Q1 2020 Earnings Call
Good afternoon.
Thank you for standing by.
Welcome to the Deckers brands first quarter fiscal year 2020 earnings conference call.
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Now, let's turn the conference call over to Erin core Senior director Investor Relations and corporate planning.
Ma'am you may begin.
Thank you everyone for joining us today on the call is Dave powers, President and Chief Executive Officer, and Steve Fasching, Chief Financial Officer before we begin I would like to remind everyone of the company's safe Harbor policy.
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Including but not limited to our projected revenue margins expenses earnings per share cost savings and operating profit improvement as well as statements regarding our strategies for our products and brands.
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With that I'll now turn it over to Dave.
Thanks, Aaron and good afternoon, everyone.
As shown by the first quarter results posted this afternoon, we're off to a solid start in fiscal year 2020.
For the quarter, our portfolio of brands posted gains in revenue as well as earnings versus the prior year with the most material contribution of topline growth coming from the HOKA only only brand.
As new product launches paired with enhanced marketing Activations continue to build brand momentum.
And the first quarter fiscal 2020 revenue was up 10% versus last year to 277 million.
We delivered gross margin of 47% and a loss per share of 67 cents.
These results are above the high end of the guidance that we provided for the quarter as we benefited from earlier delivery of wholesale and distributor shipments in the UGG brand and saw continued success in the HOKA brand, including the boost from the introduction of the carbon X.
The strength seen in the first quarter provides us with added confidence in achieving our increased physical 2020 guidance, which Steve will walk you through later in the call.
The results for the quarter are a testament to the work our teams are doing to strengthen our brand by bringing compelling product and experiences to our consumer.
As I look at the industry I see deckers, leading in innovation with two of the most exciting product launches this season, and the HOKA carbonex and they have slept franchise.
And aligned with our Companys initiative around digital growth I'd reward the starting to make a noticeable impact with nearly 40% of U.S. e-commerce revenue being driven by loyalty customers.
From a revenue perspective again to significant incremental dollar contribution from the newly introduced fluff collection.
Our marketing Activations, including a partnership with born this way Foundation.
Helped drive excitement around the entire collection of fluff product, which we feel is unique to hug.
And true to the brand's DNA.
The fluff collection is driving incredibly high sell through rates as well as attracting new consumers to the brand.
The collection has been praised by high in publications and positively endorsed by a number of high profile celebrities.
Importantly brand attention is being gained in a seasonal period in which has traditionally not been top of mind.
Partially offsetting the other brands Q1 performance was the soft start to the sandal season, as a result of rainy conditions across much of the country early in the quarter.
It is also important to note that our strategy of controlling marketplace supply of core product, which is designed to reduce the sales of core product. During Q1 in order to drive sales are true spring and summer product also impacted the brand's topline results.
That said, we believe this is an important step towards building a more meaningful spring business for us.
I am encouraged by domestic growth and the progress the brand is making towards a healthier mix of product just three years ago more than half of products sold during our first quarter were autumn and winter boots. However, this years, we've reduced the mix of boots to less than 40%.
On top of that I was once again, a top 10 spring brand at Nordstrom, capturing healthy growth versus the prior year and is performing exceptionally well at nordstrom's anniversary sale.
This is further evidence that Doug is able to address counter seasonal demand in the spring and summer timeframe and remains focused on building traction and styles that are incremental to the core offerings.
Turning to the performance lifestyle group, which is comprised of HOKA Teva instant book.
Beginning with HOKA brands investments in product innovation as well as that story sharing philosophy are propelling the brand forward as evidenced by first quarter performance with revenue growth of 69% versus the prior year with equal strength, both domestically and internationally.
More than doubling new consumer acquisition versus the prior year.
And the carbon ex launch, which drove nearly 800 million impressions globally.
And delivered strong sales online, 40% of which were first time DTC purchasers.
Hi, I'm incredibly proud of the collaborative effort to launch the carbon Exelis last may Carbonex with design has a limited release that has exceeded sales expectations consumers are raving about the experience of the carbon acts as seen by overwhelmingly positive online product reviews.
We feel the Carbonex launch event impressions drove serious momentum in brand awareness, leading up to a key release in our Clifton franchise.
In June the brand introduced the Clifton six the most innovative update to want to focus core franchises. Despite just one month of availability in the marketplace. The Clifton six has driven very high sell through rates and is ranked as the number one or two shoe of any brand in nearly all U.S. wholesale specialty running accounts.
This is a testament to the HOKA team's dedication to franchise management and ability to improve on a popular product through their commitment to innovation.
In conjunction with these new product launches HOKA continues to invest in building awareness.
As a result, the brand recently entered a partnership with lifetime fitness, creating an authentic engagement opportunity with the potential to attract new consumers into the HOKA ecosystem.
HOKA and lifetime seek to empower people in all aspects of their health journey through numerous activations that showcase real and positive change regardless of size or scale.
