Deckers Outdoor Q3 2025 Earnings Call Transcript

Quartr
Provided by Quartr
January 30, 2025
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Operator

Good afternoon. Thank you for standing by. Welcome to the Deckers Brands Third Quarter Fiscal 2025 Earnings Conference Call. At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session.

Operator

Instructions will be provided at that time for you to queue up for questions. I would like to remind everyone that this conference call is being recorded. I'd now like to turn the call over to Erin Koller, VP, Investor Relations and Corporate Planning.

Erinn Kohler
Erinn Kohler
Vice President-Investor Relations and Corporate Planning at Deckers Outdoor

Hello, and thank you everyone for joining us today. On the call is Stefano Kurodi, President and Chief Executive Officer and Steve Foshing, Chief Financial Officer. Before we begin, I would like to remind everyone of the company's Safe Harbor policy. Please note that certain statements made on this call are forward looking statements within the meaning of the federal securities laws, which are subject to considerable risks and uncertainties. These forward looking statements are intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995.

Erinn Kohler
Erinn Kohler
Vice President-Investor Relations and Corporate Planning at Deckers Outdoor

All statements made on this call other than statements of historical fact are forward looking statements and include statements regarding our current and long term strategic objectives, capital allocation, anticipated impacts from our brand and marketplace management strategies, changes in consumer behavior, strength and performance of our brands, demand for our products, product and channel distribution strategies, including DTC, plans for and the launch timing of new products marketing plans and strategies disruptions to our supply chain and logistics our anticipated revenues, product mix, margins, expenses, inventory levels, promotional activity and our anticipated rate of full price selling the expected timing of adjustments to certain brand operations, the impacts of the macroeconomic environment on our operations and performance, including fluctuations in foreign currency exchange rates and our ability to achieve our financial outlook. Forward looking statements made on this call represent management's current expectations and are based on information available at the time such statements are made. Forward looking statements involve numerous known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any results predicted, assumed or implied by the forward looking statements. The company has explained some of these risks and uncertainties in its SEC filings, including the Risk Factors section of its annual report on Form 10 ks and quarterly reports on Form 10 Q.

Erinn Kohler
Erinn Kohler
Vice President-Investor Relations and Corporate Planning at Deckers Outdoor

Except as required by law or the listing rules of the New York Stock Exchange, the company expressly disclaims any intent or obligation to update any forward looking statements. Please note, as previously disclosed, the company affected a 6 for-one forward stock split during the 2nd fiscal quarter. The share per share and resulting financial amounts mentioned on this call have been adjusted to reflect the effectiveness of this stock split. On this call, management may refer to financial measures that were not prepared in accordance with generally accepted accounting principles in the United States, including constant currency. In addition, the company reports comparable direct to consumer sales on a constant currency basis for operations that were opened throughout the current and prior reporting periods.

Erinn Kohler
Erinn Kohler
Vice President-Investor Relations and Corporate Planning at Deckers Outdoor

The company believes that these non GAAP financial measures are important indicators of its operating performance because they exclude items that are unrelated to and may not be indicative of its core operating results. With that, I'll now turn it over to Stefano.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

Thank you, Aaron. Good afternoon, everyone, and thank you for joining today's call. It's great to be here with you today to discuss our superb third quarter, the largest and most profitable in Deckard's history. AGAIN HOKA continue to drive our success as both brands are creating unique and innovative products with purpose that are increasingly embraced by consumers worldwide. Highlights of our record Q3 performance include revenue growing 17% over last year to $1,800,000,000 gross margins improving to 60.3 percent and diluted earnings per share increasing 19% to $3 We are very proud of the exceptional quarter just completed, Thanks to the hard work of our global teams.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

I want to especially recognize employees supporting our distribution centers, retail stores, customer and consumer experience, e commerce, marketing, planning and allocation, merchandising and sales, who collectively contributed to the successful execution of our largest quarter ever. Once again, our brands were able to maintain a high degree of full price business, while competing with more promotional brand in the global marketplace, choosing to prioritize brand health. As we continue to manage and build our brands and business for the long term, we're even more encouraged by what Deckers has delivered over the last 9 months. Our fiscal year to date performance as compared to last year includes significant revenue growth in key areas with HOKA increasing 29%, UGG growing 15%, international markets rising 28% and balance increases of 19% across the DTC and wholesale channels. The shape of our growth and evolution of our business is directly tied to our long term strategies and guiding principles, which provide the foundation for how we manage our brands to maintain a pull model of demand.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

Overall, Decker's 3rd quarter and fiscal year to date performance has exceeded our expectations. Our increased revenue outlook for fiscal 2025 now calls for 15% growth, which will be our 5th consecutive year of growing mid teens or higher. Steve will provide further details on Q3 performance in this updated outlook later in the call. But before that, I will share brand highlights from the Q3. Starting with UGG, global revenue in the Q3 increased 16% versus last year to $1,200,000,000 From a channel perspective, UGG delivered balanced revenue growth of 16% versus last year across both direct to consumer and wholesale.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

