Deckers Brands raised its sales and earnings guidance for the full financial year after revenues in the third quarter ended Dec. 31 rose by 13.3 percent to $1,346 million, beating analysts’ expectations for a top line of about $1,250 million and supported by a near doubling in sales of the Hoka brand and the strength of its direct-to-consumer (DTC) channel. On a constant currency basis, revenues were up by 17.5 percent.
The gross margin in the quarter expanded by 0.7 percentage points to 53.0 percent, with a “significant” benefit from reduced freight costs. Also benefiting the margin were a favorable channel mix, with the DTC business growing faster than wholesale, and a favorable brand mix as the sales of Hoka increased and price increases were implemented at the end of last year. These factors were partially offset by foreign currency headwinds and more normalized promotions and closeout activity for the Ugg brand.
Operating income in the quarter increased to $362.7 million from $293.4 million the year prior. Net profit rose to $278.7 million from $232.9 million, making for diluted earnings per share (EPS) of 10.48 dollars, up from $8.42 the year earlier and comfortably above an analyst consensus of $9.49.
Hoka
Hoka sales in the quarter surged by 90.8 percent to $352.1 million. The brand more than doubled its DTC business as consumer acquisition and retention increased by 95 percent and 109 percent, respectively. Management sees the Fly Human Fly marketing campaign as key to Hoka’s DTC strength this year. Wholesale sales also grew both through market share gains and select new strategic access points, while product flow for the brand improved compared to the previous third quarter when shipments were negatively impacted by port congestion.
Ugg
Although sales of the Ugg brand decreased by a reported 1.6 percent to $930.4 million, on a constant-currency basis they grew by a “low single-digit”. Ugg posted a strong DTC performance globally across genders and categories, driven by a 21 percent increase in acquired consumers and a 17 percent rise in retained consumers. The brand’s global DTC revenues rose by eight percent as DTC jumped to 60 percent of total Ugg sales from 54 percent the year earlier. However, the brand suffered from unfavorable foreign currency impacts and a decline in wholesale sales. Management said the decline in the wholesale business had been expected, noting that shipping dynamics had led to temporary elevated levels of product in this channel.
“Overall, we are very pleased with the performance of Ugg this fall,” said Dave Powers, CEO, in a conference call with analysts. “The brand continues to attract new consumers and drive more business through direct-to-consumer with the loyalty program that now has amassed over 7 million members worldwide. We feel great about the brand’s ability to offset more normalized promotional activity through a strategic shift in channel mix, which also helped to reduce marketplace inventories heading into the spring 2023 season.”
Among Deckers’ other brands, Teva’s sales increased by 48.3 percent to $30.5 million. Sanuk decreased by 7.4 percent to $5.6 million while sales of other brands, primarily Koolaburra, fell by 12.1 percent to $26.9 million.
Channels
On a channel basis, overall wholesale sales increased by 8.0 percent to $646.3 million. DTC sales rose by 18.7 percent to $699.3 million while growth stood at 22.1 percent on a comparable basis. DTC accounted for 52 percent of total Deckers sales in the quarter, up from 50 percent the year earlier. The company has a long-term objective for a 50 percent mix of DTC for the entire fiscal year across its portfolio.
Domestic sales grew by 13.9 percent to $906.8 million. International sales were up by a reported 12.1 percent to $438.8 million but were about 25 percent higher on a constant-currency basis.
2023
Deckers raised its guidance for fiscal 2023 sales to $3.50 billion to $3.53 billion, up from $3.45 billion to $3.50 billion previously, driven by the upside of the Hoka brand. Revenue growth for the Hoka brand for the full year is now seen in the low 50 percent range. Deckers has also raised its reported EPS guidance to $18.00 to $18.50 from $17.50 to $18.35. The gross margin is still expected to be about 50.5 percent and operating margin in a range of 17.5-18.0 percent.
While Deckers has not yet provided guidance for fiscal year 2024, “we do expect there will be some gross margin expansion and we’re going to use that to invest in the business, especially in the competitive nature of where this business is and what we’re doing with our brands,” said Steve Fasching, the company’s CFO.