Shifting to Teva the brand outperformed our expectations by about 2 million, but declined by 4% versus last year due to the strategic decision to adjust the European wholesale model from direct to distributor.
For the quarter the brand experienced impressive growth in both the universal and Hurricane franchisees.
Moving to Sunoco for the quarter sales came in approximately 3 million below our expectations, primarily due to the softness in the yoga sling franchise.
As we have done over the past two years, we continued to evaluate our distribution opportunities across our entire portfolio of brands.
Aligned with the organization's commitment to strong brand management, we have made the strategic decision to exit the warehouse channel with our son up brand. While this decision will have a negative impact on fiscal 20 revenue. It's the right move for the health of the brand moving forward. This provides a better environment for so not to focus on other underpenetrated channels.
Moving to channel performance wholesale increased 11% over last year, driven primarily by the domestic expansion and HOKA.
As a note part of the increased wholesale volume was due to the timing of shipments, which Steve will walk you through later in the call.
In total our domestic wholesale business grew by 15% versus prior year. Despite this being the first time that we constrained selling core classic products during the first quarter.
Aligned with this strategy, we worked with our wholesale customers to shift the use of open to buy dollars for true spring summer product.
Well at the same time, reducing the amount of closeouts year over year.
Strength domestically. It was also driven by HOKA growth as a brand gained market share in existing accounts and experienced increased volume in both the Clifton and bond I franchises benefiting from the additional brand attention due to the carbon ex launch in May.
Domestic wholesale strength was partially offset by softness in our international business. As we have previously indicated we continue to see headwinds on the international front for the brand, but are addressing with the learnings we've gained from implemented distribution strategies in the U.S. market.
Our HOKA brand continues to gain momentum within international wholesale as the brand is building important awareness during its early stages of growth outside the U.S.
We are engaging in marketing activities. There are impactful on a global scale, specifically, we're beginning to see the benefits of these marketing activations, including our Carbonex launch and Hocus sponsorship of Iron man event in a countries around the world.
From a DTC perspective comparable sales increased 16% with total direct to consumer sales up 10% versus last year's first quarter. This was led by strong performance from our E. Commerce channel. We're both again HOKA contributed materially to the growth and exceeded our expectations.
Similar to our wholesale channel our domestic direct to consumer business was the primary driver of growth.
Overall deckers delivered another strong performance there remains our smallest quarter I'm proud of the progress we've made to increase the size of our spring and summer business as we have grown our first quarter revenue by 32% over the past two years.
I'll now hand, the call over to Steve to provide more details on our first quarter financial performance as well as outlook for the second quarter and full fiscal year.
Thanks, Dave and good afternoon, everyone.
As Steve just mentioned, we are encouraged with our start to the year and now I would like to take you through our first quarter financial results then provide details on our outlook for the second quarter and updated full fiscal year 2020.
Please note that throughout this discussion I refer to certain non-GAAP financial measures for comparable prior year results.
Where I refer to these non-GAAP financial measures I am referring to results before taking into account nonrecurring charges that our management believes are not core to our ongoing operating results.
Also note our non-GAAP results are not adjusted for constant currency with the exception of our direct to consumer comparable sales.
Well, we did not have any non-GAAP financial adjustments for the first quarter of fiscal 2020, a reconciliation between our reported GAAP and non-GAAP results for the prior year can be found in our earnings release that is posted on our website under the investors tab.
Now to our results.
For the first quarter revenue was 277 million up 10% to last year and above our guidance of 260 million.
Compared to our guidance approximately 7 million up the revenue upside was related to timing of brand shipments approximately 3 million was from stronger DTC performance.
And the majority of the remaining balance was driven by outperformance with the HOKA brand.
More specifically timing upside was from early shipment of wholesale orders globally that were originally anticipated for the second quarter.
The stronger of DTC performance was driven by strong adoption of spring summer styles led by our fluff franchise.
And the strength of our HOKA brand was driven by the Clifton six introduction and bolstered by the launch of Carbonex.
As we look at the first quarter, we're very pleased to see success with these drivers of the business as we continue to shift business to spring summer quarters, not only through the diversification of the offering but also through the accelerated growth of the HOKA brand.
Which has a much more balanced distribution across all four quarters.
In comparison to last year. The revenue increase was predominantly HOKA, which benefited from the new styles, such as the Carbonex and the newly redesigned Clifton six.
Gross margins were up 109 basis points over last year to 47% and inline with expectation.
The main drivers of the year over year increase were favorable mix of brand revenue.
Gross margin rate expansion.
Fewer close out sales.
With gains, partially offset by channel mix as well as currency headwinds.
To provide more detail the favorable mix of brand revenue and the gross margin rate expansion was driven by HOKA, which carries a higher gross margin than other brands in the first quarter due to seasonality.
At the same time is experiencing successful full price selling of core product and offerings within our category extensions.
Related to the improvements in Closeouts, we have improved our distribution model and it become less reliant on close up volume in the first quarter, primarily driven by the UGG brand as we have shifted our focus to selling more season appropriate styles in the period.
