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All Eyes on Hoka After $330 Million Quarter

Deckers Brands saw net sales jump 21.8 percent to $614.5 million in its first quarter on $44.8 million in net income, and it appears one brand is opening new horizons for the Ugg owner.

In a Nutshell: Hoka has become a darling for Deckers, which also owns brands like Teva, and now represents more than 50 percent of the company’s total portfolio quarterly revenue for the first time. The brand saw sales jump 54.9 percent to $330 million in the period and has generated $1 billion in sales over the past 12 months. The sales growth is even bigger in international markets at 66 percent, giving way to Hoka’s status as Deckers’ primary hype machine in 2022.

Deckers tentatively set the opening for the first permanent Hoka store in New York City for the spring of 2023, and will open its second Manhattan popup location near Lincoln Center within the next month. The current Chicago popup is seeing “excellent traffic and driving strong conversion,” according to Deckers Brands CEO and president Dave Powers. Powers said in an earnings call that the company will take a disciplined approach to opening a limited number of store doors based on the consumer appetite for Hoka retail stores.

Powers indicated that Hoka is making inroads with new consumers globally, particularly in China, and is now in less than 20 percent of Dick’s Sporting Goods stores in the U.S. The performance footwear brand also recently launched in select Foot Locker stores and online, as the label seeks younger, athletic-minded consumers. Powers indicated the company has “a lot of optimism” going into the partnership, but that it is “too early to share any results.”

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The expansion comes amid Hoka’s first-ever global brand campaign launched in June, dubbed “Fly Human Fly.” Eighty-three percent of visitors to the campaign’s online landing page were new, aligning with Hoka’s intent to reach an untapped audience.

Inventories across all Deckers brands total $839.5 million, up 83.4 percent compared to $457.7 million, at the end of the first quarter last year. Nearly 40 percent of product is in transit, Deckers chief financial officer Steve Fasching Brands said in the call.

“Transit times have improved relative to last year, but we are still experiencing latency and lower visibility,” Fasching said. “We are continuing to prioritize holding inventory in the country of sale. For example, during the first quarter, inventory generally arrived earlier than anticipated. As a result, we shipped more product out. However with low visibility into when certain shipments will arrive, we are comfortable holding higher levels of inventory to enable our brands to meet the significant marketplace demand we are seeing. Since it’s difficult to predict the timing of when inventory will land, we expect that heightened inventory levels will continue throughout this fiscal year.”

For the full year, Hoka revenue growth is now expected to increase in the 40 percent range versus last year, reflecting the upside from the greater inventory availability, Fasching said. He noted that Hoka is currently driving the pull-forward of inventory, as the high demand has made Deckers more comfortable in increasing its product shipments for the brand.

Gross margin was 48 percent, down 360 basis points (3.6 percentage points) compared to 51.6 percent. The margin rate was negatively impacted by the headwinds from higher freight costs across ocean and air, as well as unfavorable foreign currency exchange rates.

Headwinds also came from both Deckers’ product mix and channel mix. Normalized promotional activity pressured margins as the company sold more sandals and discounted select styles in line with pre-pandemic activity. Channel mix shifting towards the wholesale and distributor segment. These challenges were partially offset from benefits from the increased revenue mix from Hoka’s growth, which commanded the highest gross margin in the Deckers portfolio, as well as benefits from Hoka price increases.

Fasching said the company expects to use less air freight than originally anticipated for the Hoka brand, which should help offset currency pressures for the full year.

Deckers revealed diluted earnings per share for the 2023 fiscal year will now range between $17.50 to $18.35, above the initially projected guidance range of $17.40 to $18.25.

The company reaffirmed its full-year sales and gross margin expectations for 2023, with net sales still expected to range between $3.45 billion to $3.50 billion and gross margin still projected to be approximately 51.5 percent.

Cash and cash equivalents for Deckers now totals $695.2 million compared to $956.7 million at the end of the prior-year period. The company has no outstanding borrowings.

Net Sales: Net sales at Deckers Brands increased 21.8 percent to $614.5 million compared to $504.7 million in the prior-year quarter. On a constant currency basis, net sales increased 23.5 percent.

On a channel basis, wholesale net sales climbed 24.7 percent in the quarter to $429.4 million compared to $344.3 million.

Direct-to-consumer (DTC) net sales rose 15.4 percent to $185.1 million, up from $160.4 million in the year-ago first quarter. Comparable DTC net sales increased 14.9 percent.

Domestic net sales are up 14.4 percent to $384.5 million, and increase from $336.1 million in last year’s period. International net sales increased 36.4 percent to $229.9 million compared to $168.6 million.

When splitting by brands, Hoka net sales skyrocketed 54.9 percent to $330 million compared to $213.1 million. Ugg brand net sales dipped 2.4 percent to $207.9 million, from the $213 million taken in last year. Teva net sales increased 2 percent to $59.6 million, a slight uptick from the $58.5 million generated in the prior-year quarter. Sanuk brand net sales had the biggest dip at 5.9 percent to $14.2 million compared to $15 million.

For the company’s brands classified in the “other” category, primarily composed of Koolaburra, net sales decreased 45.3 percent to $2.7 million, down from last year’s $5 million.

Net earnings: Net income was $44.8 million in the first quarter, a decline from the $48.1 million in net income during the year-ago quarter. Diluted earnings per share was $1.66, slightly down from $1.71 per share last year.

Operating income was $56.3 million, down from $61.8 million in the year prior.

CEO’s Take: “What’s also incredibly exciting on the lower age spectrum is 18-to-34 year olds are increasingly purchasing the Hoka brand,” Powers said. “We’re starting to hear comments that people are trading their all-white Nikes for all-white Hokas, so that’s very encouraging for us as well.”