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Hoka One One Takes Over as Top-Selling Deckers Brand

Deckers Brands, the parent company of footwear brands including Ugg, Hoka One One, Sanuk and Teva, saw sales increase 76.1 on a constant-currency basis to $504.7 million and reeled in $48.1 million in profit.

But the first quarter illustrated that there is a major changing of the guard at Deckers. For the first time, Hoka One One contributed the largest share of revenue across the footwear brands in a single quarter.

In a Nutshell: Dave Powers, CEO, president and director of Deckers Brands, highlighted the running shoe brand’s revenue growth, which nearly doubled in the first quarter to $213.1 million. According to Powers, during the first quarter, the number of consumers who purchased Hoka two more times after an initial purchase increased 46 percent versus the prior year. Additionally, 72 percent of online traffic was from consumers who had not previously shopped on the Hoka website.

Deckers, like many of its industry contemporaries, is currently experiencing sourcing disruption and delays related to Covid-19 outbreaks, while dealing with capacity constraints and cost pressures related to container shortages and port congestion. With the shipping delays, the collective of footwear brands is considering increasing its usage of air freight going forward.

In a Wall Street conference call, Deckers’ chief financial officer Steven Fasching said that the anticipated air freight and other expedited freight measures would likely cater to the demand for Hoka products, particularly to accommodate wholesale partners.

“It’s a little bit about less pull forward, and it’s more about seeing increased demand and how we meet that increased demand in the marketplace and bring product in, in an expedited manner to match that demand,” Fasching said. “And so that’s where Hoka is a little bit different than Ugg and a little bit more challenged in the sense of how much more can we do, given constraints and disruption in the supply chain and how we then work around that with expedited freight.”

Approximately 66 percent of Deckers’ global stores were open for the entire first quarter, a bigger improvement over the 20 percent across the prior-year first quarter. Given the ongoing and uncertain pandemic conditions, Deckers anticipates temporary retail store closures and operating limitations in certain geographies may continue for at least a portion of the second quarter and potentially beyond.

Even in the U.S., while Deckers’ distribution center in Moreno Valley, Calif. and other third-party distribution facilities are currently operating and supporting ongoing logistics, the company said these facilities may continue to operate at limited capacity due to the enhanced health and safety measures that are in place.

Inventories increased 5.2 percent to $457.7 million, over the $435.0 million Deckers held across its products last year.

Gross margin was 51.6 percent compared to 50.3 percent for the same period last year. The margin increase was related to favorable brand and product mix as Hoka increased as a percentage of the total company and Ugg benefited from earlier Hoka shipments of fall product.

Cash and cash equivalents as of June 30, 2021, were $956.7 million compared to $661.9 million on June 30, 2020. Deckers has no outstanding borrowings.

For the full year, Deckers raised its sales and earnings per share estimates to reflect the strength in the Hoka and Teva brands. Net sales are now expected to be in the range of $3.01 billion to $3.06 billion—totaling 18 percent to 20 percent—up from first projections calling for $2.95 billion to $3 billion.

Hoka is expected to increase its growth rate to be in the 50 percent range, crossing the $850 million milestone, Fasching said in the call.

Diluted earnings per share now sits within the range of $14.45 to $15.10, up from initial guidance of $14.05 to $14.65.

Gross margin for the full-year was downgraded from 53.3 percent to slightly below 53 percent, which would take away approximately $20 million. Fasching confirmed in the call that the “large majority” of the guidance change is related to air freight costs.

Net Sales: Net sales across Deckers Brands increased 78.2 percent to $504.7 million, compared to $283.2 million for the same period last year. On a constant currency basis, net sales increased 76.1 percent.

From a brand perspective, Hoka One One was the biggest winner for Deckers, seeing first-quarter net sales increase 95.5 percent to $213.1 million compared to $109 million for the same period last year.

Hoka beat out the Ugg brand by a hair in revenue, with the boot maker reeling in net sales of $213 million, a 70.8 percent boost over the year-ago period’s $124.7 million.

Teva’s first-quarter net sales increased 65.9 percent to $58.5 million, up from $35.2 million in the 2020 quarter, while Sanuk brand sales grew 13.7 percent to $15.0 million compared to $13.2 million for the same period last year.

Deckers’ other brands, primarily composed of Koolaburra, saw net sales soar 435.9 percent to $5 million compared to approximately $900,000 in the year-ago quarter.

First-quarter wholesale net sales increased 140.2 percent to $344.3 million, up from $143.3 million for the same period last year. Direct-to-consumer (DTC) sales increased 14.7 percent to $160.4 million, compared to $139.8 million to the 2020 first quarter.

According to Powers, wholesale growth was unique in the quarter as a result of disruption in the channel last year, since Deckers refilled domestic Ugg inventories that were depleted from record product sell-through and shipped Ugg products earlier than in prior years to mitigate macro supply chain pressures.

In the longer term, Powers maintained that Deckers is building DTC toward representing approximately 50 percent of the total business.

Domestic growth outpaced international growth, with the former jumping 82.3 percent to $336.1 million and the latter increasing 70.5 percent to $168.6 million.

Net Earnings: Net income totaled $48.1 million in the first quarter on diluted earnings per share of $1.71, well ahead of the $7.9 million loss, or 28 cents per share, Deckers experienced in the year-ago quarter.

Operating income was $61.8 million compared to a loss of $7.7 million for the same period last year.

CEO’s Take: On Hoka’s growth, Powers said: “We think we can surpass the $1 billion milestone with our current distribution and current category mix, so heavy on road and trail running, still primarily is our drivers of revenue and growth. Longer term, on the multi-billion-dollar opportunity [across all brands], it’s about continuing to take market share from our competitors globally in core run, and the expanded outdoor, hike business. REI is a great example of the potential there. We’re starting to see traction beyond that and stealing market share there as well.”

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