DECK - Earnings call transcript Q2 2019 | Deckers Outdoor Corporation

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Operator

Good afternoon, and thank you for standing by. Welcome to the Deckers Brands Second Quarter Fiscal 2019 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. Instructions will be provided at that time for you to queue up for questions. remind this to being call like recorded. would everyone conference that is I the Erinn over Relations now call I'll turn to Planning. and Kohler, Corporate Investor Director, Please go ahead.

Erinn Kohler

Thank us for you, today. everyone, joining

Chief is Powers, Chief call Officer. and the On Financial President and Steve Executive Dave Fasching, Officer;

fact we this to everyone to call anticipated XXXX. statements of strategies made statements statements Act All the Private share products are company's would are of Safe that regarding our margins, certain performance Reform today the financial as like and Please uncertainties. liability on statements savings statements These intended and Harbor are profit our for meaning other Laws, risks restructuring per subject Harbor earnings forward-looking considerable as and revenue, policy. note but I which Federal and our statements brands. the begin, the regarding by projected call operating and Before plans to statements for remind include improvement, from Safe and not of made expenses, are limited Securities established our of this forward-looking qualify including, historical Securities than cost statements on within Litigation forward-looking well to the

this on at based on the current call information made statements expectations Forward-looking available made. are time management's represent and are such statements

its any uncertainties including materially forward-looking factors that and has the other the in SEC actual differ company some unknown may and law implied to results from in required disclaims to any these the Forward-looking rules explained risks, statements predicted, and filings, Stock of risks The numerous involve the our over results will assumed New uncertainties statements. the known or of by cause or update on Risk forward-looking expressly Form Factor Report listing statements. its With section I XX-K. or it now intent that, to company turn Except Dave. Exchange, obligation York as any of by Annual

David Powers

our everyone three organization's the second in thank team us work results. the the ONE, same today. Sales contributed product traction spring/summer share last afternoon, year gain months. earnings strong pleased evident that over key and Good to Each the and year. UGG $XXX X% ONE, you per XX% growth Women's HOKA up success joining UGG quarter. our I'm Thanks, The positive in was to past Erinn. is continued million, continued to last to marketplace in hard very our and quarter non-GAAP were transitional report and of and $X.XX, a Men's for delivered up drivers; our period to

Our earnings this per we share improved second margins beat by seen a in it the release, was earlier quarter expenses. planned lower than as and was factors, SG&A And have may afternoon, gross fueled press in number of the significant. including you issued

of repurchased little upside earnings $XXX in you stock share. Steve a quarter, in per aided results Additionally, through million which to walk on we our the also details call. our in the later the will

notable to like I However, on would few items. touch a

comps which and sold input of margins from we material The XX.X%. in in to full-price up quarter. the basis DTC wholesale improved channel, business came came selling growing improved wholesale our at our business from margin year again in products our once tight mix domestic was margin by favorable gross points of in benefits costs, increase in and First, in positive second XXX and better cost, gross management gross airfreight last largely driven saw

shared service sales as was and the expense regional last quarter, of $XXX mix warehouse our expected year, due Second, half into non-GAAP marketing in to expenses up we in lower XXXX, which million, the the function. due expense to came shift fiscal SG&A savings timing X% and in second our of than mainly at savings logistics pushed in to

will year-to-date Our increase fiscal strong a our our which an combined outlook financial us Steve led margins in for view XXXX, to updated with gross performance outline projected has minute. on

plan our turning half important Before year. points highlight were business to first that of result XXXX. versus half sales to percent ahead channel, I laid are X%, XX.X%. These of execution I'm XXX forward. it's confident us, driving still further in demonstration $XXX plan basis our work continued will last non-GAAP first of decreased the the as continue performance by out of and think quickly May Sales is but results we and and the to our million, brand of up organization a There SG&A

group, brand $XXX performance group, sales to Lifestyle by last X% down UGG Fashion the Looking second at starting quarter, with were the our in million year.

implementing in As the a is strategy fall allocation in classic season. in call outlined segmentation product our for UGG U.S. May, the and we

activity While to a ability and the a quarter, portion sell-in this this in the distribution drive believe this in model, largest brand's impacted promotional the change of strategy has market. leading to sell-through we better less pull

weakness global wholesale were line DTC expectations in on e-commerce the coming solid the strengths Asia-Pacific some UGG's in and quarter, second sales At Europe. offset performance, led by time, the expected. same For results delivered in in brand U.S. by the sales of with as with the brick-and-mortar the

certain go-to-market of we initial DTC our the product focusing products UGG As release in refine is strategy, to and continue new our exclusively channel. segmentation on

our a our product Yeah continuing DNA. momentum to the in interest. top combined leverage the as UGG sell-through strengthen The the led and reorders XXth to with Fluff marks the and our partners. For demand us with ugg.com. season changes our the we channel, be launch UGG efforts strong by strategic campaign and to launch anniversary product on successful capabilities, our anniversary The quickly channel is This making heat. dollars drive allocated marketing transitional quickly Slide of strong shows incremental year-round to digital the And almost DTC with experienced the continue in consumer We react to which is momentum. wholesale immediately are the seller consumers. on quickly launched our brand action to engrained confirmation becoming with example, swift business fuel in recently the the product around sell-through in UGG UGG in strong is fall/winter marketing The more a the we're with the UGG XXXX team to capitalize brands allowing nimble, milestone to strength marketplace marketing brand's DTC the omni-channel

shows speed with segmentation season. well new bringing YouGov SIX:XX, inventory up a XXXX and Slide media brand consumer Looking Outfitters, both JD Foot I fresh compelling deep and creating reach fiscal including on brand, infrastructure front Fluff along prospective sell-through. new with Partnering which Urban and XX% non-classic our and XX product to and the with are and the including for Yeah Neutra future clean the fall/winter relationship market, that our the new our a position experiencing younger allocation product, new new women into is to to in season U.S. with and to as products younger DTC predominantly bringing our successfully the launched product, This Sneaker, previously, of Sports the according social through we focus progress Locker brand successful consumer channel impression our the classics consumers XX-year-old on as in developing strategy, for holiday is brand. to-date. and brand, and said consumers we're the to leveraging this we as compelling strong believe channels, retailers, have a