Our DTC channel highlights in the Q3 include strong growth across all global markets, gains with new and existing consumers as the brand experienced double digit increases in both acquisition and retention, a 25% increase in UGG reward members and encouraging progress for UGG men's with growth outpacing total brand growth in the channel. In the wholesale channel, UGG experienced growth across all regions with the majority of the increased revenue coming from international markets. Close partnerships with influential retailers continue to elevate the YAG brand and enhance global exposure with target consumers. During the Q3, YAG collaborated to create special corner shop takeovers with Sulfurages in London Nordstrom in New York City. Both of these partnerships were activated with on-site events and media that drove great brand buzz and connections with consumers.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

Across the global wholesale marketplace, we believe that AG was a top performing brand in the holiday quarter, highlighted by exceptional levels of full price sell through that drove healthy margins for our partners and lean inventory in the channel exiting the month of December. We believe Ziat brand success around the world results from a purposeful product assortment that is informed by consumer insights and infused without brand codes. This approach has driven consistent product performance throughout the fiscal year with progress in key segments, including icons reimagined with the Tasman and Ultra Mini franchises continuing to experience strong global adoption from consumers, hybrid versatility as the emerging Golden and Lommel collections experienced rapid sellouts, while the weather hybrid collection more than doubled versus the prior year and new winter lifestyle highlighted by the mini dipper success in the U. S. And EMEA.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

The YUGG team continues to build brand heat and relevance through powerful collaborations. During the quarter, I was able to reach a new audience and elevate the in line assortment through the release of 2 highly sought after collaborations with Los Angeles based fashion brand Gallery Department and UK based skate brand Palace. These partnerships featured iconic styles such as the Tasman and the Ultra Mini, which gained global exposure from being spotted on influential professional athletes and music superstars. The success of these iconic styles is closely linked to the emerging hybrid styles in the assortment. The Golden Star clog continued to see strong global growth in the quarter and we saw consumers in the U.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

S. And in Europe embrace the Lommel as a lifestyle sneaker, lending the style in the YAG brand's top 10 during the Q3. Adding to our enthusiasm for YAG sneaker success, we've just added sizing for men's and kids and also launched a companion style, the Lolo Mel that hits lower to the ankle and is built with greater versatility for warmer months. Another hybrid collection that performed well in the quarter was YAG brand's weatherized hybrids featured as part of our men's focus marketing campaign starting post Malone. This campaign drove significant increases in search and engagement with over 3,000,000,000 impressions in the U.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

S. Alone for both the product collection and YUGG brand overall. Through high impact out of home content, media placement with Amazon Thursday Night Football, ESPN and Spotify and a 10 day experiential field house retail pop up store that culminated with a VIP performance by Post Malone. This campaign represents great progress in our journey to increase connections with male consumers around the world, even propelling the Tasman with a hybrid to become the UGG brand's number 1 men's style in China this past quarter, a region where the brand continues to make solid headway. At the same time, we're seeing strong adoption of our UGG Men's product among professional athletes, a group that often shapes the future of fashion.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

Altogether, this was a splendid quarter for UGG, as the brand continues to perform in a league of its own. Heading into the final stretch of fiscal 2025, UGG is delivering on the objectives we set for the year with balanced growth across channels driven by outsized growth from international markets and maintained strength in the U. S. We believe the special brand can continue to deliver sustainable growth through distinctive and ownable category segments that are uniquely UGG. Congratulations to Anne and her entire UGG team on these amazing accomplishments and the bright future ahead.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

As UGG has continued to solidify its positioning as a leading global lifestyle brand, I would like to provide an update regarding the Koolaburra brand. To maintain focus on our most significant organic opportunities, we're planning to phase out the Koolaburra brand's stand alone product collections and operations. As part of this change, we expect to sunset koolaburra.com at the end of this fiscal year and wind down kuluburra in the wholesale channel throughout the calendar year 2025. We'll provide a more complete update on this forthcoming change during our year end call in May as part of our forward looking guidance for fiscal year 2026. Okay.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

Shifting to the HOKA brand. Global revenue in the Q3 increased 24% versus last year to $531,000,000 From a channel perspective, HOKA delivered impressive revenue growth versus last year throughout the global marketplace as DTC increased 27%, with strong growth across every region and wholesale grew 21%, primarily driven by outside increases from international distributor markets as we prepare the marketplace for upcoming key franchise upgrades. HOKA DTC channel highlights in the quarter include accelerated growth in the APAC region with China contributing the largest incremental dollar revenue of all international regions, persisting gains in consumer acquisition and retention, the latter of which was particularly strong indicating a high degree of loyalty from existing consumers an increased mix of business from trail categories, which drove outsized growth in part due to the introduction of the Caja Frost weather collection. The Caja Frost collection features the Hookah brand's first cold weather rated styles, including a $280 hiking boot and $200 slip on moccasin, both of which are trail ready with a Vibram Mega Grip outsole. The consumer response was excellent around the globe, driving impressive sell throughs and generating great buzz for the brand, including being named the best multifunctional hiking shoe of 2024 by Gogo Shanghai, an influential annual publication of Lifestyle Awards in China and a must have item for a weekend in the mountains by Tanya and Vogue.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

