Q3 2025 Deckers Outdoor Corp Earnings Call
Good afternoon. Thank you for standing by welcome to the Deckers brands third quarter fiscal 2025 earnings conference call. At this time all participants are in a listen only mode. Following the presentation. We will conduct a question and answer session and instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties.
Hearing 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.
Speaker Change: Now I'd like to turn the call over to Erinn, Kohler, VP Investor Relations and corporate planning.
Stefano Karate: Hello, and thank you everyone for joining us today on the call as Stefano Karate, President and Chief Executive Officer, and Steve Fasching, Chief Financial Officer before we begin I would like to remind everyone of the Companys Safe Harbor policy.
Stefano Karate: 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 other than statements of historical.
Stefano Karate: Our forward looking statements and include statements regarding our current and long term strategic objectives 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 DTC.
Stefano Karate: Plans for and the launch timing of new products marketing plans and strategies disruptions to our supply chain and logistics, our anticipated revenues product mix margins expenses inventory levels promotional activity and our anticipated rate of full price selling the expected timing of adjustments to certain brand operations the impacts are.
Stefano Karate: The macroeconomic environment on our operations and performance, including fluctuations in foreign currency exchange rates and our ability to achieve our financial outlook forward looking statements made on this call represent management's current expectations and are based on information available at the time such statements are made forward looking statements involve numerous known and unknown risks uncertainties.
Stefano Karate: 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.
Stefano Karate: The company has explained some of these risks and uncertainties in its SEC filings, including the risk factors section of its annual report on Form 10-K, and quarterly reports on Form 10-Q.
Stefano Karate: Except as required by law or the listing rules of the New York Stock Exchange the company expressly disclaims any intent or obligation to update any forward looking statements.
Stefano Karate: Please note as previously disclosed the company effected a fix for one forward stock split during the second fiscal quarter the share per share and resulting financial amounts mentioned on this call has been adjusted to reflect the effectiveness of the stock split.
Stefano Karate: 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.
Stefano Karate: 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.
Stefano Karate: The company believes that these non-GAAP financial measures are important indicators of its operating performance because they exclude items that are unrelated to and may not be indicative of its core operating results.
Stefano Karate: With that I'll now turn it over to Stefano.
Stefano Karate: Thank you Aaron.
Stefano Karate: Good afternoon, everyone and thank you for joining today's call.
Stefano Karate: It's great to be here with you today to discuss our superb third quarter, the largest and most profitable indecorous history.
Stefano Karate: <unk> continued to drive our success as both brands are creating unique.
Stefano Karate: Innovative products with purpose that increasingly embraced by consumers worldwide.
Stefano Karate: Highlights of our record third quarter performance.
Stefano Karate: Include.
Stefano Karate: Revenue growing 17% over last year.
Stefano Karate: 218 billion.
Stefano Karate: Gross margins improving to 63%.
Stefano Karate: And diluted earnings per share, increasing 19% to $3.
Stefano Karate: We are very proud of the exceptional quarter just completed.
Stefano Karate: Thanks to the hard work of our global teams.
Stefano Karate: I want to especially recognize employees supporting our distributional centers.
Stefano Karate: The retail stores.
Stefano Karate: Customer and consumer experience.
Stefano Karate: E Commerce.
Stefano Karate: Marketing.
Stefano Karate: Planning and allocation.
Stefano Karate: Merchandising and sales, who collectively contributed to the successful execution of our largest quarter ever.
Stefano Karate: Once again, our brands, we're able to maintain a high degree of full price business.
Stefano Karate: We're competing with more promotional brand in the global marketplace choose.
Stefano Karate: Choosing to prioritize brand health.
Stefano Karate: As we continue to manage and build our brands and business for the long term.
Stefano Karate: Even more encouraged by what Deckers has delivered over the last nine months.
Stefano Karate: Our fiscal year to date performance.
Stefano Karate: As compared to last year.
Stefano Karate: Includes significant revenue growth in key areas.
Stefano Karate: With HOKA increasing 29%.
Stefano Karate: Our growing 15%.
Stefano Karate: International markets rising 28%.
Stefano Karate: Imbalanced increases of 19% across the DTC and wholesale channels.
Stefano Karate: The shape of our growth and evolution of our business.
Stefano Karate: He is directly tied to our long term strategies and guiding principles.
Stefano Karate: Which provide the foundation for how we manage our brands to maintain a pull model of demand.
Stefano Karate: Overall debt.
Stefano Karate: <unk> third quarter and fiscal year to date performance has exceeded our expectations.
Stefano Karate: Our increased revenue outlook for fiscal 'twenty, five now calls for 15% growth.
Stefano Karate: Which would be our fifth consecutive year of growing mid teens or higher.
Stefano Karate: Steve will provide further details on third quarter performance and this updated outlook later in the call, but before that I will share brief highlights from the third quarter starting with <unk>.
Stefano Karate: Global revenue in the third quarter increased 16% versus last year to $1 2 billion.
Stefano Karate: From a channel perspective, I'd delivered balanced revenue growth of 16% versus last year across both direct to consumer and wholesale.
Stefano Karate: Our DTC channel highlights in the third quarter <unk>.
Stefano Karate: Include strong growth across our global markets.
Stefano Karate: Deals with new and existing consumers as the brand experienced double digit increases in both acquisition and retention.
Stefano Karate: The 25% increase in Agri reward members.
Stefano Karate: And the encouraging progress for augment with growth outpacing total brand growth in the channel.
Stefano Karate: In the wholesale channel I experienced growth across all regions with the majority of the increased revenue coming from international markets.