achieved all top franchises. out centered that can group, category stress on within product that continue Bondi strategy success On has but it's that a is the successful to the growth. and are brand XX% XX through the I depth a distribution year-over-year heat Next growth. selling since on and in increased the has This our to well and and the product eye important focused product styles. The HOKA HOKA over seasons Also awareness, the Clifton of to through growing think further drive and performed Hupana as decisions our growth to Hupana the relationships for triple-digit an brand Performance fact the increase a long-lasting consumers, quality driving growth providing future is is strong for has year. made The the $XX full-price time as a being the quarter performance. been this The grow again example sales the demonstrates last side, HOKA penetration, brand first updates we strong Lifestyle runway few cracked million. and All and which and drove e-commerce it increased front, with product shoe once long create are on great its of the brand disciplined with well a brand's launch, to on brand innovation. expansion

Ahnu partially sales wholesale rolled in at of are up year-over-year. U.S. driven were offset quarter, up calender the as Sales reduction These weather international year. favorable Teva. XXXX. sales mid-single-digit performance. Teva and to beginning to by Results we in the the Teva and by last U.S. $XX were Core Turning into Ahnu same Japan wholesale approximately Europe domestic aided brand in summer predominantly the legacy wholesale were period the X% DTC as million

consumer. quarter (XX:XX:XX) fit limited saw was In side, second which and product of a success top great the the in-line this the On five last with was for Teva's a a with compliment year the product natural is released year, Teva core globally Moc Teva quantities. stand Ember to is initially in Teva Moc, the Ember and

both growth growth brand, within but mentioned, grew year-over-year. by U.S. and quickly growth wholesale its as strong in UGG is making were The strong XXX%. for second major to sales upcoming marketplace were The still the macroeconomic remains uncertainty And Koolaburra the was across by both Brexit. performance in wholesale shelf to Also second last Wholesale were the with as partially is up by to progress. saw space a driven growth UK quarter, brand wholesale the family the apparel positive footwear, Asia-Pacific. wholesale the early previously demand Results channel. days, and for value in over continued sales initiative weak and new results in team to taking it's challenging due the offset along UGG exceptional wholesale. the is These brand UK, HOKA Asia-Pacific the contributing global Now due chain. HOKA quarter Europe and largely weakness and to International in million which was performance, I International $XXX year. double-digit X% distributor consumer

e-commerce. sales to strength by in Next, and Teva of global $XX and million, X.X%, increased were U.S. last HOKA the UGG DTC comps X% year. up DTC led the quarter

owned As DTC Yeah towards exclusive for we successful will continue launch the touched previously product, to exclusive DTC our as initial continue on I digital marketing early sales UGG release Fluff growth. quarter. the e-commerce brand to the launch drive and allocate dollars of well as in

more this become are its consumers we For and and digital with consumer engagements to the familiar owned online by continue sales as marketing brand HOKA, I'm strong encouraged trend producing, social into I'm efforts. efforts storytelling confident these from converted continue. the see will platforms, brand growth the are and

Before Steve, handing that product and core say our UGG brand a how to season I year-to-date thoughtful selling segmented channel the key positioned progress. Classic. I want And with I with its is of holiday inventory, believe of well call am to ahead over encouraged clean allocation

guidance and profitable for Our our pass long-term path quarter executing the our call on over brands, provide mid-single-digit our I'll on and strategy, future the the done more to second elevate our right-size on details to of growth. organization proud set organization year Steve cost the our XXXX. the teams to fiscal have results quarter structure I'm the and of full third is With and that, well work

Steven J. Fasching

Thanks, Dave, to and good everyone. afternoon

Also reconciliation the for earnings in result. our that results Investors throughout to into referring that financial believes note I and our non-GAAP between our results Before our like GAAP discussion website A into our management can core not the our to would adjusted reported results operating not non-GAAP charges is ongoing be tab. measures, under results found this I release to account note the currency. getting to non-GAAP non-recurring that I'm refer before are are where taking details, on constant posted

results. to Now our

in margins mentioned, closures. increased UGG These to sales as savings year from selling were in-quarter Gross in combined driven softness we growing a revenue material sales our up usage wholesale was in by sales across of third domestic up increase HOKA the from e-commerce vendor above and wholesale well gains store For of foreign full-price was partially XXth with globally from anniversary quarter, the campaign benefit shifted X% higher Koolaburra guidance sales, quarter to currency the gross points range. to up second last the chain increase due the as wholesale as the DTC $XXX largely support a end year-over-year both that second last quarter the to lower were marketing basis into and our The supply offset growth during X% from significant quarter, in to SG&A and in and were our were UGG be sales. retail support million, over quarter. continued reduction inventory Dave million, will sales XX.X%, Non-GAAP by European XXX e-commerce, lower from year. due for benefit channel benefit high $XXX brought the brand wholesale Asia-Pacific as year. year-over-year The in margins airfreight UGG last continue expense recent in cost initiatives, and better the

in rate our note the refinancing is of anticipated last airfreight tax costs, rate. approximately $X.XX the approximately the of which and $X.X quarter margins, the of a than result. effective year earnings year-over-year sales. higher tax our our prior from majority XX.X%. $X.XX lower much in reported year earnings year. primarily on variance second restructuring $X.XX Non-GAAP the were of the SG&A in non-GAAP XXXX. Also, are increased share were lower our expenses with changes variable and from months, reduced partially to and share charges for last at quarter, due was closures, the revenue, compared XX.X%, decreased well above expenses $X.XX. on to As retail and range higher now by down half $X.XX The per offset a of including per to driven cost result largely a a non-GAAP related activity buyback This organizational $X.XX tax from fiscal store The lower share in and as XX.X% rate million credits, discrete rate and sales, marketing slightly be incurred expected GAAP the $X.XX quarter's our last of from to over full quarter tax a last gross of depreciation impact was of usage, XX% rate in to of second by year store which XX lower credit which increase recent back came from percent were charges XX% our higher was year facility. guidance Non-GAAP were from In connection several tax full expenses impacted amortization expected the tax $X.XX to utilized adjustments

of to compared quarter, $XXX board delivering available had time $XXX at average the for price our by and of $XXX.XX line were $XX year. million repurchased balance September September Inventory We was short-term sheet, second $XXX at million. $XXX an $XXX Turning million cash our year. on And in our million last to common we we total the In from from under of last million X% that down stock down million last credit of $XXX million equivalents at repurchase same was borrowings to Of million, remain authorized XX million $XXX XX, million last $XXX to committed XX, plan. our X.X year, the XXXX. remained as shares of September share at our a year.

