Deckers Outdoor Corporation (NYSE:DECK) Q3 2024 Earnings Call Transcript

Deckers Outdoor Corporation (NYSE:DECK) Q3 2024 Earnings Call Transcript February 1, 2024

Deckers Outdoor Corporation beats earnings expectations. Reported EPS is $15.11, expectations were $11.36. Deckers Outdoor Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon and thank you for standing by. Welcome to the Deckers Brands Third Quarter Fiscal 2024 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. Instructions will be provided at that time for you to queue up for questions. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I will now turn the conference over to Ms. Erinn Kohler, VP, Investor Relations and Corporate Planning. Thank you. Please go ahead.

Erinn Kohler: Hello, and thank you everyone for joining us today. On the call is Dave Powers, President and Chief Executive Officer; Steve Fasching, Chief Financial Officer; and Stefano Caroti, Chief Commercial Officer. Before we begin, I would like to remind everyone of the company’s Safe Harbor policy. Please note that certain statements made on this call are forward-looking statements within the meaning of the federal securities laws, which are subject to considerable risks and uncertainties. These forward-looking statements are intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements made on this call today, other than statements of historical fact, are forward-looking statements and include statements regarding our current and long-term strategic objectives, anticipated impact from our brand and market placement management strategies, changes in consumer behavior, strength of our brands, demand for our products, product and channel distribution strategies including direct-to-consumer, marketing plans and strategies, disruptions to our supply chain and logistics, our anticipated revenues, brand performance, product mix, margins, expenses, inventory levels and promotional activity, the impacts of the macroeconomic environment on our operations and performance, including fluctuations in foreign currency exchange rates and our ability to achieve our financial outlook.

Forward-looking statements made on today’s call also include the expected timing and impact of the company’s announced leadership transition and the future composition of the Board of Directors. 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 and other factors that may cause our actual results to differ materially from any results predicted, assumed or implied by the forward-looking statements. The company has explained some of these risks and uncertainties in its SEC filings, including in the Risk Factors section of its annual report on Form 10-K and quarterly reports on Form 10-Q.

Except as required by law or the listing rules of the New York Stock Exchange, the company expressly disclaims any intent or obligation to update any forward-looking statements. On this call, management may refer to financial measures that were not prepared in accordance with generally accepted accounting principles in the United States, including constant currency. In addition, the company reports comparable direct-to-consumer sales on a constant currency basis for operations that were open throughout the current and prior reporting periods. The company believes that these non-GAAP financial measures are important indicators of its operating performance because they exclude items that are unrelated to and may not be indicative of its core operating results.

With that, I’ll now turn it over to Dave.

Dave Powers: Thanks, Erinn. Good afternoon, everyone, and thank you for joining today’s call. Before we discuss our third quarter results, I’d like to speak to the leadership announcement we made today. After 11 years at Deckers, I have decided to retire as President and Chief Executive Officer, effective August 1st. I will continue to serve as a member of the company’s Board of Directors. On a personal note, after 30 years in this industry, I am looking forward to spending more time with my family, pursuing my other life passions, and exploring more ways in which I can make a positive impact on the world. Serving as CEO of Deckers has been a great honor, and it’s a privilege to work with some of the best talent this industry has to offer.

I am incredibly proud of our accomplishments and our unique culture built on doing good and doing great. Deckers continues to demonstrate exceptional performance, and we have a strong foundation from which to continue driving results, a deep bench of talent, and innovative products that are resonating with consumers globally. I believe it’s a good time for us to make this transition. We’re all thrilled that the Board has selected Stefano Caroti, our Chief Commercial Officer, as Deckers’ next President and CEO, following a thorough succession planning process. Many of you know him already, but for those of you who don’t, Stefano has an extensive industry and experience, and he seamlessly led our omni-channel regional and HOKA brand operations during some of Deckers’ most pivotal years.

