmentation.
Stefano: Key revenue drivers, behind deckers for a South Growth of 21% for a last year, include the whole car increasing the 32%
Stefano: Aggrowing 13%
Stefano: Total Company International, increasing to a new present.
Stefano: In total company BTC and wholesale both growing more than 20% of last year.
Stefano: With this impressive first-hand growth, the Hoka brand achieved an exciting milestone. It clipsing $2 billion in revenue over the trailing 12 months period for the very first time.
Stefano: I let the congrats actually, our entire global team for their child's efforts in building the special brand.
Stefano: i
Stefano: Overall, Deckers' first half results demonstrate a team's execution around the globe.
Stefano: Our brand that will position for the holiday season and on track to achieve an increased outlook for the full fiscal year.
Speaker Change: Steve will provide more specifics later on in the call. But first, I will share a few brand and market play highlights from the first half of fiscal 25.
Speaker Change: Beginning with Brain High Life.
Speaker Change: Global Hoker revenue in the first half increased 32% versus last year.
Speaker Change: Polka performance continues to be driven by the strength of full price demand across multiple categories of Rami Glob.
Speaker Change: The Hokatima's continued to refine their multi-category offense, which is powered by core focus, twin-erode, dominate trail, and develop fitness and performance lifestyle.
Speaker Change: Who has made great progress in each of these areas through the first half of the fiscal year?
Speaker Change: Specific to the rock category, Hoker-Conduced River healthy growth in heritage franchises, like Clifton Bondi, while both ring the assortment with significant known as incorporating technical advancements that are being well received by consumers and wholesale partners.
Speaker Change: We're especially encouraged by the early reads of the brand's most recent introductions, Skyflow and Mach X2.
Speaker Change: Skyflow, which as a reminder, was introduced in mid-July as a quick exclusive with our special partners in the DC channel. Has received high marks for Ride, Fit and Feel.
Speaker Change: Positive Global Feedback from our partners has highlighted the sky's laws of additional contribution to the existing Hoka Road Offering.
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Speaker Change: Mochax II incorporates updated geometry inspired by the Hoka brand's pinnacle award racing shoe, the CLX1, as well as an upgraded plate, and a more aggressive rocker profile, which results in a lighter and faster shoe.
Speaker Change: Focac celebrated the launch with a mock-speed challenge on Strava, leveraging the brand's new Fifth Avenue flagship store in New York City for consumer engagement with additional activations at the Berlin Marathon and yet coming Frankfurt Marathon in Oxford, Hath.
Speaker Change: In the Trail category, Hoka continued to see broad adoption on the versatile transfer franchise.
Speaker Change: Complemented by two powerful updates during the most recent quarter, including the six additional speed-goat, our most popular FFRIENGYES, and the Technics 3, our commercialized version of the Technics prototype, worn by the last two champions of the Hocus-Ponsored UTMB race.
Speaker Change: For those of you and familiar, you can be refers to ultra-trail, mobile-clank, the pinnacle event of a global run-in competition.
Speaker Change: A grueling 166 mile old Traumarathon through the French Ops with over 30,000 feet of elevation game.
Speaker Change: Just a month ago, our very own senior manager of Hoka Product Engineering, an amateur athlete, Vincent Buiard, one UTMB, is first attempted to raise, becoming only the fifth runner, ever, to break the 20-hour mark.
Speaker Change: His victory is an inspiring story which is emblematic of the Hoka Brands accessibility and the passion are people have for what they do. Proving that even those who are in full time athletes can compete with the high levels.
Speaker Change: Okay, moving on to hook up brands regional market performance in the first half.
Speaker Change: Hooker continued to experience Solid Growth around the globe.
Speaker Change: Our focus to deliver on this, in under-pandred and natural markets, his dream results as in natural revenue growth outpaced the brand's healthy growth in the U.S.
Speaker Change: Through the first six months of the fiscal year, Hoka drove particularly strong international growth across all channels. We did see outpacing wholesale.
Speaker Change: We continue to see great progress across all key international geographies at Soka Ginn Market, chair in the road in Traffatic or even Europe, according to Sir Kana, engage with local consumers through elevated community building activations at the brands retail locations in Paris, London, Tokyo, and Shanghai.
Speaker Change: and increased share of shoe counts at Keylong Business Running Events across Asia.
Speaker Change: At the same time, the US delivered balance growth across DTC and wholesale, aligned with our strategy for the fiscal year.
Speaker Change: With NGDC, Hoka Conti to drive growth through increases in customer acquisition and retention.
Speaker Change: One wholesale, Hoka benefited from selectoring creases with key partners, quick experience, a positive back to school season with Hoka.
Speaker Change: Saw great early reeds with conspiring engagement in New Accounts.
