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 September 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 October 11, 2024, the number of outstanding shares of the registrant’s common stock, par value $0.01 per share, was 151,921,988 .
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
For the Three and Six Months Ended September 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 second fiscal quarter ended September 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;
•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), 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.
On September 13, 2024, we effected a six-for-one forward stock split of our common stock and a proportional increase in our authorized shares of common stock, without changing the par value of $0.01 per share. The common stock commenced trading on a post-stock split adjusted basis on September 17, 2024. Prior period results included in this Quarterly Report, including per share and share data, as well as stockholders’ equity balances, have been retroactively adjusted, as applicable, to reflect the effectiveness of the stock split. Refer to Note 1, “General,” for further information regarding the stock split.
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)
| September 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 September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 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 income (loss), net of tax | |||||||||||||||||||||||
| Unrealized (loss) gain on cash flow hedges | ( | ( | |||||||||||||||||||||
| Foreign currency translation gain (loss) | ( | ( | |||||||||||||||||||||
| Total other comprehensive income (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)
| Six Months Ended September 30, 2024 | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| 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 | ( | ||||||||||||||||||||||||||||||||||
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 income | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
6
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(amounts in thousands)
(continued)
| Six Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| 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 | ( | ||||||||||||||||||||||||||||||||||
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, September 30, 2023 | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
7
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
| Six Months Ended September 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 expense | |||||||||||
| Deferred tax expense (benefit) | ( | ||||||||||
| Stock-based compensation | |||||||||||
| Loss on disposal of assets | |||||||||||
| Impairment of operating lease and other 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 | ( | ( | |||||||||
| Proceeds from sale of assets | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| FINANCING ACTIVITIES | |||||||||||
| Proceeds from issuance of stock | |||||||||||
| 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 | $ | $ | |||||||||
8
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
(continued)
| Six Months Ended September 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.
9
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 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 five proprietary brands include the UGG, HOKA, Teva, Koolaburra, and AHNU brands. Refer to the section titled “Reportable Operating Segments,” below within this Note 1, “General,” for more information on the sale of the Sanuk brand during the three months ended September 30, 2024.
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 September 30, 2024, and for the three and six months ended September 30, 2024 (current period), and 2023 (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).
Forward Stock Split and Authorized Share Increase. On September 13, 2024, the Company (i) effected a six -for-one forward stock split of its common stock and preferred stock (the stock split), and (ii) increased the number of authorized shares of its common stock from 125,000,000 to 750,000,000 , and the number of authorized shares of its capital stock from 130,000,000 to 755,000,000 (the authorized share increase). The stock split and the authorized share increase were effected through the filing of an amendment to the Company’s Amended and Restated Certificate of Incorporation (Charter Amendment) with the Secretary of State of the State of Delaware, which was approved by the Company’s stockholders at the Annual Meeting of Stockholders held on September 9, 2024 (Annual Meeting). The Charter Amendment did not provide for any increase in the number of authorized shares of preferred stock, which remains at 5,000,000 shares. There are no six shares of common stock. The common stock commenced trading on a post-stock split adjusted basis on September 17, 2024.
10
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
All prior period results included in the condensed consolidated financial statements and the related notes within this Quarterly Report have been retroactively adjusted to reflect the effectiveness of the stock split and the authorized share increase. Specifically, all share and per share amounts have been adjusted, including: (i) the number of shares authorized and outstanding on the condensed consolidated balance sheets, (ii) the weighted-average common shares outstanding and the associated earnings per share amounts in the condensed consolidated statements of comprehensive income, as well as the weighted average common shares outstanding disaggregated in Note 9, “Basic and Diluted Shares,” (iii) the number of shares underlying stock awards and the weighted-average grant date fair value of annual stock awards in Note 6, “Stock-Based Compensation,” and (iv) the total number of shares repurchased and the weighted average price per share paid in Note 8, “Stockholders’ Equity.” Further, as there was no change to par value, an amount equal to the par value of the increased shares resulting from the stock split for shares issued was reclassified to common stock from additional paid-in capital, and for share repurchases was reclassified to retained earnings from common stock, in the condensed consolidated balance sheets and the condensed consolidated statements of stockholders’ equity.
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.
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.
Reportable Operating Segments. As of September 30, 2024, the Company’s five reportable operating segments include the worldwide wholesale operations of the UGG brand, HOKA brand, Teva brand, and Other brands (primarily consisting of the Koolaburra brand, as well as the recently launched AHNU brand), as well as DTC (collectively, the Company’s reportable operating segments).
11
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
During the three months ended September 30, 2024, the Company entered into an agreement pursuant to which the buyer agreed to purchase the Sanuk brand and certain related assets which was completed on August 15, 2024 (Sanuk Brand Sale Date). The Company determined that the divestiture of the Sanuk brand did not represent a strategic shift that had or will have a major effect on the condensed consolidated results of operations, and therefore results of this business were not classified as discontinued operations. The Company’s financial results for its reportable operating segments present the former Sanuk brand through the Sanuk Brand Sale Date for the current period. Refer to Note 10, “Reportable Operating Segments,” for further information on the Company’s reportable operating segments.
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 an ASU adopted by and its 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 prospective 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 consolidated financial statements. | ||||||||||||
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 disclosures in 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 disclosures in its annual and interim consolidated financial statements. | |||||||||||||||||
12
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
NOTE 2. REVENUE RECOGNITION
Disaggregated Revenue. Refer to Note 10, “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, September 30, 2024 | $ | $ | ( | ||||||||
| Recovery Asset | Refund Liability | ||||||||||
| Balance, March 31, 2023 | $ | $ | ( | ||||||||
Net additions to sales return liability (1) | ( | ||||||||||
| Actual returns | ( | ||||||||||
| Balance, September 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.