He is passionate about Deckers and its values, and he has been a key member of the executive team, helping to craft and progress our consumer-focused marketplace strategy and our inclusive and engaged culture. I know Deckers will be in excellent hands with Stefano at the helm. Over the next six months, Stefano and I will continue to execute on Deckers’ proven strategy. We’re invigorated about this next phase of our work together and for Deckers’ bright future. Now let’s turn our attention to our Q3 performance. I’m glad to be here today discussing another record-breaking quarter for Deckers brands as our two leading brands continued bucking industry trends to deliver high-quality growth via full-price consumer demand. Key highlights of our record-breaking third quarter results include total company revenue increasing 16% to $1.56 billion, DTC revenue increasing 23%, representing a quarterly record 55% of total company revenue, total UGG revenue increasing 15% to achieve its first-ever billion dollar quarter, total HOKA revenue increasing 22% to $429 million, total company gross margins increasing over 500 basis points to an all-time quarterly high of 58.7%, and diluted earnings per share increasing 44% to $15.11.

We believe the success of our brands and company as a whole continues to be the direct result of innovative product that is on trend and resonates with consumers across the globe, decision-making that is guided by our long-term strategic objectives, alignment between product creation, marketing, and omni-channel distribution that centers around the consumer, and the strong execution of our teams to deliver in real time while remaining focused on the longer-term vision of our marquee brand. We are thrilled by the success of this quarter, but I feel it’s important to reflect on how these results represent a continuation of strong year-to-date performance as well as many years of careful strategic execution. Our brands are thinking long-term, and while we are happy to produce great quarterly results, we are even more pleased to see the consistency of performance.

With the first three quarters of this fiscal year behind us, we believe we are on track to deliver mid-teens revenue growth, which would be the fourth consecutive year of revenue growth in the mid-teens or higher. Highlights from the first nine months include global HOKA revenue growing 25% versus last year, led by a near 50% increase in DTC; global UGG revenue increasing 16% versus last year, led by international regions growing close to 30%, and global DTC increasing more than 20%; and total portfolio DTC revenue increasing 28% with robust growth in both consumer acquisition and retention. I am extremely proud of the collaboration across the Deckers organization to deliver these exceptional results through the first nine months of fiscal year 2024.

We are creating remarkably distinct, relevant, and breakthrough product concepts that are deeply rooted in consumer insights and brand DNA. This is distinguishing our brands from the competition. Our strategic execution of brand and marketplace management, combined with our financial discipline, preserves Deckers’ position of strength as we focus on closing out fiscal year 2024 and plan for the significant opportunity in the years ahead. Steve will provide additional color on this quarter’s financial performance and our related increased outlook for the full fiscal year, but in the meantime, let’s dive into third quarter brand and channel highlights. Starting with UGG. Global UGG revenue for the third quarter was $1.07 billion, representing a 15% increase versus the prior year.

Revenue growth was primarily driven by global DTC, which increased 20% in the quarter to represent 62% of total brand revenue, up from 60% last year, aided by international and domestic consumer acquisition increasing 14% and 8%, respectively, and retained consumers increasing 26% and 8% across international and domestic regions, respectively. In addition to driving a significant increase to gross margin, the outsized growth from DTC helped deliver a double-digit increase in the brand’s consolidated global average selling price. As in general, DTC selling resulted in a much higher ASP and a favorable gross margin relative to the wholesale channel, UGG commended extraordinarily high levels of full-price selling, and the brand benefited from select price increases on a few of its most popular styles.

The cohesion of product, marketing, and consumer targeting, in addition to a reduced SKU count, drove focused energy behind key styles, which has greatly contributed to the success UGG is experiencing this year. Recognizing that there was unmet consumer demand last year and capitalizing on the continued brand momentum driven by that scarcity, the UGG team invested in additional inventory to support its most popular product. Helping fuel brand heat and further the conversation with target consumers during the third quarter, UGG spearheaded meaningful collaborations, most notably with Palace Skateboards, selling out in minutes across key cities like New York, Los Angeles, London, and Tokyo, hosted pinnacle brand experience feel houses in New York, Paris, and Seoul, and launched the first of its kind UGGextreme capsule that features fashionable performance products capable of handling winter’s most brutal conditions.

These top-of-the-funnel brand activations, combined with community building and social listening across digital platforms, help UGG create positive brand buzz and increase opportunities for consumer connections that offer feedback in real-time. This year’s coordination between DTC operations and product marketing on social channels elevated the launches of new styles or colors and brought greater traffic and attention to the brand when hot products were being restocked. From a regional standpoint, UGG has maintained high levels of brand heat and demand almost universally across the globe to deliver strong year-to-date growth across the U.S., Europe, and Asia. Helping bolster UGG performance in the third quarter, the brand opened a couple of exciting new stores in key markets, including a Shanghai flagship, which offers one of the most contemporary visual expressions of UGG anywhere in the world, and the brand’s first full-price location in Germany with a new Munich store.