Speaker Change: In Cat-Runspecial Team front of mind with the successful Kirk's exclusive launch of this guy's love.
Speaker Change: or has exciting innovations ahead in anticipate continuous success and growth for the brands of the holiday and beyond.
Speaker Change: I could not be more pleased with yet brands you get to date results.
Speaker Change: Global Redmond, the first task increased 13% of our last year.
Speaker Change: Ag Performance was driven by success across cleanishers, including evolving and elevating iconic franchises to resonate with today's consumers, which is reflected by the era momentum for the brand's most popular models.
Speaker Change: Building Lichols highlighted by the increase adoption of the Golden and Lowell franchisees across shoulder seasons. An implying international which deliver growth above the global brand average.
Speaker Change: The Tasman, an Ultraman franchises, continued to experience four prize demand from consumers around the world.
Speaker Change: Enhanced by a product that he can't focus to keep his franchise as special.
Speaker Change: Yet, Kim has done this by allocating core colors and chanting new seasonal colors, building complementary silhouettes like weather hybrids and platoes from variations, and driving heat through aspirational collaborations, including a recent launches with Kalina Strada and Gallery Department.
Speaker Change: I did experiencing momentum with the golden and low melt-time chises. In the first half, both of these landed in the Brands Top 10 Styles right by Revenue, each contributing meaningful year over year growth.
Speaker Change: Additionally, both of these styles are driving consumer acquisition and encouraging fine for the egg brands' continued evolution.
Speaker Change: We give both franchises as highly wearable around with opportunities for expansion coming to the product segment for Spring 25.
Speaker Change: The Egg Brand is also expanding its reach to male consumers, focused to win with product than infuses the comfort expected of ag, with confidence and style.
Speaker Change: Recently, Agannels, Greg nominated Musical Artist Post Malone as an ambassador for Men's Business.
Speaker Change: I'd be like to read this partnership as part of a global campaign including digital videos and if you're a house-experienced, illustrious.
Speaker Change: Moving into some regional highlights for the first half as we head into the peak
Speaker Change: As expected, growth of the first half has been led by international regions, which have maintained high levels of demand through a lean inventory management.
Speaker Change: Your season is varying last year's trend. With earlier start to exceed and consumer demand.
Speaker Change: This is driven exceptional DTC growth in the region with first half revenue, nearly doubling compared to two years ago.
Speaker Change: Hose performance was also robust, she will by premium partnerships that elevate brand presentation and enhance consumer experience.
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Speaker Change: Turning to Asia, despite a more pressured consumer environment, I continue to perform well to the first half across wholesale and DTC.
Speaker Change: The Sieg Brands business in the region has continued to benefit from the success of transitional styles, the resonate year round, especially with the emergence of the Golden Collection.
Speaker Change: In the US, I've continued to perform well. With a majority of first half-revenue growth coming from wholesale selling, as we allocate more product of the channel and our partners are looking to get into stock earlier.
Speaker Change: Hostel South Through was strongest among accounts, the primarily served younger consumers, as that remains a popular brand among the 18-34-y old cohort. I want to thank and congratulate the entire global agteam for their accomplishments this far in fiscal 25.
Speaker Change: Looking ahead, I guess well positioned to maintain consumer demand through the peak holiday season with an attractive and elevated product assortment.
Speaker Change: Although we expect a more promotional environment.
Speaker Change: Then the exceptionally low levels of experience last year were constant agglomainting, premium levels of full-price selling as the delight consumers this holiday season.
Speaker Change: Moving to Decor's First Half Channel Highlights in the Global Marketplace.
Speaker Change: Align with our strategy, Revenue Growth in the First half has been well balanced across DTC in wholesale.
Speaker Change: The game of DTC, first half global revenue for the channel increased 22% versus last year on reported bases in 19% on a comparable basis.
Speaker Change: Horker continues to drive most of the incremental revenue over the prior year, increasing $100 million with broad strength across United States, international markets, online, and within the brand relatively limited fleet of retail stores.
Speaker Change: IGDTC also drove strong results from the first half across both digital and physical consumer touchpoints, overall increasing 11% over last year and contributing an incremental $25 million of revenue.
Speaker Change: As expected, strengths in the agbranodes primarily driven by international markets.
Speaker Change: with the US also contributing to the growth.
Speaker Change: From a global wholesale perspective, Revenant for the challenge increased 20% for us in last year.
Speaker Change: Both Hoken, Agedra of meaningful Hossal Growth, increasing 33 and 14% respectively.
Speaker Change: Regionally International, a pace domestic from a growth rate perspective.
Speaker Change: But both regions delivered meaningful incremental revenue above the prior year.
Speaker Change: In all, our teams have continued to maintain a healthy global marketplace, allowing Hoka and Ag to sustain high levels of consumer demand.