range third want in shift to $X.XX. spring of we order million we as earlier. quarter to on be earnings outlook, $XXX as financial third of be to in non-GAAP into moving our $XXX quarter more for share of the to quarter XXXX, the expect range wholesalers seeing per $X.XX our to we revenue fiscal And expect are fourth take product to from Now, the the million the

incurred drove quarter weather margins gross in are upside that reorder our DTC effort. mentioned, improvement upside. third we on I touch gross to favorable think seeing a previously Last the result due a are important expected year's and anticipated headwind be fourth the sales that first our gross of magnitude, benefit the half at is as which in XXXX to half utilized third Last back same we strong year's the a wholesale but in few margin. margins and assumptions not it's offsetting year guidance and inherent a spend and third this both savings of to occur Also, have of had cost quarter incremental we shifted of favorable year into conditions in quarters. the the been is marketing potential the to fiscal to

of Next, for sales billion expect we are be provided guidance year call. range We July in on XXXX, $X.XX updating the financial the billion. now fiscal the that to we $X.XXX to

UGG Our single-digit, up digit. mid range, be and to expected to expected to outlook is be down now now down XX% in mid-single is expected updated now expected be is the at low Teva still has been be to high to brand Sanuk single-digit down include, to HOKA level the sales low

margins for than XX range the includes in the count remainder are share are a SG&A margins non-GAAP on to in year. And now certain which to achieved are earnings expected Turning to the share XX%. a percent we $X.XX be be to Operating our this raising as of range $X.XX now now to expected shares. expected P&L, now be approximately the XX% which are expected of million are sales of XX% gross to better approximately one-time slightly this of to per of XX.X%. be year, benefits

approximately of had And guidance second reducing quarter as charges effect any for the the quarter a expected repurchases. XX%. adjustment XXXX assumes fiscal year is which the tax for share tax as Our the any now year. future fiscal we guidance of third XXXX tax rate for well our in expected and non-GAAP excludes potential rate Also, our an

will in the the half and gross the intend the UGG, in fiscal in drivers, relationship achieved growth The effort Our consumers of our first portion we largely have prepare to year profit higher organization the future for reinvest with an reinvestment into HOKA be our to a growth. marketing. anticipated our of strengthen increased SG&A of and expenses key XXXX dollars remainder and for

Additionally, labor to we distribution our center cost. U.S.-based remain increased have competitive,

provide pricing. we During our an this period, update also sheepskin on

as demonstrated one have extremely our and materially see profit we our stable costs what now not XXXX guidance our plan. prices similar we updated in margins. component a of only year next gross fiscal Overall, deliver for and progress margins. guidance, we our to not continue expect cost projected. to with margin market does initially on with our We are for constitute operating made we to these improvement gross operating too the we margin be and this sheepskin gross by ahead sheepskin pleased sheepskin are This our XX% as of are to a year year results, on And track our affect

drive As remarks. we the Dave to back will business our With and as opportunities half we the reinvest this of toward plan, continue optimize his move it forward. for I'll turn now we that, to back in cost strategically growth closing

David Powers

Thanks, reiterate our like long-term I'm plan. continued organization's Steve. I'd the execution under how to by encouraged

organic quarters, the the February. can generating operating to the our to repurchases remain speed we Women's, as delivering, business. UGG UGG the the past HOKA, industry-leading Looking updating capabilities, ahead, on forward through time, we and spring you accretive committed and returning I Men's drivers digital continue and these will be Supporting to growth our look and focus have reinvestments market. best-in-class and drive our At in into innovation transitional and team confident growth for same of drivers other shareholders we product margins developing will growth to three I'm marketing progress summer several products. on value and share over

around quarter. always, employees performance globe for thank As the the like strong to to of Deckers contributing I'd during second our all

for Q&A. We Operator? will call open the now

Operator

from Telsey now first And Group. come of the will Dana We session. question-and-answer question our Telsey Advisory begin will

Dana Lauren Telsey

Good afternoon, everyone, the congratulations on and results. impressive

and that top-line you you. wanted of strategy? the UGG that that expect how of think or to think also segmentation either margins? with where do either to last X% was wholesale sales product the Where to channel and you down forward? global do As influences And business you how year, due to new Thank be And going weather be? you much

David Powers

I'll is give this a strategic Dana, standpoint then that Dave. speak from and that. on a Steve let color little to more

as important winter, of It's we decision last of As And into and the we've something time. up and a advantage out the some we the went we came had to fact year, made was sell-through it this to quarter quite pretty take for the we with channel. the us marketplace been coming on resetting inventory for take that clean strong of advantage working opportunity Classic.

we something of then, strategy each special and So, account for sure the making while and something and year a little control holding the is have The is the marketplace. way this create work in sure we can pull bit And It's account each Classics has their product inventory. level and getting we're business. looking has excitement segmentation been at right think allocation really something more for making is the at that consumer. unique of the that demand a the right in strategy

do be on it? long-term the working that marketplace this up year you far allocation strategy into think do for year seems the setting right comment premium to to the specifics so in positioning. the well. Steve, it's but brand health as last to noted, as of want X versus million is a the you the business and thing we headwind coming (XX:XX:XX) of It And