Both stores are performing extremely well. In Shanghai, we are seeing average transaction values that are approximately 20% above the average UGG store in China, as well as the conversion rate more than double that of the average. Though early days, the Munich store is experiencing ATVs that are 25% higher than the average European UGG store, with conversion rate well above that of the average UGG store in Germany. Similar to what we often see in markets where new stores opened, Germany’s online business for UGG benefited from this additional consumer touchpoint, boasting both the highest online growth rate and highest conversion rate of any European country in the third quarter for the brand. We are pleased to see these new consumer touchpoints are helping produce positive results in key international markets, where we continue to see long-term opportunities for the UGG brand.

The success UGG is now experiencing among international regions is a direct result of our thoughtful, multiyear marketplace management implementation that fostered the alignment of product creation, localized marketing content, and brand-enhancing distribution partners. With the momentum and brand heat UGG has created among international markets, we are even more excited about the global opportunities ahead. From a style perspective, UGG experienced growth and success with key franchises like the Tasman, Ultra Mini, and Classic Mini, including the fashion-oriented platform versions of each, as well as new introductions that include the Weather Hybrid Collection, Goldenstar Clog, and the Lowmel Sneaker. The Weather Hybrid Collection was positioned as a modern, weatherized update to a few of the UGG brand’s most popular styles, including the Tasman, Neumel, and Classic Boot.

Our PRR teams partnered with influential NBA star, Jaylen Brown, to highlight the launch, which helped this all-gender collection drive strong sell-through among all consumers. The Goldenstar Clog was somewhat of a surprise hit during the holiday season, as it was created to bolster the shoulder seasons outside of winter, complementing the rising Goldenstar Sandal. The Lowmel, which we see as the first unmistakably UGG sneaker, represented a continuation of our hybrid strategy to redefine categories through UGG DNA. We believe Tasman’s adoption of the sneaker versus previously being purchased primarily as an indoor slipper, has given UGG permission to play in the sneaker category, in which the Lowmel performed extremely well, selling out quickly across the globe.

Both the Goldenstar Clog and Lowmel have been positioned for expansion into this spring and next fall, as the UGG brand continues to build connections with consumers through a cohesive, year-round, product assortment. Through the first nine months of this fiscal year, UGG has delivered undeniably impressive results. The brand has driven exceptional growth in focus areas, including international regions and global DTC, and has done so by acquiring and retaining target consumers with full priced products. I’d like to congratulate and thank the entire UGG team for their hard work and collaboration that enabled the brand’s success in the third quarter and fiscal year-to-date. Shifting to HOKA, global HOKA revenue in the third quarter was $429 million, representing a 22% increase versus the prior year.

HOKA has continued to deliver consistent year-over-year growth and volume each quarter this year, reflecting the brand’s balanced seasonality in year-round demand. Similar to what HOKA experienced in the first half, third quarter growth was primarily driven by gains in the DTC channel as intended, with HOKA diligently managing the wholesale marketplace to drive market share gains with high levels of full price sell through. More specifically on DTC performance, HOKA revenue in the channel increased 38% in Q3, representing over 40% of total brand revenue, which is 5 percentage points higher than last year. DTC growth has been driven by significant increases in consumer acquisition, with international and domestic experience growth of 50% and 27% respectively, and important gains in retained consumers, which increased 55% internationally and 33% in the U.S. The HOKA brand’s DTC business has been strong in every single region this year, but has been particularly powerful in Europe and China, two regions where we have been emphasizing growth in the channel as brand awareness grows.

Both regions have benefited from a greater retail presence. In Europe, HOKA opens its first retail location in Covent Garden, London, during the third quarter, which is performing exceptionally well, and the brand has a location planned to open in Paris in time for the Olympics. In China, HOKA has added four new company-owned locations throughout this year, in which the consumer experience has continued to improve, particularly with a greater focus on key stories and a new capsule collection of apparel that rounded out a compelling in-store product assortment. Complimenting the added stores in China, we continue to see our premiumization efforts online paying off, as HOKA has achieved high levels of full price sell through online, which is the channel that China generally uses for promotion activity.