Speaker Change: Thanks everyone. I'm not handed over to Steve to address our second quarter financial results and provide an update to our fiscal year 25 guidance.
Steve Fasching: Thanks, Stefano, and good afternoon, everyone. We are encouraged by the continued momentum, Hoka, and aux experience through the first half of fiscal year 2025.
Steve Fasching: Both brands continue to benefit from their respective well-executed marketplace management strategies that are driving healthy self-room.
Steve Fasching: Hoked delivered another quarter of exceptional growth as demand for its innovative performance products remained robust across the global marketplace.
Steve Fasching: Up again, demonstrated broad-based growth across regions and channels by continuing to captivate consumers with exciting products that feature recognizable brand codes, elevating brand presence globally.
Steve Fasching: Our record second quarter revenue illustrates the exceptional ongoing demand for our brands. And we look forward to carrying this momentum forward as we enter our largest and most complex fiscal quarter.
Steve Fasching: While we continue to operate in a dynamic consumer environment, our discipline and nimble operating approach, coupled with our flexible spend model and strong financial framework, continues to enable our brands to capture market share opportunities and progress towards delivering long-term sustainable growth.
Steve Fasching: Now let's get into the details of our second quarter results.
Steve Fasching: Second quarter fiscal 2025 revenue was $1.311 billion. Representing an increase of 20% versus the prior year on both a reported and constant currency basis.
Steve Fasching: Growth in the quarter was primarily driven by Hoka, which increased 35% versus last year, to deliver record quarterly revenue of $571 million, as a result of exceptional demand across the brands global marketplace.
Steve Fasching: The Hoka brands growth in the quarter benefited from a high concentration of new product launches during the quarter, as well as some earlier wholesale and distributor shipments relative to the prior year.
Steve Fasching: UB Group 13% vs. last year, delivering broad-based growth across all regions and channels as the brand continues to resonate with consumers globally and also benefited from earlier wholesale shipments in the US.
Steve Fasching: Across both Hoka and Ud, we continue to see retailers looking to get product on their shelves earlier than in prior years, in response to strong consumer demand for our brands.
Steve Fasching: During the second quarter, our distribution center teams were highly effective in managing increased shipment volumes to our wholesale partners, particularly at the tail end of the
Steve Fasching: We expect this incremental benefit in the second quarter will impact some of our third quarter growth as we continue to manage the marketplace tightly to maintain a pole model.
Steve Fasching: Gross Marching for the second quarter was 55.9%. Up 250 basis points from last year's 53.4%.
Steve Fasching: Second-quarter gross margins benefited from favorable brand and product mix, as both our highest margin brand Hoka and our higher margin products within Hoka drove a larger percentage of growth.
Steve Fasching: and reduced close-outs to the wholesale channel, with partial offsets from increased freight and channel mix with an increased proportion of distributor business resulting from earlier shipments to our global partners.
Steve Fasching: SGNA Dollar spend in the second quarter was $428 million. Up 19% versus last year's $358 million, as we continue investing in key areas of the business.
Steve Fasching: As a percentage of revenue, Estune was slightly below last year at 32.7%.
Steve Fasching: Our tax rate for the quarter was 24%, which compares to 23.8% for the prior year.
Steve Fasching: These results culminated in diluted earnings per share of a dollar and 59 cents for the quarter, which is 45 cents above last year's $1.14. And then, in the end, the earnings per share, representing EPS growth of 39%.
Steve Fasching: Turning to our balance sheet at September 30, 2024, we ended September with $1.23 billion of cash and equivalents.
Steve Fasching: Inventory was $778 million. Up 7% versus the same point in time last year. And during the period we had no outstanding borrowings.
Steve Fasching: During the second quarter, we repurchased approximately $104 million worth of shares at an average price of $152.9.
Steve Fasching: As of September 30, 2024, the company had approximately $685 million remaining authorized for share repurchase.
Steve Fasching: Now moving into our updated guidance for fiscal year 2025, we are increasing our expectations for revenue growth, which is now expected to be approximately 12% above last year to $4.8 billion, which compares to the prior guidance of approximately $4.7 billion.
Steve Fasching: From a brand standpoint, we now expect Hoka to increase approximately 24% versus last year, reflecting the continued strength of demand around the globe, and we still expect to grow mid-single digits.
Steve Fasching: With the strong, gross margin achieved in the first half, we are increasing our full year expectation to now be in the range of 55% to 55.5%.
Steve Fasching: Recognizing brand and product mixed benefits and maintaining our expectation for freight headwinds and a more promotional environment in the second half relative to last year's exceptionally low levels.
Steve Fasching: S.G.A.A. is now expected to be approximately 35%. A line with our commitment to continue investing responsibly to support the long-term sustainable growth of our business.