In the wholesale channel, our primary focus during the quarter was to set the stage for the Bondi 9 launch by moving through existing inventory of the Bondi 8 while also driving high full price sell throughs across the lineup of innovating products we've introduced throughout the year. As brand awareness and consumer appetite for HOKA continues to build, we're excited to be adding select doors with our strategic partners worldwide in conjunction with the start of our spring 2025 season. During the Q3, the HOKA team did an outstanding job in driving consumer engagement with the brand through events and activations around the world. Key global moments included HOKA being the 2nd most warm brand at the Foot Locker Cross Country High School Natural Championships in the U. S.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

Hosting HOKA Fly Live experiences at the Frankfurt Marathon in Germany and the Ironman 7th played 3 World Championships in Taupo, New Zealand and producing a benchmark consumer experience at the Shanghai Marathon, where HOKA was the 5th most worn brand. As you can tell, our marketing teams are working hard to maintain and build performance credibility, while growing global brand awareness through activations in key cities. The HOKA brand's Shoe Con achievements are made possible by the HOKA product team's laser focus to build product solutions that deliver transformational experiences for consumers around the world. HOKA has 2 exciting products launching in the Q4, which are the Bondi 9 and a 2.0 update to our fastest and most technically advanced ratio, the Cielo X1. Having just launched a couple of weeks ago, we are very pleased with the early consumer response to the Bondi 9.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

With the new premium midsole, increased tack height, a 3 d molded collar, This franchise has been upgraded from top to bottom, providing a soft yet resilient ride for everyday miles. The Bondi 9 release is the Hookah brand's most globally integrated launch to date, supported and enhanced by our Everybody Bondi marketing campaign with out of home content on high traffic displays in key cities around the world. A Bondi 9 week fitness challenge that culminates in participants completing a 9 mile run, partnering with local and global influencers, including decorated U. S. Olympic gymnasts, Soon Lee and activations at regional and global events such as the Miami Marathon, Paris Half Marathon and London Winter Run.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

While the Bondi 9 represents a significant upgrade to one of our most accessible franchises, we've also enhanced our pinnacle ratio, the CLX1, making it faster and smoother for the highest performing athletes. In the 2.0 version of the CLX1, we've tweaked the rocker and geometry to provide greater stability without adding weight, enabling greater speed through the toe transition. Commercially available in February, this issue that we have been testing with our athletes for months now and have high hopes to see on podiums in the future. HOKA has an exciting future ahead with a strong pipeline of new innovations and a growing global marketplace to serve the brand's increasing demand. Thanks, everyone.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

I'll now hand it over to Steve to detail our Q3 financial results and provide an update to our fiscal year 'twenty five guidance.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

Thanks, Stefano, and good afternoon, everyone. Our record Q3 performance illustrates the continued strength and robust momentum of the UGG and HOKA brands. As Stefano mentioned, UGG delivered another exceptional quarter of results as the brand attracts and maintains consumers around the world with a relevant and elevated product assortment. HOKA continues to deliver solid controlled global growth as the brand builds market share with performance products that consumers love. Our team's disciplined long term approach to managing these brands respective global marketplaces supports our pull model while sustaining exceptional levels of full price selling.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

Our results this quarter again demonstrate the power of our model and disciplined marketplace management. Maintaining this flexible operating model, we will continue to build these incredible brands with long term health top of mind. Now let's get to the details of our Q3 results. 3rd quarter fiscal 2025 revenue was $1,830,000,000 representing an increase of 17% versus the prior year on a reported and constant currency basis. Growth in the quarter was primarily driven by UGG increasing 16% versus last year, delivering record quarterly revenue of $1,240,000,000 with particularly strong demand captured later in the quarter as we maintain favorable inventory on key styles relative to the prior year and consistent strength across the HOKA brand's global marketplace with HOKA growing 24% versus last year to deliver quarterly revenue of $531,000,000 Further on UGG, I would note that the brand experienced a strong December selling period relative to our last year.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

Our increased in earlier inventory position aided our ability to fulfill orders during the Q3 on key styles compared to the prior year. Recall that in the Q3 of last year, we sold out of key styles that were later fulfilled in Q4. While this dynamic was a tailwind to our Q3 performance this year, it is highly likely to have an adverse comparison impact on the UGG brand's current quarter. Gross margin for the Q3 was 60.3%, up 160 basis points from last year's 58.7%. 3rd quarter gross margin benefited from favorable product mix, primarily due to higher margin products within UGG driving a larger percentage of growth, reduced closeouts to the wholesale channel, higher levels of full price selling for UGG and a small benefit from favorable foreign currency exchange rates with partial offsets from higher freight costs and an increased discounting for HOKA as anticipated primarily related to preparing the marketplace for key model upgrade.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

While we are proud to deliver this record gross margin, I would caution that the extremely high levels of full price selling and very low levels of wholesale closeouts are abnormal and not something we would normally expect to repeat going forward. Further, though we experienced a small revenue and gross margin benefit from favorable foreign currency exchange rates in the Q3, we have since seen rates move against us. And as a result, expect to face an FX headwind in the upcoming quarter. SG and A dollar spend in the Q3 was $535,000,000 up 25% versus last year's $429,000,000 as we continue investing in key areas of the business. As a percentage of revenue, SG and A was 29.3%, which is above last year's rate of 27.5%, primarily driven by increased marketing spend, unfavorable impacts from foreign currency exchange rate remeasurement and higher headcount across strategic growth areas of the business.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

