UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| (Mark One) | |||||
| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the Quarterly Period Ended June 30, 2024
OR
| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the transition period from to
Commission File Number: 001-36436
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices and zip code)
(805 ) 967-7611
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of the close of business on July 11, 2024, the number of outstanding shares of the registrant’s common stock, par value $0.01 per share, was 25,410,572 .
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
For the Three Months Ended June 30, 2024, and 2023
TABLE OF CONTENTS
| Page | ||||||||
| Item 3. | Defaults Upon Senior Securities | * | ||||||
| Item 4. | Mine Safety Disclosures | * | ||||||
*Not applicable.
1
This Quarterly Report on Form 10-Q for our first fiscal quarter ended June 30, 2024 (Quarterly Report), and the information and documents incorporated by reference within this Quarterly Report, contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), which statements 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. Forward-looking statements include all statements other than statements of historical fact contained in, or incorporated by reference within, this Quarterly Report. We have attempted to identify forward-looking statements by using words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” “will,” or “would,” and similar expressions or the negative of these expressions. Specifically, this Quarterly Report, and the information and documents incorporated by reference within this Quarterly Report, contain forward-looking statements relating to, among other things:
•changes in consumer preferences impacting our brands and products, and the footwear and fashion industries;
•global economic trends, including foreign currency exchange rate fluctuations, changes in interest rates, inflationary pressures, changes in commodity pricing, and recessionary concerns;
•the ability to effectively compete in a highly competitive footwear, apparel, and accessories industry;
•our business, operating, investing, capital allocation, marketing, and financing plans and strategies;
•the operational challenges faced by our warehouses and distribution centers (DCs), wholesale partners, global third-party logistics providers (3PLs), and third-party carriers, including as a result of global supply chain disruptions and labor shortages;
•trends, seasonality, and weather impacting the demand for our products and the purchasing behavior of wholesale partners and consumers;
•changes to the geographic and seasonal mix of our brands and products;
•availability of materials and manufacturing capacity, and reliability of overseas production and storage;
•changes to our product distribution strategies, including product allocation and segmentation strategies;
•the impact of our efforts to continue to advance sustainable and socially conscious business operations, and to meet the expectations that our investors and other stakeholders have with respect to our environmental, social and governance practices;
•the effects of climate change, natural disasters, and the impacts of public health issues, and the related changes in the regulatory environment and consumer demand to mitigate these effects, and the resulting impact on our business and the businesses of our customers, consumers, suppliers, and business partners;
•expansion of our brands, product offerings, and investments in our Direct-to-Consumer (DTC) capabilities, including our distribution facilities, e-commerce websites, and our retail store footprint;
•our plans to sell the Sanuk brand and certain related assets, and the sale agreement terms and timing;
•global geopolitical tensions, including the impact of economic sanctions on our transportation and energy costs;
•security breach or other disruption to our information technology (IT) systems, or those of our vendors;
•our interpretation of applicable global tax regulations and changes in tax laws and audits that may impact our tax liability and effective tax rates;
•our cash repatriation strategy regarding earnings of non-United States (US) subsidiaries and the resulting tax impacts;
•the outcomes of legal proceedings, including the impact they may have on our business and intellectual property rights; and
•the value of goodwill and other intangible assets, and potential write-downs or impairment charges.
Forward-looking statements represent management’s current expectations and predictions about trends affecting our business and industry and are based on information available at the time such statements are made. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy or completeness. Forward-looking statements involve numerous known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements predicted, assumed, or implied by the forward-looking statements. Some of the risks and uncertainties that may cause our actual results to materially differ from those expressed or implied by these forward-looking statements are described in Part II, Item 1A, “Risk Factors,” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” within this Quarterly Report, as well as in our other filings with the Securities and Exchange Commission (SEC), which are available free of charge on the SEC’s website at www.sec.gov and our website at ir.deckers.com. You should read this Quarterly Report, including the information and documents incorporated by reference herein, in its entirety and with the understanding that our actual future results may be materially different from the results expressed or implied by these forward-looking statements. Moreover, new risks and uncertainties emerge occasionally, and it is not possible for management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual future results to be materially different from any results expressed or implied by any forward-looking statements. Except as required by applicable law or the listing rules of the New York Stock Exchange, we expressly disclaim any intent or obligation to update any forward-looking statements. We qualify all our forward-looking statements with these cautionary statements.
2
PART I. FINANCIAL INFORMATION
References within this Quarterly Report to “Deckers,” “we,” “our,” “us,” “management,” or the “Company” refer to Deckers Outdoor Corporation, together with its consolidated subsidiaries. UGG® (UGG), HOKA® (HOKA), Teva® (Teva), Sanuk® (Sanuk), Koolaburra by UGG® (Koolaburra), and AHNU® (AHNU) are some of our trademarks. Other trademarks or trade names appearing elsewhere within this Quarterly Report are the property of their respective owners. The trademarks and trade names within this Quarterly Report are referred to without the ® and ™ symbols, but such references should not be construed as any indication that their respective owners will not assert their rights to the fullest extent under applicable law.
Unless otherwise indicated, all figures herein are expressed in thousands, except for per share and share data.
3
ITEM 1. FINANCIAL STATEMENTS
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollar and share data amounts in thousands, except par value)
| June 30, 2024 | March 31, 2024 | ||||||||||
| ASSETS | (AUDITED) | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Trade accounts receivable, net of allowances ($ | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses | |||||||||||
| Other current assets | |||||||||||
| Income tax receivable | |||||||||||
| Total current assets | |||||||||||
Property and equipment, net of accumulated depreciation ($ | |||||||||||
| Operating lease assets | |||||||||||
| Goodwill | |||||||||||
Other intangible assets, net of accumulated amortization ($ | |||||||||||
| Deferred tax assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Trade accounts payable | $ | $ | |||||||||
| Accrued payroll | |||||||||||
| Operating lease liabilities | |||||||||||
| Other accrued expenses | |||||||||||
| Income tax payable | |||||||||||
| Value added tax payable | |||||||||||
| Total current liabilities | |||||||||||
| Long-term operating lease liabilities | |||||||||||
| Income tax liability | |||||||||||
| Other long-term liabilities | |||||||||||
| Total long-term liabilities | |||||||||||
| Stockholders’ equity | |||||||||||
Common stock (par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| ( | ( | ||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying notes to the condensed consolidated financial statements.
4
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(dollar and share data amounts in thousands, except per share data)
| Three Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| $ | $ | ||||||||||
| Cost of sales | |||||||||||
| Gross profit | |||||||||||
| Selling, general, and administrative expenses | |||||||||||
| Interest income | ( | ( | |||||||||
| Interest expense | |||||||||||
| Other income, net | ( | ( | |||||||||
| Total other income, net | ( | ( | |||||||||
| Income before income taxes | |||||||||||
| Net income | |||||||||||
| Other comprehensive loss, net of tax | |||||||||||
| Unrealized gain on cash flow hedges | |||||||||||
| Foreign currency translation loss | ( | ( | |||||||||
| Total other comprehensive loss, net of tax | ( | ( | |||||||||
| Comprehensive income | $ | $ | |||||||||
| Net income per share | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
See accompanying notes to the condensed consolidated financial statements.
5
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(amounts in thousands)
| Three Months Ended June 30, 2024 | |||||||||||||||||||||||||||||||||||
| Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Shares issued upon vesting | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | ||||||||||||||||||||||||||||||||
| Shares withheld for taxes | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| ( | ( | — | ( | — | ( | ||||||||||||||||||||||||||||||
| Excise taxes related to repurchases of common stock | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Total other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||
| Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | ||||||||||||||||||||||||||||||||
| Shares issued upon vesting | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | ||||||||||||||||||||||||||||||||
| Shares withheld for taxes | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| ( | ( | — | ( | — | ( | ||||||||||||||||||||||||||||||
| Excise taxes related to repurchases of common stock | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Total other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
6
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
| Three Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| OPERATING ACTIVITIES | |||||||||||
| Net income | $ | $ | |||||||||
| Reconciliation of net income to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation, amortization, and accretion | |||||||||||
| Amortization on cloud computing arrangements | |||||||||||
| Bad debt benefit | ( | ( | |||||||||
| Deferred tax expense | |||||||||||
| Stock-based compensation | |||||||||||
| Loss on disposal of long-lived assets | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Trade accounts receivable, net | ( | ||||||||||
| Inventories | ( | ( | |||||||||
| Prepaid expenses and other current assets | ( | ||||||||||
| Income tax receivable | ( | ||||||||||
| Net operating lease assets and lease liabilities | ( | ||||||||||
| Other assets | ( | ( | |||||||||
| Trade accounts payable | |||||||||||
| Other accrued expenses | ( | ( | |||||||||
| Income tax payable | |||||||||||
| Other long-term liabilities | |||||||||||
| Net cash provided by operating activities | |||||||||||
| INVESTING ACTIVITIES | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| FINANCING ACTIVITIES | |||||||||||
| Proceeds from exercise of stock options | |||||||||||
| Repurchases of common stock | ( | ( | |||||||||
| Cash paid for shares withheld for taxes | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of foreign currency exchange rates on cash and cash equivalents | ( | ( | |||||||||
| Net change in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
7
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
(continued)
| Three Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| SUPPLEMENTAL CASH FLOW DISCLOSURE | |||||||||||
| Cash paid during the period | |||||||||||
| Income taxes | $ | $ | |||||||||
| Interest | |||||||||||
| Operating leases | |||||||||||
| Non-cash investing activities | |||||||||||
| Changes in trade accounts payable and other accrued expenses for purchases of property and equipment | ( | ( | |||||||||
| Accrued for asset retirement obligation assets related to leasehold improvements | |||||||||||
| Leasehold improvements acquired through tenant allowances | |||||||||||
| Non-cash financing activities | |||||||||||
| Accrued excise taxes related to repurchases of common stock | |||||||||||
See accompanying notes to the condensed consolidated financial statements.
