Deckers Brands, the California company known for its Ugg boots, experienced its largest quarter ever with balanced growth in direct-to-consumer and wholesale channels for the period ending Dec. 31, 2021.
The international market was strong for the company’s major brands Hoka and Ugg, both posting solid gains. However, challenges with shipping and logistics created headwinds with 50 percent of inventory still in transit at the end of 2021, compared with 25 percent the previous year. Freight costs for the fiscal year will add $100 million over what was spent in fiscal 2021.
In a nutshell: “Third quarter revenue for Ugg was $946 million, up 8 percent versus last year and 21 percent over two years ago,” Deckers president and chief executive Dave Powers told Wall Street analysts on a conference call on Thursday.
The Ugg brand, for years favored by hip young women who wore the sheepskin boots even in the summer, has seen major growth outside of its women’s boot categories. Men’s purchases have ramped up, particularly among consumers ages of 18 to 34 as well as with kids.
On the women’s side, the company reported brisk sales in Ugg slippers and fluff and in the lace-up Neumel style that is the brand’s largest dollar volume style.
The apparel side of the business has expanded, too, with Ugg clothing seeing strong activity among youth and sports lifestyle retailers that saw solid sales in sporty ready to wear and underwear with the Ugg logo.
For Hoka, revenues in the third quarter reached $184.6 million, up 30.3 percent over the same period last year and double what it was two years ago. The athletic shoe has been successful selling in popup shops and the company plans to test that concept in other U.S. cities. Hoka has also been selling well in China, where many Western brands have faltered after speaking out on Xinjiang.
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Hoka saw its direct-to-consumer sales increase 52 percent over last year.
New styles helped sales. One of those new styles was the Bondi X, introduced in October, combining the signature cushion of a traditional Bondi with a carbon fiber plate. The new style drove significant traffic to Hoka.com.
With added material cost and higher warehouse rent, the company has been looking at nudging prices upward. Select Hoka styles saw price increases for spring, and Uggs will get a bump up in the fall.
Because Hoka styles sell year-round, the company has been using air freight deliveries to get goods to stores on time. The company does not expect to see any improvement in the supply chain problems this year and will keep using air freight when needed.
Other brands sold by the company include Teva, Sanuk and Koolaburra.
Net sales for Teva grew 31.4 percent in the third quarter to $20.6 million while Sanuk saw net sales slip 13.4 percent to $6.1 million. Other brands consisting mostly of Koolaburra experienced a 16.6 percent drop, with net sales totaling $36.7 million.
Meanwhile, Ugg ushered in Black History Month with a two-piece footwear collab focused on Denim Tears founder Tremaine Emory’s great-grandmother’s Black Seminole heritage. Launched Feb. 1, the capsule’s two styles are richly embellished with eye-catching details like embroidery, beading and whipstiching, playing into Indigenous Mardi Gras traditions.
In the third quarter, Ugg followed in the footsteps of many industry peers in launching a program to keep footwear in good repair. The Uggrenew program tapped NuShoe’s footwear-fixing experts to allow customers to Refresh their classic Ugg boots with a steam cleaning for $40, Restore the footwear with a steam cleaning plus Treadlite sole replacement for $60, or Renew the shoes through a handmade process that replaces the bindings and soles on top of the cleaning for $80.
Net sales: For the third quarter, net sales increased 10.2 percent to $1.188 billion compared to $1.078 billion for the same period last year. This was the company’s best quarter in history. On a constant currency basis, net sales grew 9.7 percent.
Domestic net sales for the third quarter inched up 3.3 percent to $796.1 million compared with $770.5 million in the previous third quarter. International net sales expanded 27.5 percent to $391.6 million compared with $307.2 million last year.
Inventories, which include merchandise in transit, totaled $550.7 million compared with $305.3 million in the previous third quarter.
During the recent third quarter, the company repurchased approximately 354,000 shares of common stock for $130.7 million at an average price of $369.12 per share.
Gross margin was 54.3 percent compared with 57 percent for the same period last year. Selling, general and administrative expenses were $327.8 million compared with $285.2 million in the previous third quarter. And income tax expenses totaled $60 million compared with $73 million for the same period last year.
For the nine months ending Dec. 31, net sales were $2.41 billion compared with $1.98 billion in 2020.
For fiscal year 2022 ending March 31, net sales are expected to be between $3.03 billion and $3.06 billion. Gross margin will be at or slightly below 51.5 percent and SF&A expenses as a percentage of sales are projected to be about 34 percent while operating margin is predicted to be 17.5 percent.
Earnings: Net income for the quarter hit $232.9 million, or $8.42 per diluted share, an 8 percent drop from the previous quarter’s sales of $255.5 million, or $8.99 a diluted share.
Diluted earnings per share are predicted to be in the range of $14.50 to $15.15.
CEO’s Take: “Our brands are incredibly well positioned across the globe, but demand continues to outpace our current ability to supply it,” Powers said. “We are managing the business to deliver strong results in this uncertain environment. We have continuously evolved our strategy to mitigate the impact of the dynamic state of the logistics environment.
“Key actions we are taking include: tightening our product assortment to increase SKU efficiency, raising prices by selectively assessing the competitive landscape of our brands, utilizing the strength of our balance sheet to increase levels of inventory in response to supply chain disruptions, optimizing channel mix to fulfill consumer demand, and scaling production to support the growth of our brands,” he added. “With the reality of the current logistics environment, we recognize that Hoka will remain in chase mode for much of the upcoming year. Hoka has tremendous runway ahead, and we will continue to provide the resources necessary to build Hoka into a major multi-billion dollar player in a performance space.”