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:
| Six Months Ended September 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:
| Six Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Beginning balance | $ | ( | $ | ( | |||||||
| Additions of customer cash payments | ( | ( | |||||||||
| Revenue recognized | |||||||||||
| Ending balance | $ | ( | $ | ( | |||||||
13
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
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 | ||||||||||||||||||||||
| September 30, 2024 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money-market funds | $ | $ | $ | $ | |||||||||||||||||||
| Other current assets: | |||||||||||||||||||||||
Designated Derivative Contracts asset | |||||||||||||||||||||||
| Non-Designated Derivative Contracts asset | |||||||||||||||||||||||
| Other assets: | |||||||||||||||||||||||
| Non-qualified deferred compensation asset | |||||||||||||||||||||||
| Total assets measured at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Other accrued expenses: | |||||||||||||||||||||||
Designated Derivative Contracts liability | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Non-qualified deferred compensation 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 | $ | ( | $ | ( | $ | $ | |||||||||||||||||
14
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
The fair value of Designated Derivative Contracts and Non-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 7, “Derivative Instruments,” for further information, including the definition of the term Designated Derivative Contracts and Non-Designated Derivative Contracts.
NOTE 4. INCOME TAXES
Income tax expense and the effective income tax rate were as follows:
| Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Income tax expense | $ | $ | $ | $ | |||||||||||||||||||
| Effective income tax rate | % | % | % | % | |||||||||||||||||||
The tax provisions during the three and six months ended September 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 current period, the net increase in the effective income tax rate, compared to the prior period, was primarily due to the effects of discrete items, including a change in valuation allowance on tax attributes and a change in return-to-provision differences, partially offset by net discrete tax benefits for stock-based compensation.
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 current period. 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 six months ended September 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 September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
Non-cash operating activities (1) | |||||||||||||||||||||||
Operating lease assets obtained in exchange for lease liabilities | $ | $ | $ | $ | |||||||||||||||||||
Reductions to operating lease assets for reductions to lease liabilities | ( | ( | ( | ( | |||||||||||||||||||
(1) Amounts disclosed include non-cash additions or reductions resulting from lease remeasurements, as well as reductions for tenant improvement allowances.
15
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
Operating lease liabilities recorded in the condensed consolidated balance sheets exclude an aggregate of $15,734 of undiscounted minimum lease payments due pursuant to leases signed but not yet commenced during the six months ended September 30, 2024, and through October 11, 2024, primarily for a new HOKA brand retail store lease in Paris that the Company expects will be operational during the quarter ending December 31, 2024.
Purchase Obligations. There were no material changes outside the ordinary course of business during the six months ended September 30, 2024, to purchase obligations disclosed in the 2024 Annual Report.
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.
NOTE 6. STOCK-BASED COMPENSATION
Stock Incentive Plans. In September 2015, the Company’s stockholders approved the 2015 Stock Incentive Plan (2015 SIP), which initially reserved 7,650,000 shares of the Company’s common stock for issuance to employees, directors, consultants, independent contractors, and advisors. The 2015 SIP provided for the issuance of a variety of stock-based compensation awards, including time-based restricted stock units (RSUs), performance-based restricted stock units (PSUs), long-term incentive plan PSUs (LTIP PSUs), stock appreciation rights, stock bonuses, incentive stock options (ISOs), and non-qualified stock options (NQSOs). Refer to Note 8, “Stock-Based Compensation,” in the Company’s consolidated financial statements in Part IV of the 2024 Annual Report for additional information about the terms of the 2015 SIP.
In September 2024, the Company’s stockholders approved the 2024 Stock Incentive Plan (2024 SIP), which is intended to replace the 2015 SIP. Consistent with the 2015 SIP, the primary purpose of the 2024 SIP is to encourage ownership in the Company by key personnel, whose long-term service is considered essential to the Company’s continued success. As a result of the stock split, the number of shares of common stock reserved for issuance under the 2024 SIP and the number of shares underlying outstanding equity awards and the exercise price of stock options were adjusted proportionately.
The 2024 SIP initially reserves 7,800,000 shares of the Company’s common stock for issuance to employees, directors, consultants, and independent contractors, less one share for every one share granted under the 2015 SIP after March 31, 2024 and prior to September 9, 2024, the effective date of the 2024 SIP, subject to an increase from the return of shares under the 2015 SIP as described below. The terms of the 2024 SIP are substantially similar to the terms of the 2015 SIP. The 2024 SIP provides for the issuance of a variety of stock-based compensation awards, including RSUs, PSUs, LTIP PSUs, stock appreciation rights, stock bonuses, ISOs, and NQSOs. The maximum aggregate number of shares that may be issued to employees under the 2024 SIP through the exercise of ISOs is 4,500,000 .
16
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
The Company will not grant any further equity awards under the 2015 SIP. Outstanding awards under the 2015 SIP will remain outstanding, unchanged and subject to the terms of the 2015 SIP and their respective award agreements. Shares subject to awards that are forfeited, expire or are otherwise terminated without shares being issued, or shares withheld to pay the exercise price of an award or to satisfy tax withholding obligations, including shares subject to awards granted under the 2015 SIP that are outstanding after March 31, 2024, will be returned to the pool of shares available for grant and issuance under the 2024 SIP. As of September 30, 2024, 7,822,608 shares of common stock remained available for future issuance under the 2024 SIP, subject to adjustment for future stock splits, stock dividends, and similar changes in capitalization.
Annual Stock Awards. The Company granted the following awards under the 2015 SIP during the periods presented:
| Six Months Ended September 30, | ||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||
Award Type | Number of Shares | Weighted-Average Grant Date Fair Value | Number of Shares | Weighted-Average Grant Date Fair Value | ||||||||||||||||||||||
| RSUs | $ | $ | ||||||||||||||||||||||||
LTIP PSUs (1) | ||||||||||||||||||||||||||
(1) The amounts granted are at the target performance level under the terms of the applicable LTIP PSUs.
During the six months ended September 30, 2024, with the exception of the RSU and LTIP PSU awards summarized above, no additional material awards were granted under the 2015 SIP.