Steven J. Fasching

that's we the so about the think Dana, Yeah. retail we decisions store segmentation, revenue. $XX allocation, some million which worth strategic made, closures. include We which include of we included think also

of stores, putting segmentation in allocation million place, in and that $XX given current year. by the retail we So, kind we've revenue strategic think decision so up of reduced

David Powers

as the in are accounts we in I and us Lifestyle been for And than got key that also Sports past, sector add to in points there's the UGG you've of the strategic have some would less on has pretty marketplace and there remember, to emerging distribution that, well. new

Dana Lauren Telsey

the the accounts? Outfitters they Locker, Urban accounts? And see whether of replace existing the new potential as any other Foot Could about, do accounts that or you those it's talked of what you

David Powers

now, into think wholesale five distinct I for new that incremental I they're It's channels the right accounts. XX targeting. mostly getting to top those our we're retail marketplace. or the younger think consumer We're – specific products

As more from There well. call, accessible points like Neutra Fluff but DNA. have Yeah the are price the commentary are UGG heard little the a resonating you Sneaker the the styles and bit still

over of they think can I meaningful, think, be I are whether distribution are But those some time our to seen. they're not to that XX So, mostly do remains top core today. be incremental

Dana Lauren Telsey

you. Thank

David Powers

you. Thank

Steven J. Fasching

Thank you.

Operator

question Lyon And come of Genuity. Canaccord the next from Camilo will

Camilo Lyon

Hi, How are Thank you. guys. you? Great quarter.

David Powers

Good.

Steven J. Fasching

How are you doing?

Camilo Lyon

Doing provided, the great. a bit fourth it Thank you. implied you understand Wanted specifically as just to to little quarter deeper relates outlook the that guidance.

you think third Probably first something shift the retailers given starting heard the around weather that how is time said receipts into to longer to extend I I've season. the wanting now spring into quarter.

just that and guidance? influence a the little dynamic how bit to So more understand trying I'm that

David Powers

Yeah.

drop and that closely think of drop of heading working been of in sell last things last of that resort One between and little Year. called the collection on weeks to two December. DTC the key we've kind to the be the accounts products develop been three couple into a used we is a Traditionally working can of – for be holiday Christmas to New we we've with also setting while, our there'll in weeks then that spring. Camilo, And up

early off that into accounts chasing is shift that some success Yeah, We're QX. that's that of of some to business yes, they the want we're Fluff also of opportunity sign and thing, based for additional up So, fast-tracking sales.

is not additional driver. the hugely there really the significant that's It's that but is to good indication total a main opportunity there. So it quarter,

Steven J. Fasching

above you million, that's million the that $XXX $XXX $XXX million, guided Yeah, we to – underlying of where UGG about. I single-digits also, numbers, we've the as decrease look strategic the low at we that, range decisions so that with think to kind were see to Camilo, talking with of year's in is revenue of just which revenue got last kind you'll

actually So HOKA we're slightly in and year-on-year And getting that increases Koolaburra. lower revenue. offset is then UGG with that's – assuming

get range kind to QX. that's UGG how that bit with you pull little So a forward that of of into

David Powers

too. Yeah. than And then stores retail quarter the year fewer in last

Steven J. Fasching

Yeah.

Camilo Lyon

with cancellations so, for expectation for low your had year? you think so UGG that's greater anticipated A, incorporate, be versus single-digit, to that expectation down I cancellations is earlier does reorder And Because that what reorders? below QX the that

David Powers

Correct. Yeah.

assumption the so for still that's So QX, cancellation. net

Steven J. Fasching

Yeah.

David Powers

So, talk about impact that, both promotional we said more cadence approach as last as again, just year weather a a is, the on given to had kind what that conservative this kind revenue. taking of of well we're year

So, million as we wholesale about about talked million $XX of $XX about weather additional thought last and DTC. year, the in contributed we reorders

we're same until around a little of level we're again year this kind as So see that picking conservative not up weather more it we how plays out.

Steven J. Fasching

due then, the weeks the demand And year the low had this quarter. the we is to DTC comp point within at weather contemplating last that Yeah. single-digits, again, increased in last few of the

Camilo Lyon

Got it, okay.

question of second be question. – early the My more a is on in to standpoint just season. great it's this conservative So, from fine-tuning

how in if that's for gross going XX/XX play and between what talked so are are Could underlying roughly out, rates marketing in those and You and were the split understand we items in marketing. expenses the margin to what the shift non-recurring QX? both quantify and shifts QX about a you business

Steven J. Fasching

Yeah.

a – in kind think at helps back the I So of step of flowing we're that how that maybe QX that, we kind think what if in year. set I terms looking happened through and we're up take of how

planning was that profit helped largely the So, really strategic that and the of drive strong kind with that that gross dollars, of half beat, less driven by little airfreight, a which than improvement. was just which was

to So, profit gross in that terms say achieve that not through lift. of that can same always we level, but flowed we

in million portion year, the then of full the moving flow-through taking the basically reinvest $XX to is the so doing XX% marketing. On we're that of profit. that's to we're gross What XX%, in that seeing a

back we've XX% in the to. guided what SG&A kind that's is the the of in lift half, So seeing the which you're

Camilo Lyon

it. Got

Steven J. Fasching

And then from back being timing some is QX the of the put into half.

Camilo Lyon

Okay.

So, it's you're margin? QX of from like and $XX million for that $XX gross that QX SG&A taking million

Steven J. Fasching

Correct.

Camilo Lyon

Okay.

Steven J. Fasching

– go other ahead, one Camilo. And thing

Sorry.