Steve Fasching: With these adjustments, we now expect an operating margin in the range of approximately 20% to 20.5%.
Steve Fasching: We are updating our effective tax rate to be in the range of 23% to 23.5%.
Steve Fasching: And as a result of our improved revenue and gross margin expectations, we are increasing our deluded earnings per share expectations to now be in the range of $5.15 to $5.25.
Steve Fasching: Please note, this guidance excludes any unforeseen charges that may be considered non-recurring to our ongoing business, or impacts from any future share repurchases.
Steve Fasching: Additionally, our guidance assumes no meaningful deterioration of current risks and uncertainties, which may include but are not limited to changes in consumer confidence and recessionary pressures, inflationary pressures, fluctuations in foreign currency exchange rates.
Steve Fasching: Supply Chain Disruptions and Geopolitical Tensions.
Steve Fasching: Our powerful brands coupled with our strategic marketplace management and robust financial profile gives us the conviction to achieve our updated outlook for fiscal year 2025, even in the face of macro pressures impacting the broader retail space.
Steve Fasching: With our incredible first half performance by the Hoka and Ug brands, two of the strongest in our industry, I am confident in the strength of our model as we are well positioned to continue gaining market share and deliver sustainable future growth.
Speaker Change: Thanks everyone. I'll now hand the call back to Stefano for his final remarks.
Stefano: Thank you, Steve.
Stefano: Horkenag delivered outstanding for South Results, thanks to our discipline, marketplace management, and pull model strategy, maintaining strong consumer demand.
Stefano: and so as not surpassed $2 billion in trailing 12 months revenue. We're focused on growing global rent awareness to reach the next $2 billion.
Stefano: Our aspiration remains for a hookah to become a leading, performance athletic brand through meaningful innovation.
Stefano: At the same time, I get folks on delivering growth through the evolution, in elevation of iconic franchises while also building new icons.
Stefano: As we continue building both of these powerful brands will prioritize the long-term health and success of her portfolio.
Stefano: For the Decor organization of RAW, we remain focused to continue executing our long-term strategies.
Stefano: Reaming two tough fundamentals and prioritizing our guiding principles outlined earlier.
Stefano: This approach will enable us to continue driving growth and delivering value for years to come. To conclude, I'd like to express my appreciation for a dedicated employees who continue to execute our strategies while upholding that their values, including our companies' focus to do good and do great.
Stefano: I would note that among other things, Decor's was recently recognized by Newsweek is one of America's Greenest Companies for the third consecutive year. Further, I'd like to thank our valued retail partners who continue to champion an elevator brand on this growth journey in our shareholders for their continued support.
Stefano: On behalf of our manager in team, thank you for joining us today.
Stefano: With that, I'll turn the call over to the operator for Q&A.
Stefano: Operator.
Speaker Change: Thank you. If you have a question, please press star 100 telephone keypad. To
Speaker Change: We ask that you please limit yourself to one question and one follow-up. Thank you. One moment please for your first question.
Speaker Change: Your first question comes from the line of Jay Soule with UBS. Please go ahead.
Jay Soule: Great, thank you so much. I want to ask about Hoka, obviously the Great Negate and very strong growth.
Jay Soule: Just talk about the impact of some of the higher price styles that you've introduced this year, the Skyward Access CLO X1. And just talk about not just what those are doing for top-line growth, but also what they're doing for the brand and how it's allowed you to continue to expand the brand and extend it into new ways and new channels. Thank you so much.
Speaker Change: Yeah, thanks Jake.
Speaker Change: All our pinnacle products that we introduced this past year over the past six months have performed even better than we expected. And I'm referring to CLX1, the Skyward X, and most recently, Captain X.
Speaker Change: So for the first time we have really cracked the $200 and about price point. So we're very, very pleased with the performance of our clinical innovation styles.
Steve Fasching: Yeah, I think Jake and this is Steve, just a kind of add-on to that. You know, this is part of our strategy that you've heard us talk about, kind of, for a little bit.
Steve Fasching: Now for several quarters in a couple of years, as we continue to penetrate the market.
Steve Fasching: and Expand Distribution. This is where, and to your point, those new styles become really important. So as we continue to resonate in a performance community.
Steve Fasching: We're also with some of our expanded distribution. We'll use some of that existing product as we move out into bigger box distribution.
Steve Fasching: and so to Stefano's point where we're seeing success with these new styles is very encouraging.
Steve Fasching: You're seeing how it's not only growing top line but it's also improving a margin profile for the brand.
Steve Fasching: and that's some of what you're seeing come through and Q2 and some of the...
Steve Fasching: Encouragement that we're seeing that gets us.