For the LTIP PSUs granted during fiscal years ending March 31, 2025, 2024, and 2023, the Company expects to exceed the minimum threshold target performance criteria based on the Company’s current long-range forecast as of September 30, 2024. 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 prior grants, including terms of each grant under the 2015 SIP.
There were no awards granted under the 2024 SIP during the six months ended September 30, 2024.
Employee Stock Purchase Plans. In September 2015, the Company’s stockholders approved the 2015 Employee Stock Purchase Plan (2015 ESPP), which authorized 6,000,000 shares of the Company’s common stock for sale to eligible employees using after-tax payroll deductions. Following the issuance of shares under the 2015 ESPP to employees who are participating in the offering period ending February 28, 2025, the 2015 ESPP will be terminated, and no new offering periods under the 2015 ESPP will commence thereafter. Refer to Note 8, “Stock-Based Compensation,” in the Company’s consolidated financial statements in Part IV of the 2024 Annual Report for additional information related to the terms of the 2015 ESPP.
In September 2024, the Company’s stockholders approved the 2024 Employee Stock Purchase Plan (2024 ESPP), which is intended to replace the 2015 ESPP. The 2024 ESPP reserves 6,000,000 shares of the Company’s common stock for sale to eligible employees. The terms of the 2024 ESPP are substantially similar to the terms of the 2015 ESPP. Each offering period under the 2024 ESPP is anticipated to run for approximately six months with purchases occurring on the last day of each offering period at a 15 % discount to the closing price on that date. The first offering period is expected to commence on March 1, 2025.
17
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
Unrecognized Stock-Based Compensation. Total remaining unrecognized stock-based compensation as of September 30, 2024, related to non-vested awards that the Company considers probable to vest and the weighted-average period over which the cost is expected to be recognized in future periods, is as follows:
Award Type | Unrecognized Stock-Based Compensation | Weighted-Average Remaining Vesting Period (Years) | ||||||||||||
| RSUs | $ | |||||||||||||
| LTIP PSUs | ||||||||||||||
| Total | $ | |||||||||||||
NOTE 7. 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.
The Company also enters into derivative contracts that are not designated as cash flow hedges (Non-Designated Derivative Contracts), to offset a portion of the anticipated gains and losses on certain intercompany balances until the expected time of repayment. Changes in the fair value of Non-Designated Derivative Contracts are recorded in SG&A expenses in the condensed consolidated statements of comprehensive income. The changes in fair value for these contracts are generally offset by the remeasurement gains or losses associated with the underlying foreign currency-denominated intercompany balances, which are recorded in SG&A expenses in the condensed consolidated statements of comprehensive income.
As of September 30, 2024, the Company has the following derivative contracts recorded at fair value in the condensed consolidated balance sheets:
| Designated Derivative Contracts | Non-Designated Derivative Contracts | Total | |||||||||||||||
| Notional value | $ | $ | $ | ||||||||||||||
| Fair value recorded in other current assets | |||||||||||||||||
| Fair value recorded in other accrued expenses | ( | ( | |||||||||||||||
As of September 30, 2024, four counterparties hold the Company’s outstanding derivative contracts, all of which are expected to mature in the next six months . As of March 31, 2024, the Company had no outstanding derivative contracts.
18
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
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 September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (Loss) gain recorded in OCI | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Reclassifications from AOCL into net sales | ( | ( | ( | ( | |||||||||||||||||||
| Income tax benefit (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 September 30, 2024, the amount of unrealized gains on derivative contracts recorded in AOCL is expected to be reclassified into net sales within the next six months . Refer to Note 8, “Stockholders’ Equity,” for further information on the components of AOCL.
NOTE 8. 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 September 30, 2024, the aggregate remaining approved amount under the stock repurchase program is $685,413 . 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.
Stock repurchase activity under the Company’s stock repurchase program was as follows:
| Six Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
Total number of shares repurchased (1) | |||||||||||
Weighted 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 September 30, 2024, through October 11, 2024, the Company repurchased 85,960 shares at a weighted average price of $158.54 per share for $13,628 and had $671,785 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:
| September 30, 2024 | March 31, 2024 | ||||||||||
| Unrealized loss on cash flow hedges | $ | ( | $ | ||||||||
| Cumulative foreign currency translation loss | ( | ( | |||||||||
| Total | $ | ( | $ | ( | |||||||
19
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
NOTE 9. BASIC AND DILUTED SHARES
The reconciliation of basic to diluted weighted-average common shares outstanding was as follows:
| Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Dilutive effect of equity awards | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Excluded | |||||||||||||||||||||||
| RSUs | |||||||||||||||||||||||
| LTIP PSUs | |||||||||||||||||||||||
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 6, “Stock-Based Compensation,” within this Quarterly Report and 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.
NOTE 10. 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 five reportable operating segments and is consistent with how the CODM evaluates performance and allocates resources. 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.
20
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
Reportable operating segment information, with a reconciliation to the condensed consolidated statements of comprehensive income, was as follows:
| Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net sales | |||||||||||||||||||||||
| UGG brand wholesale | $ | $ | $ | $ | |||||||||||||||||||
| HOKA brand wholesale | |||||||||||||||||||||||
| Teva brand wholesale | |||||||||||||||||||||||
Sanuk brand wholesale (1) | |||||||||||||||||||||||
| Other brands wholesale | |||||||||||||||||||||||
Direct-to-Consumer (1) | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Income (loss) from operations | |||||||||||||||||||||||
| UGG brand wholesale | $ | $ | $ | $ | |||||||||||||||||||
| HOKA brand wholesale | |||||||||||||||||||||||
| Teva brand wholesale | ( | ( | |||||||||||||||||||||
Sanuk brand wholesale (1) | ( | ( | ( | ||||||||||||||||||||
| Other brands wholesale | |||||||||||||||||||||||
Direct-to-Consumer (1) | |||||||||||||||||||||||
| Unallocated overhead costs | ( | ( | ( | ( | |||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
(1) Represents financial results from July 1, 2024 and April 1, 2024, through the Sanuk Brand Sale Date for the current period. Refer to the section titled “Reportable Operating Segments,” in Note 1, “General,” for further information.