8
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
NOTE 1. GENERAL
The Company. Deckers Outdoor Corporation and its wholly owned subsidiaries (collectively, the Company) is a global leader in designing, marketing, and distributing innovative footwear, apparel, and accessories developed for both everyday casual lifestyle use and high-performance activities. The Company’s six proprietary brands include the UGG, HOKA, Teva, Sanuk, Koolaburra, and AHNU brands.
The Company sells its products through quality domestic and international retailers, international distributors, and directly to its global consumers through its DTC business, which is comprised of its e-commerce business and retail stores. Independent third-party contractors manufacture all of the Company’s products.
Seasonality. A significant part of the UGG brand’s business has historically been seasonal, requiring the Company to build inventory levels during certain quarters in its fiscal year to support higher selling seasons, which has contributed to variation in its results from quarter to quarter. However, as the Company continues to take steps to diversify and expand its product offerings by creating more year-round styles, and as net sales of the HOKA brand, which generally occur more evenly throughout the year, continue to increase as a percentage of the Company’s aggregate net sales, the Company expects to continue to see the impact from seasonality decrease over time.
Basis of Presentation. The unaudited condensed consolidated financial statements and accompanying notes thereto (referred to herein as condensed consolidated financial statements) as of June 30, 2024, and for the three months ended June 30, 2024 (the current period), and 2023 (the prior period) are prepared in accordance with generally accepted accounting principles in the US (US GAAP) for interim financial information pursuant to Rule 10-01 of Regulation S-X issued by the SEC. Accordingly, the condensed consolidated financial statements do not include all the information and disclosures required by US GAAP for annual financial statements and accompanying notes thereto. The condensed consolidated balance sheet as of March 31, 2024, is derived from the Company’s audited consolidated financial statements. In the opinion of management, the condensed consolidated financial statements include all normal and recurring entries necessary to fairly present the results of the interim periods presented but are not necessarily indicative of actual results to be achieved for full fiscal years or other interim periods. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2024 (prior fiscal year), which was filed with the SEC on May 24, 2024 (2024 Annual Report).
Consolidation. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates. The preparation of the Company’s condensed consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the amounts reported. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements and other factors that management believes to be reasonable. In addition, the Company has considered the potential impact of macroeconomic factors, including inflation, foreign currency exchange rate volatility, changes in interest rates, changes in commodity pricing, changes in discretionary spending and recessionary concerns, on its business and operations. Although the full impact of these factors is unknown, the Company believes it has made appropriate accounting estimates and assumptions based on the facts and circumstances available as of the reporting date. However, actual results could differ materially from these estimates and assumptions, which may result in material effects on the Company’s financial condition, results of operations, and liquidity. To the extent there are differences between these estimates and actual results, the Company’s condensed consolidated financial statements may be materially affected.
9
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
Significant areas requiring the use of management estimates and assumptions relate to inventory write-downs; trade accounts receivable allowances, including variable consideration for net sales provided to customers, such as the sales return asset and liability; contract assets and liabilities; stock-based compensation; impairment assessments, including goodwill, other intangible assets, and long-lived assets; depreciation and amortization; income tax receivables and liabilities; uncertain tax positions; the fair value of financial instruments; the reasonably certain lease term; lease classification; and the Company’s incremental borrowing rate utilized to measure its operating lease assets and lease liabilities.
Foreign Currency Translation. The Company considers the US dollar as its functional currency. The Company’s wholly owned foreign subsidiaries have various assets and liabilities, primarily cash, receivables, and payables, which are denominated in currencies other than its functional currency. The Company remeasures these monetary assets and liabilities using the exchange rate at the end of the reporting period, which results in gains and losses that are recorded in selling, general, and administrative (SG&A) expenses in the condensed consolidated statements of comprehensive income as incurred. In addition, the Company translates assets and liabilities of subsidiaries with reporting currencies other than US dollars into US dollars using the exchange rates at the end of the reporting period, which results in financial statement translation gains and losses recorded in other comprehensive income or loss (OCI) in the condensed consolidated statements of comprehensive income.
Recent Accounting Pronouncements. The Financial Accounting Standards Board has issued Accounting Standards Updates (ASU) that have been adopted and not yet adopted by the Company as stated below.
Recently Adopted. The following is a summary of a recently adopted ASU and its expected impact on the Company:
| Standard | Description | Impact Upon Adoption | ||||||||||||
ASU 2022-04 - Supplier Finance Program (SFP) | The ASU requires that a buyer in a SFP disclose qualitative and quantitative information about its program on an interim basis, including the nature of the SFP and key terms, outstanding amounts as of the end of the reporting period, and presentation in its financial statements. The interim portion of this ASU is effective on a retrospective basis for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. The annual requirement that requires a buyer in a SFP disclose an activity roll forward of outstanding balances as of the end of the reporting period has not yet been adopted. This annual portion of this ASU is effective on a retrospective basis for fiscal years beginning after December 15, 2023. Early adoption is not permitted. | The Company retrospectively adopted this ASU beginning on April 1, 2023, except for the roll forward requirements. This ASU did not have a material impact on the recognition, measurement, or presentation of supplier finance programs in the Company’s annual and interim consolidated financial statements. However, it did result in additional disclosure. Refer to Note 11, “Supplier Finance Program,” for further information on the Company’s SFP key terms and outstanding balances recorded in the condensed consolidated balance sheets. The Company plans to adopt the annual roll forward requirement beginning with its fiscal year (FY) ending March 31, 2025, and does not expect the adoption to have a material impact on its annual and interim consolidated financial statements. | ||||||||||||
10
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
Not Yet Adopted. The following is a summary of each ASU that has been issued and is applicable to the Company, but which has not yet been adopted, as well as the planned period of adoption, and the expected impact on the Company upon adoption:
| Standard | Description | Planned Period of Adoption | Expected Impact on Adoption | |||||||||||||||||
ASU 2023-07 - Improvements to Reportable Segment Disclosures | The ASU requires annual and interim disclosures of significant segment expenses, including an amount and composition description for other segment items, and how reported measures of profit or loss are used by the chief operating decision maker (CODM) in assessing segment performance and deciding how to allocate resources. The ASU is effective on a retrospective basis for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. | Q4 FY 2025 and Q1 FY 2026 | The Company is currently evaluating the impact of the adoption of this ASU on its annual and interim consolidated financial statements. | |||||||||||||||||
ASU 2023-09 - Improvements to Income Tax Disclosures | The ASU requires annual disclosures of prescribed standard categories for the components of the effective tax rate reconciliation, disclosure of income taxes paid disaggregated by jurisdiction, and other income-tax related disclosures. The ASU is effective on a prospective basis, with retrospective application permitted, for fiscal years beginning after December 15, 2024. Early adoption is permitted. | Q4 FY 2026 | The Company is currently evaluating the impact of the adoption of this ASU on its annual and interim consolidated financial statements. | |||||||||||||||||
NOTE 2. REVENUE RECOGNITION
Disaggregated Revenue. Refer to Note 9, “Reportable Operating Segments,” for further information on the Company’s disaggregation of revenue by reportable operating segment.
Sales Return Asset and Liability. Sales returns are a refund asset for the right to recover the inventory and a refund liability for the stand-ready right of return. The refund asset for the right to recover the inventory is recorded in other current assets and the related refund liability is recorded in other accrued expenses in the condensed consolidated balance sheets.
The following tables summarize changes in the estimated sales returns for the periods presented:
| Recovery Asset | Refund Liability | ||||||||||
| Balance, March 31, 2024 | $ | $ | ( | ||||||||
Net additions to sales return liability (1) | ( | ||||||||||
| Actual returns | ( | ||||||||||
| Balance, June 30, 2024 | $ | $ | ( | ||||||||
| Recovery Asset | Refund Liability | ||||||||||
| Balance, March 31, 2023 | $ | $ | ( | ||||||||
Net additions to sales return liability (1) | ( | ||||||||||
| Actual returns | ( | ||||||||||
| Balance, June 30, 2023 | $ | $ | ( | ||||||||
(1) Net additions to the sales return liability include a provision for anticipated sales returns, which consists of both contractual return rights and discretionary authorized returns.