Moving to SG Nay, our dollar spend was $161.4 million up 4.6 from last year's GAAP SG Nay spend of 154.4 million and up 4.9 to last years non-GAAP SGN a spend of 153.9 million.
The increase in the prior year in essence, you know it was driven by incremental marketing spend of approximately $6 million.
In comparison to implied guidance, we experienced savings in the first quarter largely coming from reduced marketing originally intended for the first quarter as we saw the opportunity to move this spend to later in the year with positive organic search trends tracking in the first quarter and favorable payroll costs as we experienced deferred hiring of certain head count.
During the quarter. We also received a tax refund more specifically, we finalized a settlement related to prior years.
As a result of the settlement and receiving the refund in the quarter, we recognized the full amount in Q1.
Well, we expected to receive payment this year and our guidance for the year assumed this we were uncertain of the timing and therefore, it was factored into the rate for the full year and spread across the year.
This all resulted in a loss per share that came in at 67 cents compared to last year's GAAP loss of a dollar and last years non-GAAP loss of 98 cents.
This also compares to a guidance range of a loss of $1.25 to a loss of $1.15.
The 48 cents beat to our high guidance of loss per share came from approximately 14 cents from the tax refund recorded in the quarter.
10 cents from earlier shipment of wholesale orders.
10 cents from increased performance in the HOKA brand.
10 cents from operating expense savings driven by the delayed hiring as well as marketing spend that is now planned and move later in the year.
And five cents from stronger DTC performance.
Our balance sheet at June Thirtyth remains strong as cash and equivalents were 503 million up from 418 million at June Thirtyth of last year.
Inventory was up 9% to 473 million from 436 million at the same time last year and similar to last year, we had no material short term borrowings under our credit lines.
During the quarter, we repurchased 227000 shares of the company's common stock at an average price of $154.36 for a total of $35 million.
As of June Thirtyth, 2019, 315 million remains available under our share repurchase authorization.
Now moving onto our outlook for the second quarter of fiscal 2020, we expect revenue to be in the range of 515 million to 525 million and earnings per share to be in the range of $2.15 to $2.25.
When combined with our first quarter performance. This outlook provides a strong first half expectation for fiscal 2020, including revenue growth for the first half of roughly 5% to 6.5% when compared to the first half of fiscal 2019.
And non-GAAP earnings per share growth in the range of eight cents to 18 cents, representing approximately 6% to 13% growth versus the first half of last year.
As we have now completed our U.S. distribution center consolidation I think it is important to note that we have planned for a more level loaded quarter end.
As a result, we anticipate that some other product that has traditionally shipped in the final week of Q2 will now ship in Q3, as we ramp up our first year and we create more efficiencies with our distribution operations.
Now for our full fiscal year 2020, we are raising our guidance to account for the better than expected performance in Q1.
The upside we are flowing through to the full year guidance equates to 20 cents in earnings per share.
Our updated full year guidance includes raising our revenue expectation to the range of 2.1 billion to $2.125 billion.
With recognition that our outlook for the HOKA brand has been lifted now assuming sales are growing in the high 30% range for the year, partially offset by reductions in the Senate domestic wholesale business related to the decision to eliminate distribution in the warehouse channel.
And upside in the business that we saw in Q1 is now projected to be offset by currency headwinds in the rest of the year.
Gross margins are expected to be approximately 50.5%.
SGT nay at or slightly better than 36%.
As we defer a portion of our first quarter savings to marketing efforts and technology investments later in the year.
All generating an operating margin of approximately 14.5%.
Also based on an updated view on tax we now expect our rate to be 20.5% for the full fiscal year.
These updates combined with the share repurchase executed in the first quarter, we are raising our earnings per share for the fiscal year 2020 now to be in the range of $8.40.
To $8.60 on a share count of approximately 29.4 million shares.
This 20 cent raise and earnings per share guidance for the full year is being driven by approximately six cents from the net impact of the revised revenue expectation driven by the full year increase in HOKA projections, partially offset by the strategic reset in Sonac.
Six cents from operating expense savings from the first quarter.
Five cents from the better tax rate now, reflecting an estimated 20.5% for the full year effective tax rate.
And three cents from the recent share repurchase activity in the first quarter.
Our guidance for the second quarter and fiscal year 2020 excludes any potential non-GAAP charges as well as the effect of any future share repurchase.
Recognizing there have been recent movements in foreign currency exchange rates, we're partially hedged for our exposure in this fiscal year and our updated guidance incorporates the impact of our exposure on any unhedged amounts.
We believe that the year over year impact of foreign currency exchange rate fluctuation remains at approximately a 40 basis point headwind on our margins.
On tariffs, we continue to monitor tariff policy decisions closely.
And still do not anticipate any financial impact related to the recently imposed tariffs.
As a reminder, we have stated that less than 20% of our current global production is created in China and shipped to the United States.