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.
21
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2024, and 2023
(dollar amounts in thousands, except per share or share data)
Assets allocated to each reportable operating segment, with a reconciliation to the condensed consolidated balance sheets, are as follows:
| September 30, 2024 | March 31, 2024 | ||||||||||
| Assets | |||||||||||
| UGG brand wholesale | $ | $ | |||||||||
| HOKA brand wholesale | |||||||||||
| Teva brand wholesale | |||||||||||
Sanuk brand wholesale (1) | |||||||||||
| 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 | $ | $ | |||||||||
(1) Effective on the Sanuk Brand Sale Date, the Sanuk brand and certain related assets were sold and the balance as of September 30, 2024 primarily represents unsold accounts receivable yet to be collected, all within the former Sanuk brand wholesale reportable operating segment. Refer to the section titled “Reportable Operating Segments,” in Note 1, “General,” for further information.
NOTE 11. 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 September 30, | Six Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 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 and six months ended September 30, 2024, and 2023, no single foreign country comprised 10.0% or more of the Company’s total net sales. For the three and six months ended September 30, 2024, and 2023, no single global customer accounted for 10.0% or more of the Company’s total net sales.
As of September 30, 2024, the Company has one customer that represents 12.1 % of trade accounts receivable, net, compared to two customers that in total represented 31.2 % of trade accounts receivable, net as of March 31, 2024. 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.
22
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 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:
| September 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 September 30, 2024, and March 31, 2024.
NOTE 12. 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.
23
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 five proprietary brands: UGG, HOKA, Teva, 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 six months ended September 30, 2024, compared to the prior period, were as follows:
•Net sales increased 20.9% to $2,136,667.
◦Channel
▪Wholesale channel net sales increased 20.5% to $1,428,435.
▪DTC channel net sales increased 21.7% to $708,232.
◦Geography
▪Domestic net sales increased 17.3% to $1,369,766.
▪International net sales increased 27.8% to $766,901.
•Gross margin increased 370 basis points to 56.3%.
•Income from operations increased 48.3% to $437,893.
•Diluted earnings per share increased 51.9% to $2.34 per share.
RECENT DEVELOPMENTS
CEO Transition. Effective August 1, 2024, Dave Powers retired as CEO and President of our Company. Our Board appointed Stefano Caroti as CEO and President, to succeed Mr. Powers, effective August 1, 2024. At the Annual Meeting, Mr. Powers was elected to continue to serve as a member of our Board, and Mr. Caroti was elected as a member of our Board, effective September 9, 2024. The promotion of Mr. Caroti represents the culmination of our Board’s active engagement in a planned multi-year succession process.
Forward Stock Split and Authorized Share Increase. On September 13, 2024, we effected the stock split and the authorized share increase. Our financial results included within this Quarterly Report have been retroactively adjusted to reflect the effectiveness of the stock split and the authorized share increase. Refer to Note 1, “General,” in the condensed consolidated financial statements within this Quarterly Report for further information.
24
Sanuk Brand Asset Sale. During the three months ended September 30, 2024, we entered into an agreement pursuant to which the buyer agreed to purchase the Sanuk brand and certain related assets which was completed on the Sanuk Brand Sale Date of August 15, 2024.
Financial results for our reportable operating segments present the former Sanuk brand through the Sanuk Brand Sale Date for the current period. Refer to the section titled “Reportable Operating Segments,” in Note 1, “General,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report for further information.
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 materially changed from those included in 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
As of September 30, 2024, our five reportable operating segments include the worldwide wholesale operations of the UGG brand, HOKA brand, Teva 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.
Other Brands. Other brands consist primarily of the Koolaburra brand, 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 section titled “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 products.
25
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.
As of September 30, 2024, we have a total of 178 global retail stores (including 139 UGG brand retail stores and 39 HOKA brand retail stores), which includes 92 concept stores and 86 outlet stores.
Refer to the section titled “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, as well as our former Sanuk brand. Refer to the section titled “Recent Developments” in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” within this Quarterly Report, for discussion on the sale of the Sanuk brand.
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.