Stefano Karate: Close partnerships with influential retailers continue to elevate the UGG brand enhance global exposure, we target consumers.
Stefano Karate: During the third quarter.
Stefano Karate: Collaborated to create special corner shop, takeovers with sole fridges in London, and Nordstrom in New York City.
Stefano Karate: Both of these partnerships were activated with onsite events and media that drove great brand buzz and connections with consumers.
Stefano Karate: Cross the global wholesale marketplace, we believe that AGA was the top performing brand in the holiday quarter highlighted by exceptional levels of full price sell through that drove healthy margins for our partners.
Stefano Karate: And lean inventory in the channel exiting the month of December.
Stefano Karate: We believe ZG brand success around the world results from a purposeful product assortment that is informed by consumer insights and infused without brand codes.
Stefano Karate: This approach has driven consistent product performance throughout the fiscal year with progress in key segments, including Iqos re imagined with the Tasman and ultra Muni franchises continuing to experience strong global adoption from consumers.
Stefano Karate: Hybrid versatility as the emerging Golden a little male collections experienced rapid sellouts.
Stefano Karate: While the weather hybrid collection more than doubled versus the prior year.
Stefano Karate: And new winter lifestyle highlighted by the many different success in the U S and EMEA.
Stefano Karate: <unk> team continues to build brand heat and relevance through powerful collaborations.
Stefano Karate: During the quarter I was able to reach a new audience and elevate the inline assortment through the release of two highly sought after collaborations with Los Angeles based fashion brand Gallery Department and.
Stefano Karate: In UK based scale brand palace.
Stefano Karate: These partnerships featured iconic styles, such as the Tasman and deal for many.
Stefano Karate: Which gained global exposure from being spotted an influential professional athletes and music superstars. The success of these iconic styles is closely linked to the emerging hybrid styles in the assortment.
Stefano Karate: The Golden Star Clog continued to see strong global growth in the quarter and we saw consumers in the U S and in Europe embraced the low milk is the lifestyle sneaker lending the style in the brand's top 10 during the third quarter.
Stefano Karate: Adding to our enthusiasm for the sneaker success, we've just added sizing for men's and kids and also launched a companion style. The low low mill that hits low to the ankle and has built with greater versatility for warmer months.
Stefano Karate: In other hybrid collection that perform well in the quarter was UGG brands Weatherized hybrids featured as part of our men's focused marketing campaign, starting post Malone.
Stefano Karate: This campaign drove significant increases in search and engagement with over 3 billion impressions in the U S alone for both the product collection in the UGG brand overall.
Stefano Karate: Through high impact out of home content media placement with Amazon Thursday night football ESPN and Spotify in a 10 day experiential fieldhouse retail pop up store the culminated with the VIP performance by post Malone. This campaign represents great progress in our journey to increase connections with male consumers around the world.
Stefano Karate: Even propelling the Tasman with a hybrid to become the UGG brands number one men's styling, China. This past quarter the region with the brand continues to make solid headway.
Stefano Karate: At the same time, we're seeing strong adoption of our UGG men's product among professional athletes.
Stefano Karate: <unk> that often shapes the future of fashion altogether. This was a splendid quarter frog as.
Stefano Karate: As the brand continues to perform in league of its own.
Stefano Karate: Heading into the final stretch of fiscal 25 August delivering on the objectives, we set for the year with balanced growth across channels, driven by outsized growth from international markets and maintain strength of the U S.
Stefano Karate: We believe the special brand can continue to deliver sustainable growth through distinctive and honorable category segments that are uniquely AGA <unk>.
Stefano Karate: Gratulation to Anne and her entire team on these amazing accomplishments and the bright future ahead.
Stefano Karate: As has continued to solidify its positioning as a leading global lifestyle brand I would like to provide an update regarding the club where our brand.
Stefano Karate: Yeah.
Stefano Karate: To maintain focus on our most significant organic opportunities, we're planning to phase out.
Stefano Karate: Culebra brands Standalone product collections and operations.
As part of this change we expect to Sunset <unk> com at the end of this fiscal year.
Stefano Karate: And the wind down Cola Bureau in the wholesale channel throughout the calendar year 2025.
Stefano Karate: We'll provide a more complete update on this forthcoming change during our year end call in May as part of our forward looking guidance for fiscal year 2026.
Speaker Change: Okay shifting to the HOKA brand.
Speaker Change: Global revenue in the third quarter increased 24% versus last year to $531 million.
Speaker Change: From a channel perspective wholesale delivered impressive revenue growth versus last year throughout the global marketplace.
Speaker Change: Is DTC increased 27% with strong growth across every region and wholesale grew 21% primarily driven by outside increases from international distributor markets as we prepare the marketplace for upcoming key franchise upgrades.
Speaker Change: DTC channel highlights in the quarter include accelerated growth in the APAC region with China contributing the largest incremental dollar revenue of all international regions.
Speaker Change: Persistent gains in consumer acquisition and retention.
Speaker Change: Out of which was particularly strong indicating a high degree of loyalty from existing consumers.
Speaker Change: An increased mix of business from trail categories, which drove outsized growth in part due to the introduction of the Carhop Frost whether collection.
The kind of a first collection features the hooker brands first cold weather radar styles, including a $280 hiking boot and a 200 dollar slipper marcussen, both of which are trail ready with vibram Mega grip outsole.
Speaker Change: The consumer response was excellent around the globe driving impressive sell throughs and generating great Buzz for the brand, including being named the best Multifunctional hiking shoe of 2024 by Gogo, Shanghai and influential annual publication of lifestyle Awards in China.
Speaker Change: And it must have item for a weakening the mountains by Italian Vogue.