Our tax rate for the quarter was 21.8%, which compares to 21.9% for the prior year. These results culminated in diluted earnings per share of $3 for the quarter, which is $0.48 above last year's $2.52 diluted earnings per share, representing EPS growth of 19%. Turning to our balance sheet at December 31, 2024, we ended December with $2,200,000,000 of cash and equivalents. Inventory was $577,000,000 up 7% versus the same point in time last year and during the period we had no outstanding borrowings. During the Q3, we repurchased approximately $45,000,000 worth of shares at an average price of $162.85 As of December 31, 2024, the company had approximately $641,000,000 remaining authorized for share repurchase.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

Now moving into our updated guidance for fiscal year 2025. Based on the strong demand experienced in the Q3, we are raising our full year revenue expectations to just above $4,900,000,000 which equates to approximately 15% growth, which compares to our prior guidance for growth of approximately 12%. From a brand standpoint, we now expect UGG revenue growth of approximately 10%, up from our prior expectations of mid single digits as a result of stronger global demand and with continued execution against our full year expectation, we still expect HOKA to increase approximately 24% versus last year. While we do not provide quarterly guidance, we acknowledge that with only 1 quarter left in our fiscal year, this provides visibility into our anticipated 4th quarter growth expectations. And we realized that while we have increased our full year guidance, this update highlights distorted growth rates implied in the Q4 for our 2 largest brands, each for unique reasons.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

For the UGG brand, as planned, our improved product in stock positioning versus the prior year allowed us to satisfy incremental consumer demand during our Q3, while in the prior year we ran low on product availability and continued to catch up to fulfill demand through Q4 last year. This year, we believe this demand was captured in Q3. Given how strong UGG has performed year to date, we are limited in the Q4 by available inventory left to sell. For HOKA, our guidance implies the Q4 to be the largest volume quarter for the brand ever. This is on top of last year's Q4 that included a significant amount of sell in to wholesale accounts related to door expansion as we set up fiscal year 2025.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

And while this creates some year on year variations in the quarterly growth rates, we are still on track to achieve an annual growth rate of 24%. Then with the strong gross margin achieved in the 3rd quarter, we are increasing our full year expectation to now be at or slightly better than 57%. As we recognize the exceptional levels of full price selling UGG achieved in the 3rd quarter and continued product mix benefits, but maintain our expectation for continued freight headwinds and a more promotional and closeout environment in the balance of the year as compared to last year's unusually low levels. And as mentioned, a headwind from unfavorable foreign currency exchange rates in the Q4. SG and A is still expected to be approximately 35%, aligned with our commitment to continue investing responsibly to support the long term sustainable growth of our business.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

With these adjustments, we now expect an operating margin of approximately 22%. We expect our effective tax rate to be approximately 23.5%. And as a result of our improved revenue and gross margin expectation, we are increasing our diluted earnings per share expectations to now be in the range of $5.75 to $5.80 Please note, this guidance excludes any unforeseen charges that may be considered non recurring to our ongoing business or impact from any future share repurchases. Additionally, our guidance assumes no meaningful deterioration of current risks and uncertainties that may include, but are not limited to fluctuations in foreign currency exchange rates, changes in consumer confidence and recessionary pressures, inflationary pressures, supply chain disruptions and geopolitical tensions. We are proud of the outstanding Q3 and year to date results that our brands have delivered thus far in fiscal year 2025.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

As our guidance for the full fiscal year indicates, we expect to report Deckers' 5th consecutive year of double digit top line revenue growth, while continuing to deliver top tier levels of operating profitability. I remain confident in our in demand brands, which benefit from our flexible model and robust financial profile that we believe continue to position us well to drive sustainable growth over the long term. With that, I'll now hand the call back to Stefano for his final remarks.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

Thank you, Steve. This was truly a special quarter highlighting the strength of our industry leading brands. AGAIN HOKA continue to drive consistent full price growth through the purposeful creation of relevant, distinct and innovative products that are meeting the demands of our consumers who are discovering our products in a well managed global marketplace. I'm confident that we'll continue to execute our strategy in the Q4 to close another great year for Deckers. Looking ahead to fiscal 'twenty six, our teams have set the foundation for continued growth with an exciting pipeline of products to come.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

We remain dedicated to our long term strategies of building HOKA to become a leading performance brand through disruptive innovation, growing UGG through the evolution of iconic franchises and the creation of new icons, expanding our DTC business through consumer acquisition and retention and increasing our international business through the implementation of our successful domestic playbook. As we execute against these strategies, we remain committed to maintaining our financial discipline to deliver top tier levels of profitability. And we will continue to be guided by our consumer first mindset, brand led philosophy, emphasis on innovation and globally driven approach. On behalf of our management team, I want to express our sincere gratitude to all of our employees for their continued efforts to build the future of Deckers. Thank you all for joining us today, and thank you to our shareholders for your continued support.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

With that, I'll turn the call over to the operator for Q and A.

Operator

Thank you. We will now begin the question and answer Your first question comes from the line of Jay Sole from UBS. Your line is open.