Camilo Lyon

in shift to there going just to separate was and SG&A addition is clarify, I a that? also

Steven J. Fasching

Right.

timing, So, in the you're half. back that's moving QX largely SG&A that to is seeing savings and

Camilo Lyon

outlook of potential Got us is generate? and lastly, this EBIT the to ability hitting or margin wholly rate, then, or to what's you a that got reality give business cylinders. to the there on of plan, what's you've now the opportunities on can or it, margin just business ahead the okay. of this or the the on margins profile? And XX% EBIT the this your further that margin EBIT continuing of kind can the year rate, really grow at to all framework possibility EBIT think you What's about, achieving raise Is that a

David Powers

This Yeah. Dave. is

we're longer-term, to think, put is not we I of do targets to those there bit there opportunity, little kind a safe of yet. more out But think kind say. prepared

I it's drivers we ahead promise. one the and are operating incubating we of this we of is are of though, of are reasons reinvesting since that that plan, some important also growth is the do been signs showing we profit now have think dollars that have

has in invest think still it's summer you from we to opportunity and and Women's relatively can see this to particularly upside, but in business, the UGG take think in the the the as transitional still results, it's take We and so, awareness. then off. low And UGG marketing, important HOKA, particularly business HOKA. continuing I that Men's it's and very spring tremendous

for to to in help in that want that the FY XXXX. we opportunity take back growth so, to now fuel awareness business company the starting to mid-single the create And will digit invest up

Steven J. Fasching

in look is, think, expenses. other that I reinvestment, we it's thing the at as variable And strategic

out schedule. So about, and to kind fixed of we've of expense everything out moving variable, is playing of the shift playing ahead talked it's

of So the place profitability protect to in we business. have the levers

around that comfort us XX% gives this what that's year. So

Camilo Lyon

Fantastic. holiday season. luck, in Excellent. guys, the Good

David Powers

Okay.

Steven J. Fasching

Thank you.

David Powers

Thanks. Great.

Operator

The Stifel. Duffy from of next Jim question will come

James Vincent Duffy

Thanks. guys. Good afternoon,

David Powers

Hey, Jim.

James Vincent Duffy

hard lot I to so went a congratulations margin the the work of know into team. progress,

David Powers

you. Thank

James Vincent Duffy

like been $XXX XX% It does in seem instance, you of opportunities has the nice of margins? for million further the source good gross goods gross a the Do quarter, in you think that. I see opportunity within had of cost realized. Last margin the upside identified been you said savings

Steven J. Fasching

Yeah.

belt. of as of I my kind we've think it at, now most from look standpoint our I under got

more. much too not is there So,

You're laid said comes be profit similar of Kind to a come depending an promotional on we the upside from environment. the Kind what it out was would our first. not gross see when to on improvement where from going cadence that improvement of profit. we largely of plan, gross going would be the

than we're a lot airfreight we've the that material So, year work And a in bit little optimization this in terms this production gross terms place we the versus of level little where of will upside this heavy a that there's to probably If able of the that in the higher last in flow out year, profit. have promotion of China, year. of benefiting assumed probably But then plan year on then. of is driving are that we full quarter less we around plays outside improvement lifting. a through quarter what's the more that moving usually really to from promotional,

David Powers

pipeline moving into inventory And that going think on on volatility see through also inventory and better in should the control, you I Yeah. forward. the less margin marketplace, that, of a the handle top just

We handle production been have China cost firm going and forward. into out migrating the a on well. going We've Vietnam, of savings that pretty is

things out about So about good the then we good progress and good feel play about pretty going how forward. – really

James Vincent Duffy

management That's segue a an with a you inventory it to you've what always question, to and of you're so of different better That like speak little been had some Can tightened really behind I much wanted operational factors a standpoint. ride bit my ask up. to doing seems next guys, and wild you the from things that? great

David Powers

Yeah.

been planning years time the visibility also is supply and on ourselves accountable and bottom We've to the that spent DC across for and line. efficient focused how the the so teams lot just holding of chain process and pre-season we've the I better organization the first couple last bring a of into top and on product think, when consumer. the we bring are we we thing and

So that's turns. going to play out better in

will the think DCs. starting the factories the see and forward, factories that the and has big really that into they've but just-in-time the I teams at and planning going impact continuity on the with work have flowing level been we're differently product to loading As inventory planning, a and in business,

James Vincent Duffy

call model those one-time of out? in nice the more opportunities any upside then, And to

Steven J. Fasching

think... I Well,

David Powers

pulled We quarter. lever that this

Steven J. Fasching

every was our point, can to the air to big was flow in. and, to be It product that always on it planning quarter. to a Yeah, and we not do I have pulled mean, say quarter. airfreight that get lever again, this much that your some able again, piece we better to part product in but out, you'll

David Powers

spend the tail opportunity towards then And knowing to back of some that still sales deliver were on that seeing. quarter for an to airfreight and the money reinvest made you're that into able not the was quarter of what create end the the to that decision we the business strategic we

James Vincent Duffy

good. guys. Very Thank you,

David Powers

Thanks, Jim.

Steven J. Fasching

Jim. Thanks,

Operator

from Chris Wedbush. The question Svezia comes next of

Christopher Svezia

much and on congrats very quarter. Thanks the

David Powers

Thanks.

Steven J. Fasching

Chris. Thanks,

Christopher Svezia

so business not think XXX other just just were I this lot to structural basis go, to points you but driving beat you've there's you or curious is also that said death, So, related there to a the know on called freight, just on... out I gross of talked about but the – margin, I'm to roughly things

David Powers

Right.

Christopher Svezia

et ....product DTC, cetera.

margin? As you year? of sort today at QX get we What's flat away margin the forward sort here least is we Can are gross we back missing as half sort in as what implied talk I to offsets what just the gross half? about or within the would forward, or goes goes into a And the move of sustainable is back what to to of or go of that little assume going be bit implied the what guidance. a to model? away that what what down move we

David Powers

Yeah.