To further mitigate current risk of exposure to potential new tariffs on China imports, we have taken the opportunity to receive some inventory ahead of the normal cadence, which is partially contributing to the 9% increase in our total inventory balance at June Thirtyth 2019, as compared to levels at the same point last year.
With that I'll now turn it back to Dave for his closing remarks.
Thanks, Steve while our first quarter exceeded expectations here remains the smallest period in our fiscal year and there's still heavy lifting ahead of us to meet our objectives for the year that said I am excited about the progress we continue to make within the organization as we reinvest in marketing tactics to drive brand heat and awareness fueling growth within men's women's non core and the HOKA brand with increases in digital outreach experiential marketing and event driven spend.
As we build on our technology and tools with added talent that will advance our analytical capabilities and create new ways to connect with consumers.
And develop incremental opportunities that can add value to our brand portfolio in the future.
Going forward the organization remains dedicated to continuous innovation, our design development and innovation teams have been significant contributors and pushing the boundaries of product innovation for Deckers and we look forward to seeing continued enhancements in the near future.
I'd like to thank all of our employees across the Deckers organization for their exceptional efforts in this past quarter and their continued commitment to the successful execution of our strategies.
With that I will turn the call back over to the operator for today operator.
Ladies and gentlemen, we will now begin the question and answer session.
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In the interest of time when you ask that you. Please limit yourselves to one question on a single follow up.
At this time, we'll pause momentarily to assemble the roster.
Our first question today comes from Jonathan Komp.
From Robert W. Baird. Please go ahead with your question.
Yes, hi, Thank you I wanted to ask about the strength, you're seeing especially domestically with.
Given the strategy to deemphasize the classics and really focus on some new product categories that are working.
In the non core periods.
And Dave when you look forward and kind of look at the success, you're seeing with that strategy.
Does that at all change, how you're viewing kind of the product.
The strategy going forward and the seasons ahead and anything you could talk to you about kind of the next evolution and some of the.
Course season ends of the continue that deemphasize the classics.
Yes, Thanks, Jonathan that's a great question, and it's pretty exciting to see the momentum that the team.
As building in North America, particularly through all of our channels.
And what what's great about it is we are driving.
The business through new introductions of spring and summer product and as you heard on the earnings script.
The shift away from reliance on boots in the quarter and the growth coming from new product introductions and seasonally relevant product such as the fluff franchise, which is a massive success for us.
We are learning a lot from that it's also allowing us to reach new consumers and bring new consumers and younger consumers into the brand.
Which is great because they traditionally come in through the classic and then to explore more of the brand, but we're seeing a large number of younger consumers coming directly to the brand for the first time.
Particularly in our DTC channels purchasing that product that they're wearing in season. So.
It gives us a lot of confidence that if we hit the right product design, coupled with the right social and PR strategy and marketing tactics.
That we can really move the needle in these in these categories and in the quarter.
It also tells US that you know big Big Big ideas and product something that is distinctly in DNA and disruptive in the marketplace.
Is a method for us to continue to drive success in new categories. So we had a fantastic meeting with the product came yesterday and talked about the learnings from fluffier and how we translate that into future seasons across different categories and also into men and I think you're going to see more of these more sizeable meaningful launches.
Fewer bigger launches is the approach for us going forward.
But now that we have the attention of younger consumer and credibility in spring and summer.
Gives us lot of confidence going forward and then we just need to employ the same strategy globally.
And are you willing to share any kind of thoughts on where that could go in terms of some of the new categories I know.
For Augie, you have talked about the sneaker opportunity from time to time, but any additional thoughts there.
Yeah, you know I've always been a fan.
We've always said the monies in the middle So it's kind of new new innovations that are probably crossover as our hybrid of two categories.
So you know we're got will have limited success and we can be successful in pure sneakers, but I think it's the mash up of sneakers and sandals.
So you could provide the comfort with the DNA that something that's unique that nobody else can do I think thats, where the strength of our brand is and where have we have quite a few products.
Within that coming out of our innovation team and our design team.
And I think that you know it's interesting. This this fluff product is in our opinion now it is classified as a slipper, but the consumer sees that as a sandal and so I think that that tells you that it has broader shoulders and its very disrupted an interesting and it's something that nobody else can do and I think that's the formula going forward.
Yes, great and then just a follow up Steve on the guidance just to understand sorry, if I missed it did you did you update at all what you're expecting to grow for the full year.
Theres any changes there and then the new guidance for HOKA as well is that just flowing through the first quarter upside and not really changing the balance of the year assumptions.
Yes. Good question, John we really arent changing the so.
Kind of positive low single digits is what the guidance is for the year related the UGG brand no change there there is a significant change in hocus I think before we were in the mid 20 range and we're now in the higher 30% range, So that's where you're seeing.
An uptake on hook up but it is being offset by the Senate take back as we pulled out of that warehouse channel.
But.
That bill an increase.
On the full year revenue number.
