Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue grew by 22% year-over-year to $825 million, showcasing strong overall performance.
- Gross margin increased significantly by 560 basis points to 56.9%, indicating improved profitability.
- Hoka brand revenue surged by 30% to $545 million, driven by strong demand for new and existing products.
- Direct-to-consumer (DTC) revenue increased by 33%, reflecting robust consumer engagement and loyalty.
- International regions saw a 21% increase in revenue, highlighting successful global expansion efforts.
Negative Points
- Freight costs are expected to become a headwind for the remainder of the fiscal year, potentially impacting margins.
- SG&A expenses increased by 22%, which could pressure operating margins if not managed carefully.
- The company anticipates a more promotional environment for the rest of the fiscal year, which may affect full-price selling.
- Inventory levels increased by 2%, which, while modest, could indicate potential overstocking risks.
- The divestiture of the Sonic brand may lead to a temporary gap in revenue and market presence.
Q & A Highlights
Q: Can you discuss the momentum in the Hoka brand despite mixed industry data and how you plan to achieve 20% growth for the year?
A: We are confident in our full-year guidance and the performance of our brands. Key product launches have been selling through strongly, and we are focused on long-term health and sustainable growth. We are managing the marketplace carefully, balancing wholesale and DTC growth, and expanding distribution strategically.
Q: What are your capital allocation priorities given your strong cash balance?
A: We are focused on continued organic growth and delivering exceptional profitability. While M&A is always considered, our priority is investing in our existing brands and growth initiatives. Share repurchases remain a commitment, and dividends are discussed with our Board of Directors but no announcements at this stage.
Q: Can you provide more details on the freight impact and mix impact on gross margins?
A: Freight rates provided an 80 basis point benefit in Q1 but will be a headwind for the remainder of the year. We expect a negative 80 basis point impact from freight over the next three quarters. Brand and product mix contributed about 250 basis points to margin expansion, and full-price selling added another 250 basis points.
Q: How are you managing inventory levels, particularly for the Ugg brand?
A: We are in a good inventory position, especially for Ugg. We have seen strong sell-through of core styles and new collections, leading to a clean marketplace as we enter the fall season. We are focusing on fewer SKUs and more inventory in top drivers, which will serve us well going forward.
Q: Can you elaborate on the higher SG&A guidance and where the spend is going?
A: The margin expansion allows us to invest in building global brand awareness and infrastructure to support growth. We are investing in marketing to drive awareness and support new product launches, as well as in talent and infrastructure to sustain our growth.
Q: What is driving the strong DTC growth for the Hoka brand, and how does it vary by region?
A: The growth is driven by new product launches, marketing efforts, and expanding distribution. We are seeing strong growth in both North America and international regions, with a focus on building brand awareness and expanding our retail presence, particularly in Asia.
Q: How are you approaching new channels of distribution and retail partner expansion for Hoka and Ugg?
A: We are expanding with key partners both domestically and internationally, including SGIJP, Intersport, Foot Locker, Topsports, and Sport Chek. We are also opening new stores strategically to enhance brand experiences and connect with local communities.
Q: Can you provide insight into the shape of your order book trends and marketplace management?
A: We maintain a pull model where demand exceeds supply, ensuring healthy full-price sell-through and margins. Our order book reflects strong demand, and we are carefully managing distribution to maintain brand health and long-term growth.
Q: What are the gating factors for deciding to roll out more stores for Hoka and Ugg globally?
A: For Ugg, we are focusing on flagship locations in major cities to provide exceptional brand experiences. For Hoka, we are being more strategic and aggressive with store openings, leveraging our partners in Asia and focusing on quality growth globally.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