11
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
Contract Liabilities. Contract liabilities are recorded in other accrued expenses in the condensed consolidated balance sheets and include loyalty programs and other deferred revenue.
Loyalty Programs. Activity related to loyalty programs was as follows:
| Three Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
Beginning balance | $ | ( | $ | ( | |||||||
| Redemptions and expirations for loyalty certificates and points recognized in net sales | |||||||||||
| Deferred revenue for loyalty points and certificates issued | ( | ( | |||||||||
Ending balance | $ | ( | $ | ( | |||||||
Deferred Revenue. Activity related to deferred revenue was as follows:
| Three Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Beginning balance | $ | ( | $ | ( | |||||||
| Additions of customer cash payments | ( | ( | |||||||||
| Revenue recognized | |||||||||||
| Ending balance | $ | ( | $ | ( | |||||||
Refer to Note 2, “Revenue Recognition,” in the Company’s consolidated financial statements in Part IV of the 2024 Annual Report for further information on the Company’s variable consideration accounting policies, including sales return asset and liability, as well as contract liabilities.
NOTE 3. FAIR VALUE MEASUREMENTS
The Company measures certain financial assets and liabilities at fair value on a recurring basis. Refer to Note 4, “Fair Value Measurements,” in the Company’s consolidated financial statements in Part IV of the 2024 Annual Report for further information on the Company’s fair value accounting policies.
Assets and liabilities that are measured on a recurring basis at fair value in the condensed consolidated balance sheets are as follows:
| As of | Measured Using | ||||||||||||||||||||||
| June 30, 2024 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money-market funds | $ | $ | $ | $ | |||||||||||||||||||
| Other current assets: | |||||||||||||||||||||||
Designated Derivative Contracts asset | |||||||||||||||||||||||
| Other assets: | |||||||||||||||||||||||
| Non-qualified deferred compensation asset | |||||||||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | |||||||||||||||||||
12
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
| As of | Measured Using | ||||||||||||||||||||||
| June 30, 2024 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Other accrued expenses: | |||||||||||||||||||||||
| Non-qualified deferred compensation liability | $ | ( | $ | ( | $ | $ | |||||||||||||||||
Designated Derivative Contracts liability | ( | ( | |||||||||||||||||||||
| Other long-term liabilities: | |||||||||||||||||||||||
| Non-qualified deferred compensation liability | ( | ( | |||||||||||||||||||||
| Total liabilities measured at fair value | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||
| As of | Measured Using | ||||||||||||||||||||||
| March 31, 2024 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money-market funds | $ | $ | $ | $ | |||||||||||||||||||
| Other assets: | |||||||||||||||||||||||
| Non-qualified deferred compensation asset | |||||||||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Other accrued expenses: | |||||||||||||||||||||||
| Non-qualified deferred compensation liability | $ | ( | $ | ( | $ | $ | |||||||||||||||||
| Other long-term liabilities: | |||||||||||||||||||||||
| Non-qualified deferred compensation liability | ( | ( | |||||||||||||||||||||
| Total liabilities measured at fair value | $ | ( | $ | ( | $ | $ | |||||||||||||||||
The fair value of Designated Derivative Contracts is determined using quoted forward spot rates at the end of the applicable reporting period from counterparties, which are corroborated by market-based pricing (Level 2), with related assets and liabilities recorded in other current assets and other accrued expenses, respectively, in the condensed consolidated balance sheets. Refer to Note 6, “Derivative Instruments,” for further information, including the definition of the term Designated Derivative Contracts.
NOTE 4. INCOME TAXES
Income tax expense and the effective income tax rate were as follows:
| Three Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Income tax expense | $ | $ | |||||||||
| Effective income tax rate | % | % | |||||||||
The tax provisions during the three months ended June 30, 2024, and 2023, were computed using the estimated effective income tax rate applicable to each of the domestic and foreign taxable jurisdictions for the fiscal years ending March 31, 2025, and March 31, 2024, respectively, and were adjusted for discrete items that occurred within the periods presented above. During the three months ended June 30, 2024, the net increase in the effective income tax rate, compared to the prior period, was due to higher operating income, including changes in jurisdictional mix of worldwide income before income taxes, partially offset by net discrete tax benefits for stock-based compensation.
13
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
Recent Tax Law Changes. The Organization for Economic Co-operation and Development (commonly known as OECD) has released Pillar Two model rules introducing a 15% global minimum tax rate for large multinational corporations to be effective starting with tax periods ending in 2024. Various jurisdictions the Company operates in have enacted or plan to enact legislation beginning in calendar year 2024 or in subsequent years. The enactment of Pillar Two legislation did not have a material effect on the Company’s condensed consolidated statements of comprehensive income during the three months ended June 30, 2024. The Company will continue to monitor and reflect the impact of such legislative changes in future periods, as each of the respective jurisdictions enact the legislation and the legislation becomes effective.
NOTE 5. COMMITMENTS AND CONTINGENCIES
Leases. The Company primarily leases retail stores, showrooms, offices, and distribution facilities under operating lease contracts. There were no material changes outside the ordinary course of business during the three months ended June 30, 2024, to the operating lease terms disclosed in the 2024 Annual Report.
Supplemental information for amounts presented in the condensed consolidated statements of cash flows related to operating leases, were as follows:
| Three Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Non-cash operating activities | |||||||||||
Operating lease assets obtained in exchange for lease liabilities (1) | $ | $ | |||||||||
Reductions to operating lease assets for reductions to lease liabilities (1) | ( | ( | |||||||||
(1) Amounts disclosed include non-cash additions or reductions resulting from lease remeasurements, as well as reductions for tenant improvement allowances.
Operating lease liabilities recorded in the condensed consolidated balance sheets exclude an aggregate of $15,289 of undiscounted minimum lease payments due pursuant to leases signed but not yet commenced during the three months ended June 30, 2024, and through July 11, 2024, primarily for a new HOKA brand retail store lease in Paris that will be operational during the quarter ending December 31, 2024.
Purchase Obligations. There were no material changes to purchase obligations last disclosed in the 2024 Annual Report outside the ordinary course of business during the three months ended June 30, 2024.
Litigation. From time to time, the Company is involved in various legal proceedings, disputes, and other claims arising in the ordinary course of business, including employment, intellectual property, and product liability claims. Although the results of these matters cannot be predicted with certainty, the Company believes it is not currently a party to any legal proceedings, disputes, or other claims for which a material loss is considered probable and for which the amount (or range) of loss is reasonably estimable. However, regardless of the merit of the claims raised or the outcome, these matters can have an adverse impact on the Company as a result of legal costs, diversion of management’s time and resources, and other factors.
Refer to Note 7, “Commitments and Contingencies,” in the Company’s consolidated financial statements in Part IV of the 2024 Annual Report for further information on the Company’s contractual obligations and commitments.
14
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
NOTE 6. DERIVATIVE INSTRUMENTS
The Company enters into foreign currency forward or option contracts (derivative contracts) with maturities of 15
The after-tax unrealized gains or losses from changes in fair value of Designated Derivative Contracts are recorded as a component of accumulated other comprehensive loss (AOCL) in the condensed consolidated balance sheets and are reclassified to net sales in the condensed consolidated statements of comprehensive income in the same period or periods as the related sales are recognized. When it is probable that a forecasted transaction will not occur, the Company discontinues hedge accounting and the accumulated gains or losses in AOCL related to the hedging relationship are immediately recorded in OCI in the condensed consolidated statements of comprehensive income. Refer to Note 1, “General,” in the Company’s consolidated financial statements in Part IV of the 2024 Annual Report for further information regarding the Company’s derivative instruments accounting policy.
As of June 30, 2024, the Company has the following Designated Derivative Contracts recorded at fair value in the condensed consolidated balance sheets:
| Notional value | $ | ||||
| Fair value recorded in other current assets | |||||
| Fair value recorded in other accrued expenses | ( | ||||
As of June 30, 2024, four counterparties hold the Company’s outstanding derivative contracts, all of which are expected to mature in the next nine months . As of March 31, 2024, the Company had no outstanding derivative contracts.
The following table summarizes the effect of Designated Derivative Contracts and the related income tax effects of unrealized gains or losses recorded in the condensed consolidated statements of comprehensive income for changes in AOCL:
| Three Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Gain recorded in OCI | $ | $ | |||||||||
| Reclassifications from AOCL into net sales | |||||||||||
| Income tax expense in OCI | ( | ( | |||||||||
| Total | $ | $ | |||||||||
The non-performance risk of the Company and its counterparties did not have a material impact on the fair value of its derivative contracts. As of June 30, 2024, the amount of unrealized gains on derivative contracts recorded in AOCL is expected to be reclassified into net sales within the next nine months . Refer to Note 7, “Stockholders’ Equity,” for further information on the components of AOCL.