Jay Sole
Jay Sole
Managing Director at UBS Group

Great. Thank you so much. I'm wondering if you can sort of pull together a couple of the different themes that you brought up in the prepared remarks. One is just how you're managing the brand, particularly HOKA for the long term and protecting the health of the brand even in a promotional environment. And then maybe sort of connect that to how you're thinking about Q4, how you're thinking about growth by channel?

Jay Sole
Jay Sole
Managing Director at UBS Group

And then maybe you talked about the Bondi 9 launch and the Cielo the next version of the Cielo X1. Can you just talk about some other product launches do you have coming beyond March? And if you still think that HOKA is the type of brand that can deliver 20% growth on an annual basis post this fiscal year? Thank you.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

Of course. Hey, Jay. HOKA is a transformational brand that has the potential of becoming one of the major brands in the athletic footwear space. Our strategy for HOKA has stayed consistent throughout the globe. It's about building awareness and consideration, delivering compelling innovation stories and managing the marketplace for long term and sustainable growth.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

In terms of the Bondi9, we're very pleased with the Bondi9 launch so far. It's happening in a controlled retail environment, but we're very, very encouraged with the early response to the Bondi 9. In terms of additional launches, as I mentioned in my prepared remarks, the Cielo X1 is launching in February. That's going to be our fastest shoe to date. It's an upgrade over the previous model that we launched a year ago.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

We have Clifton 10 launching in April. And as you guys know, Clifton 10 is our biggest franchise. In May, we are launching a new product in the trail category, not an enormous program, but it's a pinnacle shoe called the Mafate X, which is going to be followed by the Arahi 8, which is a motion control shoe and one of our biggest franchises. So we have a strong lineup of innovation stories hitting in Q4 and in the first half of fiscal twenty twenty six. I think I may you may have another question.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

Yes. And I think it was you had kind of talked about how do we think about growth for HOKA, Jay. This is Steve. I think this is really, as Stefano said, about how we manage the marketplace. And it's not about necessarily chasing growth for the sake of increasing growth rates.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

We are building this brand for the long term. We want to sustain growth, for the long term. I think you see us as innovative leaders in the space. And so really it's about how we continue to grow global market share with the right cadence, right? And it's again, it's not trying to do too much too soon.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

I think what you've seen us do is continue to build this brand. We think the global opportunity exists. You're seeing kind of that demonstrated. We haven't given targets yet for next year. That will be something that comes up on our next call on the year end as we get guidance out into the future.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

But this is really about how we continue to build this brand for the long term, continue to build it successfully across the globe. And so it's not again about necessarily chasing numbers. It's about how we continue just to build the base.

Jay Sole
Jay Sole
Managing Director at UBS Group

Got it. Okay. Thank you so much.

Operator

Your next question comes from the line of Laurent Vasilescu from BNP Paribas. Your line is open.

Laurent Vasilescu
Managing Director & Senior Equity Analyst at BNP Paribas

Good afternoon, Stefano and Steve. Thank you very much for taking my question. I wanted to follow-up on Jay's question, with regards to the HOKA launches that are coming up. I think, Stefan, to your point, you'd mentioned that Clifton is the largest franchise. I think Arahi is maybe potentially the 3rd largest franchise.

Laurent Vasilescu
Managing Director & Senior Equity Analyst at BNP Paribas

I know you don't have any DTC read throughs on that, but I just want to get what the reception is from some of your key retail partners. And then on the domestic growth in 3Q of 11%, just curious to know if there was balance there between the 2 key brands and how should we think about domestic growth over time? That would be very helpful. Thank you.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

Yes. As I said, Bondi has been we're very pleased with the Bondi launch. And the reaction to both Clifton and Arahi 8 has been very positive from the trade. Again, we don't have any consumer read just yet, but both models booked well and within our expectations. But again, to Steve's point, we want to manage the environment.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

We want to drive a pull model and continue to drive the scarcity that we've created so far.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

Yes. I think, Laurent, just in terms of and the last part of the question fell off a little bit, but I think it was kind of how are we thinking about the kind of growth rates and between quarters. And I think just one thing I'll bring up is, at the beginning of this year, we said growth rates between quarters was going to be kind of moving in different directions. It wasn't necessarily going to be consistent across the year. And I think you're seeing that and that's why we call that out in Q4.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

That is not an indication of any change in demand. The demand for these brands is still incredible. This is about how we're managing again the marketplace with the inventory that we have. And you're seeing that kind of with the success that we've had with UGG in Q3. We run a scarcity model.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

It continues to drive demand and we're again, we're not chasing outsized numbers just for the sake of delivering a higher number. This is again about long term sustainable growth. As it relates to HOKA, I think one of the things that you're seeing in Q4 is the comparison to last year. So as you recall, last year what we talked about was opening up new points of distribution within wholesale. A lot of that sell in happened in Q4, the sell through happened in FY 2025.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

So on that dynamic, the comparison does look a little bit distorted as I said in the prepared remarks. So again, this is not about any change in how we're thinking about demand. This is about how we're managing these brands, again for the long term. It's why we don't guide quarterly. We're not getting hung up on these quarterly compares.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

These brands continue to resonate with consumers and are doing incredibly well.