I walk one we was clearly the of from that benefited one. and the through, think airfreight things can So, big I so

that marketing QX, vendors that's that's our of And have QX headwind typically bit in moved event. QX. of anniversary a in our support a into we XXth so Some largely UGG around

marketing margin that's So that QX put flow into through versus QX, dollars a our gross so to switch. more

a that anniversary. seeing support QX XXth we into as So in benefit the as dollars QX year we move this you're of some in

us our other the little currency, QX. did we then of in. bit see factored of Some anticipated. in what guidance, benefit we better things so helped into and that our we bit in little you product little in have did And We we a a get came of that favorable than saw bit DTC that cost that a foreign more from came while planning, what mix QX than were

So that gave us kind of a bit lift. of a

the to at a think, I is baked begin as that of you back our guidance. look into half, lot

of margins So kind where very of the where guidance rates benefited Last of and full-price you when versus can you a we wholesale ability we from think weather helped about go. kind place. drive in think year, and conditions strong which about favorable our is held QX largely reorder, that

benefited from also sales. We DTC stronger

wholesale out came of they ran As DTC. to product,

conservative more factored we're respect. headwinds being in approach have supply around facing this QX, of a we're continued kind our That's in with seeing improvements So, that that partially that offset chain we in. year by

And kind get to what's for in the so, of the margin. that's guidance how we

Christopher Svezia

Am somewhere that would to points up down And view, clear, just putting QX then QX more is to to slightly, would be thinking month, be QX your flattish but for comparison in just like to of pretty in XXX all Okay. get be about of it that words looks the right? I significant. given basis your kind that a

Steven J. Fasching

of that QX because More much so favorability so upside the flattish experienced in year. not last we

would So a little on room more QX. give that

Christopher Svezia

the Okay. QX? more marketing is shifted it. Got And to

Steven J. Fasching

Yes.

necessarily initiatives that's that Because health So kind as driving more that's of more around long-term to so a strategic near-term said, Dave QX of drive seeing we're event. sales. not

Christopher Svezia

it. Got

for just Dave, And question you. a Okay. general

you already, as just mid-single-digit plus profitability away growth, from that I'm just curious target think hit about you and breath a line this can year. top your you of talk you're sort XX% Just about

of mid-single Just a about your of when consistent growth, on hitting basis? hit maybe level that more sort of digits can along thought help us potentially you just sort

Steven J. Fasching

Yeah.

progress that's I we've expectations think year and first business, growth of there success yet. but But where is product. pleased sights FY the reinvestments trending of summer QX think of in the We're not starting that shooting not do QX spring made rate the upside full where the When well. the and mid-single-digit it's HOKA into some we to of into that half of significant, lay out in any set. obviously continued We're here a are you get making this in and there now with with we're forward putting our going That's mix business. that we're to of ahead year as XXXX.

see to can And of you early XXXX. the start so, I'd in that say, days

Christopher Svezia

and Okay. all Thank you the Appreciate best. it.

Steven J. Fasching

you. Thank

David Powers

Chris. Thanks,

Operator

of Saad ISI. Omar from comes Evercore question next The

Omar Saad

question. all Thanks taking for my quarter. Thanks information. Great for the

David Powers

Omar. Thanks,

Omar Saad

ask a But about to sorry. affected have course. it's just seasonally you weather, a question been that's fall. pretty Obviously wanted warm of guys product I

some data on pent-up accelerations some there could retail. hearing the we're around demand weather. happening churning, is be at like weather of As back heels feels cooler points It

have Just any wondering thoughts if on topic? you that Thanks.

David Powers

Yeah.

quarter I think with off. has pleased the we're started how

Always just timing, to weather January. of was December consumer. this going a storm, year – in some have cautious last like on product great know speak, And impact a the for in kind said, comment resonating seeing which out is and and is so half in right of I the We are the which colder little We've segmentation terms sales, to there. the particularly to weather, means do have expectations. of that on is weather we we great of bit I see, clean is inventory perfect into got there channel. where back

positioned I the clean I cold guess, say we're the best And comes, for to inventory the with about that. we segmentation, feel product So, new that in resonating. good really channel, allocation, we're shape how good think accounts, if weather

Steven J. Fasching

Yeah. to that, we saw weather year. think, And I be is more expectation what last just our again, than on clear on conservative

year. So repeat last expecting we're of a not

David Powers

Yeah.

Omar Saad

Amazon, under the Is I see Is offensive? little segmenting helpful, you that of Got is guys. the any or you other there? sales defensive? Dave, miss, a Is might role sure. impact there it. I'm stock also How guys. afternoon, a it's product ask think, a do really that overlapping? can have channel? been about about pressure it bit That's But relatively this Thanks. I you think new it do you channels How for business of on not

David Powers

Yes.

couple made sell credit So, decision of That the they're give we channel. for teams through lot managing to was a years a way that major Amazon ago to directly I have that the a account. of

our far, so versus the We've so full And the the core the of been would there and There identified the expectations them for accounts. I controlling well. been breadth And believe or it's I inventory Amazon. very in way, for account with premium, line straightforward accounts say. as have saving working the of getting we're really some that very of and our not positive premium a they're rest DTC

e-commerce key that to healthy despite time. accounts, see opening interesting of our at some still up business we're think in same business I Amazon, it's seeing the

opportunity we would consumer But within I the our want of massive. mix channel for managed. that but consumer. it's there, that pleased to far, how not So, think make so and say, correctly partners, servicing key we're is that monitor We their sure there it's a I we're with

that. monitoring are We tightly

the every We on our as across are accounts strategic it have we board. top teams day with

the Amazon so – channel. and versus foremost and we're So upside so good, – first sanctity driving the but growth within the far brand premiumness is massive

Omar Saad

Thank wishes Best you. for holiday.

