11 Feb Inside The Call: Deckers Brands Posts First Billion Dollar Revenue Quarter
Deckers Brands capitalized on its strong brands and a direct-to-consumer (DTC) e-commerce business to post solid results for the fiscal third quarter ended December 31, 2020. On a conference call with analysts to review results and provide more detail on trends, management spoke to its previous comments about facing tailwinds related to strong brands, compelling products and accelerated adoption of e-commerce, but also noted the headwinds they and other brands face in the age of COVID. The solid results for the quarter reflect the planning and execution by management and its teams to build on the tailwinds and mitigate the headwinds’ effects.
Deckers Brands reported that net sales increased 14.8 percent to $1.08 billion in the fiscal third quarter, compared to $938.7 million for the prior-year comp period. On a constant-currency basis, net sales increased 13.8 percent for the quarter.
“We believe much of the strength we have seen in our business fiscal year-to-date is a result of our continued execution and dedication to our long-term strategies, including driving year-round demand through a diverse product assortment, accelerating consumer acquisition online, which increased 87 percent year-to-date across our portfolio of brands, prioritizing 18- to 34-year-old consumers, which have accounted for the largest percentage increase in our U.S. customer database this year, managing the wholesale marketplace strategically, which has continued to benefit from Ugg men’s in the U.S. and it’s progressing in EMEA, globalizing the Hoka ecosystem, evidenced by the acceleration of international markets, and spending responsibly to maintain high levels of profitability while deploying investments in these key strategic areas,” summarized company President and CEO Dave Powers on the call.
Wholesale net sales increased 6.2 percent to $557.9 million in the third quarter, compared to $525.1 million for Q3 in the prior year, DTC net sales increased 25.7 percent to $519.9 million in the period compared to $413.7 million for the comp period last year. Deckers boasted a DTC comparable sales increase of 33.8 percent over the comp period last year.
Domestic net sales increased 19.3 percent to $770.5 million compared to $645.7 million in fiscal Q3 last year. International net sales increased 4.8 percent to $307.2 million in the quarter compared to $293.1 million for the prior-year period.
From a brand standpoint, it was the Ugg and Hoka One One story for Deckers.
The Ugg brand net sales for the third quarter increased 12.2 percent to $876.8 million, compared to $781.1 million for the prior-year period, driven by what Powers referred to as “the strength of the brand’s diversified and compelling product offering, which has been embraced by a broader range of consumers, momentum with younger and fashion-forward consumers, targeted digital marketing and PR activations, increased purchase frequency from consumers shopping across multiple product categories, significant brand heat in the U.S. with strong selling and sell-through across multiple wholesale accounts paired with exceptional DTC engagement, and traction with localized strategies for international markets beginning to rebuild brand heat within Europe and Asia.”
“The Ugg brand success, particularly in the U.S., is the result of the brand’s long-term evolution as a leading global lifestyle brand through infusing brand DNA into new and expanding categories,” noted Powers. “More specifically, over the past four years, Ugg has established an impressive resume of collaborations that have helped rebuild the brand’s fashion credibility. This includes recently announced collaborations with British designer Molly Goddard and New York-based designer Telfar Clemens. He said Ugg has significantly reduced its reliance on core products while significantly expanding other categories.
As evidence of the strategy’s success during the third quarter, Powers said that women’s Classic product volume remained flat year-over-year, while the brand experienced growth across all other major categories, including women’s non-Classic footwear highlighted by slippers and the Fluff franchise, men’s footwear, particularly in the Neumel franchise, slippers, kids’ footwear through fun variations of popular men’s and women’s product, and the new ready-to-wear collection, which he said was a resounding success this season and will be expanded upon next Fall with additional products and partnerships.
“With this transformation beyond core products, the Ugg consumer is becoming younger and more diverse,” said Powers. “During the third quarter, Ugg experienced a 44 percent increase in customers ages 18-to-34 in the U.S., which was the largest increase of any group and represented the largest percentage of total customers.”
As Ugg continues to expand its audience with younger consumers, Powers highlighted that it has been critical to enhance its e-commerce engine and digital marketing expertise to drive the business. He said the Ugg e-commerce platform has continued to evolve as part of Deckers’ overall digital transformation, but it has also become a strategic driver of the product development process through exclusive products. The Ugg team is reportedly creating products exclusive to DTC, developing special events that drive traffic and creating a faster feedback loop to enhance future product success with targeted consumers. He said momentum with younger consumers had been amplified by Ugg earning year-round attention from the Fluff franchise‘s emergence
“Specifically, our data highlighted many consumers who purchased Fluff earlier this year, returning to purchase the Classic Clear Mini this Fall,” Powers detailed. “With more frequent attention from consumers and effective utilization of consumer insights and data analysis, over the last nine months, we’ve witnessed an 89 percent increase in repeat purchasers as compared to the same period last year.”