One example of this during the third quarter was China’s annual Double 11 event, better known as Singles Day, which is a countrywide event that features widespread discounts across brands and product categories known for driving significant consumer traffic online. This year, HOKA benefited from the online traffic despite low levels of promotion and maintains strong full price selling, particularly in comparison to competitive brands. We are very encouraged by the increasing adoption of HOKA across international markets, particularly in the DTC channel, where we have been focusing our growth efforts while managing the wholesale environment to maintain high levels of full price sell through. We believe HOKA is still in the early stages of expansion internationally, as we continue to build brand awareness in key markets to establish HOKA as a major worldwide player in the performance space.

Over in the U.S., where we also see a significant opportunity for growth, I want to take a moment to highlight an amazing event that HOKA had a huge impact on during the third quarter. HOKA was a presenting sponsor of the 44th Annual Foot Locker Cross Country National Championships, outfitting thousands of elite high school athletes with complementary footwear and apparel. This event was the center of the U.S. running world and media for three days, driving significant impressions and some of the highest brand engagement we have ever seen for HOKA. On the product front, HOKA continues to develop and refine a compelling assortment of performance products that enable athletes of all kinds to achieve their goals. This morning, HOKA announced the introduction of the all new Cielo X1 that sits atop the brand’s assortment as the ultimate race day shoe for the most discerning athletes.

The Cielo X1 was designed with insights and feedback from the HOKA brand’s roster of elite athletes, incorporating the most advanced geometry, foam compounds, and plate technologies to enable record setting results. Before it was even commercially available, the Cielo X1 has already made its podium debut as HOKA NAZ Elite member Kellyn Taylor won the Rock ‘n’ Roll San Jose Half Marathon wearing the Cielo X1, qualifying her for the 2024 Olympics Marathon Trials for Team USA. Beyond the brand’s pinnacle performance product, HOKA is also experiencing success with exciting lifestyle-oriented products. These products feature the same quality and comfort expected from a performance HOKA shoe, but are packaged in an everyday wear aesthetic for more versatile wearing occasions.

The HOKA transport has become the brand’s go-to casual shoe, now sitting within the brand’s top 10 best sellers. The HOKA brand’s captivating collaborations are also furthering its resonance with the lifestyle consumer. They are designed to reach a new audience by partnering with logical yet unexpected brands. Most recently, HOKA partnered with Satisfy Running, a French running apparel brand, to co-create an exciting new take on the Clifton LS, which sold out almost instantly. Highlighting the partnerships theme of highs and lows, Satisfy created a one-of-a-kind community experience that brought together the skateboard, trail, and running communities to join in a sprint down the steep hills of San Francisco. As we continue building HOKA for the long-term, our focus is to remain a top brand in road running, expanding with innovative performance footwear, become a dominant off-road player with disruptive trail and hike products, and bring the HOKA experience to the lifestyle consumer while keeping the brand rooted in performance.

While we are at different stages of this journey across domestic and international markets, we see significant global opportunities ahead with this powerful brand. We are proud of the consistent momentum HOKA is achieving around the world. Our efforts to build brand awareness and drive high full price sell-through continue to bear fruit and have set the stage for a strong finish to the year with another record quarter. Now moving to our discussion of consolidated channel performance. During the third quarter, performance remained strong across both DTC and wholesale. However, in line with our strategic objectives, DTC remained the fastest growing channel, increasing 23% versus last year to represent a record 55% of the quarter’s revenue, up from 52% in the prior year.

DTC success continues to be broad-based across brands with HOKA and UGG DTC increasing 38% and 20% respectively, regions with international and domestic DTC increasing 40% and 16% respectively, and consumers with acquired and retained increasing 13% and 16% respectively across all brands. In addition, as discussed, we are also experiencing strong engagement with our brands both online and in store, reflecting the quality of our omni-channel operations and ability to provide a consistent consumer experience. Furthering the success of DTC, we continue to see a double-digit increase in the average selling price through the third quarter, driven by a greater mix of HOKA which carries the highest ASP in the portfolio, higher UGG full price selling, including benefits from select price increases and favorable foreign currency exchange rates.