Steve Fasching: and increased outlook from a margin standpoint on the full year outlook on the gross margin. So many things I think working and concert, everything that we've talked about before. This is just to continue how we're playing out that over strategy, how we continue to build the brand, build elevated performance product that continues to resonate with consumers and that runs specialty channel.
Steve Fasching: That also allows us to expand distribution and other points where we can have existing product that has also continued to resonate with product. So everything we're playing out and I think even as you're seeing with the results encouraged by some better than expected performance with theCUBE too. So really encouraged and I think theCUBE, again, just demonstrates the strength of the brand and how well it's resonating with consumers.
Steve Fasching: and Steve Stefano, thank you so much for helping.
Speaker Change: Your next question comes from the line of Jonathan Kopp with Beard. Please go ahead.
Jonathan Kopp: Yeah, hi, good afternoon. If I could ask if I'll up on Hoka, you raised guidance.
Jonathan Kopp: 24% just given that the first calf, the growth of 32% could you give us a little more detail how you're planning the second half and any more perspective on how we should think about channel or geography performance would be helpful.
Speaker Change: Yeah, thanks, Steven again. I'll take the first part and definitely want to jump in on it too, but I think, you know, again, it's how we played out the year. So if you think about what we said at the beginning of the year, remember that we said the majority of our percentage growth was going to come in the first half of the year. And that's really what's played out.
Speaker Change: We knew in the case of Hoka as we were bringing out new styles. There would be strong selling, I think we're, as we've said in the first question, kind of encouraged with the self-through of that product.
Speaker Change: and how it's resonating with consumers. But what we knew is by selling that in and some of the wholesale expansion. So as we increase the number of doors that we were selling to in the first app, that was going to create higher percentage growth in the first app. Right? We start to see that will back down a little bit.
Speaker Change: in the second half, which is playing out exactly again to what we thought. I think what has encouraged us is slightly better performance that we're anticipating and then to your point. That's what's giving us.
Speaker Change: The confidence to increase our outlook on Hoka going now to 24%.
Speaker Change: But again, we want to control that distribution too, right? So it's not just chasing everything. It's very thoughtful, it's very strategic. How we think about who we're going to go in with.
Speaker Change: and kind of what doors we get to select with those partners. So that's kind of where we're at. I think the other thing and Stefano mentioned it also is very encouraged by how well we're doing internationally.
Speaker Change: So not only do we continue to gain share in the domestic marketplace, we are very encouraged by the progress that we're making on the international front.
Speaker Change: Yes, specific to international, we still have plenty of runaway both in run specialty at run focus accounts. What is very encouraging is that some of the new accounts we have recently opened, whether it's Shupalus and JDK that you have, so even existing distribution with additional doors.
Speaker Change: Our performing very well with Brad, both here in the US as well as internationally.
Speaker Change: Okay, great. And then, Steve, one more follow up just that modeling for the back cast on the gross margin. I want to follow up there, I understand the assumptions that you're embedding, but are you seeing sort of any signs of...
Speaker Change: A pullback and pull price selling at this point, just curious sort of what you observe in the marketplace, or that more of a forward-looking assumption that you're baking into the guidance. Thank you.
Steve Fasching: Yeah, it's a bit more of a forward assumption. We're still early, right? And we know things...
Steve Fasching: I think I'm probably a little bit more challenged approaching this holiday season, generally macro speaking.
Steve Fasching: and so we are being a little bit more cautious with our assumptions around the promotion. You know that we anticipate we will see, I think there's a couple things.
Steve Fasching: That we're also considering in some of that expectation in the second half of our smarts. One is we've got more product in the channel this year than we did a year ago. So recall that two, three last year many of our wholesale partners were running out of product. Some of that increased.
Steve Fasching: Growth that you saw in Q2 is us selling into that channel.
Steve Fasching: So we know that there's a little bit more product sitting in the channel. So we'll see, again, still very early on in the holiday season, kind of how that plays out. And then on the hook of front, you know, as we're going to have some new product introductions in Q4 and Q1 of FY26.
Steve Fasching: We anticipate there may be some inventory that in a normal course, you'll promote some of the older styles to move through that inventory, as you bring in some of the new products.
Steve Fasching: to
Steve Fasching: [inaudible]
Speaker Change: Your next question comes from the line of Laurent Vasilescu with BNP Paribas. Your line is open.
Laurent Vasilescu: Good afternoon. Thank you very much for taking my question, Stefano, David.
Laurent Vasilescu: I'd love to ask about HOKA International. I think on the fourth quarter call, it was commented that International for HOKA is about 30 percent of the business.
Laurent Vasilescu: Clearly, there's a lot of momentum there. Stefano, where do you want HOKA International to go over time? And can you, for the audience, can you kind of frame like what innings you are in terms of Europe versus, you know, Japan versus China? That would be very helpful for the audience.