Okay, and how about just the I understand it looks like.
It looks like you're kind of around 30% or a little below for the balance of the year in terms of the implied growth after a big growth in the first quarter. So just.
Curious have you changed your assumptions after the first quarter at all for OCA.
Yes, so it is up a little bit you're right. I mean this is we saw tremendous growth in the current quarter, you know that the 69% that we're talking about so well ahead as we get into later quarters in the year those are bigger historic quarters for HOKA. So thats why the growth rate will drop a little bit.
On a percent okay.
Okay got it all right. Thank you very much.
Okay. Thanks, John .
Our next question comes from.
Revenues from Citi. Please go ahead with your question.
Hi, This is partly on for Paul Thanks for taking my question.
On the U.S. hotel business is still seeing strong momentum there could you just.
Certainly on on how much of that growth over the last couple of years has been driven by expanded distribution in places like Macy's Amazon versus.
Organic growth in core wholesale accounts.
Yes. So Kelly this is Dave I think what you're seeing this quarter is very little increase distribution over last year. We spent the last three years or so is an incubating new distribution, such as Macy's and urban outfitters and foot locker and a couple of smaller.
Boutiques in addition to that.
The important department stores, and we've actually closed more accounts than Weve opened so what we've been doing is consolidating distribution elevating to the key players in the industry and so the majority of the growth you're seeing now is is increased door count within those channels are in within those stores.
Or chains, I should say sorry.
But just better penetration in sell through across the board. So were seeing it both in wholesale with those accounts and also in our DTC channel.
Great. Thank you and.
Just on on.
QQ particular, I know there was some timing shifts.
Around.
Some of that benefiting the first quarter and I think you mentioned some shifting into the third quarter. So could you just.
And just provide a little bit more detail on where you're planning that business and the second quarter.
Sure. So what we have is we will have the business compared to last year down just a little bit and that's really that shifting into Q3. So we did bring kind of 10 million forward into Q1, and then we'll have a little bit going out on the backend from Q2 to Q3, so thats the call it down kind of low single digits.
Okay and lastly, just on the on the HOKA brand just curious the margin profile there how does that compare to the company average and are there any opportunities.
To expanded margins that overtime.
Yes, so the margins on HOKA is we've kind of said are very similar to.
In the channel so in wholesale similar channels.
In DTC similar margin.
So.
Yes, very strong margins as we indicated on the on the prepared remarks.
What's also helping drive some of the hook is less close out that we're seeing.
And so we can continue to kind of drive that full price selling.
It was a very clean quarter so.
I don't know how much more upside there is kind of.
On the surface within channel clearly there is upside as we drive more DTC business with the hope of business. So from a channel mix Theres more opportunity as we make our DTC business with hookup bigger.
Great. Thank you.
Yeah.
Our next question comes from Ross was sour from Telsey Advisory Group. Please go ahead with your question.
Thanks for taking my questions could you give a little more color on the cadence of the quarter.
Monthly performance.
Well when you Yeah help me out a little bit what are you looking for in terms of.
Yes, just trends from April May June .
Did they improve at all.
And then just a follow up on that now that the weather's improved for Ah sandals have you seen that reflected in sales.
Yeah, Yeah, I think you know interestingly the the month were pretty steady they were strong from the get go in the beginning of the quarter. You know in HOKA was really ignited by the launch of the carbon acts in the PR and the and the press and the Buzz that the brand got.
From that launch and then when we officially launched the Clifton six.
That maintain the momentum so that's been pretty steady through the quarter.
Oh, it was a little bit softer in the beginning due to some of the sandal.
Challenges, but that was offset by the fluffy our franchise and that's continued to be strong through the quarter. So they were pretty steady.
All along yeah, I would say on that just what we what we observed is kind of that normal cadence is we definitely see a pick up in the latter half of the quarter.
You know I think as we saw kind of within the industry. There was some softness with the industry I think we saw strength yes.
With and a normal cadence within the quarter and a normal cadence of the business picking up kind of later in the quarter.
Okay, Great and then can you talk about how how the mens business is doing for us.
And I guess, how it's performing relative to your expectations.
Yes, the men's business.
It is still small in Q4 and Q1 for them for that.
Gender it there was strength of men's where we're really seeing the growth is coming in in Q2 in Q3.
Really driven by the new mail franchise. So we had some good.
Product launches and sneakers and shoes, but they weren't enough to really move the needle in mens.
So.
We have work to do on opportunity I would say for men's and that time of year.
And we had a good meeting on that yesterday, and some learnings that we're taking from women's in the flood franchise and other categories and translating that into mens for spring and summer, but the real strength of man's overseeing the growth is definitely in fall winter through the new mill in winter boot category at this point.
Great. Thanks, a lot.
You bet.
Our next question comes from Sam Poser from Susquehanna. Please go with your question.
Good afternoon, Thanks for taking my question.
Can can you give us just could you give us a specifics on how much.
