Deckers Outdoor Q4 2025 Earnings Report

Hello, and thank you, everyone, for joining us today. On the call is Stefano Carrotti, President and Chief Executive Officer and Steve Foshing, Chief Financial Officer. Before we begin, I would like to remind everyone of the company's safe harbor policy. Please note that certain statements made on this call are forward looking statements within the meaning of the federal securities laws, which are subject to considerable risks and uncertainties. These forward looking statements are intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995.

All statements made on this call today other than statements of historical fact are forward looking statements and include statements regarding our ability to respond to the macroeconomic environment and the impacts on our business and operating results, including changes to global trade policy and fluctuations in foreign currency exchange rates our current and long term strategic objectives the performance of our brands and demand for our products anticipated impacts from our brand, product, marketing, marketplace and distribution strategies product development plans and the timing of product launches changes in consumer behavior our ability to achieve our financial outlook, including anticipated revenues, product mix, margins, expenses, inventory levels, promotional activity, anticipated rates of full price selling and earnings per share and our capital allocation strategy, including the potential repurchase of shares. Forward looking statements made on this call represent management's current expectations and are based on information available at the time such statements are made. Forward looking statements involve numerous known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any results predicted, assumed or implied by the forward looking statements. The company has explained some of these risks and uncertainties in its SEC filings, including in the Risk Factors section of its annual report on Form 10 ks and quarterly reports on Form 10 Q.

Except as required by law or the listing rules of the New York Stock Exchange, the company expressly disclaims any intent or obligation to update any forward looking statements. Please note, as previously disclosed, the company affected a six for one forward stock split during the second quarter of fiscal year twenty twenty five. The share, per share and resulting financial amounts mentioned on this call have been adjusted to reflect the effectiveness of the stock split. On this call, management may refer to financial measures that were not prepared in accordance with generally accepted accounting principles in The United States, including constant currency. In addition, the company reports comparable direct to consumer sales on a constant currency basis for operations that were opened throughout the current and prior reporting periods.

The company believes that these non GAAP financial measures are important indicators of its operating performance because they exclude items that are unrelated to and may not be indicative of its core operating results. Please review our earnings release published today for additional information regarding our non GAAP financial measures. With that, I'll now turn it over to Stefano.

Thanks, Stefano, and good afternoon, everyone. I would echo Stefano's commentary that highlights Dekker's exceptional performance in fiscal year twenty twenty five as we drove our fifth consecutive year of double digit revenue and earnings per share growth. HOKA continues to gain market share with performance runners, while also continuing to expand its addressable market by building global awareness and attracting consumers who want to wear more technical and comfortable footwear for a variety of use cases. UGG continues to build share across genders, generations and geographies, inspiring brand love and consumer adoption for a variety of unique product franchises that span across seasons. Both of these leading brands are succeeding by putting the consumer first, driving strong loyalty through compelling and continuous product innovation that maintains their distinct respective brand codes.

Looking ahead, while the macroeconomic environment remains fluid and there is greater uncertainty around consumer spending, we remain committed to our fundamentals. Deckers' flexible operating model and disciplined approach to financial management allows us to be nimble and navigate the current economic environment with confidence. Further, we exited fiscal year twenty twenty five in a position of outstanding financial strength as our profitability profile and rock solid balance sheet reinforce our ability to continue investing behind our long term strategies. With that, let's get into a recap of our fourth quarter and full fiscal year twenty twenty five results. For the fourth quarter, revenue came in at $1,020,000,000 representing an increase of 6% versus the prior year.

Performance in the quarter was driven by HOKA and UGG, which saw increases of 104% respectively. For HOKA, global wholesale was the primary driver of growth in the fourth quarter as the brand benefited from expanded distribution and selling of the Bondi nine that launched in mid January and experienced strong sell through in the channel throughout the quarter as many consumers sought out new products in store. From a DTC standpoint, the HOKA brand drove a 3% increase versus last year, which reflected continued strong growth from international regions and a slight decline in The U. S. Due to some unique factors in the quarter.