26
RESULTS OF OPERATIONS
Three Months Ended September 30, 2024, Compared to Three Months Ended September 30, 2023. Results of operations were as follows:
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | ||||||||||||||||||||||||||||||
| Net sales | $ | 1,311,320 | 100.0 | % | $ | 1,091,907 | 100.0 | % | $ | 219,413 | 20.1 | % | |||||||||||||||||||||||
| Cost of sales | 578,048 | 44.1 | 508,888 | 46.6 | (69,160) | (13.6) | |||||||||||||||||||||||||||||
| Gross profit | 733,272 | 55.9 | 583,019 | 53.4 | 150,253 | 25.8 | |||||||||||||||||||||||||||||
| Selling, general, and administrative expenses | 428,186 | 32.7 | 358,402 | 32.8 | (69,784) | (19.5) | |||||||||||||||||||||||||||||
| Income from operations | 305,086 | 23.2 | 224,617 | 20.6 | 80,469 | 35.8 | |||||||||||||||||||||||||||||
| Total other income, net | (13,826) | (1.1) | (9,700) | (0.9) | 4,126 | 42.5 | |||||||||||||||||||||||||||||
| Income before income taxes | 318,912 | 24.3 | 234,317 | 21.5 | 84,595 | 36.1 | |||||||||||||||||||||||||||||
| Income tax expense | 76,591 | 5.8 | 55,770 | 5.1 | (20,821) | (37.3) | |||||||||||||||||||||||||||||
| Net income | 242,321 | 18.5 | 178,547 | 16.4 | 63,774 | 35.7 | |||||||||||||||||||||||||||||
| Total other comprehensive income (loss), net of tax | 10,775 | 0.8 | (2,117) | (0.2) | 12,892 | 609.0 | |||||||||||||||||||||||||||||
| Comprehensive income | $ | 253,096 | 19.3 | % | $ | 176,430 | 16.2 | % | $ | 76,666 | 43.5 | % | |||||||||||||||||||||||
| Net income per share | |||||||||||||||||||||||||||||||||||
| Basic | $ | 1.59 | $ | 1.14 | $ | 0.45 | 39.5 | % | |||||||||||||||||||||||||||
| Diluted | $ | 1.59 | $ | 1.14 | $ | 0.45 | 39.5 | % | |||||||||||||||||||||||||||
Net Sales. Net sales by location, and by brand and channel were as follows:
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||
| Amount | Amount | Amount | % | ||||||||||||||||||||
| Net sales by location | |||||||||||||||||||||||
| Domestic | $ | 853,910 | $ | 748,033 | $ | 105,877 | 14.2 | % | |||||||||||||||
| International | 457,410 | 343,874 | 113,536 | 33.0 | |||||||||||||||||||
| Total | $ | 1,311,320 | $ | 1,091,907 | $ | 219,413 | 20.1 | % | |||||||||||||||
| Net sales by brand and channel | |||||||||||||||||||||||
| UGG brand | |||||||||||||||||||||||
| Wholesale | $ | 512,401 | $ | 451,841 | $ | 60,560 | 13.4 | % | |||||||||||||||
| Direct-to-Consumer | 177,464 | 158,649 | 18,815 | 11.9 | |||||||||||||||||||
| Total | 689,865 | 610,490 | 79,375 | 13.0 | |||||||||||||||||||
| HOKA brand | |||||||||||||||||||||||
| Wholesale | 362,344 | 262,973 | 99,371 | 37.8 | |||||||||||||||||||
| Direct-to-Consumer | 208,552 | 160,988 | 47,564 | 29.5 | |||||||||||||||||||
| Total | 570,896 | 423,961 | 146,935 | 34.7 | |||||||||||||||||||
| Teva brand | |||||||||||||||||||||||
| Wholesale | 12,132 | 12,150 | (18) | (0.1) | |||||||||||||||||||
| Direct-to-Consumer | 9,860 | 9,355 | 505 | 5.4 | |||||||||||||||||||
| Total | 21,992 | 21,505 | 487 | 2.3 | |||||||||||||||||||
27
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||
| Amount | Amount | Amount | % | ||||||||||||||||||||
Sanuk brand (1) | |||||||||||||||||||||||
| Wholesale | 1,895 | 3,348 | (1,453) | (43.4) | |||||||||||||||||||
| Direct-to-Consumer | 922 | 2,033 | (1,111) | (54.6) | |||||||||||||||||||
| Total | 2,817 | 5,381 | (2,564) | (47.6) | |||||||||||||||||||
| Other brands | |||||||||||||||||||||||
| Wholesale | 24,881 | 29,862 | (4,981) | (16.7) | |||||||||||||||||||
| Direct-to-Consumer | 869 | 708 | 161 | 22.7 | |||||||||||||||||||
| Total | 25,750 | 30,570 | (4,820) | (15.8) | |||||||||||||||||||
| Total | $ | 1,311,320 | $ | 1,091,907 | $ | 219,413 | 20.1 | % | |||||||||||||||
| Total Wholesale | $ | 913,653 | $ | 760,174 | $ | 153,479 | 20.2 | % | |||||||||||||||
| Total Direct-to-Consumer | 397,667 | 331,733 | 65,934 | 19.9 | |||||||||||||||||||
| Total | $ | 1,311,320 | $ | 1,091,907 | $ | 219,413 | 20.1 | % | |||||||||||||||
(1) Represents financial results from July 1, 2024 through the Sanuk Brand Sale Date for the three months ended September 30, 2024. Refer to the section titled “Reportable Operating Segments,” in Note 1, “General,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report for further information.
Total net sales increased primarily due to higher global net sales across all channels for the HOKA and UGG brands. On a constant currency basis, net sales increased by 20.4%, compared to the prior period. Further, we experienced an increase of 19.0% in the total volume of units sold to 21,300 from 17,900, 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 primarily due to higher global net sales across the brand’s product assortment, driven by market share gains and benefits from select new points of distribution with key partners globally, as well as the timing of certain distributor shipments.
•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, especially among international regions. Comparable DTC channel net sales for the 13 weeks ended September 29, 2024, increased by 17.0%, compared to the prior period.
•Wholesale net sales of the UGG brand increased primarily due to higher global net sales as a result of increased demand for year-round key product franchises, also benefiting from timing of sell-in for fall and winter franchises.
•International net sales, which are included in the reportable operating segment net sales presented above, increased by 33.0% and represented 34.9% and 31.5% of total net sales for the three months ended September 30, 2024, and 2023, respectively. These changes were primarily driven by higher global net sales across all channels for the HOKA and UGG brands.
Gross Profit. Gross margin increased to 55.9% from 53.4%, compared to the prior period, primarily due to favorable brand and product mix for the HOKA brand along with higher margin product driving a higher proportion of growth for both the HOKA and UGG brands, and reduced closeouts to the wholesale channel. These benefits were partially offset by unfavorable freight costs due to rising ocean freight costs, and slightly unfavorable channel mix shifts.
28
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 variable advertising and promotion expenses of approximately $32,000, primarily due to higher promotional marketing expenses for the HOKA and UGG brands to drive global brand awareness and market share gains, highlight new product categories, and provide localized marketing.
•Increased other operating expenses of approximately $25,600, primarily due to higher contract expenses, legal expenses, and infrastructure investments and related depreciation.
•Increased payroll and related costs of approximately $20,300, 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 other variable net selling expenses of approximately $11,300, primarily due to higher warehouse expenses, sales commissions and related fees, and credit card fees, as well as higher rent and occupancy costs related to HOKA brand growth.
•Increased net foreign currency-related gains of approximately $19,500, primarily driven by favorable changes in Asian and European exchange rates against the US dollar.