Steven J. Fasching

right. All

David Powers

you. Thank

Operator

Kummetz Mitch of The next question Research. comes from Pivotal of

Mitch Kummetz

taking my Yeah. Thanks for questions.

down drill puts to these of bit some wanted a more. Just takes and little

sounds with there nature. the benefits clearly was kind starting that little bit the in are some of a were normalize quarter? way any what more one-time that like before gross So, It there is to margin,

is there you any address that? way of kind can So,

David Powers

Yeah.

about kind of what look of million would million $X you So, that's at the we $X million. to to say I million, is lift, really to that the roughly right, $X so it's $X Mitch, million that kind $XX of sales million is, higher if of kind of $XX kind million volume, $XX expected. the

for say, compared anticipated talked kind not kind I about. this is a little of get really seeing other or $XX rate using this year volume, million items related year last to, of, couple that of we We're it, of then And into airfreight what kind kind that $XX you a year. beyond call you're to So half you then, when million. at of get less that used than to of a of the

QX FX So QX similar costs have we we that And and anniversary, saw on in that the then related moves QX part vendor dollars of with then million is really out marketing, of that's amounts upside plan. again, couple of product in beneficial margin. and into but to That's which didn't gross a QX. the support some mix XXth DTC

Mitch Kummetz

strong Got you it. being of – outlook, then, like the benefit I sounds end bit in to of guide. full about more promotional And selling. talked on last that you QX It flattish kind color. the saw the a the Steve, I margin gross you you from least this that think you be said year price thinking – expect up would you kind little at were that's year appreciate

So is all sense year, remind XXX much I how questions? know you how and us that of was how you like then makes supply that much last you Does on weather-related, that give those bps can is QX? into continued margin of back gross much seem up that chain the was benefit

David Powers

it Yeah, does.

say, we're think Probably – the in of year, around difference, improvements would we're hit similar we kind basically as conservative year two kind so is I seeing, I what supply XX bps around probably versus being continued offset. weather. type more looking offset this or year there's last the at, with initiatives, last chain that of a say, So,

Mitch Kummetz

Got it.

just some about offset not on given you're guidance mean, quarter, help on I much which the just and I sales the impacts kind million, think, on the third $XX quarter? or $XX UGG gets you how I How that. about quarter, when thinking million, but kind like guess. guide think million, the the third in on my UGG just was last that impact $XX thinking of know QX, of million picked this I segmentation UGG So, $XX for up year is up you you've the that that half million specific reorders the there is to this closures math is $XX would to, annual the basis you lastly, understand in an Probably is me relative that of then, hits has UGG. got And DTC, year great. year store down plus like I Okay, quarter? mentioned on sizing to that you strategy

Steven J. Fasching

Yeah.

a on too high of hit. you're think kind the I little

Mitch Kummetz

Yeah.

Steven J. Fasching

down year-on-year. of low-single-digit UGG more kind So,

Mitch Kummetz

Yeah.

Steven J. Fasching

It's at kind of QX. how we're looking

Mitch Kummetz

all fewer is also and in that is or stores And less reorders that (XX:XX:XX)? segmentation

Steven J. Fasching

– of be retail more probably little about combination stance less reorders, a Yeah. guess of it fewer will with I yeah, e-commerce conservative terms of stores. $XX-ish-million and retail in

Mitch Kummetz

Yeah.

That's Thanks, Okay. good. guys.

Steven J. Fasching

thanks. Okay,

Operator

from come of Lynch. will question of next Bank America Rafe Merrill Jadrosich Our

Rafe Jason Jadrosich

my the Hi. wanted on I Good year just margin comments follow-up Thanks afternoon. to early. XX% taking for question. on your operating achieving a

you Can of about in that. stores from how see big savings portion where additional have, think close talk a could savings that the to how process store you closures are savings you and where and many I in many you you plan there? was SG&A

Steven J. Fasching

they've teams been front. the we've path, made a we've pleased this lot Since the great with question. fleet. say to good level at progress of on a that profitability I'm retail across Yes, spent store And on optimizing time

On million the put we months $XXX out original ago to. there over was down XX target a target a wind to of of little kind

that As which we're evaluating we've can these getting they wall closure of above we're get process list. those to looking at the We're store level versus the in is some set basically some further along And and the on improvement put there list stores. cost at initiatives, for the of about in savings XX%. profitability, them finding we're four going if re-evaluation internal threshold

spring to from and and be to closing summer profitability will of perspective what say, think we'll the to next So, growth stores. future. suffice the continuing these opening do we we long-term a over to some We're in improvements of see men's be continue than evaluate foreseeable drive to more into drivers fleet. But we stores the the can

Rafe Jason Jadrosich

what can Europe And now? right you a little then, comment seeing in Thank you're you. about bit

David Powers

– seeing the particularly issue. is (XX:XX:XX) and The Europe in remained strong we're there. macro economic Yeah. that there over a level is is challenges macro obviously UK, brand

now. good the a really that So, and North fostering we in is little We bit at just we've over America issue softness of conservative been do Europe a there. accounts about level have new the similar some we're there. look with in conservative regards that taking setups feel segmentation remaining a right to But macro we're

Rafe Jason Jadrosich

Okay. Thank then, just the... you. And

David Powers

seeing still The strength brand is and growth at this opportunity to point. really That's UGG. related HOKA

an in the business, it's with So issue UK. the really particularly UGG mature

Rafe Jason Jadrosich

far what you're you And talk and you just assumption about then, can into now? Yeah. like FX hedge how bake the hedged you right is us how remind guidance out about

David Powers

Right.

at in the of do put XXX%, basically our so, exposure. current of we majority the hedge FX year. but – So hedge a hedging do We the We guidance beginning rates. don't assumes place large

bit have will year have the hedge the exposure, a at beginning – kind we we So, of FX of little of for year. the but always

Rafe Jason Jadrosich

The calendar year?

David Powers

Yeah, so our fiscal year.

So, where into our our not basically going fiscal of our year, have we again large budget exposure, XXX%. majority we're but hedging

And fluctuation. take current some that exposure to into too. get will every always then, we'll some also account But the we'll rates. be of quarter updating hedge So

Rafe Jason Jadrosich

Thank you. Okay.

Operator

will The Erinn of Piper come question Jaffray. next Murphy from

Erinn E. Murphy

seeing Chinese what the just Thanks. more with Good overall, a of consumer afternoon. what the could inclusive Great. little from talk or traveling the maybe what you you're kind you're bit of the in terms to guys you I Chinese Mainland it Europe versus Japan trends and between of during was cluster elsewhere? or saw about quarter, split seeing those hoping

David Powers

Yes.

for China quarter. good the market So, a had us

the I global think, new well, are the in that trending is happening again, Fluff resonating relevant, similar level. seasonal Yeah Neutra and slippers a the like Sneaker, seasonally good and more they're on products to which again, that's what's of a some the sign U.S., performing

consumer from business the seems Japan a on versus Japan. last and We impact Chinese are happening seeing lot right around of in be Chinese a particularly to tourism other in markets, little There bit turning Japan is now, year. the of

the are the product brand within the I do level. is consumer. the at brand, Chinese that there and globally. seeing what macro for an the that concerns I things brand, global are something the about a on still resonating we're for still think, UGG it's So, potential have to trending know impact at UGG new working wars for consumer going well with trade level, us, But a

Steven J. Fasching

to the Yeah. continue And the good a It's quarter. performer us we Asia-Pacific, see for to great in that develop region market. as was

So to growth continuing areas. in see we're those

David Powers

Yeah.