Laurent Vasilescu
Managing Director & Senior Equity Analyst at BNP Paribas

Very helpful. And then beyond the quarters, to your point, Steve, I think 18 months ago, I think it was called out that over time you can achieve $5,000,000,000 to $6,000,000,000 in sales as a company. The guide today effectively gets to that range. How do we think about longer term the opportunity going forward? Can we see a path and I know you don't do investors, but can we see a path to effectively $7,000,000,000 to $8,000,000,000 Are there limitations to the brand put to both brands that couldn't that would prevent you to get to that kind of number over time?

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

I don't think there are any limitations to the brands. The brands are performing very well in the marketplace. UGG is stronger than it's ever been. UGG, remember, used to be a boot and a slipper brand. And now we're playing in sneakers, we're playing clogs, we're playing in sandals.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

So the brand is more solid and more balanced than it's ever been across seasons, genders. All our genders are growing in double digits. It's been fantastic. And the Hookah brand has the potential of being one of the major players in the performance space. So I think, yes, aspirationally, we definitely want to get there over time.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

Yes.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

And I think, Laurent, we're not giving any long term targets on here. But I think as we've demonstrated this year, right, both brands continue to perform above our level of expectation. But we're not going to let them run away either. So this is again about how do we continue to fulfill the demand that we're seeing in the marketplace, but at the same time keep control of our brands in the marketplace. And that's what you're going to see us deliver.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

That hasn't changed. We still have incredible confidence in our ability to grow the brands. But again, we I think you would agree are disciplined managers of the marketplace and you see the benefit of that in terms of the growth that we're delivering combined with the gross margins that we're delivering. So, good question. Nothing has changed on the front of how we're thinking about the opportunity other than we continue to see these brands perform very well with consumers.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

Yes. We don't want to be in a position to have trade Brent equity for short term revenue.

Laurent Vasilescu
Managing Director & Senior Equity Analyst at BNP Paribas

Very helpful, Stefano. Thank you very much and best of luck.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

Thanks, Brent.

Operator

Your next question comes from the line of John Kernan from TD Cowen. Your line is open.

John Kernan
Managing Director at TD Cowen

Hey, good afternoon. Thanks for taking my question. So maybe just to go back to Laurent's question a bit, how did the 12% growth in the U. S. Compare to your expectations?

John Kernan
Managing Director at TD Cowen

And maybe talk to the drivers of that growth. Also within that, how should we think about international growth potential both in Q4 and then where you see the most opportunity internationally into fiscal 2026?

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

Yes. The U. S. Grew to our expectations. It's our biggest market.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

As you know, it's 2 thirds of our business, and they performed super well. So we'll expect international to outpace the U. S. In terms of percentage growth. That's what we said.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

Over time, we'd like international to be 50% of sales. And going into Q4 and fiscal 'twenty six, yes, we continue to expect international to outpace the U. S.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

Yes. I think John just a little bit more color kind of on how we saw a bit of that play out in Q3 and how that is impacting Q4. So to Stefano's point, definitely kind of continuing to see our brands perform well, largely aligned with our expectation. I think some of the timing of that probably happened a little bit earlier than what we anticipated. And so you saw some of those UGG sales especially come forward from our expectations.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

So it's part of the inventory issue that we're dealing with in Q4 and an inability with the stock outs that you're seeing on our most popular style. So that's a bit of a limitation, but again that's okay because it continues to drive brand heat and demand for our brands. In terms of then how we're thinking about the international growth, again, as we said a few years ago, continue to grow these brands domestically, but bought large numbers knowing that the percentage growth would be a little bit less, turning much more focus on the international growth rates. And I think the quarter demonstrated how strong our international business performed. And we're continuing to see these brands resonate extremely well across the globe and in the international markets.

John Kernan
Managing Director at TD Cowen

That's helpful. Maybe just one follow-up, a lot of questions on top line so far, but the operating margin profile of the business is the highest among the sector peers. As you look at OCA and UGG, what opportunities are left to improve or maintain this level of margin rate while still reinvesting to grow the business?

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

Yes, good question. And I think the again, the power of the scarcity model, people paying full price for these brands. It's as these brands get bigger and we've said this in the past, it's going to be difficult to maintain this level of margin. We continue to see pressures, whether it's inflationary pressures or foreign exchange pressures growing. So I think you're seeing some of that impact our Q4.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

So as you model out the year, you'll see that we are seeing some impacts related to that including freight. Our ability to maintain these brands will continue to command high gross margin levels, but you are going to have some other factors that will be impacting our ability to maintain these or deliver these. So stay tuned. We'll continue to evaluate the year. We anticipate some pressures in Q4.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

But as you point out, these are incredible brands that are delivering incredible margins. Some of the other macro effects are going to affect everybody, but there will be some pressures and headwinds in kind of the months and year to come.

John Kernan
Managing Director at TD Cowen

Understood. Thank you. Best of luck.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

Thank you.

Operator

Your next question comes from the line of Jonathan Komp from Baird. Your line is open.

Jonathan Komp
Senior Research Analyst at Robert W. Baird & Co

Yes. Hi, good afternoon. Thank you. The commentary on the Q4 was really helpful. But the consolidated growth rate looks very low and the lowest you've seen in a while.

Jonathan Komp
Senior Research Analyst at Robert W. Baird & Co

So I'm just wondering given the positive commentary you have on consumer demand, as we look forward into 2026, should we be thinking that double digit growth is possible again or just any other context you could provide?