With respect to consolidated wholesale performance, third quarter revenue increased 9% versus last year with domestic HOKA and UGG contributing the majority of the incremental dollar volume. We are very pleased with this strong wholesale result, especially considering the tight marketplace management we have been focused on executing during this fiscal year. As a result of these efforts, our brands drove high levels of full price sell through, entering calendar 2024 with lean channel inventories that have created opportunities for market share gains going forward. Thanks, everyone, and now I’ll hand the call over to Steve to provide more specifics on third quarter performance and an update to our fiscal year 2024 guidance.

Steve Fasching: Thanks, Dave, and good afternoon, everyone. Our third quarter performance exceeded expectations and demonstrated the continued strength of our brands. As Dave mentioned, UGG delivered strong growth in the quarter as exceptional brand heat continued to capture consumers globally and we were able to meet incremental demand through our DTC channel in the quarter with expedited shipments of the brand’s most popular styles. HOKA drove another quarter of solid growth led by the DTC channel as we continued to diligently manage the wholesale marketplace, all while driving high levels of full price sell through. These results are a testament to the exceptional demand for our brands as our compelling and innovative product offerings continue to resonate with consumers globally during the holiday season and well beyond, helping drive phenomenal performance.

Our disciplined operating approach and robust financial profile have continued to enable our brands and company to execute a strategy that delivers strong results while keeping us positioned to achieve our commitment to driving success over the long-term. Now, let’s get to the specifics of the third quarter financial performance. Third quarter fiscal 2024 revenue was $1.56 billion, representing an increase of 16% versus prior year. On a constant currency basis, revenue grew 15% versus last year. Growth in the quarter was primarily driven by broad-based UGG growth across regions and channels delivering $1.07 billion of revenue, with global DTC increasing 20% as brand heat remains robust with all DTC regions exhibiting a double-digit percentage growth in the period and continued strong demand across the HOKA ecosystem of access points with particular strength in the DTC channel, which increased 38% versus last year, contributing to the brand’s total revenue of $429 million in the quarter.

Notably, HOKA’s DTC performance for the quarter was aided by global increases in consumer acquisition, which was up 31% versus last year, and consumer retention, which was up 35% versus last year. Additionally, I would note that this quarter’s revenue growth was aided by a higher percentage of full price selling as well as the UGG brand select price increases, both of which contributed to dollar growth outpacing unit growth. While we will always manage our brands with the intent to deliver high levels of full price selling, the level we experienced this year, particularly for UGG in its peak season is one we don’t expect will always repeat. This dynamic combined with a larger than expected impact from price increases due to the strength of performance from affected styles is part of the catalyst for our increased full year expectations for UGG growth.

Gross margins for the quarter was 58.7%, which was up 580 basis points from last year’s 53%. As compared to last year, gross margin in the quarter benefited from higher mix of UGG full price selling, freight savings, select pricing action and favorable brand and product mix, favorable channel mix with DTC continuing to grow faster than wholesale and favorable foreign currency exchange rates. While we are exceptionally proud of these remarkable results, we remain mindful that the outsized margin expansion seen this quarter is above normalized levels and is not something we anticipate will repeat to the same degree. While we do see opportunities to continue to deliver top tier profitability through our key strategies, items that we anticipate may not repeat in a normalized environment include the extremely low levels of promotional activity achieved for our two major brands, considerable benefits from UGG pricing actions and very low freight costs that are now on the rise, as well as other potential macroeconomic factors such as foreign currency exchange rate fluctuations.

SG&A dollar spend in the third quarter was $429 million, up 23% versus last year’s $350 million. As a percent of revenue, SG&A was 150 basis points higher than last year, primarily due to investment in talent to support key functions within our growing organization and higher marketing spend. Our tax rate was 21.9%, which is lower than last year’s 23.7%. These results, combined with favorable interest income relative to last year and a lower share count, drove record diluted earnings per share of $15.11, which compares to last year’s $10.48 diluted earnings per share representing EPS growth of 44%. Turning to our balance sheet. At December 31, 2023, we ended this fiscal third quarter with $1.65 billion of cash and equivalents. Inventory was $539 million, down 25% versus the same point in time last year, and during the period, we had no outstanding borrowings.