Speaker Change: In the wholesale channel our primary focus during the quarter was to set the stage for the Bondi nine launch by moving through existing inventory of abundant eight while also driving high full price sell throughs across the lineup of innovative products, we've introduced throughout the year.
Speaker Change: As brand awareness and consumer appetite for Hooker continues to build we're excited to be adding select doors with our strategic partners worldwide.
Speaker Change: Conjunction with the start of our spring 2025 season.
Speaker Change: During the third quarter. The Hooker team did an outstanding job in driving consumer engagement with the brand through events and activations around the world.
Speaker Change: T mobile moments included Hooker being the second most warm brand at foot locker Cross country High School Natural championships in the U S <unk>.
Speaker Change: Hosting Hawker flight lab experiences at the Frankfurt Marathon in Germany, and the Ironman 73 World Championships in <unk> Zealand.
Speaker Change: And producing a benchmark consumer experience at the Shanghai Marathon, where HOKA was the fifth most one brand.
Speaker Change: As you can tell our marketing teams are working hard to maintain and build performance credibility, while growing global brand awareness through activations in key cities.
Speaker Change: The HOKA brand's shoe kind of achievements are made possible by the HOKA product teams laser focus to build product solutions that deliver transformational experiences for consumers around the world.
Speaker Change: Hooker has two exciting products launching in the fourth quarter.
Speaker Change: Which are the Bondi nine.
Speaker Change: And a two point an update to our fastest and most technically advanced ratio this yellow X one.
Speaker Change: Having just launched a couple of weeks ago.
Speaker Change: We're very pleased with the early consumer response to the bond denied.
Speaker Change: With the new Premier Mitzel increased Tac height is <unk> molded color. This franchise has been upgraded from top to bottom, providing a soft yet resilient ride for everyday miles.
Speaker Change: The bundling and release is the Hooker brands most globally integrated launch date supported and enhanced by our everybody Bondi marketing campaign with out of home content on high traffic displays in key cities around the world.
The Bondi nine week fitness challenge that culminates in participants completing a nine mile run.
Speaker Change: Partnering with local and global Influencers, including decorated U S Olympic gymnast suni.
Speaker Change: And Activations at regional and global events, such as the Miami Marathon, Paris half Marathon in London Winter run well.
Speaker Change: While the bond add on represents a significant upgrade to one of our most accessible franchises. We've also enhanced our clinical ratio the CLO X, one, making it faster and smoother for the highest performing athletes.
Speaker Change: In the two point a version of the <unk> with tweak the rocker and geometry to provide greater stability without adding weight, enabling greater speed through the <unk> transition.
Commercially available in February this issue that we have been testing with our athletes for months now and have high hopes to see on podiums in the future.
Speaker Change: <unk> has an exciting future ahead with a strong pipeline of new innovations.
Speaker Change: And a growing global marketplace to serve the brands increasing demand.
Speaker Change: Thanks, everyone I'll now hand, it over to Steve to detail.
Steve: Our third quarter financial results and provided an update to our fiscal year 'twenty five guidance.
Steve: Thanks, Stefano and good afternoon, everyone our.
Steve: Our record third quarter performance illustrates the continued strength and robust momentum of the UGG and HOKA brands as.
Steve: As Stefano mentioned all delivered another exceptional quarter of results as the brand attracts and maintains consumers around the world with a relevant and elevated product assortment.
Steve: Okay continues to deliver solid controlled global growth as the brand builds market share with performance products that consumers love.
Steve: Our team's disciplined long term approach to managing these brands respective global marketplaces <unk>.
Steve: Our pulp model, while sustaining exceptional levels of full price selling.
Steve: Our results this quarter again demonstrate the power of our model and disciplined marketplace management.
Steve: Maintaining this flexible operating model, we will continue to build these incredible brands with long term health top of mind now, let's get to the details of our third quarter results.
Steve: Third quarter fiscal 2025 revenue was $183 billion.
Steve: Representing an increase of 17% versus the prior year on a reported and constant currency basis.
Steve: Growth in the quarter was primarily driven by increasing.
Steve: Increasing 16% versus last year delivering record quarterly revenue of one point to $4 billion.
Steve: With particularly strong demand captured later in the quarter as we maintained favorable inventory on key styles relative to the prior year.
Steve: And consistent strength across the HOKA brand's global marketplace with HOKA growing 24% versus last year to deliver quarterly revenue of $531 million.
Steve: Further on I will.
Steve: Note that the brand experienced a strong December selling period relative to our last year, our increased in earlier inventory position aided our ability to fulfill orders during the third quarter on key styles compared to the prior year.
Steve: Recall that in the third quarter of last year, we sold out of key styles that were later fulfilled in Q4, while this dynamic was a tailwind to our third quarter performance. This year. It is highly likely to have an adverse comparison impact on the brand's current quarter.
Steve: Gross margin for the third quarter was 63% up 160 basis points from last year's 58, 7%.
Steve: Third quarter gross margin benefited from favorable product mix, primarily due to higher margin products within driving a larger percentage of growth.
Steve: Reduced closeouts to the wholesale channel.
Steve: Higher levels of full price selling for us.
Steve: And a small benefit from favorable foreign currency exchange rates with partial offsets from higher freight costs and an increased discounting for HOKA as anticipated primarily related to preparing the marketplace for key model upgrade.
Steve: While we are proud to deliver this record gross margin I would caution that the extremely high levels of full price selling and very low levels of wholesale closeouts are abnormal and not something we would normally expect to repeat going forward.