These included consumers opting to explore and purchase new product updates in store, higher levels of promotion on outgoing models and slower new consumer acquisition in the face of macroeconomic uncertainty. While in the near term, this has put pressure on the HOKA brand's DTC growth, we are encouraged by the online retention metrics from repeat consumers in both The U. S. And internationally and expect this trend to improve following the first fiscal quarter. On the UGG brands fourth quarter performance, wholesale was also the primary driver of global growth in the fourth quarter as the channel benefited from selling of transitional styles like the L'Omel sneaker in addition to spring season sandals from the Golden collection.

UGG DTC was down 3% versus last year in the fourth quarter, primarily due to limited availability of key styles during the quarter this year as a result of strong sell through earlier in the year whereas last year's fourth quarter benefited from third quarter back order fulfillment. Gross margin in the fourth quarter was 56.7%, a 50 basis point increase from the prior year period. The improved gross margin primarily relates to benefits from higher levels of full price selling for UGG and favorable brand and product mix, primarily due to higher margin products within UGG driving a larger percentage of growth, with partial offsets from increased freight costs, though less than what we anticipated, unfavorable channel mix shifts with wholesale growing faster than DTC and unfavorable foreign currency exchange rates. SG and A for the quarter was $4.00 $6,000,000 representing 39.7% of revenue, which compares to last year's $395,000,000 and 41.2% of revenue. SG and A as a percentage of revenue was down 150 basis points year over year, primarily due to favorable impacts of foreign currency exchange rate remeasurement.

These results drove diluted earnings per share of $1 which compares to $0.82 in the prior year period, representing a 22 percent increase. Our fourth quarter closed out another impressive year for Deckers. For full fiscal year 2025, results included revenue increasing 16% versus last year to a record $4,986,000,000 As compared to last year, revenue growth was driven by the HOKA brand delivering an incremental $426,000,000 to eclipse $2,200,000,000 in annual revenue with double digit percentage gain across all regions and channels and broad based UGG growth as the brand grew 13% surpassing $2,500,000,000 of revenue led by growth from international markets. Gross margins for the year were 57.9%, up two thirty basis points versus last year. The increase in gross margin was primarily related to favorable brand and product mix shifts with our highest margin products driving the majority of growth and favorable UGG full price selling as the brand delivered a near 60% gross margin with partial offsets from increased freight costs across all brands.

SG and A dollar spend for the year was $1,710,000,000 up 17% versus the prior year $1,460,000,000 SG and A represents 34.2% of revenue, which is slightly above last year's rate of 34%. Key areas of increased investment in fiscal year twenty twenty five included higher marketing spend, including successful strategic spend that amplified HOKA global awareness and increased investment supporting UGG growth initiatives investments in talent to support key functions and infrastructure investments and related depreciation to support the continued growth of our organization. This all resulted in a full fiscal year twenty twenty five operating margin of 23.6%, which is 200 basis points above last year, primarily reflecting the improvement in gross margin experienced. Our top tier operating margin reflects another year of exceptionally low levels of promotional activity, coupled with better than expected returns on our marketing investments. While we are incredibly proud of the disciplined marketplace management and well targeted spend that contributed to these results, we are mindful of the current consumer environment and would not expect for these dynamics to be as favorable in the year ahead.

For the full year, our effective tax rate was 22.3%, which is slightly below last year's 22.4. Our record breaking performance coupled with a lower share count from share repurchase activity and increased interest income on our strong cash balance culminated in a record diluted earnings per share of $6.33 which represents a 30% increase over last year's $4.86 Turning to our balance sheet. At 03/31/2025, we ended the year with $1,900,000,000 of cash and equivalents, inclusive of repurchasing $567,000,000 worth of shares in the year, driven by back to back years of delivering a free cash flow above $900,000,000 Inventory was $495,000,000 up 4% versus the same point in time last year. And during the period, we had no outstanding borrowings. For the year, these results once again returned invested capital above 35%.