I'm, sorry, but both and HOKA wholesale and retail grew I know, it's coming out of the queue, but.
That would help us a lot.
I've got a couple of other ones too.
Yeah, I think Sam on breaking out the channel outperformance, we'll let that come out in the queue.
But but good I would say.
You know from the numbers that weve reflected kind of clearly okay very strong.
Wholesale performance globally, so it not only in North America business.
Very strong HOKA performance really across the globe I think from a wholesale perspective on.
We saw strong performance domestically in the wholesale channel.
And internationally kind of more to expectation, but thats on the international front as we indicated in the prepared remarks kind of more of where we saw some early shipments.
But again from a global perspective.
If you take out the early shipments.
Wholesale performed pretty much to kind of what we expected with a little bit of over performance.
In our DTC channel related.
In North America.
Thank you Okay I've got a couple of more things number number two.
Sticking with with.
How much how many dollars move from Q3 to Q2, because you said you know part of the guidance rug in Q1 was shipped shifting from Q1 to Q4 so.
Why wouldn't I mean, it's it's just.
The demand is good isn't this just going to keep shifting.
Well you just don't know that yet and your B discretion is the better part of valor credit situation. Yeah. So it's a good question right I think one of the things that we're seeing right and it's a little bit harder for us to just to.
Predict is that as.
Inventory channels, they were clean last year, they're even cleaner this year.
What we're seeing is with the success of bug that retailers are asking for product earlier.
Because they want to make sure that they have the product and so that's where we're seeing the shifts it's a good indication of the strength of the health of the brand.
But it is.
You know, it's hard to know exactly one you know they're seeing strong sell through.
They also want to make sure that they're getting product for the fall set up so that's where we're seeing kind of people taking it earlier.
This year than where they have a say a year or two ago.
And we will fulfill it like we've said we'll.
We will guide and project to kind of what we see on the order book, but also if a customer is asking for a product sooner than that you know, we'll be ready to deliver and then just to note really kind of on the.
The shift out of Q2 to Q3, that's us being a little bit conservative.
With the first year of our consolidated DC.
A year ago, we looked at really the last week and there is a lot of the activity that goes out that last week of the quarter.
So as we've consolidated our DC, we are pushing a little bit of that out into Q3.
Now, we may get orders, where customers want a little bit sooner, but we want to balance out that load because it's a big load in that final week and so we want to be mindful of what our capacity is and kind of constraints with the new consolidated DC.
And then lastly have a wholesale could you give us what the wholesale equivalent revenue would have been.
Given that the shift of the of the European business.
Yeah, we're saying it's about I think it's three to 4 million.
On that shift a 4 million dollar shift.
So that I mean, so that so so so I mean, what would hope.
I'm, sorry, what would Teva have Ben.
If it is just that as normal.
Everything was as if it was apples to apples would you have been yes, you would have been up a little you would've added seasoned business. It looks like you probably would have around 4% to 4% or 5% right.
Yes, that's correct, yes, that's about right.
And are you still pleased with the fact that you've done. This now that things are getting better are they getting better because you've done.
I said, maybe a little bit of both I think it was the right call. It allows the European teams to focus on our core businesses and then have somebody who is strong in that region focused on.
Expanding the Teva business and a local way.
Well its continuing to evaluate it over time, but I think it was the right thing is we're looking at profit improvements and focus on the organization.
It's great to see that the distributors managing that business so well.
Which means the teams are working closely with those partners and they have the expertise required.
So I would say it was it was the right call. We're pleased with how it's going and it gives us an opportunity to reevaluate down the road.
Thank you very much continued success.
Thanks Sam.
Our next question comes from Tom Nikic from Wells Fargo. Please go ahead with your question.
Hey, everybody. Thanks for taking my question.
Just a little bit of modeling my new show about the I guess your three smaller brands I guess I'll start with the often ask you've got the.
A pullback of the distribution in the U.S. should we assume that that you know down on the IL 2020, 5% that you saw in Q1 is basically what it should look like.
Ross the balance of the year.
Yes, I think Thats fair, yes.
All right.
I have a I think last time, you had guided it flat.
It was down a little bit in Q1 or should we still assume flat for the year or should we assume maybe it's down a little bit because of the shift.
No flattish that with the shift.
Alright, and then just lastly, I don't think there was anything mentioned about koolaburra out on the call I just thought you know how should we think about that.
For this year.
So kind of the same as what we've said before we don't we don't see much change there, but significant growth. So it kind of up mid 50% range is kind of how we're looking at that.
The order book, Yes, Q1 is really not a koolaburra quarter, you'll you'll start to see really ramp up.
All right sounds good thanks very much.
Thanks, Thanks, Tom.
Our next question comes from Jim Duffy from Stifel. Please go ahead with your question.
Thanks, Good afternoon, guys, great start to the year.
Yeah. Thanks.
I wanted to ask about HOKA and.
Maybe talk little bit about how you guys are thinking about the opportunity do you have any consumer insights you can share on awareness because of the age demographics.