Steve: Further, though we experienced a small revenue and gross margin benefit from favorable foreign currency exchange rates in the third quarter, we have since seen rates move against us and as a result expect to face an FX headwind in the upcoming quarter.
Steve: SG&A dollar spend in the third quarter was $535 million.
Steve: Up 25% versus last year's $429 million as we continue investing in key areas of the business.
Steve: As a percentage of revenue SG&A was 29, 3%, which is above last year's rate of 27, 5%, primarily driven by increased marketing spend unfavorable impacts from foreign currency exchange rate Remeasurement and higher head count across strategic growth areas.
Steve: Of the business.
Steve: Our tax rate for the quarter was 21, 8%, which compares to 21, 9% for the prior year.
Steve: These results culminated in diluted earnings per share of $3 for the quarter, which is 48 above last year's $2 52 diluted earnings per share representing EPS growth of 19%.
Steve: Turning to our balance sheet at December 31, 2024, we ended December with $2 $2 billion of cash and equivalents.
Steve: Inventory was $577 million up 7% versus the same point in time last year and during the period, we had no outstanding borrowings.
Steve: During the third quarter, we repurchased approximately $45 million worth of shares at an average price of $162 and 85.
Steve: As of December 31, 2024, the company had approximately $641 million remaining authorized for share repurchase.
Now moving into our updated guidance for fiscal year 2025.
Steve: Based on the strong demand experienced in the third quarter, we are raising our full year revenue expectations to just above $4 9 billion.
Steve: Which equates to approximately 15% growth, which compares to our prior guidance for growth of approximately 12%.
From a brand standpoint, we now expect revenue growth of approximately 10% up from our prior expectations of mid single digits as a result of stronger global demand.
Steve: And with continued execution against our full year expectation, we still expect <unk> to increase approximately 24% versus last year.
Steve: While we do not provide quarterly guidance, we acknowledged that with only one quarter left in our fiscal year. This provides visibility into our anticipated fourth quarter growth expectations, and we realized that while we have increased our full year guidance. This update highlights distorted growth rates implied in the fourth quarter.
Steve: Our two largest brands each for unique reasons.
Steve: For the UGG brand as planned our improved product and stock positioning versus the prior year allowed us to satisfy incremental consumer demand during our third quarter, while in the prior year, we ran low on product availability and continue to catch up to fulfill demand through Q4 last year. This.
Steve: Year, we believe this demand was captured in Q3, given how strong <unk> has performed year to date, we are limited in the fourth quarter by available inventory left to sell.
Steve: For HOKA, our guidance implies the fourth quarter to be the largest volume quarter for the brand ever. This is on top of last year's fourth quarter that included a significant amount of sell in to wholesale accounts related to door expansion as we set up fiscal year 2025.
Steve: And while this creates some year on year variations in the quarterly growth rates, we are still on track to achieve an annual growth rate of 24%.
Steve: Then with a strong gross margin achieved in the third quarter, we are increasing our full year expectation to now be at or slightly better than 57% as we recognize the exceptional levels of full price selling <unk> achieved in the third quarter and continued product mix benefits, but maintain our edge.
Steve: Expectations for continued freight headwinds and a more promotional and closeout environment and the balance of the year as compared to last year's unusually low levels.
Steve: And as mentioned a headwind from unfavorable foreign currency exchange rates in the fourth quarter.
Steve: SG&A is still expected to be approximately 35% aligned with our commitment to continue investing responsibly to support the long term sustainable growth of our business.
Steve: With these adjustments, we now expect an operating margin of approximately 22%.
Steve: We expect our effective tax rate to be approximately 23, 5%.
Steve: And as a result of our improved revenue and gross margin expectation, we are increasing our diluted earnings per share expectations to now be in the range of $5 75.
Steve: To $5 80.
Steve: Please note this guidance excludes any unforeseen charges that may be considered nonrecurring to our ongoing business or impact from any future share repurchases.
Steve: Additionally, our guidance assumes no meaningful deterioration of current risks and uncertainties that may include but are not limited to fluctuations in foreign currency exchange rates changes in consumer confidence and recessionary pressures inflationary pressures supply chain disruptions and geopolitical tensions.
Steve: We are proud of the outstanding third quarter and year to date results that our brands have delivered thus far in fiscal year 2025.
Steve: As our guidance for the full fiscal year indicates we expect to report deckers fifth consecutive year of double digit topline revenue growth, while continuing to deliver top tier levels of operating profitability.
Steve: I remain confident in our in demand brands, which benefit from our flexible model and robust financial profile that we believe continue to position us well to drive sustainable growth over the long term with that I'll now hand, the call back to Stefano for his final remarks.
Steve: Steve.
Steve: This was truly a special quarter, highlighting the strength of our industry leading brands.
Speaker Change: <unk> continued to drive consistent full price growth.
Speaker Change: Through the purposeful creation of relevant distinct and innovative products that are meeting the demands of our consumers cordis.
Speaker Change: We're discovering our products in a well managed global marketplace I am confident they will continue to execute our strategy in the fourth quarter to close another great year for Deckers.
Speaker Change: Looking ahead to fiscal 'twenty six.
Speaker Change: Our teams have set the foundation for continued growth with an exciting pipeline of products to come.
Speaker Change: We remain dedicated to our long term strategies of building Hogan to become a leading performance brand through disruptive innovation.
Speaker Change: Growing <unk> through the evolution of iconic franchises and the creation of new icons.
Speaker Change: Expanding our DTC business to consumer acquisition and retention.
Speaker Change: And increasing our international business through the implementation of our successful domestic playbook.
Speaker Change: As we execute against these strategies.
Speaker Change: We remain committed to maintaining our financial discipline to.