Income from Operations. Income (loss) from operations by reportable operating segment was as follows:
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||
| Amount | Amount | Amount | % | ||||||||||||||||||||
| Income (loss) from operations | |||||||||||||||||||||||
| UGG brand wholesale | $ | 195,494 | $ | 165,902 | $ | 29,592 | 17.8 | % | |||||||||||||||
| HOKA brand wholesale | 115,941 | 81,873 | 34,068 | 41.6 | |||||||||||||||||||
| Teva brand wholesale | (1,216) | (647) | (569) | (87.9) | |||||||||||||||||||
Sanuk brand wholesale (1) | (3,258) | (303) | (2,955) | (975.2) | |||||||||||||||||||
| Other brands wholesale | 2,023 | 6,459 | (4,436) | (68.7) | |||||||||||||||||||
Direct-to-Consumer (1) | 143,447 | 112,255 | 31,192 | 27.8 | |||||||||||||||||||
| Unallocated overhead costs | (147,345) | (140,922) | (6,423) | (4.6) | |||||||||||||||||||
| Total | $ | 305,086 | $ | 224,617 | $ | 80,469 | 35.8 | % | |||||||||||||||
(1) Represents financial results from July 1, 2024 through the Sanuk Brand Sale Date for the three months ended September 30, 2024. Refer to the section titled “Reportable Operating Segments,” in Note 1, “General,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report for further information.
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 slightly lower 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, partially offset by higher 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, partially offset by higher SG&A expenses as a percentage of net sales.
29
•The increase in income from operations of UGG brand wholesale was due to higher global net sales at higher gross margins, partially offset by higher SG&A expenses as a percentage of net sales.
•Unallocated overhead costs were a lower percentage of net sales, but increased primarily due to higher other operating expenses and payroll costs for key corporate roles to support growth of our brands, partially offset by increased foreign currency-related gains.
Total Other Income, Net. The increase in total other income, net, compared to the prior period, was due to higher interest income from higher invested cash balances.
Income Tax Expense. Income tax expense and our effective income tax rate were as follows:
| Three Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Income tax expense | $ | 76,591 | $ | 55,770 | |||||||
| Effective income tax rate | 24.0 | % | 23.8 | % | |||||||
The net increase in our effective income tax rate, compared to the prior period, was primarily due to the effects of discrete items, including a change in valuation allowance on tax attributes and a change in return-to-provision differences, partially offset by net discrete tax benefits for stock-based compensation.
Net Income. The increase in net income, compared to the prior period, was 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 Income (Loss), Net of Tax. The increase in total other comprehensive income, net of tax, compared to the prior period, was primarily due to higher foreign currency translation gains relating to changes in the net asset position against Asian and European foreign currency exchange rates, partially offset by higher unrealized losses on cash flow hedges.
Six Months Ended September 30, 2024, Compared to Six Months Ended September 30, 2023. Results of operations were as follows:
| Six Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | ||||||||||||||||||||||||||||||
| Net sales | $ | 2,136,667 | 100.0 | % | $ | 1,767,698 | 100.0 | % | $ | 368,969 | 20.9 | % | |||||||||||||||||||||||
| Cost of sales | 933,395 | 43.7 | 838,255 | 47.4 | (95,140) | (11.3) | |||||||||||||||||||||||||||||
| Gross profit | 1,203,272 | 56.3 | 929,443 | 52.6 | 273,829 | 29.5 | |||||||||||||||||||||||||||||
| Selling, general, and administrative expenses | 765,379 | 35.8 | 634,090 | 35.9 | (131,289) | (20.7) | |||||||||||||||||||||||||||||
| Income from operations | 437,893 | 20.5 | 295,353 | 16.7 | 142,540 | 48.3 | |||||||||||||||||||||||||||||
| Total other income, net | (30,172) | (1.4) | (20,328) | (1.2) | 9,844 | 48.4 | |||||||||||||||||||||||||||||
| Income before income taxes | 468,065 | 21.9 | 315,681 | 17.9 | 152,384 | 48.3 | |||||||||||||||||||||||||||||
| Income tax expense | 110,119 | 5.1 | 73,582 | 4.2 | (36,537) | (49.7) | |||||||||||||||||||||||||||||
| Net income | 357,946 | 16.8 | 242,099 | 13.7 | 115,847 | 47.9 | |||||||||||||||||||||||||||||
| Total other comprehensive income (loss), net of tax | 6,975 | 0.3 | (10,416) | (0.6) | 17,391 | 167.0 | |||||||||||||||||||||||||||||
| Comprehensive income | $ | 364,921 | 17.1 | % | $ | 231,683 | 13.1 | % | $ | 133,238 | 57.5 | % | |||||||||||||||||||||||
| Net income per share | |||||||||||||||||||||||||||||||||||
| Basic | $ | 2.35 | $ | 1.55 | $ | 0.80 | 51.6 | % | |||||||||||||||||||||||||||
| Diluted | $ | 2.34 | $ | 1.54 | $ | 0.80 | 51.9 | % | |||||||||||||||||||||||||||
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Net Sales. Net sales by location, and by brand and channel were as follows:
| Six Months Ended September 30, | |||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||
| Amount | Amount | Amount | % | ||||||||||||||||||||
| Net sales by location | |||||||||||||||||||||||
| Domestic | $ | 1,369,766 | $ | 1,167,568 | $ | 202,198 | 17.3 | % | |||||||||||||||
| International | 766,901 | 600,130 | 166,771 | 27.8 | |||||||||||||||||||
| Total | $ | 2,136,667 | $ | 1,767,698 | $ | 368,969 | 20.9 | % | |||||||||||||||
| Net sales by brand and channel | |||||||||||||||||||||||
| UGG brand | |||||||||||||||||||||||
| Wholesale | $ | 654,954 | $ | 573,386 | $ | 81,568 | 14.2 | % | |||||||||||||||
| Direct-to-Consumer | 257,862 | 232,624 | 25,238 | 10.8 | |||||||||||||||||||
| Total | 912,816 | 806,010 | 106,806 | 13.3 | |||||||||||||||||||