On inventory, specifically, I’d note that with the strong levels of selling that we have seen this year, we are now below normal operating levels for the current size of our organization. And heading into next year, we expect to see incremental inventory investment to keep up with growth. Today’s inventory position reflects the upside that has already been captured in the quarter just completed, which could have a small impact on sales in the fourth quarter. During the third quarter, we repurchased approximately $100 million worth of shares at an average price of $507.95. As of December 31, 2023, the company had approximately $1.05 billion remaining authorized for share repurchase. Now moving into our updated guidance for fiscal year 2024.

Based on the strong demand experienced in the third quarter, we are increasing our full year revenue guidance to be approximately $4.15 billion, up from our previous guidance of approximately $4.025 billion. This increase now equates to full year growth expectations of approximately 14% versus last year. From a brand perspective, we now expect UGG revenue growth of low double digits up from our prior expectation of mid-single digits. This full year increase is the result of the strong DTC demand that we experienced and fulfilled in the third quarter. Full year HOKA revenue growth of approximately 25%, with strong third quarter sell-through driving wholesale refill upside in the fourth quarter, reflecting our disciplined marketplace management.

In addition to our fiscal year 2024 updated revenue outlook, gross margin is now expected to be approximately 54.5%. As UGG experienced high levels of full price selling, including Key Styles contributing incremental margin from price increases as brand heat continued to drive strong demand. SG&A as a percentage of sales is now expected to be approximately 34.5% as we have identified areas to accelerate spend in Q4 with revenue growth exceeding expectations for fiscal year 2024. We believe this additional spend, part of which represents top-of-funnel marketing opportunities, gives our brands the opportunity to defend their current positions of strength, setting the foundation for the future. Additionally, I would note that some of the third and fourth quarter spending timing dynamics related to unrealized FX gains recorded in Q3 that we expect will be offset in Q4 as rates have recently moved in the opposite direction.

With these updates, we are increasing our operating margin for the year and now expect it to be approximately 20%, reflecting the improvement in gross margin experienced. Our effective tax rate is now projected to be approximately 22%. And finally, with these updates, we are increasing our diluted earnings per share expectations to now be in the range of $26.25 to $26.50. Please note, this guidance excludes any charges that may be considered onetime in nature and does not contemplate any impact from additional share repurchases. Additionally, our guidance assumes no meaningful deterioration of current risks and uncertainties, which include, but are not limited to, changes in consumer confidence and recessionary pressures, inflationary pressures, geopolitical tensions, supply chain disruptions and fluctuations in foreign currency exchange rate.

This guidance update represents a $3.25 increase on the prior top end of our diluted earnings per share guidance range. Based on the success that we’ve seen this year with strong sell-through and high levels of full price selling, there are a few business dynamics related to the fourth quarter that we would like to highlight, including U.S. wholesale shipments that went out at the tail end of the third quarter of this year that have historically occurred in the fourth quarter. Meaningful revenue from UGG closeouts last year that will not repeat this year and low levels of inventory on Key Styles that have been driving the business this fiscal year. We, of course, still expect to deliver a strong fourth quarter that is now projected to round out Deckers fourth consecutive year of at least mid-teens top line revenue growth, while also consistently delivering exceptional high levels of operating profitability.

We would note that some of the benefit to our operating profitability we’re seeing are outsized and may not repeat in future years, but we remain dedicated to delivering operating profitability in the top tier among our peer group even as we continue to invest in our organization to enable future growth. As we’ve said in the past, if revenue growth comes faster than our ability to keep pace with investments, some of the related profit expansion may flow through to the bottom line near term. However, we continue to recognize the importance of funding our strategic initiatives moving into next year and maintain a focus on the long-term vision for our brands. We will continue to be disciplined in our approach as we enter our final fiscal quarter and begin planning for next fiscal year.

Our largest brands are two of the healthiest and most in demand in our industry. With a robust balance sheet and our diligent operating approach, we are well positioned to drive future success and look forward to providing more details on our year-end call. Thanks, everyone. And now I’ll hand the call back to Dave for his final remarks.