Speaker Change: To deliver top tier levels of profitability.
Speaker Change: And we will continue to be guided by a consumer first mindset.
Speaker Change: Brand led philosophy.
Speaker Change: Emphasis on innovation.
Speaker Change: And globally driven approach.
Speaker Change: On behalf of our management team.
Speaker Change: I want to express our sincere gratitude to all of our employees for their continued efforts to build the future of Deckers.
Speaker Change: Thank you all for joining us today.
Speaker Change: Thank you to our shareholders for your continued support.
Speaker Change: With that.
Speaker Change: I'll turn the call over to the operator for Q&A.
Speaker Change: Thank you we will now begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question simply press Star. One again, we ask that you. Please limit yourself to one question and one follow up your first question comes from the line of Jay sole from UBS.
Speaker Change: Your line is open.
Speaker Change: Great. Thank you so much.
Speaker Change: Yes, I'm wondering if you can sort of pull together a couple of the different teams that you brought up in the prepared remarks, one is just how youre managing the brand, particularly for the long term and protecting the health of the brand even in a promotional environment and then maybe sort of connected to how youre thinking about fourth quarter.
Speaker Change: Think about growth by channel and then maybe you talked about the <unk> launch and the CLO. The next version of the CLO X. One can you just talk about some other.
Speaker Change: Product launches do you have coming beyond March and if you still think that hope because that type of brand and can deliver 20% growth on an annual basis post this fiscal year. Thank you.
Speaker Change: Of course.
Jay: Hey, Jay.
Jay: <unk> is a transformational brand that has the potential of becoming one of the major brands in the aesthetics space.
Jay: Our strategy for HOKA has stayed consistent throughout the globe, it's about building awareness and consideration.
Jay: Delivering compelling innovation stories.
Jay: Managing the marketplace for long term and sustainable growth.
Jay:
Jay: In terms of Gabon.
Jay: The bond dining right, we're very pleased with the buying 99 loans so far it is.
Jay: Happening in a controlled retail environment.
Jay: But we're very very encouraged with the.
Jay: Early response to the Bondi nine.
Jay: In terms of additional launches.
Jay: I mentioned in my prepared remarks, the CLO X. One is launching in February that's going to be our fastest to date, it's an upgrade.
Jay: Over the previous model that we launched a year ago, we have Clifton 10, launching in April and as you guys know Clifton 10 is our biggest franchise.
Jay: In May we are launching a new product in the trail category not an enormous program, but it's a vehicle called <unk>, which is going to be followed by the Iraqi eight which is our motion control shoe in one of our biggest franchises. So we have a strong lineup of <unk>.
Jay: <unk> story is hitting in.
Jay: Q4 and.
Jay: In the first half of.
Jay: Fiscal 2006.
I think I may you may have another question, yes, I think it was you had kind of talked about how do we think about growth for hooker J. This is Steve I think this is really as Stefano said about how we manage the marketplace, it's not about necessarily chasing growth for the sake of increasing growth rates were.
Jay: Building this brand for the long term, we want to sustain growth for the for the long term I think you see us as innovative leaders in this space and so really it's about how we continue to grow global market share.
Jay: With the right cadence right and it's and again, it's not trying to do too much too soon.
Jay: I think what you've seen US do is continue to build this brand we think the global opportunity exists youre seeing kind of that demonstrated we havent given targets yet for next year that'll be something that comes up.
Jay: Our next call on the year end as we give guidance out into the future. But this is really about how we continue to build this brand for the long term continue to build that successfully across the globe and so it's not again about necessarily chasing numbers. It's about how we continue just to build the base.
Jay: Okay. Thank you so much.
Your next question comes from the line of Lorraine <unk> from BNP Paribas. Your line is open.
Lorraine: Good afternoon, and Stefano and Steve. Thank you very much for taking my question I wanted to follow up on Jay's question with regards to the hooker launches that are coming up.
Lorraine: I think stepping back to your point you had mentioned that clipped and is the largest franchise I think rajiv maybe potentially the third largest franchisee.
Lorraine: I know you don't have any DTC read throughs on that but I'd just love to get what what the reception is from some of your key retail partners and then.
Lorraine: The domestic growth.
Lorraine: <unk>, 11% just curious to know if there was balance there between the two key brands and how should we think about domestic growth over time that'd be very helpful. Thank you.
Lorraine: Okay.
Lorraine: Yes, as I said Bondi, then we're very pleased with that with a bond that launch and the reaction to both Clifton NRI.
Lorraine: <unk> has been very positive from the trade again, we don't have any consumer read just yet.
Lorraine: Both models booked well and within our expectations, but again to see spine, we want to manage.
Lorraine: The environment, we want to drive a pull model and continue to drive the scarcity that.
Lorraine: We've created so far.
Yes, I think Lora just in terms of.
Lorraine: The last part of the question fell off a little bit, but I think it was kind of how are we thinking about growth rates in between quarters.
Lorraine: And I think just one thing I'll bring up is at the beginning of this year, we said growth rates between quarters. So it is going to be kind of moving in different directions, it wasn't necessarily going to be.
Lorraine: And across the year and I think youre seeing that and that's why we called that out in Q4 that is not an indication of any change in demand. The demand for these brands is still incredible. This is about how we are managing again the marketplace with the inventory that we have and youre seeing that kind of.
Lorraine: With the success that we've had with <unk> in Q3, we run a scarcity model it continues to drive demand.
Lorraine: We're again, we're not chasing outsized numbers just for the sake of delivering a higher number. This is again about long term sustainable growth as it relates to <unk> I think one of the things that youre seeing in Q4 as.