| HOKA brand | |||||||||||||||||||||||
| Wholesale | 695,076 | 523,820 | 171,256 | 32.7 | |||||||||||||||||||
| Direct-to-Consumer | 420,998 | 320,625 | 100,373 | 31.3 | |||||||||||||||||||
| Total | 1,116,074 | 844,445 | 271,629 | 32.2 | |||||||||||||||||||
| Teva brand | |||||||||||||||||||||||
| Wholesale | 43,491 | 47,282 | (3,791) | (8.0) | |||||||||||||||||||
| Direct-to-Consumer | 24,811 | 22,621 | 2,190 | 9.7 | |||||||||||||||||||
| Total | 68,302 | 69,903 | (1,601) | (2.3) | |||||||||||||||||||
Sanuk brand (1) | |||||||||||||||||||||||
| Wholesale | 6,328 | 9,818 | (3,490) | (35.5) | |||||||||||||||||||
| Direct-to-Consumer | 3,351 | 5,142 | (1,791) | (34.8) | |||||||||||||||||||
| Total | 9,679 | 14,960 | (5,281) | (35.3) | |||||||||||||||||||
| Other brands | |||||||||||||||||||||||
| Wholesale | 28,586 | 31,289 | (2,703) | (8.6) | |||||||||||||||||||
| Direct-to-Consumer | 1,210 | 1,091 | 119 | 10.9 | |||||||||||||||||||
| Total | 29,796 | 32,380 | (2,584) | (8.0) | |||||||||||||||||||
| Total | $ | 2,136,667 | $ | 1,767,698 | $ | 368,969 | 20.9 | % | |||||||||||||||
| Total Wholesale | $ | 1,428,435 | $ | 1,185,595 | $ | 242,840 | 20.5 | % | |||||||||||||||
| Total Direct-to-Consumer | 708,232 | 582,103 | 126,129 | 21.7 | |||||||||||||||||||
| Total | $ | 2,136,667 | $ | 1,767,698 | $ | 368,969 | 20.9 | % | |||||||||||||||
(1) Represents financial results from April 1, 2024 through the Sanuk Brand Sale Date for the six months ended September 30, 2024. Refer to the section titled “Reportable Operating Segments,” in Note 1, “General,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report for further information.
Total net sales increased primarily due to higher global net sales across all channels for the HOKA and UGG brands. On a constant currency basis, net sales increased by 21.4%, compared to the prior period. Further, we experienced an increase of 16.8% in the total volume of units sold to 34,000 from 29,100, 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 primarily 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, as well as the timing of certain distributor shipments.
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•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 a slight benefit from higher levels of full-price selling. Comparable DTC channel net sales for the 26 weeks ended September 29, 2024, increased by 19.3%, compared to the prior period.
•Wholesale net sales of the UGG brand increased primarily due to higher global sales as a result of increased demand for year-round key product franchises, also benefiting from timing of sell-in for fall and winter franchises.
•International net sales, which are included in the reportable operating segment net sales presented above, increased by 27.8% and represented 35.9% and 33.9% of total net sales for the six months ended September 30, 2024, and 2023, respectively. These changes were primarily driven by higher global net sales for both channels for the HOKA and UGG brands.
Gross Profit. Gross margin increased to 56.3% from 52.6%, compared to the prior period, primarily due to favorable brand and product mix for the HOKA brand along with higher margin product driving a higher proportion of growth for both the HOKA and UGG brands and higher full-price selling, including reduced closeouts to the wholesale channel.
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 variable advertising and promotion expenses of approximately $47,800, primarily due to higher promotional marketing expenses for the HOKA and UGG brands to drive global brand awareness and market share gains, highlight new product categories, and provide localized marketing.
•Increased payroll and related costs of approximately $45,200, 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 other operating expenses of approximately $33,200, primarily due to higher infrastructure investments and related depreciation, contract expenses, and travel expenses.
•Increased other variable net selling expenses of approximately $20,100, primarily due to higher rent and occupancy costs related to HOKA brand growth, higher warehouse expenses and credit card fees, as well as higher selling expenses, including sales commissions and related fees, and materials and supplies.
•Increased net foreign currency-related gains of approximately $15,100, primarily driven by favorable changes in Asian and European exchange rates against the US dollar.
Income from Operations. Income (loss) from operations by reportable operating segment was as follows:
| Six Months Ended September 30, | |||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||
| Amount | Amount | Amount | % | ||||||||||||||||||||
| Income (loss) from operations | |||||||||||||||||||||||
| UGG brand wholesale | $ | 233,924 | $ | 182,768 | $ | 51,156 | 28.0 | % | |||||||||||||||
| HOKA brand wholesale | 240,635 | 168,397 | 72,238 | 42.9 | |||||||||||||||||||
| Teva brand wholesale | 5,573 | 8,590 | (3,017) | (35.1) | |||||||||||||||||||
Sanuk brand wholesale (1) | (1,655) | 456 | (2,111) | (462.9) | |||||||||||||||||||
| Other brands wholesale | 466 | 4,418 | (3,952) | (89.5) | |||||||||||||||||||
Direct-to-Consumer (1) | 249,857 | 187,717 | 62,140 | 33.1 | |||||||||||||||||||
| Unallocated overhead costs | (290,907) | (256,993) | (33,914) | (13.2) | |||||||||||||||||||
| Total | $ | 437,893 | $ | 295,353 | $ | 142,540 | 48.3 | % | |||||||||||||||
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(1) Represents financial results from April 1, 2024 through the Sanuk Brand Sale Date for the six months ended September 30, 2024. Refer to the section titled “Reportable Operating Segments,” in Note 1, “General,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report for further information.