During the fourth quarter, we repurchased approximately $266,000,000 worth of shares at a weighted average price per share of $149.62 For the entire fiscal year 2025, we repurchased 3,800,000.0 shares for approximately $567,000,000 at a weighted average price per share of $149.21 Moving to our forward looking update. As a result of macroeconomic uncertainty related to global trade policy, we will not be providing a formal outlook for fiscal year twenty twenty six at this time, but would like to provide insights into how we are thinking about the year ahead. Prior to the introduction of tariff uncertainty, aligned with our longer term aspirations, we were targeting our brands to deliver another year of double digit growth led by mid teen growth from HOKA and mid single digit growth from UGG. Based on the tariffs as of today's date, which are still subject to change, we expect to face an increase of up to $150,000,000 to our cost of goods sold in fiscal year twenty twenty six with the related yet to be determined impact to demand. From a sourcing perspective, less than 5% of our footwear production comes from China, some of which would not be routed for sale into The U.

S. The remainder of our production comes from Southeast Asian countries, primarily Vietnam. Our teams are closely monitoring changes to tariff policies and continue to evaluate levers to mitigate the impact on our business, including but not limited to flexing the pricing power of our brands, which we are assessing for strategic selective and staggered implementation in The U. S. Market and negotiating cost sharing with our factory partners.

Although even with these mitigation efforts, we expect to absorb a portion of the tariff impact as we do not anticipate that these actions will fully offset incremental costs in fiscal year twenty twenty six. We also believe there is potential to see demand erosion associated with the combination of price increases and general softness in the consumer spending environment. Furthermore, our approach to fiscal year twenty twenty six remains consistent with long term objectives highlighted by the following framework. From a revenue perspective, we expect HOKA to continue as our fastest growing brand UGG to grow as it builds on top of impressive recent momentum, international growth to outpace The U. S.

And wholesale to likely outpace DTC, particularly for HOKA as we view increased awareness as an inflection point to strategically expand points of distribution for a growing consumer base to experience the brand. We have a healthy order book across both brands that has not experienced material changes year to date, but would note we have yet to see the full impact of the tariff implementation. We have existing and new partners who want to support the HOKA brand with incremental doors. We will continue to be selective about where and how many additional doors are open, but believe this is a great opportunity for HOKA to acquire new consumers through brand discovery at wholesale. At the same time, UGG continues to bolster its position as a leading premium lifestyle brand and there continues to be more demand from wholesalers than we have been willing to fulfill.

From a gross margin perspective, we are facing a number of headwinds that include increased tariffs, higher levels of promotion relative to the exceptionally low levels experienced over the last couple of years, unfavorable impacts from more expensive upgraded materials absorbed into our margins and higher ocean freight rates in the first half. We believe these headwinds can be fractionally offset by selective and staggered price increases in The U. S. And partial cost sharing with factory partners. Overall, this is expected to result in a decline in our gross margin relative to the record high of 57.9% achieved in fiscal year twenty twenty five.

On the SG and A front, we are planning to largely keep our planned investments intact as the strength of our operating model continues to fuel the future of our brands. We will continue to tightly manage our expenses and drive efficiencies, but at the same time provided the ability to grow brand awareness and share, we will look to invest in our brands. This could result in a short term increase in our SG and A expense ratio to revenue, but we believe over the longer term better positions our brands in the global marketplace. Overall, we are viewing the current environment as an opportunity to flex our best in class operating model and free cash flow generation. We plan to invest in variable areas where we have a proven ability to adjust if necessary.

Keep in mind, our investments drove better than expected returns in fiscal year twenty twenty five as evidenced by our 23.6% operating margin. While we expect to continue investments that support strategic areas of growth, we are actively engaged to drive efficiencies in other areas of the business that can help offset some of these incremental investments. Our ability to continue investing in alignment with our long term strategy is something we see as a competitive advantage. With a normalized consumer environment, we believe we can deliver leverage in the coming years. Similar to how we're looking at SG and A, we expect to deploy focused capital expenditures in the range of 120,000,000 to $130,000,000 to support the future of our company.