Dave Powers: Thanks, Steve. We are extremely proud of our brand’s year-to-date performance, which have produced record revenue and earnings results. As we look beyond fiscal year 2024, I believe we have an incredibly strong innovation pipeline for the UGG and HOKA brands, giving us further confidence in our ability to build upon this year’s exceptional growth. Thinking into the next few years, we believe HOKA remains our primary growth vehicle with considerable opportunity for both region and category expansion as awareness of the brand’s innovative performance product increases further, and continue to position UGG for growth through the development of category hybrids that celebrate heritage brand codes to resonate with target consumers across global markets.

Deckers strategic focus on marketplace management, omnichannel strategy and flexible operating model continues to be the driving force behind our sustained success. We remain focused on executing against our long-term objectives while continuing to deliver high levels of profitability and driving shareholder value. Additionally, I’d like to recognize and thank all of our employees across the organization for their consistent and dedicated focus to driving results aligned with our long-term strategic vision. Our employees continue to go above and beyond while upholding Deckers values. Before we turn to Q&A, I want to give Stefano a moment to say a few words. Stefano?

Stefano Caroti: Dave, thank you for the kind introduction, and good afternoon, everyone. It is a privilege to have been named Deckers next CEO. During my tenure here, I have had the chance to grow with Deckers, as we’ve made significant strides building beautiful and innovative brands that resonate with consumers around the world. I understand and appreciate the immense effort it has taken to get us where we are today. And I’m passionate about our people, our organization and the continuation of our collective success. I believe Deckers is well positioned to continue cutting through a highly competitive marketplace and take advantage of the many opportunities ahead with the support of our dedicated management team and all the good people at Deckers. Over the next six months, I look forward to working with Dave, who has become a great mentor, colleague and friend to continue executing on our strategy and ensure a smooth transition. Thanks, Dave. Back to you.

Dave Powers: Thanks, Stefano, and thank you, everyone, for joining us on the call today. We look forward to sharing more next quarter as we continue to build towards Deckers exciting future. With that, I’ll turn the call over to the operator for Q&A. Operator?

See also 20 Countries With The Highest Number of Drug Trafficking in the World and 19 Cheap English Speaking Countries in Europe.

Q&A Session

Operator: Thank you. [Operator Instructions] Your first question comes from the line of Tom Nikic from Wedbush Securities. Please go ahead.

Tom Nikic: Hey, guys. Thanks for taking my question and Dave, congratulations on a great run and Stefano looking forward to working with you. So look, on HOKA, so it kind of sounds like you’re embedding a little bit of a reacceleration, I guess, specifically in the wholesale channel in the fourth quarter. Is that just inventory levels being really lean? Is it sell-in of the new products? Is it door expansion with Decks and Foot Locker, if I could just kind of unpack how to think about the drivers of HOKA wholesale that would be greatly appreciated?

Dave Powers: Yes, very happy to answer that question. And first of all, I apologize, my voice is a little rough, I’m fighting a cold at the moment. But yes, HOKA we had a great quarter for HOKA Q3, as you’re hoping the results right on plan, right on strategy. And the teams continue to execute at a level globally. And Q4, it’s a combination of things. There’s a lot of refill orders that will be going into wholesale fulfilling that demand and getting back in stock as we head into spring. And then as we mentioned before, we have some really exciting new product launches that are coming out in Q4 as well as planned. So continue to be very strong momentum executing on the strategy. Q4 is looking solid for us. No new doors at the end of the year, no net new doors. We’ll continue to evaluate that based on how the market performs and how HOKA sells through. And we’re very pleased and optimistic about this quarter ahead.

Tom Nikic: Sounds good. And just if I could follow up also just one on UGG. Obviously, you’ve had a couple of great holiday seasons in a row. What do you do for non-core next year?

Dave Powers: Yes. Well, it’s a good question, right? I mean, our history has been a little bit volatile. But listen, I think this is a new era for UGG. We have an incredible new leadership team. The innovation pipeline is resonating incredibly well with our global consumers. We’re expanding categories beyond our core icon styles and the momentum is real. This is the most exciting quarter I’ve ever seen for UGG with regard to global brand heat, global sell-through every region, every channel is performing well with the UGG brand right now. And we were light on inventory. We have an incredible quarter of growth, but there’s still opportunity. And we’re going into this coming fall with a position of real strength with healthy inventory levels, clean marketplace.