NOTE 7. STOCKHOLDERS’ EQUITY
Stock Repurchase Program. The Company’s Board of Directors (Board) has approved various authorizations under the Company’s stock repurchase program to repurchase shares of its common stock in the open market or in privately negotiated transactions, subject to market conditions, applicable legal requirements, and other factors (collectively, the stock repurchase program). As of June 30, 2024, the aggregate remaining approved amount under the stock repurchase program is $789,737 . The stock repurchase program does not obligate the Company to acquire any amount of common stock and may be suspended at any time at the Company’s discretion.
15
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
Stock repurchase activity under the Company’s stock repurchase program was as follows:
| Three Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
Total number of shares repurchased (1) | |||||||||||
Average price per share paid | $ | $ | |||||||||
Dollar value of shares repurchased (2) (3) | $ | $ | |||||||||
(1) All share repurchases were made pursuant to the Company’s stock repurchase program in open-market transactions.
(2) The dollar value of shares repurchased excludes the cost of broker commissions, excise taxes, and other costs.
(3) May not calculate on rounded dollars.
Subsequent to June 30, 2024, through July 11, 2024, the Company repurchased 17,307 shares at an average price of $924.11 per share for $15,994 and had $773,743 remaining authorized under the stock repurchase program.
Accumulated Other Comprehensive Loss. The components within AOCL, net of tax, recorded in the condensed consolidated balance sheets are as follows:
| June 30, 2024 | March 31, 2024 | ||||||||||
| Unrealized gain on cash flow hedges | $ | $ | |||||||||
| Cumulative foreign currency translation loss | ( | ( | |||||||||
| Total | $ | ( | $ | ( | |||||||
NOTE 8. BASIC AND DILUTED SHARES
The reconciliation of basic to diluted weighted-average common shares outstanding was as follows:
| Three Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Basic | |||||||||||
| Dilutive effect of equity awards | |||||||||||
| Diluted | |||||||||||
| Excluded | |||||||||||
| Long-Term Incentive Plan Performance-Based Restricted Stock Units | |||||||||||
| Employee Stock Purchase Plan | |||||||||||
Excluded Awards. The equity awards excluded from the calculation of the dilutive effect have been excluded due to one of the following: (1) the shares were antidilutive; (2) the necessary conditions had not been satisfied for the shares to be deemed issuable based on the Company’s performance for the relevant performance period; or (3) the Company recorded a net loss during the period presented (such that inclusion of these equity awards in the calculation would have been antidilutive). The number of shares stated for each of these excluded awards is the maximum number of shares issuable pursuant to these awards. For those awards subject to the achievement of performance criteria, the actual number of shares to be issued pursuant to such awards will be based on Company performance in future periods, net of forfeitures, and may be materially lower than the number of shares presented, which could result in a lower dilutive effect. Refer to Note 8, “Stock-Based Compensation,” in the Company’s consolidated financial statements in Part IV of the 2024 Annual Report for further information on the Company’s equity incentive plans.
16
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
NOTE 9. REPORTABLE OPERATING SEGMENTS
Information reported to the CODM, who is the Company’s Chief Executive Officer (CEO), President, and Principal Executive Officer (PEO), is organized into the Company’s six reportable operating segments and is consistent with how the CODM evaluates performance and allocates resources. The Company does not consider international operations to be a separate reportable operating segment, and the CODM reviews such operations in the aggregate with the reportable operating segments.
Segment Net Sales and Income from Operations. The Company evaluates reportable operating segment performance primarily based on net sales and income (loss) from operations. The wholesale operations of each brand are managed separately because each requires different marketing, research and development, design, sourcing, and sales strategies. The income (loss) from operations of each of the reportable operating segments includes only those costs which are specifically related to each reportable operating segment, which consist primarily of cost of sales, research and development, design, sales and marketing, depreciation, amortization, and the direct costs of employees within those reportable operating segments.
The Company does not allocate corporate overhead costs or non-operating income and expenses to reportable operating segments, which include unallocable overhead costs associated with the Company’s warehouses and DCs, certain executive and stock-based compensation, accounting, finance, legal, IT, human resources, and facilities, among others. Inter-segment sales from the Company’s wholesale reportable operating segments to the DTC reportable operating segment are at the Company’s cost, and there is no inter-segment profit on these inter-segment sales, nor are they reflected in income (loss) from operations of the wholesale reportable operating segments as these transactions are eliminated in consolidation.
Reportable operating segment information, with a reconciliation to the condensed consolidated statements of comprehensive income, was as follows:
| Three Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net sales | |||||||||||
| UGG brand wholesale | $ | $ | |||||||||
| HOKA brand wholesale | |||||||||||
| Teva brand wholesale | |||||||||||
| Sanuk brand wholesale | |||||||||||
| Other brands wholesale | |||||||||||
| Direct-to-Consumer | |||||||||||
| Total | $ | $ | |||||||||
| Three Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Income (loss) from operations | |||||||||||
| UGG brand wholesale | $ | $ | |||||||||
| HOKA brand wholesale | |||||||||||
| Teva brand wholesale | |||||||||||
| Sanuk brand wholesale | |||||||||||
| Other brands wholesale | ( | ( | |||||||||
| Direct-to-Consumer | |||||||||||
| Unallocated overhead costs | ( | ( | |||||||||
| Total | $ | $ | |||||||||
17
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
Segment Assets. Assets allocated to each reportable operating segment include trade accounts receivable, net, inventories, property and equipment, net, operating lease assets, goodwill, other intangible assets, net, and certain other assets that are specifically identifiable for one of the Company’s reportable operating segments. Unallocated assets are those assets not directly related to a specific reportable operating segment and generally include cash and cash equivalents, deferred tax assets, net, and various other corporate assets shared by the Company’s reportable operating segments.
Assets allocated to each reportable operating segment, with a reconciliation to the condensed consolidated balance sheets, are as follows:
| June 30, 2024 | March 31, 2024 | ||||||||||
| Assets | |||||||||||
| UGG brand wholesale | $ | $ | |||||||||
| HOKA brand wholesale | |||||||||||
| Teva brand wholesale | |||||||||||
| Sanuk brand wholesale | |||||||||||
| Other brands wholesale | |||||||||||
| Direct-to-Consumer | |||||||||||
Total assets from reportable operating segments | |||||||||||
| Unallocated cash and cash equivalents | |||||||||||
| Unallocated deferred tax assets, net | |||||||||||
| Unallocated other corporate assets | |||||||||||
| Total | $ | $ | |||||||||
NOTE 10. CONCENTRATION OF BUSINESS
Regions and Customers. The Company sells its products globally to customers and consumers in various countries, with net sales concentrations as follows:
| Three Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| International net sales | $ | $ | |||||||||
| % of net sales | % | % | |||||||||
| Net sales in foreign currencies | $ | $ | |||||||||
| % of net sales | % | % | |||||||||
| Ten largest global customers as % of net sales | % | % | |||||||||
For the three months ended June 30, 2024, and 2023, no single foreign country comprised 10.0% or more of the Company’s total net sales. For the three months ended June 30, 2024, and 2023, no single global customer accounted for 10.0% or more of the Company’s total net sales.
The Company has two customers that represent 23.5 % and 31.2 % of trade accounts receivable, net, as of June 30, 2024, and March 31, 2024, respectively. Management performs regular evaluations concerning the ability of the Company’s customers to satisfy their obligations to the Company and recognizes an allowance for doubtful accounts based on these evaluations.
Cash and Cash Equivalents. The Company maintains a portion of its cash in Federal Deposit Insurance Corporation insured bank deposit accounts which, at times, may exceed federally insured limits. To date, the Company has not experienced any losses in such accounts. Based on the size and strength of the banking institutions used, the Company does not believe it is exposed to any significant credit risks in cash.
18
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
Long-Lived Assets. Long-lived assets, which consist of property and equipment, net, recorded in the condensed consolidated balance sheets, are as follows:
| June 30, 2024 | March 31, 2024 | ||||||||||
| United States | $ | $ | |||||||||
Foreign (1) | |||||||||||
| Total | $ | $ | |||||||||
(1) No single foreign country’s property and equipment, net, represents 10.0% or more of the Company’s total property and equipment, net, as of June 30, 2024, and March 31, 2024.
NOTE 11. SUPPLIER FINANCE PROGRAM
Supplier Finance Program. The Company has a voluntary SFP administered through a third-party platform that provides the Company’s independent manufacturers that supply its inventory (inventory suppliers) the opportunity to sell their receivables due from the Company to participating financial institutions in advance of the invoice due date, at the sole discretion of both inventory suppliers and the financial institutions. The Company is not party to the agreements between these third parties and has no economic interest in an inventory suppliers’ decision to sell a receivable.
The Company’s payment obligations, including the amounts due and payment terms, which generally do not exceed 90 days, are not impacted by the inventory suppliers’ election to participate in the SFP, and the Company provides no guarantees to any third parties under the SFP. Accordingly, amounts due to inventory suppliers that elected to participate in the SFP are presented in trade accounts payable in the condensed consolidated balance sheets.