Lorraine: As a comparison to last year. So as you recall last year, what we talked about was opening up new points of distribution within wholesale a lot of that sell in happened in Q4, the sell through happened in FY 'twenty five so on that dynamic. The comparison does look a little bit distorted as I said in the prepared remarks. So again this is <unk>.
Lorraine: Not about any change in how we're thinking about demand. This is about how we are managing these brands.
<unk> for the long term, while we don't guide quarterly we're not getting hung up on these quarterly compares these.
Lorraine: These brands continue to resonate with consumers and are doing incredibly well.
Lorraine: Very helpful and then beyond the quarter to your point, Steve I think 18 months ago. I think it was called out that over time, you can achieve 5% to $6 billion in sales of the company.
Lorraine: They effectively get to that range.
Lorraine: How do we think about longer term the opportunity going forward could we see a path.
Lorraine: I know you don't do investors, but can we see a path to effectively 70 billion.
Lorraine: Limitations to the brand.
Lorraine: Puts at both brands.
Lorraine: That could that would prevent you could get to that kind of number over time.
Lorraine: I don't think there are any limitations in the brands the brands are performing very well in the marketplace.
Lorraine: It's stronger than it's ever been.
Remember it used to be a boot and slipper brand and now we're playing in sneakers were playing clogs where thing.
Lorraine: Sandals.
Lorraine: The brand is the more solid and more balanced than it's ever been across seasons genders on our agenda is a growing in double digits, it's been fantastic.
Lorraine: And the HOKA brand.
Lorraine: The potential of being one of the major players in the performance space. So I think yeah aspirational.
Lorraine: We definitely want to want to get there overtime.
Lorraine: I think we're not giving any long term targets on here, but I think as we've demonstrated this year. Both brands continued to perform above our level of expectation, but we're not going to let them run away either. So this is again about how do we continue to fulfill the demand that we're seeing in the marketplace, but at the same time Keith <unk>.
Lorraine: Troll of our brands in the marketplace.
Lorraine: And Thats, what youre going to see us deliver that hasnt changed we still have incredible comp.
Lorraine: Confidence in our ability to grow the brands, but again.
Lorraine: We I think you would agree our disciplined managers of the marketplace and you see the benefit of that in terms of the growth that we're delivering combined with the gross margins that we're delivering so good question nothing has changed on the front of how we're thinking about the opportunity other than we continue to see these brands performed very well with consumers.
Lorraine: Yeah.
Lorraine: Alright, yes, we don't want to be in a position to have to trade brand equity for short term revenue.
Speaker Change: Very helpful. Thank.
Lorraine: Thank you very much and best of luck.
Brian: Thanks, Brian.
Speaker Change: Your next question comes from the line of John Kernan from TD Cowen Your line is open.
John Kernan: Hey, good afternoon, Thanks for taking my question.
Speaker Change: So maybe just to go back to <unk> question, a bit how did that 12% growth in the U S.
John Kernan: What's your expectation.
John Kernan: Can you talk to the drivers of that gross also within that how should we think about international growth potential both in Q4 and then what.
Do you see the most opportunity internationally into fiscal 'twenty six.
John Kernan: Okay.
Speaker Change: Yes. The U S grew two two our expectations is our biggest market.
Speaker Change: As you know, it's two thirds of our business and they performed super well so.
Speaker Change: We will expect.
Speaker Change: International to outpace the U S in terms of percentage growth, that's what we said.
Speaker Change: Over time, we'd like to turn out to be 50% of sales.
Speaker Change: And going into Q4 and fiscal 'twenty six yes, we continue to expect.
Speaker Change: International to outpace the U S.
Speaker Change: Yes, I think John just a little bit more color kind of on how we saw a bit of that play out in Q3, and how that is impacting Q4. So it is definitely definitely kind of continuing to see our brands performed well.
Speaker Change: Largely aligned with our expectation I think some of the timing of that probably happened a little bit earlier than what we anticipated and so you saw some of those sales, especially come forward.
Speaker Change: From our expectation so it's part of the inventory issue that we're dealing with in Q4 and an ability with the stock outs that youre seeing on our most popular styles. So that's a bit of a limitation, but again, that's okay. Because it continues to drive brand heat and demand for our brands.
Speaker Change: In terms of then how we're thinking about the international growth again, as we said a few years ago continued to grow these brands domestically, but Bob large numbers, knowing that the percentage growth would be a little bit less turning much more focus on the international growth rates and I think the quarter demonstrated how strong our international business performed.
Speaker Change: And we're continuing to see these brands resonate extremely well across the globe and in the international markets.
That's helpful and maybe just one follow up a lot of questions on topline.
Speaker Change: Top line, so far but the operating margin profile of the business is the highest among the sector peers. If you look at OCA and what opportunities are left to improve or maintain.
Speaker Change: This level of margin rate, while still reinvesting to grow the business.
Speaker Change: Yes, good question and I think the.
Speaker Change: Again, the power of the scarcity model people painful price.
Speaker Change: For these brands.
Speaker Change: As these brands get bigger and we've said this in the past, it's going to be difficult to maintain this level of margin.
Speaker Change: We continue to see pressures, whether it's inflationary pressures or foreign exchange pressures growing.
So I think youre seeing some of that impact our Q4.
Speaker Change: So as you model out the year Youll see that.
Speaker Change: We are seeing some impacts related to that including freight.
Speaker Change: <unk>.
Speaker Change: Our ability to maintain these brands will continue to command high gross margin levels, but you are going to have some other factors that will be impacting our ability to maintain these are deliver these so stay tuned we'll continue to evaluate the year, we anticipate some pressures in Q4, but as you point out.