Repeat purchase frequency that type of thing.
Yeah, I think it's safe to say the awareness is increasing I think the last time, we looked at it in North America was roughly around the 12% I don't have the exact figures in front of me, but I it definitely improving and I think you're seeing that.
As it resulting in the sales near the top of funnel exercises that the team had been doing particularly the carbonex event, which was a massive success the way the teams pulled that off with breaking two world Records in an event.
Was resonating on a global scale and launching a brand new innovative product.
You know that brought 800 million and growing I should say is still improving impressions to the brand on a global level.
So the awareness is improving the average age you know, it's a little bit older than we would like I think and so there is opportunity to target younger consumers.
Through some of our marketing tactics and I just had a conversation with the brand on that yesterday.
But it's you know it's also a higher price point products. So we need to make sure that we're balancing out the highest level of performance in technical characteristics of that product and price point.
With shoes like the RIN Con, which we just launched which is a little bit more affordable price point, a little bit more for an everyday runner.
And I forget what was the third point you you just asked.
How's about repeat purchases Oh, yeah, I think what we're what we're seeing is that wouldn't repeat purchases are happening a little bit faster than we originally thought and so we're getting new consumers into the brand through our DTC channels, but I think with the new product launches and some of the new extensions that were seeing.
We're starting to get people who.
Or buying more products more often there's a bit of a cult following for the brand. If you can't tell where people are.
As soon as something goes up on the website, that's new new launches there are new styles.
People are just grabbing them. So it's a combination of repeat purchase.
Awning core styles that people are replenishing on but also when we launch something new the tribe that following the brand is jumping on those as well.
And Dave when you think about the competitive set in the marketplace as a whole how do you think I mean whats the framework to think about how big this brand could become over time.
You know I've always said I could see a path to half a billion dollars for this brand I think that the real opportunity is probably bigger than that.
We want to get ahead of ourselves, but we are thinking big with HOKA and we see this as a game changer for Deckers long term. So it's exciting to see the acceleration of the business.
The adoption of the business globally in all channels.
The innovation engine is strong in the marketing tactics.
We're working very well the tight and controlled distribution.
As driving high full price selling.
So there's a lot there that the momentum and the conversation the buzz about the HOKA brand.
Is improving and it just gives us confidence that we can.
Read some of those aspiration goals in the next three to five years hard to put a number on it right now, but I think there and you look at.
HOKA in the context of some of the other running brands out there.
The runway is pretty significant for us.
Great Thanks for that perspective.
Thank you.
Our next question comes from Mitch.
Comments from pivotal research. Please go with your question.
Oh, yeah. Thanks for taking my questions I've got three.
Dave Let me just follow up where we're just left off.
I know you don't want to necessarily say focus would be 503 to five years or whatever it is but is there any way you can kind of address.
Where are the lowest hanging fruit is so in terms of maybe product categories or distribution or regions to go from where you are today to a number or.
What do you think it could be in three to five years. We're just you know that the path of least resistance I suppose.
Well there is still opportunity in its a good question that there's still opportunity in existing channel, particularly.
International were still opening up additional accounts international.
And penetrating those doors at a deeper level.
Is one area the same within E Commerce International we're still setting up the mechanics of some of our sites on the international level, but if we take the playbook that's being incorporated in the U.S. with regards to e-commerce .
I think there's a there's a substantial amount of international growth coming out of ecommerce and just elevating awareness in the market for wholesale so.
Without even adding any additional distribution points, there's substantial growth I think overtime you know there could be expanded distribution to reach new consumers as we as we get into accelerating the outdoor hiking and trail business.
There's other categories that we think we could explore overtime and then also reaching the younger consumer.
I think if you look at all those different components on a global scale and you think about places like China, and Japan down the road.
There is that's where a lot of the growth come from.
We have to see franchises that are driving the majority of the business now which is the bond I in the Clifton as you know.
But some of the new launches like the Carbonex Sky collection and hiking the rent con those are starting to gain traction in new distribution points, which will add to the clips and they found a franchise over time.
Got it that's helpful. Thanks for the color and then I'm Steve.
On the gross margin guidance for the year I think you effectively raise I think you took up the low end of the range.
I believe you said that gross that Q1 gross margin was on plan I'm. Just wondering if you change any assumptions, particularly for the fall holiday season, I know you've talked about.
Some challenges year over year challenges on the gross margin line in terms of the favorable environment last year and I'm. Just wondering if you've kept those assumptions were if anything's changed in terms your thinking.
Yes, so I think what we're flowing you're right Mitch what we've done is we've basically taken out the low end so.
Guiding gross margins to the 50 and a half.
Adam more firmly and and the pickup there is the brand mix that we're seeing contributing to lift in the gross margin. So with the success that we're seeing with HOKA and the increase that we have now projected for the HOKA business for the full year, that's what lifting the low end of the margin kind of up and coming to us more confident that that high end and continuing to clean up a smart place less yet right sales wholesale I mean they are.