As of June 30, 2024, and March 31, 2024, the Company had $8,571 and $3,483 , respectively, of balances outstanding related to the SFP recorded in trade accounts payable in the condensed consolidated balance sheets. Payments made in connection with the SFP are reported as cash used in operating activities in the trade accounts payable line item of the condensed consolidated statements of cash flows.
NOTE 12. SUBSEQUENT EVENTS
Sanuk Brand Asset Sale. During October 2023, the Company announced that it intended to divest the Sanuk brand in alignment with effective resource allocation and the execution of its long-term objectives. Subsequent to June 30, 2024, the Company entered into an agreement pursuant to which the buyer agreed to purchase the Sanuk brand and certain related assets, which is expected to close in August 2024.
19
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read together with our condensed consolidated financial statements and the related notes, included in Part I, Item 1, “Financial Statements,” within this Quarterly Report, and the audited consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data,” of our 2024 Annual Report, filed with the SEC on May 24, 2024, which is available free of charge on the SEC’s website at www.sec.gov and our website at ir.deckers.com.
Certain statements made in this section constitute “forward-looking statements,” which are subject to numerous risks and uncertainties. Our actual results of operations may differ materially from those expressed or implied by these forward-looking statements as a result of many factors, including those set forth in the section titled “Cautionary Note Regarding Forward-Looking Statements” and Part II, Item 1A, “Risk Factors,” within this Quarterly Report.
OVERVIEW
We are a global leader in designing, marketing, and distributing innovative footwear, apparel, and accessories developed for both everyday casual lifestyle use and high-performance activities. We market our products primarily under six proprietary brands: UGG, HOKA, Teva, Sanuk, Koolaburra, and AHNU. We believe our products are distinctive and appeal to a broad demographic. We sell our products through quality domestic and international retailers, international distributors, and directly to our global consumers through our DTC business, which is comprised of our Company-owned e-commerce websites and retail stores. We seek to differentiate our brands and products by offering diverse lines that emphasize fashion, performance, authenticity, functionality, quality, and comfort, and products tailored to a variety of activities, seasons, and demographic groups. Independent third-party contractors manufacture all of our products.
FINANCIAL HIGHLIGHTS
Consolidated financial performance highlights for the three months ended June 30, 2024, compared to the prior period, were as follows:
•Net sales increased 22.1% to $825,347.
◦Channel
▪Wholesale channel net sales increased 21.0% to $514,782.
▪DTC channel net sales increased 24.0% to $310,565.
◦Geography
▪Domestic net sales increased 23.0% to $515,856.
▪International net sales increased 20.8% to $309,491.
•Gross margin increased 560 basis points to 56.9%.
•Income from operations increased 87.8% to $132,807.
•Diluted earnings per share increased 87.2% to $4.52 per share.
RECENT DEVELOPMENTS
CEO Transition. On February 1, 2024, Dave Powers announced his intention to retire as CEO and President of our Company, effective August 1, 2024. Following August 1, 2024, we expect Mr. Powers to continue to serve as a member of our Board, if elected by our stockholders at our 2024 Annual Meeting of Stockholders to be held on September 9, 2024 (Annual Meeting). Following a planned succession process, our Board appointed our Chief Commercial Officer, Stefano Caroti, to succeed Mr. Powers as CEO and President, effective August 1, 2024. The promotion of Mr. Caroti represents the culmination of our Board’s active engagement in a planned multi-year succession process. Mr. Caroti will also serve as a member of our Board if elected at the Annual Meeting.
20
Proposed Stock Split. On July 9, 2024, subject to approval by our stockholders, our Board approved an Amendment to our Amended and Restated Certificate of Incorporation, which (i) effects a six-for-one forward stock split of our common stock and preferred stock, and (ii) increases the number of authorized shares of our common stock from 125,000 to 750,000, and the number of shares of preferred stock from 5,000 to 30,000 (collectively, the stock split). Effectiveness of the stock split is subject to the approval of our stockholders at the Annual Meeting, and a decision by our Board to move forward with implementing the stock split. Our financial results reflected in this Quarterly Report do not include any impact of the stock split.
Sanuk Brand Asset Sale. During October 2023, we announced that we intended to divest the Sanuk brand in alignment with effective resource allocation and the execution of our long-term objectives. Subsequent to June 30, 2024, we entered into an agreement pursuant to which the buyer agreed to purchase the Sanuk brand and certain related assets, which is expected to close in August 2024.
TRENDS AND UNCERTAINTIES IMPACTING OUR BUSINESS AND INDUSTRY
We expect our business and industry will continue to be impacted by several important trends and uncertainties, which have not changed since our 2024 Annual Report. Refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2024 Annual Report for further discussion. Refer to Part I, Item 1A, “Risk Factors,” of our 2024 Annual Report for detailed information on the risks and uncertainties that may cause our actual results to differ materially from our expectations.
REPORTABLE OPERATING SEGMENT OVERVIEW
Our six reportable operating segments include the worldwide wholesale operations of the UGG brand, HOKA brand, Teva brand, Sanuk brand, and Other brands, as well as DTC. Information reported to the CODM, who is our CEO, President, and PEO, is organized into these reportable operating segments and is consistent with how the CODM evaluates our performance and allocates resources.
UGG Brand. The UGG brand is one of the most iconic and recognized footwear brands in our industry, which highlights our successful track record of building niche brands into lifestyle and fashion market leaders. With loyal consumers around the world, the UGG brand has proven to be a highly resilient line of premium footwear, apparel, and accessories with expanded product offerings that appeal to a growing global audience and a broad demographic.
HOKA Brand. The HOKA brand is an authentic premium line of year-round performance footwear, which offers enhanced cushioning and inherent stability with minimal weight. Originally designed for ultra-runners, the brand now appeals to world champions, taste makers, and everyday athletes. Expanded marketing and strategic marketplace presence have fueled both domestic and international sales growth of the HOKA brand, which has quickly become a leading brand within run and outdoor specialty wholesale accounts and is growing across its ecosystem of access points. The HOKA brand’s product line includes running, trail, hiking, fitness, and lifestyle footwear offerings, as well as select apparel and accessories.
Teva Brand. The Teva brand, born in the depths of the Grand Canyon, has long been a favored brand among outdoor adventurers across the globe. Today, building on its foundation as a leader in sport sandals and its authentic outdoor heritage, the Teva brand’s thoughtfully designed, and accessible products are built for a range of outdoor pursuits, connecting with a vibrant, diverse audience passionate about exploration. The Teva brand’s collection includes a variety of footwear options, from classic sandals and shoes to boots; all crafted for the demands of the outdoors.
Sanuk Brand. The Sanuk brand originated in Southern California surf culture and has emerged as a lifestyle brand with a presence in the relaxed casual shoe and sandal categories with a focus on innovation in comfort and sustainability. The Sanuk brand’s use of unexpected materials and unconventional construction, combined with its fun and playful branding, are key elements of the brand’s identity.
21
Other Brands. Other brands consist primarily of the Koolaburra, as well as the recently launched AHNU brand. The Koolaburra brand is a casual footwear fashion line that uses plush materials and is intended to target the value-oriented consumer in order to complement the UGG brand offering. The AHNU brand’s footwear products fuse high-performance technology with timeless style crafted for everyday wear.
Refer to the “Reportable Operating Segment Overview,” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2024 Annual Report for further discussion of our outlook on consumer demand drivers for our UGG, HOKA, Teva, Sanuk, and Other brands products.
Direct-to-Consumer. Our DTC business encompasses all of our brands and is comprised of our e-commerce websites and retail stores, which are intertwined and interdependent in an omni-channel marketplace. Net sales from our e-commerce websites and retail stores are recorded in our DTC reportable operating segment, except for net sales from our partner retail stores, which are recorded in our brands’ respective wholesale reportable operating segments.
During the three months ended June 30, 2024, we opened nine new stores, which included six HOKA brand stores and three UGG brand stores, including a HOKA brand flagship store in New York City and a UGG brand flagship store in London, UK, respectively. As of June 30, 2024, we have a total of 172 global retail stores (including 32 HOKA brand retail stores and 140 UGG brand retail stores), which includes 89 concept stores and 83 outlet stores.
Refer to the “Reportable Operating Segment Overview” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2024 Annual Report for further details on our DTC reportable operating segment, including retail store definitions.
USE OF NON-GAAP FINANCIAL MEASURES
We disclose financial measures calculated and presented in accordance with US GAAP; however, throughout this Quarterly Report we provide certain financial information on a non-GAAP basis (non-GAAP financial measures). We provide non-GAAP financial measures to provide information that may assist investors in understanding our results of operations and assessing our prospects for future performance, which consist of constant currency measures. We believe evaluating certain financial and operating measures on a constant currency basis is important as it excludes the impact of foreign currency exchange rate fluctuations that are not indicative of our core results of operations and are largely outside of our control. However, our non-GAAP financial measures are not intended to represent and should not be considered more meaningful measures than, or alternatives to, measures of financial or operating performance as determined in accordance with US GAAP.
