Deckers Brands expects Hoka will continue to lead sales growth in the current financial year, forecasting the brand will see a 20 percent increase in its top line after a 58.5 percent jump in the financial year that ended March 31. The majority of Hoka’s growth is expected to come from the direct-to-consumer (DTC) channel, which grew to 34 percent of the brand’s total sales in the latest financial year from 29 percent the year earlier.
Overall, Deckers expects its sales to increase by about 9 percent in the financial year ending March 31, 2024, or fiscal 2024, to $3.950 billion.
Hoka is leading Deckers Brands’ growth
While Hoka leads the way, Ugg is instead expected to continue to underperform, with sales projected to grow by a low single-digit as management focuses on international expansion, full-price selling and capitalizing on “global momentum with young consumers.” The company estimates earnings per share (EPS) of $21.10 to $21.60.
The gross margin is also seen expanding to 52.0 percent, up by 1.7 percentage points, as profitability is favorably affected by the higher contribution of DTC and Hoka, slightly offset by an expected increase in promotions given the uncertain economic environment.
Management forecasts for the current financial year were below a market consensus for an EPS of $21.77 and sales of $3.97 billion. Analysts said the projections were conservative and in line with company management’s typical cautious stance. Analysts at Bank of America said they saw a high likelihood of upward revisions given “expectations for outsized growth at Hoka.”
Hoka’s growth will be accompanied by marketplace management, particularly in the EMEA region, as the company foresees no new net wholesale and distributor doors and focuses on low levels of promotions. “In some cases, we – in certain markets, such as Italy, we’re going to close some doors to have distribution that better represents the brand and working with our distributors to make sure that they have the right presentation of the brand in the marketplace,” said Dave Powell, CEO, in a conference call with analysts.
Powell added, in Europe, “you’ll probably see some door closures this year, which is strategically done so that we can improve the presentation of the brand and long-term health of the brand.”
Group revenue growth in the quarter set to end June 30 is expected to be “slightly below” the full-year forecast for 9 percent revenue growth, as Ugg is not expected to repeat the early U.S. wholesale shipments in the first fiscal quarter that have characterized the last few years; while growth in Hoka’s international wholesale business is expected to be slower due to not repeating early shipments that occurred in the first quarter last year.
Deckers’ Fourth-quarter sales above market expectations
In the fourth quarter of fiscal 2023, Deckers’ revenues rose by 7.5 percent to $791.6 million, above an analyst consensus of $718.2 million. Hoka sales increased by 40.3 percent versus the year earlier to $397.7 million, nearly doubling DTC revenues. Teva brand sales grew by 14.6 percent to $62.8 million as that brand recaptured sales lost in the previous year due to supply chain disruptions. Sales at Ugg amounted to $314.3 million, a decrease of 16.1 percent compared to the year earlier, when sales had been lifted by “abnormal” wholesale shipping patterns tied to pandemic-related supply chain issues, and normalizing DTC sales. Sanuk brand sales declined by 10.5 percent to $10.7 million. Other brands, primarily composed of Koolaburra, slumped by 46.2 percent to $6.0 million.
Deckers’ gross margin widened by 1.3 percentage points to 50.0 percent in the quarter, bolstered by reduced air freight usage, a favorable brand and channel mix from the strength of the Hoka DTC business, alongside lower ocean freight rates. This was partially offset by increased promotional activity for Ugg as the brand sought to reduce inventory levels of non-cores seasonal products and by continued headwinds from foreign exchange rates.
Operating profit grew to $105.9 million from $81.3 million. Diluted earnings per share jumped to $3.46 from $2.51 in the fourth quarter of the 2022 financial year and were well above a $2.66 consensus.
Deckers’ FY sales by channel
By sales channel, quarterly wholesale sales were flat, coming in at $448.4 million versus $448.8 million the year earlier. DTC sales rose by 19.5 percent to $343.1 million, and comparable DTC sales were up by 18.4 percent. Sales in the domestic market increased by 4.1 percent to $542.4 million, while international sales rose by 15.8 percent to $249.1 million.
For the full year, sales rose by 15.1 percent to $3,627 million, supported by 58.5 percent growth at Hoka, for which the top line grew over 50 percent for the fourth consecutive year. Ugg revenue was down by a reported 2.7 percent but steady on a constant-currency basis,
The gross margin decreased by 0.7 percentage points to 50.3 percent. Operating income rose to $652.8 million from $564.7 million, while diluted earnings per share jumped by 19 percent to $19.37.