Stefano: Great question, Laurent. Internationally, it's between two and three years behind the US.
Stefano: and we've adopted the same playbook internationally that has been so successful here. Brand awareness and consideration is in the mid-20s and in the U.S. we are in the mid-40s.
Stefano: So, plenty of upside for us internationally, across all regions, from China to Europe and also to our distribution businesses.
Stefano: Recently, we have sponsored the Challenge Roth, which is the biggest triathlon in the world in Germany, and received fantastic feedback from consumers in the general market, UTMB. We have an extensive relationship with UTMB.
Stefano: to thrive there as well. So very, very happy with our progress across the globe. And to your question about where do we expect the business to be, ideally, long term, I'd like to see a 50-50 split between the US and international.
Steve Fasching: Yeah, and I think, Laurent, again, this is Steve, just as we think about that international opportunity.
Steve: is that as we're seeing improved performance, it's global, but what we were really impressed with was the performance and growth of the international business in Q2.
Steve: how we really focused initially years ago on the North American market, make our product and brands relevant in North America and then export that success internationally. And that's what you're seeing come through right now. So really encouraged with how our brands are resonating with consumers.
Steve: on a global front and really impressed with the performance of our brands internationally, especially kind of in Q2 in the first half of this year.
Speaker Change: That's wonderful. Thank you, Stefano. Thank you, Steve. I would love to follow up. I think, Steve, I think you mentioned you were teasing. There's new products for 4Q, if I remember correctly, from the last call. I think the Clifton 10 comes out in the fourth quarter. I think you mentioned
Speaker Change: just a few seconds ago, that we should see some new products with 1Q26. At a high level, how do we think about the product extension, the brand extension, into other footwear categories or maybe into apparel in a bigger way?
Speaker Change: Skyflow, Skyward, X, Mach 6, Mach X2, I mentioned Tectonics 3.
Speaker Change: Speed Goat 6, which is our biggest trail franchise.
Speaker Change: have all been upgraded or new products. In the lifestyle space, we just introduced Sense on Evo, which is an archive product, Mafate Speedlight, which is a brand new product that is completely sold out in the marketplace and available on Excel. The amount of newness and innovation we have been delivering, especially in Q2, hence also the very, very strong Q2, has been very, very impressive.
Speaker Change: We have a
Speaker Change: upgrades toward two biggest products, Bondi and Clifton.
Speaker Change: Bondi, the Bondi update is going to hit in January and Clifton is going to hit in April.
Speaker Change: In addition to that, our FAST issue will be updated, CLX1 will be updated to a new product in February.
Speaker Change: and we have our first foray into cold weather.
Speaker Change: with the Carha Frost.
Speaker Change: about to hit the market any day. So our pipeline is very, very robust, and the reaction from the trade has been very positive.
Speaker Change: That's wonderful to hear. Best of luck with the holiday season.
Speaker Change: Your next question comes from the line of Sam Poser with Williams Trading. Please go ahead.
Speaker Change: Thank you very much.
Speaker Change: Officially welcome to your first call, Stefano.
Sam Poser: Erinn, can you give me the DTC for each brand please?
Sam Poser: And then I'll get to the other stuff.
Erinn Kohler: Yeah, hi Sam. So for the second quarter just completed, what I can provide is global wholesale and distributor by brand. And so again for Q2 for UGG, that global wholesale and distributor combined would be approximately 512 million.
Erinn Kohler: For HOKA, that's approximately $362 million. For TEPA, that's approximately $12 million.
Erinn Kohler: For our other brands, which is predominantly Kula Burra, would be approximately $25 million. And then that leaves approximately $2 million for the Sanuk brand, which, as a reminder, would be a partial quarter as we completed the sale of that brand in about mid-August.
Speaker Change: Thank you very much. Okay, I have three, sorry. Can you give us some idea of what the U.S. sales were for UGG and for HOCA?
Speaker Change: is freight versus promotions. And then number three, or three is how much
Speaker Change: How big is the markdown impact of the Clifton 9 and the Bondi 8 as you move out of that over the next few months? And how much of that do you anticipate the Clifton 10 will ship in queue?
Speaker Change: three, and how much of the Bond I
Speaker Change: or Bondi will ship in Q3 and the Clifton will ship in Q4, excuse me.
Speaker Change: Yeah, Sam, that's a lot of detail and kind of modeling questions, so I'll approach it more from a high level. We don't necessarily break out to your kind of your first question, we just don't give out kind of that level of detail. On the second one related to freight, what we've said is pretty consistent with kind of what we've said is we would begin to experience freight headwinds in Q2. We did.
Speaker Change: We think the freight headwinds was kind of in that 70 basis point area, so a headwind of about 70 basis points. Now as
Speaker Change: The numbers indicate, right, we were an improvement of 250. So that other really came from kind of product mix.