We calculate our constant currency non-GAAP financial measures for current period financial information, such as total net sales using the foreign currency exchange rates that were in effect during the previous comparable period, excluding the effects of foreign currency exchange rate hedges and remeasurements in the condensed consolidated financial statements. We also report comparable DTC sales on a constant currency basis for DTC operations that were open throughout the current and prior reporting periods, and we may adjust prior reporting periods to conform to current year accounting policies. The information presented on a constant currency basis, as we present such information, may not necessarily be comparable to similarly titled information presented by other companies, and may not be appropriate measures for comparing our performance relative to other companies. Constant currency measures should not be considered in isolation as an alternative to US dollar measures that reflect current period foreign currency exchange rates or to other financial or operating measures presented in accordance with US GAAP.
SEASONALITY
Refer to Note 1, “General,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report and to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2024 Annual Report for detailed information on the seasonality of our business.
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RESULTS OF OPERATIONS
Three Months Ended June 30, 2024, Compared to Three Months Ended June 30, 2023. Results of operations were as follows:
| Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | ||||||||||||||||||||||||||||||
| Net sales | $ | 825,347 | 100.0 | % | $ | 675,791 | 100.0 | % | $ | 149,556 | 22.1 | % | |||||||||||||||||||||||
| Cost of sales | 355,347 | 43.1 | 329,367 | 48.7 | (25,980) | (7.9) | |||||||||||||||||||||||||||||
| Gross profit | 470,000 | 56.9 | 346,424 | 51.3 | 123,576 | 35.7 | |||||||||||||||||||||||||||||
| Selling, general, and administrative expenses | 337,193 | 40.9 | 275,688 | 40.8 | (61,505) | (22.3) | |||||||||||||||||||||||||||||
| Income from operations | 132,807 | 16.0 | 70,736 | 10.5 | 62,071 | 87.8 | |||||||||||||||||||||||||||||
| Total other income, net | (16,346) | (2.1) | (10,628) | (1.5) | 5,718 | 53.8 | |||||||||||||||||||||||||||||
| Income before income taxes | 149,153 | 18.1 | 81,364 | 12.0 | 67,789 | 83.3 | |||||||||||||||||||||||||||||
| Income tax expense | 33,528 | 4.1 | 17,812 | 2.6 | (15,716) | (88.2) | |||||||||||||||||||||||||||||
| Net income | 115,625 | 14.0 | 63,552 | 9.4 | 52,073 | 81.9 | |||||||||||||||||||||||||||||
| Total other comprehensive loss, net of tax | (3,800) | (0.5) | (8,299) | (1.2) | 4,499 | 54.2 | |||||||||||||||||||||||||||||
| Comprehensive income | $ | 111,825 | 13.5 | % | $ | 55,253 | 8.2 | % | $ | 56,572 | 102.4 | % | |||||||||||||||||||||||
| Net income per share | |||||||||||||||||||||||||||||||||||
| Basic | $ | 4.54 | $ | 2.43 | $ | 2.11 | 86.8 | % | |||||||||||||||||||||||||||
| Diluted | $ | 4.52 | $ | 2.41 | $ | 2.11 | 87.2 | % | |||||||||||||||||||||||||||
Net Sales. Net sales by location, and by brand and channel were as follows:
| Three Months Ended June 30, | |||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||
| Amount | Amount | Amount | % | ||||||||||||||||||||
| Net sales by location | |||||||||||||||||||||||
| Domestic | $ | 515,856 | $ | 419,535 | $ | 96,321 | 23.0 | % | |||||||||||||||
| International | 309,491 | 256,256 | 53,235 | 20.8 | |||||||||||||||||||
| Total | $ | 825,347 | $ | 675,791 | $ | 149,556 | 22.1 | % | |||||||||||||||
| Net sales by brand and channel | |||||||||||||||||||||||
| UGG brand | |||||||||||||||||||||||
| Wholesale | $ | 142,553 | $ | 121,545 | $ | 21,008 | 17.3 | % | |||||||||||||||
| Direct-to-Consumer | 80,398 | 73,975 | 6,423 | 8.7 | |||||||||||||||||||
| Total | 222,951 | 195,520 | 27,431 | 14.0 | |||||||||||||||||||
| HOKA brand | |||||||||||||||||||||||
| Wholesale | 332,732 | 260,847 | 71,885 | 27.6 | |||||||||||||||||||
| Direct-to-Consumer | 212,446 | 159,637 | 52,809 | 33.1 | |||||||||||||||||||
| Total | 545,178 | 420,484 | 124,694 | 29.7 | |||||||||||||||||||
| Teva brand | |||||||||||||||||||||||
| Wholesale | 31,359 | 35,132 | (3,773) | (10.7) | |||||||||||||||||||
| Direct-to-Consumer | 14,951 | 13,266 | 1,685 | 12.7 | |||||||||||||||||||
| Total | 46,310 | 48,398 | (2,088) | (4.3) | |||||||||||||||||||
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| Three Months Ended June 30, | |||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||
| Amount | Amount | Amount | % | ||||||||||||||||||||
| Sanuk brand | |||||||||||||||||||||||
| Wholesale | 4,433 | 6,470 | (2,037) | (31.5) | |||||||||||||||||||
| Direct-to-Consumer | 2,429 | 3,109 | (680) | (21.9) | |||||||||||||||||||
| Total | 6,862 | 9,579 | (2,717) | (28.4) | |||||||||||||||||||
| Other brands | |||||||||||||||||||||||
| Wholesale | 3,705 | 1,427 | 2,278 | 159.6 | |||||||||||||||||||
| Direct-to-Consumer | 341 | 383 | (42) | (11.0) | |||||||||||||||||||
| Total | 4,046 | 1,810 | 2,236 | 123.5 | |||||||||||||||||||
| Total | $ | 825,347 | $ | 675,791 | $ | 149,556 | 22.1 | % | |||||||||||||||
| Total Wholesale | $ | 514,782 | $ | 425,421 | $ | 89,361 | 21.0 | % | |||||||||||||||
| Total Direct-to-Consumer | 310,565 | 250,370 | 60,195 | 24.0 | |||||||||||||||||||
| Total | $ | 825,347 | $ | 675,791 | $ | 149,556 | 22.1 | % | |||||||||||||||
Total net sales increased primarily due to higher global wholesale and DTC channel sales for the HOKA brand, as well as higher domestic wholesale and global DTC channel sales for the UGG brand.
On a constant currency basis, net sales increased by 23.0%, compared to the prior period. Further, we experienced an increase of 13.4% in the total volume of units sold to 12,700 from 11,200, compared to the prior period. Units sold represents all units related to the total net sales presented, inclusive of all categories such as footwear, apparel, accessories, home goods, and care kits. The prior period total volume of units sold for only footwear has been modified to conform to the current period presentation.
Drivers of significant changes in net sales, compared to the prior period, were as follows:
•Wholesale net sales of the HOKA brand increased due to higher global sales across the brand’s product assortment, driven by market share gains, refilling channel inventory, and benefits from select new points of distribution with key partners.
•DTC net sales increased primarily due to higher global sales for the HOKA and UGG brands, driven primarily by consumer acquisition and retention online as we continued to experience increased demand for both brands, as well as benefiting from a higher level of full-price selling, primarily for the UGG brand. Comparable DTC channel net sales for the 13 weeks ended June 30, 2024, increased by 21.9%, compared to the prior period.
•Wholesale net sales of the UGG brand increased primarily due to higher domestic sales, resulting from strong brand heat driving earlier demand and refilling of inventory levels for our partners, including adoption of year-round key product franchises.
•International net sales, which are included in the reportable operating segment net sales presented above, increased by 20.8% and represented 37.5% and 37.9% of total net sales for the three months ended June 30, 2024, and 2023, respectively. These changes were primarily driven by higher net sales for both channels of the HOKA brand, primarily in Europe and China.
Gross Profit. Gross margin increased to 56.9% from 51.3%, compared to the prior period, primarily due to favorable brand mix for the HOKA brand along with higher margin product driving a higher proportion of growth for both the HOKA and UGG brands, higher full-price selling, particularly for the UGG brand that was more promotional in the prior period, and favorable changes in freight costs.
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Selling, General, and Administrative Expenses. The net increase in SG&A expenses, compared to the prior period, was primarily the result of the following:
•Increased payroll and related costs of approximately $24,900, primarily due to investments in talent for key functions for corporate and HOKA brand roles driving higher employee headcount and full-year costs for prior comparable period hiring.
•Increased variable advertising and promotion expenses of approximately $15,800, primarily due to higher promotional marketing expenses for the HOKA brand to drive global brand awareness and market share gains, highlight new product categories, and provide localized marketing.
•Increased other variable net selling expenses of approximately $8,800, primarily due to higher rent and occupancy, materials and supplies, credit card fees, and warehouse expenses.
•Increased other operating expenses of approximately $7,600, primarily due to higher infrastructure investments and related depreciation, and higher travel expenses, partially offset by lower legal expenses.
•Increased net foreign currency-related losses of approximately $4,400, primarily driven by unfavorable changes in Asian and Canadian exchange rates against the US dollar.