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

Yes. Sure, John. So again, we aren't giving guidance in terms of next year. In terms of how we think about these brands and how they are resonating with consumers has not changed. We continue to see demand.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

You see it on our website. If you go to our popular styles on UGG, you're seeing them sold out. So some of the percentage and this is why we always talk about trying not to get too hung up on quarters, because quarters are not an indicative underlying indicator of the health of the brand. These brands are performing incredibly well with consumers. But again, we're going to control some of that market.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

We're not going to necessarily try to feed all the demand that's out there. To the prior question, that is what's helping feed some of these exceptionally high level gross margin levels. So, I think again Q4, as we indicated at the beginning of the year, there was going to be some flow of product that was going to impact growth rates within the quarters. That's what's played out. So this is not necessarily a surprise to us.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

We've increased our outlook on the year given the performance that we've had and we'll continue to manage the business. We are not looking at the business any differently today than we were a couple of weeks ago or 6 months ago. These brands are incredible and that's what we're going to continue to manage.

Jonathan Komp
Senior Research Analyst at Robert W. Baird & Co

Yes. That's really helpful. And if I could just ask one follow-up on HOKA. Could you share what you're seeing out there in terms of the competitive dynamics, either now or over the next few quarters? And then just updated thoughts on how you're thinking about distribution going forward for HOKA?

Jonathan Komp
Senior Research Analyst at Robert W. Baird & Co

Thank you.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

Yes. As I said in my prepared remarks, Jonathan, we are going to be very selective and thoughtful in our distribution of HOKA. Yes, we'll be opening a few more doors, especially internationally, but we continue to be very thoughtful. In terms of competitive landscape, all brands are offering better products. What is fortunate for us is that we have a strong lineup of great innovation stories that we believe will do well in the marketplace.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

As I said, 0.99 Early Read is very positive. And some of the innovation stories that I mentioned book very well in wholesale for the back for Q4 and the first half of next year.

Jonathan Komp
Senior Research Analyst at Robert W. Baird & Co

That's great. Thanks again.

Operator

Your next question comes from the line of Paul Lejuez from Citi. Your line is open.

Paul Lejuez
Paul Lejuez
Managing Director at Citi

Hey, thanks guys. Within the HOKA wholesale channel, can you remind us what percent of your business you would consider specialty running, how that channel performed for you? And then also as you look out to F26, how many stores do you have, new stores on the HOKA front do you have in the pipeline for F-twenty 6? And on what base is that? And any color you can give on where those stores might be opening?

Paul Lejuez
Paul Lejuez
Managing Director at Citi

Thanks.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

Yes. Starting with the stores. Paul, we don't disclose number of stores. Our strategy is about building presence in key cities. And we've seen the highest concentration of the brand stores so far, London, Paris, New York, L.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

A, Tokyo, Shanghai, Beijing, we've opened stores there this year, and they're performing very well. So that's where you'll see an expansion of door count, on and operated door count. We'll be opening a flagship in Shanghai on May 7 next year. And but we don't disclose the number of stores we'll be opening. We also will be opening partner stores, especially in Asia and as our partners continue to develop the brand in those marketplaces.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

Your first question was on? It was HOKA Wholesale. HOKA Wholesale, run specialty, yes, we don't disclose the percentage of business we do by channel. But the HOKA brand continues to perform well in that channel and some of the exclusives we've given that channel like the SkyFlo have performed super well.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

Yes. And I think also just to recall because you're referencing kind of the wholesale growth. So I think just recall that a year ago in FY 2024, we really didn't grow wholesale. So FY 2025 was the year that we were expanding wholesale doors, so more distribution points. That is what led into that Q4 last year higher wholesale number because we were selling in product that would sell through after April 1.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

This year, we don't have that dynamic. So we're not increasing our wholesale door count going into FY 2026 like we were in FY 2025. So continued expansion, not the extent this year that you saw last year.

Paul Lejuez
Paul Lejuez
Managing Director at Citi

Got it. Thank you. Good luck.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

All right. Thank you.

Operator

Your next question comes from the line of Samuel Opposer from Williams Trading. Your line is open.

Sam poser
Equity Analyst at Williams Trading LLC

Good afternoon. Thanks for taking my questions. I guess, Aaron, I only have 2, the Teva and the other, since he gave us everything else. And then I have other questions.

Erinn Kohler
Erinn Kohler
Vice President-Investor Relations and Corporate Planning at Deckers Outdoor

Sure, Sam. I believe you're probably referring to global wholesale and distributor for each brand for the 3rd quarter. So I can provide that. So for the UGG brand, global wholesale and distributor was approximately $468,000,000 HOKA was approximately 305,000,000 dollars Teva was approximately $19,000,000 and that leaves other of approximately $24,000,000

Sam poser
Equity Analyst at Williams Trading LLC

Thanks. Okay. And so Steve, you've brought up the fact that sort of more normalized markdowns happening in Q4, which you expected more normalized markdowns all year. Given that and I doubt that's happening in HOKA, there's planned markdowns in HOKA as you convert to the Clifton 10. But what why should we expect markdowns?

