Bolstered by sales contribution from its Ugg brand and continued momentum in its Hoka business, Deckers Brands generated a 76 percent increase in Q2 operating income to $224.6 million on nearly 25 percent total net sales growth to $1.09 billion for the three months ended Sept. 30. Net income was also 76 percent higher at $178.5 million against $101.5 million and gross margin expanded a whopping 520 basis points to 53.4 percent from 48.2 percent.
Sanuk to be sold
Second quarter direct-to-consumer sales increased by 38.8 percent to $331.7 million as wholesale revenues rose by 19.4 percent to $760.2 million. Regionally, international markets outperformed the US on a percentage basis, rising by 33.3 percent to $343.9 million as home market sales jumped by 21.1 percent to $748.0 million. The Hoka and Ugg brands drove revenues. Hoka sales, consistent with their Q1 results, again rose by 27 percent to $424.0 million. Ugg sales were up by 28 percent year-over-year to $610.5 million. Elsewhere, Teva sales declined by 28 percent to $21.5 million, and Sanuk sales dipped by 28.5 percent to $5.4 million. The group has decided to find a buyer for Sanuk in the months ahead but will not account for the business as a discontinued operation in the meantime.
DTC led Hoka’s business in H1, rising 54 percent year-over-year and accounting for 38 percent of company revenues versus 31 percent in the comparable year-ago period. EMEA DTC nearly doubled in H1, the company said, to generate a 75 percent year-over-year increase for the six months. Deckers has begun to segment wholesale access to Hoka’s broader line of categories and styles and intends to push key H2 styles into Q4 (spring/summer) to avoid Q3’s promotional marketplace and be ready when the outdoor running season commences again.
“[…] We want to maintain scarcity in the marketplace, full price sell-throughs, and keep this brand moving at a healthy pace,” commented Dave Powers, President and CEO of Deckers Brands.
At Ugg, where H1 growth of 18 percent was bolstered by a fall marketing campaign and keeping a dearth of key products, the brand produced 26 percent DTC sales growth and 48 percent sales expansion outside the US. The group promises to accelerate the brand’s momentum in Europe, particularly in the UK and Germany, with more aggressive marketing across the region.
In addition to the planned divestiture of the Sanuk business, Deckers Brands plans to launch a new brand into the market. Senior management describes it as a “super sneaker brand” across various categories that will utilize learnings from both the Hoka and Ugg operations.
“It’ll be a long haul, but we think this is a space that is emerging and that we want to make sure that we have some skin in the sneaker game going forward beyond Hoka,” Powers told analysts.