Income from Operations. Income (loss) from operations by reportable operating segment was as follows:
| Three Months Ended June 30, | |||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||
| Amount | Amount | Amount | % | ||||||||||||||||||||
| Income (loss) from operations | |||||||||||||||||||||||
| UGG brand wholesale | $ | 38,430 | $ | 16,866 | $ | 21,564 | 127.9 | % | |||||||||||||||
| HOKA brand wholesale | 124,694 | 86,524 | 38,170 | 44.1 | |||||||||||||||||||
| Teva brand wholesale | 6,789 | 9,237 | (2,448) | (26.5) | |||||||||||||||||||
| Sanuk brand wholesale | 1,603 | 759 | 844 | 111.2 | |||||||||||||||||||
| Other brands wholesale | (1,557) | (2,041) | 484 | 23.7 | |||||||||||||||||||
| Direct-to-Consumer | 106,410 | 75,462 | 30,948 | 41.0 | |||||||||||||||||||
| Unallocated overhead costs | (143,562) | (116,071) | (27,491) | (23.7) | |||||||||||||||||||
| Total | $ | 132,807 | $ | 70,736 | $ | 62,071 | 87.8 | % | |||||||||||||||
The increase in total income from operations, compared to the prior period, was primarily due to higher net sales at higher gross margins, combined with relatively flat SG&A expenses as a percentage of net sales.
Drivers of significant net changes in total income from operations, compared to the prior period, were as follows:
•The increase in income from operations of HOKA brand wholesale was due to higher global net sales at higher gross margins, as well as slightly lower SG&A expenses as a percentage of net sales.
•The increase in income from operations of the DTC channel was due to higher global net sales for the HOKA and UGG brands at higher gross margins, as well as slightly lower SG&A expenses as a percentage of net sales in total.
•The increase in income from operations of UGG brand wholesale was primarily due to higher domestic net sales at higher gross margins, as well as lower SG&A expenses as a percentage of net sales.
•The increase in unallocated overhead costs was higher as a percentage of net sales, primarily due to higher payroll costs for key corporate roles to support growth of our brands, increased foreign currency-related losses, and higher other operating expenses.
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Total Other Income, Net. The increase in total other income, net, compared to the prior period, was due to higher interest income from higher average invested cash balances and average interest rates.
Income Tax Expense. Income tax expense and our effective income tax rate were as follows:
| Three Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Income tax expense | $ | 33,528 | $ | 17,812 | |||||||
| Effective income tax rate | 22.5 | % | 21.9 | % | |||||||
The net increase in our effective income tax rate, compared to the prior period, was due to higher operating income, including changes in jurisdictional mix of worldwide income before income taxes, partially offset by net discrete tax benefits for stock-based compensation.
Net Income. The increase in net income, compared to the prior period, was primarily due to higher net sales and operating margins, as well as higher interest income. Net income per share increased, compared to the prior period, due to higher net income and lower weighted-average common shares outstanding driven by stock repurchases.
Total Other Comprehensive Loss, Net of Tax. The decrease in total other comprehensive loss, net of tax, compared to the prior period, was primarily due to lower foreign currency translation losses relating to changes in the net asset position against Asian foreign currency exchange rates.
LIQUIDITY
Our liquidity may be impacted by a number of factors, risks and uncertainties described in the section titled “Liquidity” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in Part I, Item 1A, “Risk Factors,” of our 2024 Annual Report.
Sources of Liquidity. We finance our working capital and operating requirements using a combination of cash and cash equivalents balances, including cash from our repatriation strategy, cash provided from ongoing operating activities and, to a lesser extent, available borrowing capacity under our revolving credit facilities. Refer to the “Cash Flows” section below for further discussion on cash flows from ongoing operating activities.
Cash and Cash Equivalents. As of June 30, 2024, our cash and cash equivalents are $1,438,397, the majority of which is held in highly rated money market funds and interest-bearing bank deposit accounts with established national and global financial institutions. We believe our cash and cash equivalents balances, cash provided by operating activities, and available borrowing capacity under our revolving credit facilities, will provide sufficient liquidity to enable us to meet our working capital requirements and contractual obligations for at least the next 12 months and will be sufficient to meet the long-term requirements of our business strategies and plans. However, there can be no assurance that sufficient capital will continue to be available or that it will be available on terms acceptable to us.
Repatriation of Cash. Our cash repatriation strategy, and by extension, our liquidity, may be impacted by several additional considerations, which include future changes to or interpretations of global tax law and regulations, and our actual earnings in future periods. During the three months ended June 30, 2024, and 2023, no cash and cash equivalents were repatriated. As of June 30, 2024, and March 31, 2024, we have $343,082 and $263,820, respectively, of cash and cash equivalents held by foreign subsidiaries, a portion of which may be subject to additional foreign withholding taxes if it were to be repatriated. We continue to evaluate our cash repatriation strategy and currently anticipate repatriating current and future unremitted earnings of non-US subsidiaries to the extent they have been subject to US income tax if such cash is not required to fund ongoing foreign operations. Refer to Note 5, “Income Taxes,” of our consolidated financial statements in Part IV of our 2024 Annual Report for further information regarding our cash repatriation strategy.
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Revolving Credit Facilities. Information about the revolving credit facilities available as of June 30, 2024, is as follows:
•Primary Credit Facility. During the three months ended June 30, 2024, we made no borrowings or repayments and there were no material changes to the terms, to the outstanding letters of credit, or to the borrowing availability under our unsecured revolving credit facility disclosed in our 2024 Annual Report.
•China Credit Facility. During the three months ended June 30, 2024, we made no borrowings or repayments and there were no material changes to the terms or to the outstanding bank guarantees under our credit facility in China disclosed in our 2024 Annual Report.
•Debt Covenants. As of June 30, 2024, we are in compliance with all financial covenants under our revolving credit facilities.
Refer to Note 6, “Revolving Credit Facilities,” of our consolidated financial statements in Part IV of our 2024 Annual Report for further information on the terms of our revolving credit facilities.
Material Cash Requirements. Our material cash requirements include uses for working capital, and payments to fulfill contractual obligations, capital expenditures, and stock repurchases. Our working capital requirements begin when we purchase raw and other materials and inventories and continue until we ultimately collect the resulting trade accounts receivable. Given the historical seasonality of our business, our working capital requirements fluctuate significantly throughout our fiscal year, and we utilize available cash to build inventory levels during certain quarters in our fiscal year to support higher selling seasons. While the impact of seasonality has been mitigated to some extent, we expect our working capital requirements will continue to fluctuate from period to period.
Contractual Obligations. Refer to the subsection titled “Leases” under Note 5, “Commitments and Contingencies,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report for further information regarding our material contractual obligations incurred during the three months ended June 30, 2024, and through July 11, 2024.
Except for the above, there were no other material changes outside the ordinary course of business to the contractual obligations or capital expenditures disclosed in the sections titled “Contractual Obligations” and “Capital Expenditures” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2024 Annual Report.
Stock Repurchase Program. As of June 30, 2024, the aggregate remaining approved amount under our stock repurchase program is $789,737. Our stock repurchase program does not obligate us to acquire any amount of common stock and suspend at any time at our discretion.
Refer to Note 7, “Stockholders’ Equity,” of our condensed consolidated financial statements in Part I, Item 1 and to Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds,” within this Quarterly Report for further information regarding our stock repurchase program and capital allocation strategy.
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CASH FLOWS
The following table summarizes the major components of our condensed consolidated statements of cash flows for the periods presented:
| Three Months Ended June 30, | |||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||
| Amount | Amount | Amount | % | ||||||||||||||||||||
| Net cash provided by operating activities | $ | 112,650 | $ | 125,262 | $ | (12,612) | (10.1) | % | |||||||||||||||
| Net cash used in investing activities | (22,521) | (30,732) | 8,211 | 26.7 | |||||||||||||||||||
| Net cash used in financing activities | (151,861) | (25,619) | (126,242) | (492.8) | |||||||||||||||||||
| Effect of foreign currency exchange rates on cash and cash equivalents | (1,922) | (3,817) | 1,895 | 49.6 | |||||||||||||||||||
| Net change in cash and cash equivalents | $ | (63,654) | $ | 65,094 | $ | (128,748) | (197.8) | % | |||||||||||||||
Operating Activities. Our primary source of liquidity is net cash provided by operating activities, which is driven by our net income after non-cash adjustments and changes in working capital.
The decrease in net cash provided by operating activities during the three months ended June 30, 2024, compared to the prior period, was due to $70,111 of unfavorable changes in operating assets and liabilities partially offset by $57,499 of favorable net income after non-cash adjustments. The unfavorable changes in operating assets and liabilities were primarily due to increased purchases of inventory to support higher demand for our brands, increased accrual primarily for performance-based compensation related to the prior fiscal year, increased trade accounts receivable on higher net sales, partially offset by favorable changes due to timing of derivative cash settlements, tax refunds and payments, as well as receipt of goods and services relative to payments on trade accounts payable.