Speaker Change: and an improving margin based largely on kind of the product mix within both HOKA and UGG as well as some of the composition of the product that we sold. So then to your point, and from a higher level, how we're thinking about
Speaker Change: kind of the gross margin pressures that we'll experience in the second half. We have not given specifics in terms of how much we think to kind of each style that will be replaced in the quarter. There will be a normal
Speaker Change: course of promotion as we as we always do. And you've seen in the past when we do updated models, remember, Clifton and Bondi are, you know, the two biggest
Speaker Change: Some of the two biggest styles within that. So we're careful about inventory management as we've demonstrated over the years, but we always know there's going to be some.
Speaker Change: And we'll promote it. We're not saying kind of to what level that will be. That will be dependent on how much inventory we have and how we're approaching kind of the launch of those dates. So we'll play it out. But there is, to that point,
Speaker Change: some recognition that we are going to be increasing promotion this year. That's embedded in that second half gross margin decline that we're guiding to. So we'll see again how it plays out. You know, we're making some assumptions. We're trying to read what's going on from a macro event. We're trying to anticipate what inventory levels will be. We're encouraged that actually product has been selling in and selling through well, which is contributing to a little bit better expectation on our margin, which is why we're increasing our gross margin assumptions for the year. But we'll see how things play out.
Speaker Change: I've got one last thing on tariffs. Can you give us some idea of how you're thinking about tariffs going forward given...
Speaker Change: what's going to happen in less than two weeks.
Speaker Change: Yeah, I think it's an interesting question. You know, we'll see. It's not clear, right? I think you're hearing a lot of noise before an election. You know, who knows how all that is going to come out. So really too early for us.
Speaker Change: to see. But, you know, if there were tariffs that impacted us, that's something that we'd have to take into consideration that's not necessarily figured into our guidance right now.
Speaker Change: Thank you very much. Continued success.
Speaker Change: All right. Thanks, Sam. Thanks, Sam.
Speaker Change: Your next question comes from the line of Dana Telsey with Telsey Group. Please go ahead.
Dana Telsey: Hi, good afternoon, everyone, and congratulations on the nice results.
Dana Telsey: just wanted to focus on the earlier wholesale shipments.
Dana Telsey: Is it from all categories of wholesale accounts? Does it differ by brand at all in terms of what you're saying? And does it differ by international, by international and domestic? And just lastly, on the moderation and growth for UGG, going to mid-single digits from the 13 and 14 percent in the first and second quarter of this year,
Dana Telsey: Given the newness that you have, is it, could there be upside to that number and how you're thinking of new product introductions for UGG for the balance of the year? Thank you.
Speaker Change: All right, thanks Dana. I'll try to attack that a little bit. So it is a little bit different by brands, right? So I think it's important for the dynamics that we're seeing and again, we indicated at you know the beginning of this year that we expected to see earlier wholesale shipments.
Speaker Change: So first, if we look at the UGG brand, one of the things that we encountered last year was some earlier shipments, but then quickly selling through that product.
Speaker Change: Participating in our growth with the brand, you're seeing that higher percentage in Q2. We think that is going to impact kind of the back half as there is more inventory sitting in the channel.
Speaker Change: to your question on Upside.
Speaker Change: Sure, there's always some, we'll see. You know, I think
Speaker Change: We are prepared with some inventory with upside opportunities, but again, you know, we operate in a very controlled marketplace. So we'll be careful about how we work that growth really into the back half, should it be there. We are very disciplined, again, in our marketplace management.
Speaker Change: Then, as it relates to growth with HOKA, there, as you recall, what we said is, last year we were very tight with expanded distribution, right? So we were careful about how many more doors we were opening.
Speaker Change: This year we have spoken to increasing the number of door counts, right? So again, as we've seen demand globally increase.
Speaker Change: for the brand, we are opening points of distribution. Again, still far fewer than many of our peers because we are very controlled in that distribution. But what you've seen in the first half is we are opening up more points of distribution. Again, very controlled.
Speaker Change: That is contributing to a sell-in to those accounts and doors, right? So that is lifting that percentage growth in the first half of the year. So that's where you start to see some moderation of growth in the second half, because you're starting to see kind of that inventory sitting in those expanded outlets. So much of the expansion happened in the first half as it relates to HOKA. So that's when you look at it on a full-year basis. It's what we said at the beginning of the year. On a percentage basis, the majority of our growth would come in the first half, and you'd start to see growth moderate, so falling below that annual guide number in the second half as we control the marketplace and took advantage of early demand and strong demand for our product. And we'll see how it plays out, right?
Speaker Change: a little bit of room for some upside but you know a lot of uncertainty as we heard in some of the prior questions how we're thinking about back half.