Erinn E. Murphy

tariff was sticking guess, today that of $XXX kind XX? And percent have the then, in you what trade of to in in kind of just you – people billion end then, impacted in the to of place shipments categories? maybe trying of ton talk year on piece, front is industry, as of war retailers by exposure to a I that September before you the the run business your of of before And know don't And some curious. XX% just kind tariff but with seen Okay. I we up put other any the have move those,

David Powers

Yeah.

So, exposure. have ton we of don't a

of those new China of the QX. businesses tiny point China. I categories are for their at now teams already the And on scheme things. over to as here our if have earlier, deliveries job beyond already us pretty done for other the and going much not of XX% FY way, And where a of into we're for they're XXXX places said Some water on the us, in outside tremendous to are production migrating

is Deckers' ability far this China we bit. a goes, any avoid to we So Vietnam, manner issues other a good and in in The ago people there's a as feel, being to standpoint pretty as liabilities ship do to talking we've production and forward, feel from the minimal. – of marketplace, we our I been planning were a business for just suppliers going China timely couple there about are our in weeks year. product just know And those exposure that. scrambling But reduced

Steven J. Fasching

And just the tariffs, Yeah. then, on Erinn.

imposed, have at, product And to XX% we give that China. this by we going out end impacted reduce to And to about not a the been So, that of anything you now, of been that's calendar expect by. of forward. idea we come of just from then year, where the the will right rough have we're continue product

level exposure, current kind improving. feel and we good So, of our about it's of

Erinn E. Murphy

that that's coming is a it's is XX% the U.S. total, being to so or all China, that smaller In U.S.? a to even out as that piece the of shipped

David Powers

Yeah.

the it's to So even less XX% U.S. global,

Erinn E. Murphy

it. guys, much. you, very Got Thank

David Powers

Erinn. Yeah. Thanks,

Operator

And Poser Susquehanna. next of we have question Sam from

Sam Poser

that a it The gross guidance develop? given of quite Thanks my help beginning for that in to question. is potential some A Doesn't model of than your couple the afternoon. dollar of significantly Good the you that perspective provided from pull has some offset been taking pressures to time. because are that margin arguably things. inventory you cleaner

David Powers

Yeah.

quarter into as I think the obviously guidance. we said, that. than we've of down down Koolaburra. related X% that total with the even growth UGG more for the inventory UGG And and is

that. feel so, And do good we about

last deliveries of shipments the bit assumptions I indicative year that we the we wholesale around is think marketplace and in this think also versus versus QX all more little that embedded kind some offset from in of and of upside the the into the think year the And go-forward are margin guidance. mix quarter a of upside saw margin. the fewer it's I I stores DTC But and promotional seeing. with

Sam Poser

some And you at one opportunity mentioned got one you an you of is? fashion the accounts what One, it things. quick more athletic end. two do kind of response more think for then others, kind Locker I've And and of the and are getting there what

David Powers

Yeah.

such working Foot couple a as cultivating we've teams. SIX:XX of those know, you As for accounts been with years Footaction, closely Locker,

in doing with Locker. a starting is are a we doors. We sold that the Foot Footaction and ever first it into This way time thoughtful strategic

it in test years thoughtful very doors as test, doing small are let's way We what learn, partnership. ago we're did amount a so And with and both couple consumer performing learnings and the a are to and them Foot those of similar we Locker of with Macy's of with a product a the how their marketing things response into far. and Inc. and embed and take pleased lets

over in the call do Dillard's. we places time, this with lifestyle incremental as like meaningful that it's really men's I in to distribution think sports can said think resonate a Nordstrom in If and in particularly I that is earlier opportunity. and I consumer So

do it and think accounts. be what's meaningful I Dillard's it particularly is it exposure don't could we for Men's, And in traditional Nordstrom also as about with great which necessarily connect an Women's in consumer, younger in to UGG but us UGG opportunity and well. in that gives

and the Europe of Locker like Foot then well. in or about kind in JD over So opportunity I'm we it and and pretty think UK Canada also for excited about Sports, JD as

Sam Poser

us and of tracking, back be the the the inventory could end you Thank is you sec, part some quarter a year? for the one tranche, give for Steve the then end Also are them lastly, is potential you. doing tariffs? $XXX it by business at And you're about may idea way the at the of inventory the million that impacted how given to even of taking the – inventory your especially thinking what this small though of to other how the maybe offset

Steven J. Fasching

Yes.

question context feel of your kind answer QX. improvement as some at look we've of it I'll pretty we I and think we significant QX, in in made

growth So, and When context the the lay we've of that their. you with inventory got increasing down the inventory year-over-year. HOKA into brand Koolaburra, of X%

the within X%. So the UGG the brand is improvement impressive more even than

next So kind quarters. with being to were in and Yeah. this next quarter, kind with we and to quarters. a wouldn't yet level this movement of two I I It's we've pretty But two going with of in brought good the extrapolate we're continue the in on. of made next think on progress these we work quarter pleased result. inventory. to result big improvements inventory same something wouldn't factor this

Sam Poser

Good Thanks very right. much. luck. All

Steven J. Fasching

Okay.

David Powers

Sam. Thanks

Operator

our attending concluded. session. Thank for this conference you And today's question-and-answer concludes now presentation. The is

may now disconnect. You

Deckers Outdoor (DECK) 26 Oct 182019 Q2 Earnings call transcript