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Deckers ‘Super Bullish’ On Growing Ugg Apparel Long-Term

After capping off a record fiscal year, Deckers Brands is looking to capitalize on the gains made by its two biggest brands, Ugg and Hoka One One.

In a Nutshell: Both continued to post sizeable gains in the fourth quarter ended March 31, with Ugg growing net sales 53.1 percent to $300.5 million and the running label seeing net sales rise 74.2 percent to $177.5 million. In fiscal 2021, net sales at Ugg increased 12.9 percent to $1.717 billion, while Hoka climbed 62 percent to $571.2 million.

Speaking with investors Thursday, president and CEO Dave Powers attributed Ugg’s growth to U.S. consumers actively seeking out its products, citing Google Trends data that showed search interest up 27 percent over the year. This naturally contributed to online customer acquisition—particularly among the 18- to 34-year-old demographic, which grew 83 percent. At the same time, he noted, more consumers bought multiple Ugg products than ever before, with the number of consumers purchasing two or more products jumping 85 percent.

Looking at the fourth quarter specifically, Steve Fasching, the company’s chief financial officer, highlighted strength in classic boots, winter boots and spring Fluff products.

Though women remained the primary purchasers of Ugg products, the brand’s mix continued to shift toward men’s and kids’. “Part of this shift is due to many consumers purchasing Ugg for the whole family,” Powers said. The CEO credited these improvements in new category adoption largely to localized marketing, which he said led to a significant increase in e-commerce traffic from 18- to 34-year-olds.

This past year also saw the debut of Ugg’s first ready-to-wear apparel collection. Powers said not to expect any “outsized growth” in apparel this year, but that the company is “super bullish” about the opportunity over the next three to five years. “That’s one of the areas you’re going to see more investment in both on infrastructure, but also on marketing and reaching global consumers,” Powers said.

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“What we learned last year with the ready-to-wear launch is that we have struck a nerve with the consumer that is a great combination of fun, fashionable Ugg brand DNA and comfortable that I think is perfect for Ugg and I think there is white space in the market for us to be able to have a significant share of market and growth globally,” Powers added.

In fiscal 2021, he said Deckers is planning to further invest in localized marketing tactics, particularly in international markets where Ugg has seen sales dip. In China specifically, the company plans on increasing local investments. According to Fasching, Ugg is targeting growth in the high single digits to low double-digit range in fiscal 2022, below Deckers’ topline forecast of mid-to-high-teens.

The company is banking on continued growth at Hoka to propel it across the finish line. Like other running brands, Hoka experienced significant gains during the pandemic. Powers highlighted new, “innovative products,” such as January’s Carbon X 2; online customer acquisition—the brand’s 156 percent growth far outpaced Ugg—and diverse marketing content targeting young consumers.

“Hoka is winning with the combination of disrupted product innovation, emotionally connected inclusive marketing and a consistent consumer experience based on the quality of the brand’s products and ecosystem of access points,” Powers said.

As Deckers invests in Hoka’s future, the CEO said the company is looking to build a “meaningful” brand presence in China. “This includes building a team local to the market and creating a retail presence to the Hoka brand,” he added. Other goals include increasing market share with wholesale partners, building global brand presence through event sponsorship, focusing on European markets like Germany and the U.K. and increasing the frequency of product drops.

In the mid-term, Deckers is aiming to build Hoka into a $1 billion brand, with $800 million, or 40 percent growth, as the target for fiscal 2022. Looking further ahead and factoring in growth in China and the potential for apparel, Fasching said, “you can see that there is a multi-billion-dollar brand down the road at some point.”

The company’s sandal brand Teva, meanwhile, just eked out quarterly and yearly gains. In the fourth quarter, net sales grew 1 percent to $60.2 million, while in the year ended March 31, they inched up 0.6 percent to $138.8 million.

Sanuk’s net sales, on the other hand, declined 8.8 percent year-over-year to $12.1 million in the fourth quarter. This proved better than fiscal 2021 overall, when net sales dropped 18.2 percent compared to the prior year to $41.8 million.

Deckers has unveiled a wave of Pride collections this past week. The most high-profile of these drops might be a prom-themed collection from Ugg starring the “Old Town Road” singer and Satan Shoe collaborator Lil Nas X and “Assassination Nation” actress Hari Nef. In addition to modeling the colorful collection, the two will host Ugg’s virtual “Proud Prom” virtual event, held in partnership with GLAAD and the Pacific Pride Foundation.

On Thursday, Teva unveiled the release of its 2021 Pride Pack, a collection of all-gender sandals and accessories. To celebrate the launch and honor Pride Month, Teva said it will donate $35,000 to the Human Rights Campaign Foundation, a 37-year-old organization dedicated to supporting the LGBTQ+ community.

Teva released its Pride Pack ahead of Pride Month
Teva’s Midform Universal Pride and Flatform Universal Stripe Teva

Earlier this week, Sanuk collaborated with the Pacific Pride Foundation to release two new rainbow-decorated styles: a vegan sandal and a lightweight outdoor slipper.

Deckers’ cash and cash equivalents totaled $1.089 billion as of March 31 compared to $649.4 million a year earlier. Inventories stood at $278.2 million, down from $311.6 million. It had no outstanding borrowings.

Net Sales: Deckers saw net sales climb to $561.2 million in the fourth quarter ended March 31, a 49.7 percent leap compared to the year-ago period’s $374.9 million. On a constant currency basis, net sales rose 47.9 percent.

Looking at the business’ full fiscal year, net sales came in at $2.546 billion, a 19.4 percent improvement from the prior year. They increased 18.4 percent on a constant currency basis.

Wholesale net sales climbed to $326.1 million in the fourth quarter, a 41.4 percent leap compared to last year’s $230.7 million. In fiscal 2021, they increased 6 percent to $1.479 billion. Meanwhile, direct-to-consumer net sales grew 63 percent in the fourth quarter to $235.1 million and 44.8 percent in the fiscal year to $1.067 billion.

Much of Deckers’ gains came from its U.S. business. Domestic net sales shot up 64.3 percent in the fourth quarter to $379.2 million. Internationally, net sales rose 26.2 percent to $181.9 million. Looking at the fiscal year, domestic net sales rose 25.7 percent to $1.761 billion and international net sales increased 7.3 percent to $784.2 million.

Gross margin also improved in the fourth quarter—from 51.5 percent a year ago to 53.2 percent—and in fiscal 2021—from 51.8 percent to 54 percent.

Income: Deckers reported fourth-quarter income from operations of $54.6 million—a substantial increase from last year’s $16.7 million. Diluted earnings per share, it said, totaled $1.18, compared to $0.57 a year earlier.

For the year ended March 31, it recorded income from operations of $504.2 million, up from $338.1 million in fiscal 2020. Diluted earnings per share came to $13.47, compared to $9.62 last year.

Looking to the fiscal year ending March 31, 2022, Deckers is estimating continued net sales growth, with an outlook range of $2.95 billion to $3 billion. Its gross margin forecast, 53.3 percent, would represent a slight decline from fiscal 2021. The company predicts diluted earnings per share will increase to somewhere in the range of $14.05 to $14.65.

CEO’s Take: “We are confident in our long-term vision to drive more business through our direct-to-consumer channels, build the Hoka brand beyond $1 billion in revenue and increase our mix of business from international markets,” Powers said. “To achieve these objectives and enable new opportunities with our portfolio of strong brands, we are focused on fostering existing talent within the organization, as well as acquiring new talent for added capabilities.”