Speaker Change: kind of the retail calendar this year versus prior years.
Speaker Change: Thank you.
Speaker Change: All right. You are next. Thank you.
Speaker Change: Your next question comes from the line of Rick Patel with Raymond James. Please go ahead.
Rick Patel: Thank you. Good afternoon. And I'll add my congrats on the strong execution.
Rick Patel: Can you double click on your performance in Asia? Obviously, China's top of the line with a lot of investors given the tough backdrop there. Curious if you're seeing any, you know, changes in performance or you need to make any changes in strategy that are worth calling out? And then also, how do we think about the contribution of Asia to your growth as we think about the rest of this year?
Speaker Change: Specific to China, Rick, we're very pleased with what Olivier and team have done in China market. Our brands are performing well in a challenging economic climate.
Speaker Change: and they connect very well with consumers, their communities. HOKA is now top five in terms of shoe counts in major races.
Speaker Change: And as the brand continues to perform, we are able now also to secure greater footprints in major malls with our stores, so we're very pleased with our China performance.
Speaker Change: Yeah, Rick, and just to kind of add on to that, I think, you know, as we've said, Stefano said it kind of earlier in the call, as we think about international, right, couple of years, generally speaking, behind what we're seeing in North America. In Europe, we're.
Speaker Change: I would say than we are in Asia-Pacific. and especially Q2, very encouraged with what we're seeing in Asia-Pacific and China.
Speaker Change: So, you know, and we're well aware of what other brands are saying and some of the challenges that they're encountering in China. We're fortunate to be very small. And you know, a lot of what we're doing is to build community within China. So a lot of sponsorship.
Speaker Change: bringing people in, activities and so forth. And so we have the benefit of being small, and now really beginning to resonate with those consumers and grow that brand. So
Speaker Change: Good time for us to be growing a brand that's very small in China. But again, Asia-Pacific's a little bit behind Europe in terms of where we're at in distribution. The other thing to remember is distribution's a little bit different in China. We're more direct in China than we are anywhere else.
Speaker Change: So it's about retail experiences, we have more...
Speaker Change: stores in China than we do anywhere else. So very small, but growing and very encouraged by how we're resonating with consumers there. And in part, that's about the marketing and the localization that we're doing to resonate with consumers there.
Speaker Change: Very helpful. Thanks so much.
Rick Patel: All right. Thanks, Rick.
Speaker Change: And your final question comes from the line of Adrienne Guy with Barclays. Please go ahead.
Adrienne Guy: Great, thank you very much. Let me add my congratulations.
Adrienne Guy: Stefano, I was wondering if you can address when you were talking about sort of the expansion in the U.S.
Adrienne Guy: What is the door growth strategy with the U.S. national retail partners, specifically Dixon Footlocker? I think you're targeting, let's call it 500, maybe half of what Dixon has, and then a much smaller footprint in Footlocker.
Speaker Change: And then, Steve, can you talk a little bit to sort of, maybe not numbers if you don't give it, but the demand creation budget, how you are investing in HOCA versus UGG and where you're deploying those dollars. Thank you very much.
Speaker Change: Yes. Thanks, Erinn.
Speaker Change: It's our practice to provide door counts related to specific wholesale relationships. We are very selective in our expansion. We continue to be very diligent about the way we manage the marketplace.
Speaker Change: We are looking at door positivity before we expand and when we perform we Open a few more doors. So that has been our strategy. That's what we continue to do with the likes of DSG and footlocker and others
Speaker Change: Yeah, and I think then to the second part of your question in terms of how we think about
Speaker Change: spend and demand creation? And it's a good question.
Speaker Change: We, as we're performing better, and you've seen some gross margin expansion, we are taking a portion of that to continue our investment in demand creation.
Speaker Change: And so with two of the best-performing brands in the space across the globe, it's important for us to continue to be able to invest behind these brands.
Speaker Change: So in terms of your question is kind of where clearly a lot going on with our top two brands, Stefano mentioned in his prepared remarks, some of the things that we've done.
Speaker Change: with UGG and Post Malone, HOKA, and some of our sponsorship with UTMB and some marathons and so forth. I think we're going to continue to do that. What we're also doing is creating more localized content. So as we're seeing...
Speaker Change: improvements and growth in our international market, we are creating more localized content. So overall what you're seeing is an increase in our marketing spend as a percent to revenue over the last couple of years.
Speaker Change: further demand for our brand. So that's how we operate, very financially disciplined, we look at it, we're given an opportunity, we'll take that opportunity, but we're firmly behind backing our brands, increasing local content to resonate with consumers across the globe. And I think you see that paying off.
Speaker Change: Excellent. Very helpful. Thank you.
Speaker Change: This concludes the question and answer session as well as today's call. We thank you for participating. You may now disconnect your lines.