Further, as we lean into our strong cash position thus far in the first quarter of fiscal year twenty twenty six as our subsequent event date of 05/09/2025, we have repurchased approximately $84,000,000 worth of shares at a weighted average price per share of $109.75 As of 05/09/2025, the company still had approximately $291,000,000 remaining under its stock repurchase authorization. As announced today, the Board of Directors approved an increase of $2,250,000,000 on top of the company's existing stock repurchase authorization, bringing the total amount authorized to $2,500,000,000 representing more than 10% of our current market capitalization. We believe this highlights the Board's confidence in our strategic plan and allows us to be opportunistic in our approach to repurchasing shares. While it is not our practice to provide quarterly guidance and we do not intend to do so going forward, in light of the current environment, we want to provide our outlook for the quarter ending June 30. For the first quarter of fiscal year twenty twenty six, we expect revenue to be in the range of $890,000,000 to $910,000,000 with HOKA increasing at least low double digits and UGG increasing at least mid single digits.

Gross margin is expected to be down approximately two fifty basis points versus last year due to higher freight cost expensed relative to last year, increased promotional activity as we lapped exceptionally low levels in the prior year and channel mix headwinds with wholesale growing faster than DTC. SG and A is expected to increase slightly faster than revenue in the period as we prioritize disciplined and efficient spend while investing in brand building marketing. Diluted earnings per share is expected to be in the range of $0.62 to $0.67 as compared to last year's stock split restated $0.75 As Stefano mentioned, Deckers has the experience and resilience to operate from a position of strength during this period of uncertainty. We have premium brands that are in demand, distinctive and have proven capability of delivering category leading growth. Coupled with our powerful financial model that generates top tier levels of profitability, free cash flow and return on invested capital, giving us one of the healthiest debt free balance sheets in our sector.

With $1,900,000,000 of cash and an increased share repurchase authorization that now totals $2,500,000,000 we are capable of continuing to return value to shareholders even in a more challenged environment. I remain confident in the opportunities ahead for UGG and HOKA and look forward to sharing our continued progress in fiscal year twenty twenty six. Thanks everyone. And with that, I'll now hand off the call to Stefano for his closing remarks.

Thank you very much. I have a couple here. One, on the inventory, when we think about inventory at the end of Q1, are you going to be pulling forward are you trying to pull forward stuff on the risk of what could happen on July 9? And I guess then again, yeah, on July 9 really. And how should we think about where your inventory is going to be at the end of the first quarter?

And thanks. And then secondly, can you talk a little bit you talked about your wholesale expansion in The US or globally, but really in The US. Can you talk about sort of how you're approaching that with HOKA and, you know, what what, you know, the decision making factors in that? I think the more specifics would be great.

Thanks. And then and then lastly, are there any new model are you are you working on some new models that nobody's seen yet? Maybe, making Silhouette changes or, you know, or, you know, offering new ideas from silhouette showing maybe less lower max cushioning or mini max cushioning idea or anything like that in the offering?

All right. Thank you very much.

Good afternoon. Thanks for taking my question.

So a lot of questions on HOKA. Obviously, UGG outperformed your expectations pretty significantly in the fourth quarter. Just curious if you could give more color on UGG and by region, channel and how you're thinking about UGG in fiscal twenty six.

Yeah. And, Jen, I think a good question. I think just to clear up because there was a lot of discussion in terms of, you know, perception of the UGG brand as we entered, q four. And now what you're seeing with the results is the strong performance of UGG. It's an indication of how strong the demand is for UGG.

You know, I think as we've said for years now in terms of a scarcity model approach, there are going to be times where you're going to run lean on inventory. Right? And that is what contributes to these high levels of gross margin that we've delivered. Another example, is what we just delivered in q four. The demand for UGG remains incredibly strong, as Stefano just said, and that's across the globe.

What we were able to do was bring in a little bit more inventory to expedite it in terms of the quarter. That's what helped contribute to a stronger performance. But I think the point here is we're going to manage inventory. We manage a scarcity model. When we run low, it's helping us maintain high levels of gross margin and increased levels of profitability.

And so, again, another strong brand and great performance in the fourth quarter. And I think just a demonstration of how strong the demand continues for UGG. So good question. I appreciate you bringing it up.

Which accounts are the biggest opportunity in? As I mentioned, it's really by channel. You know, we have opportunities like specialty, sporting goods, both here and internationally. As I said, our we're much more under penetrated than many of our competitors. And as our offer expands, we'll be able to offer different channels and different accounts a distinctive proposition.

So we feel good about where we are. We feel good about what our marketplace plans are across regions.