Deckers just might have a winning brand in Hoka One One, as the performance footwear running brand continues to produce exceptional sales growth and consumer interest.
In a Nutshell: As a whole, Deckers turned in a solid second quarter and subsequently raised its year-end expectations. During Q2, the footwear company also repurchased $155 million of its own shares. Deckers CEO, president and director David Powers said the group reached the high end of its expectations for both Hoka One One and the performance of early-season Ugg shipments, domestically.
“During the second quarter, we continued to drive momentum in our key initiatives. As Hoka continued to experience explosive growth, Ugg men’s boots increased by high-teens percentages, Ugg women’s noncore expanded through the fluff franchise and our online performance was strong,” Powers said in the company’s quarterly conference call. “The Deckers team is focused on the execution of these key initiatives and I believe our commitment to investing in marketing and innovation [has] been central to the strength of our results.”
Sales: Net sales at Deckers increased by 8 percent to $542.2 million in Q2 of its FY20 compared to $501.9 million in the second quarter of last year, well above the $532 million expected by Wall Street analysts.
Sales at Ugg were up 2.2 percent in the quarter, growing to $404. 9 million compared to $396.3 million in the prior-year period. By contrast, Hoke One One grew by 49.9 percent to total $78.1 million in sales in the quarter—eclipsing the $52.1 million in revenue it earned in the previous year’s Q2.
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Powers credited the release of the brand’s new Rincon style, which comes with a lower price point to appeal to high school and college athletes. Deckers said 50 percent of online consumers were new to Hoka One One, with 40 percent of those consumers falling into the coveted 18-34 demographic.
“Our expectations for the Hoka have continued to climb, well beyond our original outlook for the year. But it is important to keep in mind that with this increase our near-term ability to chase further incremental revenue for Hoka is limited due to timing of inbound inventory,” Powers added, tempering expectations for the brand during the holiday season.
Despite inventory issues, Deckers still expects Hoka sales to grow in the mid-to-high 40 percent range.
Much of the sales growth Deckers experience in the second quarter came from domestic channels, with stateside sales up 14.9 percent for the group at $358 million compared to $311.6 million in the comparable period last year. However, international sales have begun to lag for Deckers, falling 3.2 percent to $184.2 million compared to $190.3 million in Q2 of FY19.
Deckers now expects sales of $2.115 billion to $2.140 billion by year end, compared to the previous range of $2.100 billion to $2.125 billion.
Earnings: Deckers beat Wall Street’s earnings projection of $2.34 EPS in the second quarter, turning in a respectable $2.71 in GAAP diluted EPS. This was a gain of 14 percent compared to the previous year’s EPS of $2.48.
As a result, Deckers now also expects to earn between $8.90 to $9.05 by year-end, compared to the previous range of $8.40 to $8.60.
CEO’s Take: Powers said Deckers was pleased with the progress both Hoka One One and Ugg made during the quarter and would be keeping to its high expectations throughout the holiday.
“We continue to see positive momentum in the fiscal year, and we are raising our full-year outlook to reflect the acceleration we are seeing in the Hoka brand, while at the same time maintaining expectations for the Ugg brand heading into the peak selling season,” Powers explained. “As we move into the third quarter, the teams are intently focused on our key strategies and are committed to building excitement around new product offerings through planned targeted marketing investments that will be visible in the coming months.”