Sam poser
Equity Analyst at Williams Trading LLC

I mean, unless it happens in March when like you won't have anything left anyway because all our checks are saying everything is selling at full price right now.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

Yes. So the way we're looking at it Sam and again we'll see how it plays out in Q4. We are anticipating kind of with the product that's sold in Q3. So again, we're looking at year on year comparisons, stronger products selling at full price in Q3 with some of the inventory that's remaining in Q4 and expectation that we might experience some more closeouts. We'll see how that plays out.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

In addition, as you pointed out, we do have some model changeovers. So there's a bit of seasonal closeout this year that we anticipate will be higher than it was last year, plus with some of the model changeovers this year, you're going to have some additional closeouts in Q4 of this year to move some of that inventory out.

Sam poser
Equity Analyst at Williams Trading LLC

Okay. Also is there a chance you could give us what the EBIT margin I know it comes out in the queue, but could you give us the EBIT margin for UGG wholesale, HOKA wholesale and the DTC or do we have to wait for the Q for that?

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

Yes. Why don't you

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

wait for the Q? That will be out early next week. So

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

you don't have to get too long.

Sam poser
Equity Analyst at Williams Trading LLC

And then last, I mean, I still don't understand it. The operating I mean, every you said the same thing, but you manage the business well, you hit like a record gross margin in the quarter even with the markdowns. So now in Q4, you have you're expecting normal I hate to beat a dead horse here, but you're talking about normalized more normalized promotional activity. We know about the Clifton and then you have the headwind of you have some FX headwind, but you also have bigger international growth, which is I think is an offset.

Sam poser
Equity Analyst at Williams Trading LLC

So I mean and probably more weighted to DTC because of the issue you brought up with HOKA and the big shipments in last year. So why would that's a benefit. I'm very confused and FX should also be a benefit on SG and A which you maintained like you called

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

out Yes. Just to kind of move it on, Sam, I think the basically the two issues on the gross margin because you're kind of now talking different margins, but let's stick with gross margin. So the freight issue that we have this Q4, we did not have last year. So we were continuing to benefit last year Q4 with unsustainably low freight rates and we've called that out, right? Those came in during the year about midpoint, a little bit earlier than midpoint this year.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

So that is a headwind for us and a fairly significant one probably in the 150 basis point range for the freight hit that we anticipate for Q4. So the other the FX on the gross margin, while you call it out correctly, there is a bit of a benefit in the SG and A. There is a hit related to Q4 as the dollar has strengthened. So that will be another headwind. So again, kind of macro conditions that are impacting our gross margins, that we really don't have much control over in that respect.

Sam poser
Equity Analyst at Williams Trading LLC

Can you break out you just gave us 150 basis points for freight. Can you give us sort of how you're foreseeing the gross margin to play in a range the same way you gave us freight? Can you give us FX on the headwind side and could you give us promotions on the headwind side and then I guess tailwinds on some kind of mix perspective? Yes, sure. As you've guided, yes.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

Sure. I think on kind of on the FX call it in the 50 basis point range. And then on the closeout promos could be up to 100 basis points.

Sam poser
Equity Analyst at Williams Trading LLC

And then on the other side of it, the like mix and geographic and channel mix, I assume those are positive?

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

Yes, they will be, but less I would call it less than 50 basis points all in.

Sam poser
Equity Analyst at Williams Trading LLC

Okay. All right. Thanks very much.

Sam poser
Equity Analyst at Williams Trading LLC

Continued success.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

All right. Thanks, Dan.

Stefano Caroti
Stefano Caroti
CEO, President & Director at Deckers Outdoor

Thanks, Dan.

Operator

And your final question comes from the line of Chris Nardone from Bank of America. Your line is open.

Christopher Nardone
Christopher Nardone
Director, Equity Research at Bank of America

Great. Thanks, guys. Good afternoon. Can you elaborate some more on the Clifton 10 launch? Just want to confirm if most of the initial sell in will be recognized in the Q4 and if there's any changes to your product segmentation strategy since you haven't expanded door count?

Christopher Nardone
Christopher Nardone
Director, Equity Research at Bank of America

Then on the Clifton-nine, is there any way we can think about the impact to sales and margins from sunsetting that product ahead of the Clifton 10 launch?

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

Yes. So just on the margins, a little bit on the Clifton 10. We're going to be flowing that product. So it won't necessarily all be a Q4 event. Some of that will trickle into Q1.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

We haven't disclosed kind of that. Some of that will be wholesale selling in Q4 that is included in our guidance and anticipated. Some of the flow will actually also happen in Q1. In terms of the margin hits on the Clifton 9 that's embedded. And so in that number I just gave Sam of the around 100 basis points anticipated as a part of that among other product is part of that Clifton 9 closeout.

Steven Fasching
Steven Fasching
CFO at Deckers Outdoor

So that's embedded in some of that gross margin movement that we've guided to.

Christopher Nardone
Christopher Nardone
Director, Equity Research at Bank of America

Got it. That's very clear. Thank you.

Operator

And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Executives
    • Erinn Kohler
      Erinn Kohler
      Vice President-Investor Relations and Corporate Planning
    • Stefano Caroti
      Stefano Caroti
      CEO, President & Director
    • Steven Fasching
      Steven Fasching
      CFO
Analysts
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Earnings Conference Call
Deckers Outdoor Q3 2025
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