Investing Activities. The decrease in net cash used in investing activities during the three months ended June 30, 2024, compared to the prior period, was primarily due to lower capital expenditures for leasehold improvements for our warehouses and DCs.
Financing Activities. The increase in net cash used in financing activities during the three months ended June 30, 2024, compared to the prior period, was primarily due to a higher dollar value of stock repurchases.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Preparation of our condensed consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the amounts reported. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements, and other factors that we believe to be reasonable, but actual results could differ materially from these estimates. In addition, management has considered the potential impact of macroeconomic factors, including inflation, foreign currency exchange rate volatility, changes in interest rates, changes in commodity pricing, changes in consumer discretionary spending, and recessionary concerns, on our business and operations. Although the full impact of these factors is unknown, management believes it has made appropriate accounting estimates and assumptions based on the facts and circumstances available as of the reporting date. However, actual results could differ materially from these estimates and assumptions, which may result in material effects on our financial condition, results of operations and liquidity. Refer to the sections titled “Use of Estimates” and “Recent Accounting Pronouncements” within Note 1, “General,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report, for additional information regarding applicable key estimates and assumptions, as well as the impact of recent accounting pronouncements.
There have been no material changes to the critical accounting policies and key estimates and assumptions disclosed in the section titled “Critical Accounting Policies and Estimates” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” within our 2024 Annual Report.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, our financial position and results of operations are subject to a variety of risks, including risks associated with commodity pricing, foreign currency exchange rates and, to a lesser extent, interest rates. We regularly assess these risks and have established policies and business practices designed to mitigate their effects. There have been no material changes in the quantitative and qualitative disclosures about market risk disclosed in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” within our 2024 Annual Report.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
We maintain a system of disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, which are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. In designing and evaluating our disclosure controls and procedures, our management recognized that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours is designed to do, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Under the supervision and with the participation of management, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2024. Based on that evaluation, our PEO and Principal Financial and Accounting Officer (PFAO) concluded that our disclosure controls and procedures are effective at a reasonable assurance level as of June 30, 2024.
INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rule 13a-15(d) of the Exchange Act during the three months ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER CERTIFICATIONS
The certifications of our PEO and PFAO required by Rule 13a-14(a) of the Exchange Act are filed as Exhibit 31.1 and Exhibit 31.2, and furnished as Exhibit 32, to this Quarterly Report. This Part I, Item 4, should be read in conjunction with such certifications for a more complete understanding of the topics presented.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As part of our global policing program to protect our intellectual property rights, from time to time, we file lawsuits in various jurisdictions asserting claims for alleged acts of trademark counterfeiting, trademark infringement, patent infringement, trade dress infringement, and trademark dilution. We generally have multiple actions such as these pending at any given point in time. These actions may result in seizure of counterfeit merchandise, out-of-court settlements with defendants, or other outcomes. In addition, from time to time, we are subject to claims in which opposing parties will raise, either as affirmative defenses or as counterclaims, the invalidity or unenforceability of certain of our intellectual property rights, including allegations that the UGG brand trademark registrations and design patents are invalid or unenforceable. Furthermore, we are aware of many instances throughout the world in which a third-party is using our UGG brand and HOKA brand trademarks within its internet domain name. We are investigating several manufacturers and distributors of counterfeit UGG and HOKA brand products, as well as various markets for indications of counterfeit UGG and HOKA brand products.
From time to time, we are involved in various legal proceedings, disputes, and other claims arising in the ordinary course of business, including employment, intellectual property, and product liability claims. Although the results of these ordinary course matters cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not, individually or in the aggregate, have a material adverse effect on our business, results of operations, financial condition, or cash flows. However, regardless of the merit of the claims raised or the outcome, these ordinary course matters can have an adverse impact on us as a result of legal costs, diversion of management’s time and resources, and other factors.
ITEM 1A. RISK FACTORS
An investment in our common stock involves risks. Before making an investment decision, you should carefully consider all the information within Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in our condensed consolidated financial statements and the related notes contained in Part I, Item 1 within this Quarterly Report. In addition, you should carefully consider the risks and uncertainties described in Part I, Item 1A, “Risk Factors,” of our 2024 Annual Report, as well as in our other public filings with the SEC. If any of the identified risks are realized, our business, results of operations, financial condition, liquidity, and prospects could be materially and adversely affected. In that case, the trading price of our common stock may decline, and you could lose all or part of your investment. In addition, other risks of which we are currently unaware, or which we do not currently view to be material, could have a material adverse effect on our business, results of operations, financial condition, liquidity, and prospects.
During the three months ended June 30, 2024, there were no material changes to the risks and uncertainties described in Part I, Item 1A, “Risk Factors,” of our 2024 Annual Report.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
None.
Use of Proceeds
Not applicable.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Our Board of Directors (Board) has approved various authorizations under our stock repurchase program to repurchase shares of our common stock in the open market or in privately negotiated transactions, subject to market conditions, applicable legal requirements, and other factors (collectively, the stock repurchase program). Our Board last approved an additional authorization of $1,200,000 on July 27, 2022, to repurchase our common stock under the same conditions as the prior stock repurchase programs. As of June 30, 2024, the aggregate remaining approved amount under the stock repurchase program is $789,737.
Our stock repurchase program does not obligate us to acquire any amount of common stock and may be suspended at any time at our discretion. The agreements under our revolving credit facilities allow us to make stock repurchases under this program, so long as we do not exceed certain leverage ratios. As of June 30, 2024, we have not exceeded the stated leverage ratios and no defaults have occurred under our credit agreements.
Stock repurchase activity under our stock repurchase program during the three months ended June 30, 2024, was as follows:
Total number of shares repurchased (1) | Average price per share paid | Dollar value of shares repurchased (2) (3) | Dollar value of shares remaining for repurchase (3) | |||||||||||||||||||||||
| April 1 - April 30, 2024 | 103,736 | $ | 833.72 | $ | 86,487 | $ | 855,217 | |||||||||||||||||||
| May 1 - May 31, 2024 | 59,332 | 867.77 | 51,486 | 803,731 | ||||||||||||||||||||||
| June 1 - June 30, 2024 | 13,888 | 1,007.63 | 13,994 | 789,737 | ||||||||||||||||||||||
(1) All share repurchases were made pursuant to our stock repurchase program in open-market transactions.
(2) The dollar value of shares repurchased excludes the cost of broker commissions, excise taxes, and other costs.
(3) May not calculate on rounded dollars.
Subsequent to June 30, 2024, through July 11, 2024, we repurchased 17,307 shares at an average price of $924.11 per share for $15,994, and had $773,743 remaining authorized under our stock repurchase program.
Refer to Note 7, “Stockholders’ Equity,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report, for further information on repurchases of our common stock.
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ITEM 5. OTHER INFORMATION
DIRECTOR AND EXECUTIVE OFFICER TRADING PLANS AND ARRANGEMENTS
Our directors and executive officers may enter into trading plans or other arrangements with financial institutions to purchase or sell shares of our common stock. These plans or arrangements may be intended to comply with the affirmative defense provisions of Rule 10b5-1 of the Exchange Act (Rule 10b5-1 trading plans), or they may represent non-Rule 10b5-1 trading arrangements, in each case as defined under Item 408(a) of Regulation S-K.
Set forth below is a summary of the adoption termination
| Name & Title | Adoption Date | Termination Date | Contract End Date | Aggregate Shares Covered (in ones) | ||||||||||||||||||||||
| September 8, 2023 | April 22, 2024 | |||||||||||||||||||||||||
| March 7, 2024 | August 31, 2024 | |||||||||||||||||||||||||
* | ||||||||||||||||||||||||||
* | ||||||||||||||||||||||||||
* | ||||||||||||||||||||||||||
* | ||||||||||||||||||||||||||
* | ||||||||||||||||||||||||||
(1) As disclosed in Part I, Item 2 within this Quarterly Report, Mr. Powers retired as our Chief Executive Officer and President effective August 1, 2024, and Mr. Caroti succeeded Mr. Powers in these roles effective as of the same date. Mr. Powers is expected to continue to serve as a member of our Board, if elected by our stockholders at the Annual Meeting of Stockholders to be held on September 9, 2024.
(2) This trading plan was terminated automatically prior to the contract end date upon the sale of all shares covered by the plan.
*Not applicable.
During the three months ended June 30, 2024, no non-Rule 10b5-1 trading arrangements were adopted , modified, or terminated by our directors or executive officers.
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ITEM 6. EXHIBITS
EXHIBIT INDEX
| Exhibit Number | Description of Exhibit | |||||||
*10.1 | ||||||||
| *31.1 | ||||||||
| *31.2 | ||||||||
| **32.1 | ||||||||
| *101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |||||||
| *101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||
| *101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| *101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| *101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| *101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| *104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| DECKERS OUTDOOR CORPORATION (Registrant) | ||
| /s/ STEVEN J. FASCHING | ||
Steven J. Fasching Chief Financial Officer (Principal Financial and Accounting Officer) | ||
Date: August 1, 2024
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