Deckers Brands Mails Letter To Stockholders Highlighting Merits Of Board’s Strategy

Implementing a Multi-Season Product Strategy: We are focused on increasing the year-round utilization of our fixed infrastructure in order to balance out our traditional reliance on colder months. This builds a more sustainable, predictable business. To do this, we are focused on delivering a more diversified collection of UGG spring/summer products, as well as growing our Performance Lifestyle Group consisting of Hoka, Teva and Sanuk, which is most active during months when demand for our Classic boot is low.

Growing the Hoka Brand: Over the past three years, Deckers has grown Hoka’s annual sales over ten-fold, from less than $10 million to over $100 million. We are building on Hoka’s momentum among serious runners to reach new customers. We are driving hard to gain more shelf space, increasing consumer awareness through strategic marketing efforts and continuing to innovate our product offerings through new styles geared toward hiking, casual runners and women.

Expanding Internationally: We are positioning our business to generate higher growth and profitability in Germany and China. These countries offer highly attractive demographics with large populations of consumers in our target market. We have increased our direct reach in Germany through the acquisition of our German UGG distributor. In China, we are using a mix of both direct and retail partners. Our China strategy allows us to better understand market perceptions of our UGG brand in a cost-effective manner that preserves overall optionality for further developing the market.

Transforming Our Cost Structure: Progress We Have Made

In February 2016, we announced a restructuring plan that included reducing our retail footprint, consolidating offices, closing facilities and relocating employees. Our objective was to streamline brand operations, reduce overhead costs, create operating efficiencies and enhance productivity and collaboration.

Since then, we have made significant progress in improving our gross profit margin through consolidating our factory base, moving production to more cost-effective locations and optimizing our material usage. We have also reduced inefficiencies in our corporate spend and made progress on optimizing our retail footprint.

Specifically, we:

• Increased gross profit margin by 220 basis points for the quarter ended September 20, 2017.
• Increased gross profit margin 140 basis points for the 12-month period ended June 30, 2017, as compared to the fiscal year ended March 31, 2016.
• Closed 25 retail stores.
• Reduced our retail corporate infrastructure to account for the smaller number of retail stores.
• Closed our underperforming brands in order to focus on our core brands.
• Consolidated several offices.

These achievements required some difficult decisions. But these decisions were made by our Board–long before we ever spoke to Marcato–in order to enable Deckers to be a faster, leaner and more focused business that is better positioned to build stockholder value and win in the marketplace.

Transforming Our Cost Structure: Realizing the Benefits

In February 2017, we announced the next step in our transformation through a plan to implement significant additional cost savings in both cost of goods (COGS) and sales, general & administrative (SG&A) expenses.

Additional COGS savings are expected to come from:

• Reducing product development cycles;
• Further optimizing material yields;
• Further consolidating our factory base; and
• Continuing to move production outside of China.

Incremental SG&A savings are expected to come from:

• Additional retail store consolidations;
• Additional reductions in our retail corporate infrastructure to account for the smaller number of retail stores;
• Process improvement efficiencies; and
• Reduced indirect spend.

In particular, we are evolving our retail store strategy to ensure that it achieves the best possible return on investment for our stockholders. We are continuously taking a fresh look at our stores and are closing ones that no longer align with our long-term objectives. We believe that the optimal size of our company-owned fleet is approximately 125 retail stores, down from 160 stores at the start of fiscal 2018.

All of these initiatives are expected to result in an operating profit improvement of $100 million by the end of fiscal 2020. For fiscal 2018, we expect operating margins to increase to 10.5%, a 130 basis point improvement over fiscal year 2017. We expect operating margins to further improve to 13.0% by the end of fiscal year 2020. This will generate significant cash flow over the next few years, positioning Deckers to drive increased stockholder value.

We are already seeing tangible results. Our profit improvements allow us to generate increased free cash flows and further enhance stockholder value by repurchasing our stock and accelerating our EPS growth. We recently increased our share repurchase authorization to $400 million, which we expect to complete by year-end fiscal 2020, and are targeting completing approximately $100 million worth of stock repurchases prior to the end of March 2018. The strength of our balance sheet and our conviction in our future prospects make this an ideal period to repurchase stock and return capital to stockholders. Our aim is to repurchase stock while continuing to improve our operating profit, which simultaneously returns capital to stockholders and positions Deckers for long-term growth.

THE RIGHT BOARD: CURRENT DIRECTORS ARE HIGHLY QUALIFIED AND FOCUSED ON ACHIEVING RESULTS FOR ALL STOCKHOLDERS

Deckers has a diverse and experienced Board of Directors that is actively engaged in overseeing our transformation and is holding management accountable for delivering continued operational improvement. Our Board works closely with management and has been—and will continue to be—a significant agent of change to improve Deckers’ performance. Our Board is committed to continuing to evolve and adapt in order to deliver on our commitments to our stockholders.

We have rigorous selection criteria, which has produced a highly diverse Board, with each member bringing a specific set of skills that is aligned with Deckers’ long-term strategic priorities. Our Board includes nine highly qualified individuals, eight of whom are independent and three of whom have been appointed since 2014. Additionally, our Chairmanship was refreshed on September 1, 2017.

We are proud that our Board is a powerful advocate for all stockholders and is driving change and delivering significant stockholder value.

YOUR VOTE IS IMPORTANT—HELP ENSURE DECKERS’ PROGRESS AND MOMENTUM

Please use the enclosed WHITE proxy card to vote today “FOR” ALL nine of Deckers’ highly qualified nominees: John M. Gibbons, Karyn O. Barsa, Nelson C. Chan, Michael F. Devine III, John G. Perenchio, David Powers, James E. Quinn, Lauri M. Shanahan and Bonita C. Stewart. Simply follow the easy instructions to vote by telephone, by Internet or by signing, dating and returning the WHITE proxy card in the postage-paid envelope provided.

Your vote “FOR” our director nominees will help ensure that you, as a Deckers stockholder, have a Board of Directors focused on sustaining our positive momentum and creating lasting value for all stockholders.

We appreciate your support.

Sincerely,

John M. Gibbons
Chairman of the Board

PROTECT YOUR INVESTMENT!
PLEASE VOTE TODAY ON THE WHITE PROXY CARD!

If you have questions, need assistance in voting your shares, or wish to change a prior vote, please contact:

INNISFREE M&A INCORPORATED
Stockholders Call Toll-Free:
(877) 750.0625 (from the U.S. and Canada)

or

(412) 232.3651 (from other locations)

Remember, please simply discard any Gold proxy card you may receive from Marcato. Your Board does not endorse any of Marcato’s nominees and we urge you to NOT submit any proxy using Marcato’s gold proxy card, even as a protest vote. A withhold vote on Marcato’s Gold proxy card will revoke any earlier proxy that you have submitted to Deckers.

Photo courtesy Ugg