We had some price increases that didn’t slow us down. And we still think there’s a lot of demand out there to be had. Across the women’s, especially a lot of the icons that we were successful in this year. But with some new introductions like the Lowmel, the Weather Hybrids in men’s, we think there’s a lot of upside still for this brand. And we’re going to stay the course and manage this marketplace incredibly tight as we have been and prioritize DTC and that formula continues to pay off major dividends for us.

Steve Fasching: Yes, Tom. And just to add to that, this is Steve. I think the – as we look at the success that we had in Q3, this is where our marketplace management works.

Tom Nikic: Exactly.

Steve Fasching: We are containing that wholesale channel. We’re lowing some of the demand over to our DTC channel. And this is really where you’re seeing the power of that work. You see it with the gross margin expansion. And so that’s a model that we’re going to continue to reinforce next year. And we know we’re leaving demand on the table and that’s by design. So we continue to build D-to-C brands by controlling that marketplace distribution, lowing some of that excess over into D-to-C, and leaving some demand on the table. Yes.

Tom Nikic: Sounds good. Thanks very much. And Dave, best of luck in your future endeavors.

Dave Powers: Thanks, Tom. Appreciate it.

Operator: Thank you. And your next question comes from the line of Laurent Vasilescu from BNP Paribas. Please go ahead.

Laurent Vasilescu: Good afternoon. Thank you very much for taking my question. And Dave, I wanted to wish you the best for your future endeavors. You will be missed by many. And Stefano, it’s great to have you on the call.

Stefano Caroti: Thanks, Laurent.

Laurent Vasilescu: I wanted to just follow up. I wanted to follow up, Dave, on some of the – there are some targets out there long-term. There’s that $5 billion to $6 billion target, 50% DTC mix. Is there anything that changes over the long-term on these targets that you maybe want to update? And then could you maybe also provide – Steve, I think you maybe kind of alluded to, sometimes you’ll over earn that 20% EBIT margin for fiscal year 2024. Is there a raise, like resting heart rate [ph] for EBIT margin for this business long term?

Dave Powers: Yes, Laurent. Good question. So with regards to long-term strategy, I think, it’s important to stress, it’s particularly with [indiscernible] coming up, that we are still focused on what we’ve talked about before. So, Stefano and I are sitting here saying, hey, there is a major change that needs to happen. It’s more about continuing the momentum that, quite frankly, Stefano and his team have helped create. So the targets that we spoke about before, those are ranges that we’ve talked about. We think there’s potential to get there. It’s not a hard target. But the strategy is in place. We have – we have that – the way we’re managing the marketplace and the way they’re presenting these brands in the market to our consumers, where we’re connecting with our consumers just gives us more confidence, especially coming out of a quarter like this, that those targets are achievable.

And I think this – the quarterly results represented great examples of how we’re migrating closer to DTC and more business through DTC and then building more heat for these brands over time. So as we get more consumers into the fold, that will continue, and we remain incredibly excited about the opportunity for HOKA, but also for UGG at the same time. So stay the course, lots to get after still, particularly with the strength of the international markets coming on now, and we’re confident we can get there.

Stefano Caroti: Yes, then, Laurent, kind of on the operating margin, and we’ve talked about this before on prior calls. The way we look at the business is kind of a high teen margin business. And as I’ve said in the past is when we have an opportunity, when the business runs so well and delivers margins above that like we’ve seen in Q3, we will let some of that margin run through. We’re not out just to spend money for the sake of spending money. We carefully watch where we’re placing our investments. And when we see the opportunities to invest, we will take that. And that’s the way we approach kind of every year. In a given year where we’re seeing such strong full price selling, like we did this year where our brands and product are in such demand, it’s a perfect case where we can flow through some of that.

You’ve seen that in prior years, but at the same time, as we’ve indicated in our full year outlook, where we’ve raised it, we’re also looking at where we can continue to invest in our brands because we know the competition is stepping up as well. So this provides us an opportunity that when we are performing well, we’ll pass through some of that. But at the same time, we’re looking at the long-term health of the business and we’ll make the right investments to continue to drive this business forward in the long run. So that’s our approach. That’s not going to change. It’s working for us and you can kind of see how that’s driving these types of results.