Powers continued, “With more consumers making multiple purchases, the value of the more than two million new customers acquired so far this year, it becomes even more impactful for the future growth trajectory of the Ugg brand. As the Ugg customer database grows, so does the strength of its insights provided by our centralized marketing teams. For example, consumer insights revealed that 18-to-34-year-olds in the U.S. were the driving factor behind the Neumel becoming a top global style for Ugg in the third quarter. While volume growth of the style was impressive, even more exciting was the increase in 18-to-34-year-old purchasers of the Neumel more than doubled over last year in our domestic DTC channel.”
From a regional standpoint, Ugg’s growth in the third quarter was driven by the U.S., and it wasn’t all DTC.
“While a great deal of the domestic strength this year has been driven by owned e-commerce performance, and this continued in the third quarter, pairs sold to Ugg domestic wholesale partners during the fall season increased 42 percent versus last year. Because of the Ugg marketplace strategy, wholesale success was broad-based. Given the strength of our sell-through at our wholesale partners this Fall, Ugg experienced very little promotional activity, and season-ending inventories in the market are at a historically low level,” said Powers.
In its International business, Powers said Ugg continued to see progress in the multi-year reset in EMEA.
“Over the last year, Ugg has exited approximately 20 percent of wholesale accounts in Europe and significantly reduced its core Classic product in the marketplace,” Powers continued. “While revenue in Europe remained a strategic headwind in Q3 due to our ongoing marketplace reset and COVID-19-related challenges, margins improved as Ugg drove a healthier product mix and reduced the need for promotional activity. Overall, we feel the Ugg brand is headed in a positive direction in Europe, evidenced by fiscal year-to-date and online consumer acquisition increasing 97 percent over last year. With favorable consumer acquisition and strengthened strategic youth accounts in the region, we believe Ugg could return to growth in EMEA next fiscal year.”
Turning to Hoka One One, the running brand saw net sales increased 52.1 percent to $141.6 million in the third quarter from $93.1 million in fiscal Q3 last year.
The global Hoka growth of 52 percent to $142 million experienced a 92 percent increase in DTC and a 40 percent increase with wholesale.
Shifting to Hoka, Powers said the global performance was driven by strength in momentum “across the brand’s entire ecosystem.”
“Among all access points, building the brand’s online consumer acquisition and retention has been a primary focus for Hoka,” he explained. “Through optimized digital marketing and geo-targeting, Hoka has managed to increase consumer acquisition online by 117 percent fiscal year-to-date, while also doubling consumer retention year-over-year. With a growing audience online and dedicated consumer replenishment trends, Hoka has been able to cross the $100 million DTC revenue mark in just the first nine months of fiscal year 2021.” DTC revenue now represents nearly 30 percent of Hoka revenue fiscal year-to-date, up from 21 percent in the prior year.
For calendar year 2020, the brand’s top three strategic wholesale accounts reportedly sold more than $100 million of Hoka product at retail value, highlighting both the strength of these relationships and the relative size of the Hoka brand’s direct-to-consumer business.
Powers said they began testing Dick’s Sporting Goods with the limited number of doors and products last year. He said the partnership has been “mutually beneficial,” and this spring, Hoka will be slowly increasing its door count with Dick’s, and DECK will continue to evaluate “as appropriate.”
Powers said the brand’s international growth rate continued to outpace domestic. “While revenue dynamics remain in favor of domestic due to the differences in distribution models, 54 percent of units in Q3 were sold internationally,” Powers revealed. “This speaks to the Hoka brand’s global appeal and opportunity overseas as the brand expands.”
The brand is also doubling down on efforts in the speed space. “We believe that with continued innovation in the speed space, we’ll continue to build awareness with consumers ages 18-to-34 and main consumer acquisition momentum, which fiscal year-to-date has increased 167 percent versus last year in the 18-to-34-year-old demographic in the U.S.”
The CEO said he is confident Hoka will cross the $500 million revenue milestone for fiscal year 2021.
Teva brand net sales for the third quarter decreased 8.7 percent to $15.7 million compared to $17.2 million for the same period last year.
Sanuk brand net sales for the third quarter decreased 17.3 percent to $7.0 million compared to $8.5 million for the same period last year.
Sanuk You Got My Back Plaid Chill
Other brands net sales, primarily composed of Koolaburra, for the third quarter, decreased 5.5 percent to $36.7 million compared to $38.9 million for the same period last year.
Gross margin for the period rose 290 basis points to 57.0 percent of sales compared to 54.1 percent for the prior-year period. SG&A expenses were $285.2 million compared to $251.9 million for the comparable period last year. The increase in gross margin was said to be related to the “strong full-price selling environment of Ugg as demand far outweighed supply, helping to limit any promotional activity significantly.” Favorable channel mix was also a factor as DTC increased as a proportion of the total business with tighter wholesale close-out inventories that expanded margins as demand outpaced supply for many styles and benefits from favorable exchange rates during the quarter.
The SG&A dollar spend was $285.2 million for the quarter, up 13 percent from last year’s $251.9 million spend. The higher spend in Q3 was primarily driven by “variable marketing, warehouse and logistic costs, and performance-based compensation partially offset by savings from lower travel and retail expenses.”
Diluted earnings per share were $8.99 in fiscal Q3, compared to $7.14 in the year-ago period, beating the Wall Street estimates for $7.01 per share.