Speaker Change: These are incredible brands that are delivering incredible margins some of the other macro effects are going to affect everybody, but there will be some pressures and headwinds in the months and years to come.
Speaker Change: Understood. Thank you best of luck.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Jonathan Komp from Baird. Your line is open.
Jonathan Komp: Yes, hi, good afternoon. Thank you the commentary on the fourth quarter was really helpful. But.
Jonathan Komp: The consolidated growth rate it looks very low in the lowest <unk> seen NOI also.
Speaker Change: I'm just wondering given the positive commentary you have on consumer demand as we look forward into 2026 should we be thinking that double digit growth is possible again or just any other context you could provide.
Speaker Change: Yes, sure John So again, we aren't giving guidance.
Speaker Change: In terms of next year in terms of how we think about these brands and how they are resonating with consumers has not changed.
Speaker Change: We continue to see demand you see it on our website. If you go to our popular styles.
Speaker Change: Youre seeing them sold out so some of the percentage and this is why we always talk about training.
Speaker Change: Trying not to get too hung up on quarters.
Speaker Change: Because quarters are not an indicative underlying indicator of the health of the brand.
Speaker Change: These brands are performing incredibly well with consumers, but again, we're going to control some of that market, we're not going to necessarily try to feed all the demand that's out there to the prior question that is what is helping feed some of these exceptionally high level.
Speaker Change: Gross margin level so.
Speaker Change: I think again Q4, as we indicated at the beginning of the year.
Speaker Change: There was going to be some.
Speaker Change: Flow of product that was going to impact growth rates within the quarters. That's what's played out. So this is not necessarily a surprise to us.
Speaker Change: We've increased our outlook on the year given the performance that we've had and will continue to manage the business. We are not looking at the business any differently today than we were a couple of weeks ago or six months ago. These brands are incredible and that's what we're going to continue to manage.
Speaker Change: Yes.
Speaker Change: Yes, that's really helpful and if I could just ask one follow up on <unk>.
Speaker Change: Could you share what youre seeing out there in terms of the competitive dynamics.
Speaker Change: They are now or over the next few quarters and then just updated thoughts on how youre thinking about distribution going forward. Okay. Thank.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Yes, as I said in my prepared remarks.
Speaker Change: We are going to be very selective and thoughtful in our distribution of HOKA, yes, we'll be opening a few more doors, especially internationally.
Speaker Change: But we continue to.
Very helpful.
Speaker Change: In terms of competitive landscape.
Speaker Change: All brands are offering better products, what is fortunate for US is that we have a strong lineup of great innovation stories that we believe will do well in the marketplace as I said by $9 million or they read is very positive.
Speaker Change: And.
Speaker Change: Some of the innovation that I mentioned book very well.
Speaker Change: In wholesale.
Speaker Change: For Q4, and the first half of next year.
Speaker Change: Okay.
Speaker Change: That's great. Thanks again.
Speaker Change: Your next question comes from the line of Paul <unk> from Citi. Your line is open.
Paul: Hey, Thanks, guys.
Paul: Within the hope with wholesale channel can you remind us what percent of your business you would consider specialty running high.
Paul: How that channel performed.
Paul: And then also as you look out at 2006.
Speaker Change: How many stores do you have new stores on the OCA Bryan do you have in the pipeline.
Paul: And on what base.
Paul: And any color you can give on where those stores that might be happening.
Speaker Change: Yes, starting with the with the stores, Paul we don't disclose number of doors.
Paul: Our strategy is.
Speaker Change: About building presence in key cities.
Paul: And where we've seen hodgkinson.
Paul: Concentration of the brand's star, So far London, Paris, New York L. A Tokyo Shanghai Beijing, We have opened stores there this year and they are performing very well so that's.
Paul: That's where you'll see an expansion of <unk>.
Paul: Door count on an operated door count would be.
Paul: The opening a flagship in Shanghai.
Paul: On May seven next year.
Paul: And.
Paul: But we don't disclose the number of stores will.
Paul: The opening we also will be opening partner stores, especially in Asia.
Paul: And as our partners continue to develop the brand in those marketplaces.
Paul: Your first question was on.
Paul: It was hooker wholesale HOKA wholesale run specialty, yes, we don't disclose that.
Paul: The percentage of business, we do by channel, but the HOKA brand continues to perform well in that channel and some of the exclusive we've given that channel like the sky flow has performed super well.
Paul: And I think also just to recall because if you're referencing kind of the wholesale growth. So I think just recall that a year ago in FY 'twenty four.
Paul: Really didn't grow wholesale so FY 'twenty five was the year that we were expanding wholesale doors. Some more distribution points that is what led into that Q4 last year higher wholesale number because we were selling in product that would sell through after April one this year, we don't have that dine.
Paul: So we're not increasing our wholesale door count going into FY 'twenty six like we were in FY 'twenty five so continued expansion not the extent this year that you saw last year.
Paul: Got it thanks good luck.
Paul: Alright, thank you.
Speaker Change: Your next question comes from the line of Samuel Poser from Williams trading your line is open.
Samuel Poser: Good afternoon, Thanks for taking my questions I guess Eric.
Samuel Poser: Barrett I only have to the Teva and the other since you gave us everything else and then I have other questions.
Speaker Change: Sure Sam I believe youre, probably referring to global wholesale and distributor for each brand.
Speaker Change: For the third quarter. So I can provide that so far the on brand global wholesale and distributor.
Speaker Change: With approximately 468 million.
Speaker Change: <unk> was approximately $305 million type.
