Release Date: May 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Deckers Outdoor Corp (DECK, Financial) reported an 18% revenue growth for fiscal year 2024, nearly reaching $4.3 billion.
- The company achieved a gross margin of 55.6%, a 530 basis point increase over the previous year.
- HOKA brand saw a 28% increase in global revenue, reaching $1.8 billion, driven by increased brand awareness and strong DTC growth.
- UGG brand reported a 16% increase in global revenue, reaching $2.2 billion, with significant gains in DTC acquisition and retention.
- Deckers Outdoor Corp (DECK) ended the fiscal year with $1.5 billion in cash and equivalents and no outstanding borrowings.
Negative Points
- The company anticipates a more normalized promotional environment for fiscal year 2025, which may impact gross margins.
- SG&A expenses increased by 24% year-over-year, driven by investments in talent, marketing, and infrastructure.
- The company faces uncertainties related to consumer confidence, inflationary pressures, geopolitical tensions, and supply chain disruptions.
- Deckers Outdoor Corp (DECK) expects a decrease in gross margins for fiscal year 2025, down to approximately 53.5% from 55.6% in fiscal year 2024.
- The company acknowledges that the exceptional margin expansion experienced in fiscal year 2024 may not repeat to the same degree in future periods.
Q & A Highlights
Q: Dave, I wanted to ask about HOKA. HOKA DTC was 38% of the mix for the year, which implies 4Q wholesale grew 40%. What are you seeing in the wholesale channel? Are retailers reordering across the board? How should we think about HOKA wholesale growth for the year itself?
A: (David Powers, CEO) We're still seeing healthy demand from our wholesale partners. There was a little bit of pull-forward, and sell-throughs are strong, so that kind of pull-forward mentality is still in place. It's right in line with our pull-forward model. We keep our wholesale channels tight and try to drive more revenue to DTC. We'll continue that playbook into '25 and beyond. We still have opportunities in international run specialty and U.S. run specialty, where we're generally 1 or 2 in market share. The marketplace is still strong, and the demand is out there from the consumer.
Q: On HOKA International, is it fair to assume that HOKA International is about 30% of the mix? Where do you think that goes this year over time? And what region are you most excited about for FY '25?
A: (David Powers, CEO) Yes, you're right. It's roughly around 30%. We do see that creeping up over time. We haven't given hard targets on that, but we are focusing more energy on building awareness, expanding DTC engines in those markets, and bolstering our international presence. From a volume perspective, Europe will see significant upside. China is still a small market for us with tremendous upside, but from a dollar percentage increase, Europe will lead in the short term.
Q: I just want to ask about your guiding to mid-single-digit growth for this year on top of a really big year last year. What gives you the confidence that you will continue to build on the big growth you've seen not just last year but over the last couple of years as we think about fiscal '25?
A: (David Powers, CEO) The demand with the consumer, especially the 18- to 24-year-old demographic, the broad-based health of all our channels, and the brand heat and consideration among consumers in new international markets are increasing and very strong. Our pull model is still working, and we have a very healthy full-price business. We're also seeing great success in new franchises like the Goldenstar and venture days. Combined with the brand heat and the health of the marketplace, we see a lot of optimism for the UGG brand going forward.
Q: Can you help us understand how UGG is growing by telling us how you think about the growth of the classics versus the relatively new stuff? How is that driving the UGG brand?
A: (David Powers, CEO) Classics remain a steady, healthy premium part of our business, roughly around 25% to 30%. The growth is being driven by reimagined classics and new franchises like the Goldenstar and venture days. These styles are resonating extremely well with younger consumers and showing up on influencers in a very powerful way. We also have an incredible pipeline of product that evolves these styles over the next 18 to 24 months.
Q: How are you thinking about UGG and HOKA's international opportunity, both from a top-line perspective and channel perspective, and how can the margin profile of the business internationally evolve?
A: (Stefano Caroti, Chief Commercial Officer) Our business is currently 2/3 U.S. and 1/3 international. We see a lot of opportunity internationally, and while we expect the U.S. to continue to grow, long term, we want international to grow faster. We're investing more and faster internationally to accelerate that growth. In terms of distribution, we intend to selectively expand with key partners while carefully monitoring the productivity of the doors we expanded.
Q: How do you think about further segmenting the HOKA assortment while still keeping your heritage?
A: (David Powers, CEO) We will always prioritize our performance business first. We are a performance innovation-driven company, and that's our priority. We'll always prioritize specialty run accounts and the hardcore running and trail-running consumer. However, we've been adopted in a substantial way from a lifestyle perspective because of the performance built into the product. As we segment the line over time, we will continue to innovate appropriately to the channel and consumer.
Q: On SG&A, you're flipping to basically a flat SG&A rate this year after a year of deleverage. How should we think about where you are in that reinvestment cycle?
A: (Steven J. Fasching, CFO) We think the 34% spend to revenue is the appropriate level. It is increasing from where we've been in the past couple of years as we've made investments in talent, infrastructure, and distribution. As we continue to grow at a slightly faster pace than anticipated, there's still a bit of a catch-up. We'll manage accordingly and continue to carefully monitor to keep pace with growth.
Q: For HOKA, it looks like DTC was up in the low 20s in the fourth quarter year-over-year, and you're assuming DTC outgrows for fiscal 2025. Are you assuming a little bit of a reacceleration?
A: (David Powers, CEO) Yes, we will see a slight increase in the rate of DTC growth, and that contemplates a little bit lower wholesale. As our awareness increases and we have more international distribution, opening select retail stores drives more traffic to our DTC channel. We convert at a very high rate when people come to our website, and we have a growing repeat business from our existing customer base. Strategically, we are trying to grow DTC a little bit faster over time because it's good for us long term.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
