Deckers Brands believes its Hoka brand, already wildly successful, has plenty of upsides ahead as a head-to-toe brand serving running, trail and hiking consumers worldwide like rivals Salomon and VF Corp.’s North Face, and less like running-centric Brooks.
“We are re-looking at our category approach,” proclaimed Dave Powers, president and CEO of Deckers. “We’re bolstering up some design and product management talent in our teams, elevating marketing functions and are going to stay aggressive because we have a tremendous opportunity to create the next multi-billion-dollar major player in the performance athletics space.” Deckers bought Hoka in 2013. It has gained more prominence beyond its traditional core customer base of runners and athletes, with celebrities such as Cameron Diaz, Jennifer Garner or Reese Witherspoon spotted wearing the brand. In the first quarter, the brand crossed the $1 billion sales threshold for the trailing 12 months.
Deckers posted a strong rise in second-quarter net sales, driven by record revenue growth primarily at Hoka, but also by growth at Ugg. In the period, ended Sept. 30, Hoka brand sales rose 58.3 percent to a record $333 million from $210.4 million to pace the four main brands in Deckers’ portfolio. Sales at Ugg increased 6.3 percent to $476.5 million in the quarter.
Wholesale accounted for two-thirds of Hoka’s sales, and much of the increase was attributable to increased market share in existing accounts. Hoka’s global DTC business rose 26 percent in the first half. With the recently released Bondi 8 quickly becoming the brand’s top-selling model in the third quarter, Hoka will launch the Clifton 9 in the fourth quarter. The brand launched its first-ever global “Fly Human, Fly” marketing campaign this year, helping to drive a 145 percent increase in search terms in the New York and Los Angeles markets, Powers said. “It’s been very early received from all of our partners around the globe. It’s resonating very well with the consumer.” Deckers has also increased Hoka distribution, with larger wholesale at current partners, five pop-up stores across the U.S. and more than a dozen stores in Asia. “Each of these access points is designed to build brand awareness,” Powers added.
Overall, Deckers realized an 0.5 percent decline in second-quarter net income to $101.5 million from $102.1 million, despite 21.3 percent revenue growth to $875.6 million compared to $721.9 million in the year-ago period. The operating margin slid to 14.6 percent from 17.8 percent, but income from operations was essentially flat at $127.8 million versus $128.2 million. Gross margin, impacted by headwinds from currency exchange rates and higher promotional activity around the Ugg brand, declined to 48.2 percent from 50.9 percent. In the first half, the currency impact on results was estimated at about $30 million. That effect is projected to rise to $70 million in H2, primarily impacting the Ugg business.
On a regional basis, Decker’s U.S. sales were up 20 percent to $617.7 million, while international sales grew 24.4 percent to $258 million. By channel, wholesale net sales increased 16.7 percent to $636.5 million, while DTC net sales increased 35.3 percent to $239.1 million.
Elsewhere in the period, a larger assortment of products helped push Ugg sales 6 percent higher to $476.5 million, with the core classic continuing to drive the brand’s DTC business. International Ugg sales rose 20 percent during the period. The Ugg brand has better in-stock levels for all channels heading into its important cold-weather season. Among Deckers’ other brand segments, Sanuk sales fell 25.2 percent to $7.5 million, Teva increased 4.3 percent to $30.1 million and other brands, primarily composed of Koolaburra, increased 17.9 percent to $28.5 million.
Powers said the company would maintain its full-year revenue guidance of $3.45 billion to $3.50 billion, despite what he called a “challenging macroeconomic backdrop,” with Hoka annual sales forecast to rise 50 percent year-over-year and Ugg sales falling mid-single digits on a reported basis due to negative currency impacts. “As we head into the Ugg brand’s peak selling season and continue to fuel expanding demand for Hoka performance footwear, we are confident in our ability to deliver our maintained full-year guidance,” he said. Currency headwinds will also drag down the full-year gross margin rate to approximately 50.5 percent from 51.5 percent. It will likely be several quarters before lower container costs benefit the gross margin line.