Speaker Change: <unk> was approximately 19 million and that leaves other of approximately $24 million.
Speaker Change: Thanks, Okay. So.
Speaker Change: Steve you brought up the fact that you know.
Speaker Change: So sort of more normalized markdowns happening in Q4, which you expected more normalized markdowns all year.
Speaker Change: And I doubt that's happening in Hokkaido as planned markdowns and hook as you convert some of the Clifton 10, but.
Speaker Change: What why why should we expect more.
Speaker Change: Mark Downs, I mean, unless it happens.
Speaker Change: March when like we won't have anything left anyway because.
Speaker Change: All of our checks are saying everything is selling at full price right now.
Speaker Change: Yes.
Speaker Change: We're looking at Sam and again, we'll see how it plays out in Q4, we are anticipating kind of with the product that is sold in Q3. So again, we're looking at year on year comparisons stronger product selling at full price in Q3 with some of the inventory that is remaining in Q4.
Speaker Change: Or an expectation that we might experience some more closeouts, we will see how that plays out. In addition to as you pointed out we do have some model changeover. So so theres a bit of a seasonal close out this year that we anticipate will be higher than it was last year plus with some of the model changeovers. This year youre going to have some additional closeouts in Q4 this year to move some of that inventory.
Speaker Change: Tori out.
Speaker Change: Okay. Also is there a chance you could give us what the EBIT margin I know it comes out in the Q, but can you give us the EBIT margin for wholesale.
Speaker Change: Polka wholesale and DTC or do we have to wait for the queue for that yes. Why did you wait for the Q that will be out early next week. So yes.
Speaker Change: And then.
Speaker Change: And then last I mean, I still don't understand it.
Speaker Change: The operating.
Speaker Change: I mean.
Speaker Change: Every you said the same thing, but you manage the business well you had like a record gross margin in the quarter, even with the markdowns.
Speaker Change: Now in Q4, you have expected normally I hate to beat dead horse here, but you are talking.
Speaker Change: Talking about normalized more normalized promotional activity.
Speaker Change: No about the Clifton and then you have the headwind of you have some FX headwinds, but you also have some bigger international growth, which is I think as it offset so.
Speaker Change: I mean.
Speaker Change: And more and probably more weighted to DTC because of the issue you brought up with OCA and the big shipments in last year. So why would that benefit I'm very confused and FX should also be a benefit on SG&A, which you maintained.
Mike: Mike you called out.
Mike: Yes, it just needed to kind of move up Sam I think the basically the two issues on the gross margin because you're you're kind of now talking different margins, but let's stick with gross margin.
Mike: The freight issue.
Mike: That we have this Q4, we did not have last year. So we were continuing to benefit last year Q4, with unsustainably low freight rates and we've called that out those came in during the year about mid point little bit earlier than mid point. This year. So that is a headwind for us and fairly significant one probably in the one.
Mike: 150 basis point range.
Mike: Freight hit that we anticipate for Q4.
Mike: So the other the FX on the gross margin, while you call. It out correctly, there is a bit of a benefit in the SG&A. There is a hit related to Q4 as the dollar has strengthened so that will be another headwind. So again kind of macro conditions that are impacting our gross margins.
Mike: That we really don't have much control over in that respect.
Mike: The new breakout you just gave us either at 50 basis points for freight could you give us sort of how you are foreseeing the gross margin to play in a range. The same way you gave us freight can you just give us FX on the headwind side and can you give us.
Speaker Change: Promotions on the headwind side, and then I guess tailwind on some kind of mix.
Speaker Change: Aspect, Dave, Yes, <unk> got it.
Speaker Change: Sure I think on kind of on the FX call. It in the 50 basis point range.
Speaker Change: And then on the closeout promos could be up to 100 basis points.
Speaker Change: And then on the other side of it the.
Speaker Change: Like mix.
Speaker Change: Geographic and channel mix I assume those are positives.
Speaker Change: Yes, they will be but less I would call it less than 50 basis points all in.
Speaker Change: Okay, Alright, thanks, very much continued success alright, alright, thanks Ed.
Speaker Change: Yes.
Speaker Change: And your final question comes from the line of Chris <unk> from Bank of America. Your line is open.
Speaker Change: Great. Thanks, guys. Good afternoon can.
Speaker Change: Can you elaborate some more on the Clifton can launch just wanted to confirm if most of the initial sell in will be recognized in the fourth quarter and if there's any changes to your product segmentation strategy. Since you haven't expanded door count than on the Clifton nine is there any way we can think about the impact to sales and margins from sunsetting that product ahead of the Clifton 10 launch.
Speaker Change: <unk>.
Speaker Change: Yes, so just on the margins a little bit on the clift intent, we're going to be flowing that product. So it won't necessarily all be.
Speaker Change: Q4 events some of that will trickle into Q1, we haven't disclosed kind of that some of that will be wholesale sell in.
Speaker Change: In Q4 that is.
Speaker Change: Included in our guidance anticipated some of the flow will actually also happened in Q1 in terms of the margin hits on the Clifton nine that's embedded.
Speaker Change: In that.
Samuel Poser: Number I just gave Sam.
Samuel Poser: Around 100 basis points anticipated as a part of that among other product.
Samuel Poser: As part of that Clifton nine closeout, so thats embedded in and some of that gross margin movement that we've guided to.
Samuel Poser: Got it that's very clear thank you.
Samuel Poser: And this concludes today's conference call. Thank you for your participation you may now disconnect.
Samuel Poser: Yeah.
Samuel Poser:
Samuel Poser: Yeah.
Samuel Poser: Yeah.
Samuel Poser: [music].
Samuel Poser: Yes.