Yes, Yes, yes, and then my last question just on on sandals than it was a bit of a challenge on the.
Because of the weather, but it didnt sound like there.
He issues with Teva and Sanuk, which I think a few more sandal oriented brands for you guys. I was hoping you might just be able to provide some color on that.
Yes, I think there was a little bit of softness earlier on you know Teva is also seeing great success in some of their core franchise styles. The originals collection is still very strong.
It has kind of weather the weather issue better.
So Nick overall, you know performing but the continued decline of the yoga sling.
Franchise for that brand is where we saw the biggest hit.
Got it all right. Thanks, guys. Good luck.
Okay. Thanks, guys.
Our next question comes from Chris Svezia from Wedbush. Please go ahead with your question.
Hi, Good afternoon, guys nice job on the corner.
My first question just on the.
DTC comp.
Team.
Pretty impressive any color you can provide any said domestic was the big driver to that June digital physical stores, just and obviously, what's the outlook for the balance of the year I think before you see it flat to up low single and just curious given Q1 s performance any change in your thought process for the year.
Yep.
Good question, So you're right, Chris I mean really strong comp.
On the quarter, where we saw success was domestic.
We saw I think a lot of that was being.
Driven online, we don't break it out but clearly.
Our online performance was well ahead of our expectation, which really kind of.
Drove drove the over performance so it kind of as we look at it where we really were above expectation was kind of domestic.
And then a very strong on online performance as we look kind of at the balance of the year from a guidance perspective, we are looking at kind of positive low single to positive mid single digit type comp numbers.
Yes, it was still a big part of the season to come so clearly confidence with what Weve picked up in the first quarter, but again, our first quarter is our smallest quarter. So I think it's a good signal for us.
Going into the year, but we still have yet our biggest quarters ahead of us so.
But you know again I think what we saw in Q1, especially domestic especially with what we saw online.
You know confidence going into the rest of the year.
Yes. This is Dave I think it also.
Of course is a conversation about how do we learn from that and leverage those those six there's the results for the rest of the year globally, particularly in ecommerce.
We talked about the new minimum new consumers coming to the brand for both again HOKA online.
The performance marketing.
Capabilities that Weve developed in this region, which were taking global.
Our working extremely well.
The PR tactics that the brands are employing in storytelling with powerful launches and co labs.
Those are all driving top of funnel awareness, which is.
Resulting in strong interest in traffic to the website, we now need to leverage those learnings to drive traffic to the stores and Thats, something where things are focusing on.
And Dave just a follow up on that I know.
Seems like after paying Quad play play a factor.
The times and time demands on others have seen I know you put this in last year I'm. Just curious is that are you learning more from Madison accelerating it's not contributing all to the acceleration in the on the on the digital side.
Yeah, I think we're pleased with it it's still a small piece of the total business, but it is helpful for the younger consumer as they come to our site, especially with brand like dog with the.
The average price point of that product.
So early days, but.
I think the teams have done a great job of making our shopping experience simple for the for the consumer no matter, where they're coming from and how they want to pay.
I think what we're really excited also excited about it and it also is the loyalty program of rewards and the amount of business that that's driving it. It was about 40% of total business in the quarter for all came from loyalty consumers.
Versus last year about 25%.
So that's again something that we want to continue to build on and leverage our omni channel capabilities across stores and online.
To build that because the lifetime value of those consumers is very strong they spend more money. Their average transaction is higher they think come to the brand more often and we're looking at how we can leverage that on a global scale in potentially also for the HOKA brand.
Okay and just finally, just real quick I, just will not stay using of course margin.
Yes, you did nicely in Q1 guidance it seems down around 100 basis points or so.
I know Q2 last year, there were some freight expense.
Im just curious how do we think about is pretty consistent or is one quarter, maybe a little heavy on the pressure than another or just any color around that would be helpful. Thanks.
Yeah, Thanks, Chris I think as we look at it.
We are as you mentioned kind of guiding the year down you're right Q2.
Does incorporate some freight.
We are using freight this year. So we do expect to see some impact of that in Q2 really as we look at the rest of the year I think it's pretty consistent in terms of our kind of lower expectation. So that you know bring it down 100 basis points I would say pretty consistent as you look at the back half of the year.
You know and again, just some background on that as we we do have a higher assumption around using airfreight, primarily Q2, and then to some of our estimates around.
How the promotional environment potentially plays out in kind of Q3, Q4, hence that kind of a tick down in the back of the year and then we'll also have.
Some FX headwinds as I mentioned that we have unhedged amount still out there so dependent on.
Reflecting the current rates that we currently have we have a little bit of an impact.
As well in the back half.
Got it okay. Thanks, very much on all the best.
Okay. Thanks, Chris.
And ladies and gentlemen, we have reached the end of the allotted time for today's question and answer session I'd like to thank you for attending today's presentation.
You may now disconnect your lines.