Deckers Outdoor Corp 2027 Q2 Earnings Call

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

All statements made on this call today, other than statements of historical fact, are forward-looking statements and include statements regarding our ability to drive profitable growth, brand health, and long-term value, the macroeconomic and consumer environment, and related impacts on our business and operating results, including the expected persistence of current consumer and promotional trends, our current and long-term strategic objectives, the expected performance of our brands and demand for our products, the anticipated impacts of our brand, product, marketing, marketplace, distribution, and investment strategies, including the expansion of our wholesale presence and our brands lifestyle, apparel, and year-round product offerings.

Our product development plans and the timing and anticipated performance of product launches, changes in consumer behavior, our ability to acquire new consumers and gain market share, our ability to achieve our financial outlook, including anticipated revenues, gross margin, SG&A expenses, operating margin, effective tax rate, promotional activity, anticipated rate of full price selling, and earnings per share. Our cost management and resource allocation actions, the anticipated effects of corrective actions related to our European third-party logistics provider, the timing of wholesale and distributor shipments, our ability to maintain a premium full-price global marketplace, statements regarding tariff refunds, and our ability to generate free cash flow and execute our capital allocation strategy, including potential share repurchases. Forward-looking statements made on this call represent management's current expectations and are based on information available at the time such statements are made.

Forward-looking statements involve numerous known and unknown risks, uncertainties, and other factors, such as changes in consumer demand, foreign currency exchange rate fluctuations, and changes to trade policies, including the amount and timing of any future tariff refunds, that may cause our actual results to differ materially from any results predicted, assumed, or implied by the forward-looking statements. The company has explained some of these risks and uncertainties in its SEC filings, including in the Risk Factor section of its annual report on Form 10-K and quarterly reports on Form 10-Q. Except as required by law or the listing rules of the New York Stock Exchange, the company expressly disclaims any intent or obligation to update any forward-looking statements.

On this call, management may refer to financial measures that were not prepared in accordance with generally accepted accounting principles in the U.S., including constant currency, free cash flow, and certain results and outlook measures presented excluding the net benefit of IEEPA tariff refunds and related interest, such as diluted earnings per share, gross margin, and operating margin. For example, the company reports comparable direct-to-consumer sales on a constant currency basis for operations that were open throughout the current and prior reporting periods. The company believes these non-GAAP financial measures are useful supplemental indicators of its operating performance because they exclude items that are unrelated to and may not be indicative of its core operating results.

The company defines free cash flow as net cash provided by operating activities for a particular period plus capital expenditures made during that same period and believes free cash flow is a useful supplemental measure of liquidity as it reflects the cash generated from operations after investments required to support the strategic growth of the business. Please review our earnings release published today for additional information regarding our non-GAAP financial measures. With that, I will now turn it over to Stefano.

Thank you, Erinn. Good afternoon, everyone, and thank you for joining today's call. In the second quarter, Deckers delivered another solid result. We expanded our global presence, performed well in multi-brand environments, and delivered a high mix of full price sales. For the quarter, total company revenue grew 3.5% versus last year, with HOKA and UGG increasing 7% and 4% respectively. Diluted earnings per share was $2.31, including a $0.28 benefit from the impact of IEEPA net tariff refunds received in the quarter. Excluding this benefit, diluted EPS would have been $2.03, well above the high end of our guidance range and up 11.5% versus last year. Despite some top-line pressure, we maintained healthy gross margins, delivered global growth, and continued to invest in the long-term strength of our brands.

As consumers face increasing economic pressure, our updated fiscal year outlook reflects a more measured approach to growth over the next two quarters. Consistent with our strategic framework, we are making deliberate choices about how we compete, win, and grow our brands. We will continue to prioritize margin preservation and long-term value over chasing potential incremental near-term revenue that could dilute our brands. We will use our flexible expense levers to stay agile and protect the integrity of our premium global brands. Against the backdrop, I will now share what we are seeing across the business in the operating environment, along with the actions we are taking to build on what is working and address the areas where we see opportunity for improvement. International continues to be an area of strength for our brands.

Within international, APAC delivered our highest percentage growth and was a meaningful contributor to incremental year-over-year dollar growth in the second quarter. International markets serve as a proving ground for our brands and emerging categories. With UGG and HOKA still in the earlier stages of development in many of these markets, these consumers often view our brands through a broader lifestyle lens, helping to influence trends that later gain traction in other regions. In EMEA, demand signals remain strong. However, service disruptions at our third-party logistics provider during a peak shipping period affected the timing of certain shipments. While this impacted revenue in the quarter, we have taken corrective action with our partner to restore normal operations, improve visibility, and reduce the risk of future disruptions.

In the U.S., we saw promotional activity increase throughout the quarter, particularly in athletic footwear, which weighed on our U.S. e-commerce performance as we maintained full price discipline. We also observed two shifts in consumer behavior. Consumers increasingly seeking discounts, concentrating traffic around promotional events, and consumers becoming more purposeful in their spending and prioritizing products with immediate relevance and utility. Given the trends across our brands and the growing pressure on consumers, we have identified areas where improving execution can have a meaningful impact. Our objective is to deliver healthy market share gains, even in a more challenging environment. These actions are grounded in our four guiding principles of consumer first, brand led, innovation forward, and globally driven. Along with our playbook, these key pillars are designed to support sustainable brand growth and create long-term value for shareholders. As we look ahead, we are focused on first delivering product excellence.

We have a robust innovation pipeline designed to deliver tangible consumer benefits, reinforce the positioning and credibility of our brands, and create meaningful new revenue streams. We will maximize its impact through sharper franchise segmentation, clear differentiation, elevated design, and purposeful innovation that is commercially relevant and directly connected to consumer demand. Second, elevating marketing capabilities. We are strengthening our global marketing capabilities so our products connect with consumers more meaningfully. Through sharper brand storytelling, more impactful consumer messaging, and more compelling experiences, we will build deeper engagement across our growing global audience. This integrated approach will also enable us to deploy resources more effectively and generate greater consistency, leverage, and returns from our marketing investments. Third, strengthening marketplace execution. Consumer behavior is changing rapidly, and we are evolving how we show up.

We are focusing our resources in the channels, platforms, and points of sale where consumers are most engaged and purchase intent is highest. By amplifying our digital presence, deepening engagement, enhancing loyalty programs, and elevating execution at point of sale, we can meet consumers more effectively and convert interest into demand. Finally, continuing to apply disciplined cost control and resource allocation. We are making clear choices, moving faster, and prioritizing initiatives that we believe will deliver the greatest results. This approach will help us manage cost pressures, spend efficiently, and concentrate resources on the actions that will most effectively support the long-term health of our brands. Steve will provide more detail on our second quarter financial performance and updated fiscal 2027 outlook later in the call.