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 slightly lower 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 the DTC channel was due to higher global net sales for the HOKA and UGG brands at higher gross margins, partially offset by a slightly higher rate of SG&A expenses as a percentage of net sales.
•The increase in income from operations of HOKA brand wholesale was due to higher global net sales at higher gross margins, combined with relatively flat SG&A expenses as a percentage of net sales.
•The increase in income from operations of UGG brand wholesale was primarily due to higher global net sales at higher gross margins, partially offset by higher SG&A expenses as a percentage of net sales.
•Unallocated overhead costs were lower as a percentage of net sales, but increased primarily due to higher payroll costs for key corporate roles to support growth of our brands, and higher other operating expenses, partially offset by increased foreign currency-related gains.
Total Other Income, Net. The increase in total other income, net, compared to the prior period, was due to higher interest income from higher invested cash balances and average interest rates.
Income Tax Expense. Income tax expense and our effective income tax rate were as follows:
| Six Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Income tax expense | $ | 110,119 | $ | 73,582 | |||||||
| Effective income tax rate | 23.5 | % | 23.3 | % | |||||||
The net increase in our effective income tax rate, compared to the prior period, was primarily due to the effects of discrete items, including a change in valuation allowance on tax attributes and a change in return-to-provision differences, 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 Income (Loss), Net of Tax. The increase in total other comprehensive income, net of tax, compared to the prior period, was primarily due to higher foreign currency translation gains relating to changes in the net asset position against Asian and European foreign currency exchange rates, partially offset by higher unrealized losses on cash flow hedges.
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LIQUIDITY AND CAPITAL RESOURCES
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 September 30, 2024, our cash and cash equivalents are $1,225,681, 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 laws and regulations, and our actual earnings in future periods. During the six months ended September 30, 2024, and 2023, no cash and cash equivalents were repatriated. As of September 30, 2024, and March 31, 2024, we have $273,887 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.
Revolving Credit Facilities. Information about the revolving credit facilities available as of September 30, 2024, is as follows:
•Primary Credit Facility. During the six months ended September 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 six months ended September 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 September 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.
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Contractual Obligations. Refer to the section 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 six months ended September 30, 2024, and through October 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 September 30, 2024, the aggregate remaining approved amount under our stock repurchase program is $685,413. 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.
Refer to Note 8, “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.
CASH FLOWS
The following table summarizes the major components of our condensed consolidated statements of cash flows for the periods presented:
| Six Months Ended September 30, | |||||||||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||||||||
| Amount | Amount | Amount | % | ||||||||||||||||||||
| Net cash provided by operating activities | $ | 22,100 | $ | 121,528 | $ | (99,428) | (81.8) | % | |||||||||||||||
| Net cash used in investing activities | (34,442) | (57,402) | 22,960 | 40.0 | |||||||||||||||||||
| Net cash used in financing activities | (267,014) | (217,149) | (49,865) | (23.0) | |||||||||||||||||||
| Effect of foreign currency exchange rates on cash and cash equivalents | 2,986 | (5,721) | 8,707 | 152.2 | |||||||||||||||||||
| Net change in cash and cash equivalents | $ | (276,370) | $ | (158,744) | $ | (117,626) | (74.1) | % | |||||||||||||||
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 six months ended September 30, 2024, compared to the prior period, was due to $233,409 of unfavorable changes in operating assets and liabilities partially offset by $133,981 of favorable net income after non-cash adjustments. Changes in operating assets and liabilities were primarily due to (1) higher purchases of inventory to support higher demand for our brands, (2) lower net trade accounts payable related to timing of receipts of goods and services and respective disbursements, (3) higher trade accounts receivable on higher net sales, (4) lower accrued expenses primarily for the payment of performance-based compensation; and (5) favorable changes due to timing of derivative cash settlements.
Investing Activities. The decrease in net cash used in investing activities during the six months ended September 30, 2024, compared to the prior period, was primarily due to lower capital expenditures for leasehold improvements for our warehouses and DCs, and by an increase from cash proceeds from the sale of certain assets.
Financing Activities. The increase in net cash used in financing activities during the six months ended September 30, 2024, compared to the prior period, was primarily due to a higher dollar value of stock repurchases.
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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.
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.
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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 September 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 September 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 September 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 September 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 September 30, 2024, the aggregate remaining approved amount under the stock repurchase program is $685,413.
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 September 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 September 30, 2024, was as follows:
Total Number of Shares Repurchased (1) (4) | Weighted Average Price per Share Paid (4) | Dollar Value of Shares Repurchased (2) (3) | Dollar Value of Shares Remaining for Repurchase (3) | |||||||||||||||||||||||
| July 1 - July 31, 2024 | 276,840 | $ | 150.42 | $ | 41,641 | $ | 748,095 | |||||||||||||||||||
| August 1 - August 31, 2024 | 250,998 | 153.01 | 38,405 | 709,690 | ||||||||||||||||||||||
| September 1 - September 30, 2024 | 158,106 | 153.55 | 24,277 | 685,413 | ||||||||||||||||||||||
Total | 685,944 | 152.09 | $ | 104,323 | 685,413 | |||||||||||||||||||||
(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.
(4) Per share and share data in this table has been adjusted to reflect the six-for-one forward stock split of our common stock that was effected on September 13, 2024. Refer to Note 1, “General,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report, for further information.
Subsequent to September 30, 2024, through October 11, 2024, we repurchased 85,960 shares at a weighted average price of $158.54 per share for $13,628 and had $671,785 remaining authorized under our stock repurchase program.
Refer to Note 8, “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 constitute Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements, in each case as defined under Item 408(a) of Regulation S-K.
During the three months ended September 30, 2024, no Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements were adopted terminated
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ITEM 6. EXHIBITS
EXHIBIT INDEX
| Exhibit Number | Description of Exhibit | |||||||
*3.1 | ||||||||
*3.2 | ||||||||
#10.1 | ||||||||
#10.2 | ||||||||
| *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.
# Management contract or compensatory plan or arrangement.
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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: October 31, 2024
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