Deckers Outdoor Corp (DECK)

• Strong double-digit growth in Asia, particularly in China, where their brands are performing well despite challenging economic conditions, with Asia expected to continue growing at strong double digits. -
• The company aims for HOKA to achieve a 50-50 split between U.S. and international markets, indicating significant growth potential internationally as brand awareness is currently in the mid-20s internationally versus mid-40s in the U.S., with international markets 2-3 years behind the U.S. -
• High-priced Pinnacle products like the Cielo X1 and Skyward X have exceeded expectations, successfully entering the $200+ price point for the first time, contributing to top-line growth and improving the margin profile. -

• Gross margins are expected to decline in the second half due to increased promotions and markdowns on key styles like the Clifton and Bondi, which could impact profitability - .
• Despite a 32% growth in HOKA during the first half, the company anticipates that HOKA's growth will decelerate in the second half, aligning with their forecast - .
• The company's international markets are 2 to 3 years behind the U.S., with challenges anticipated in regions like China due to a "challenging economic climate", potentially hindering growth - - .

1. HOKA Growth Guidance
   Q: HOKA guidance raised to 24%; expectations for second half?
   A: Management increased HOKA's growth guidance to 24% for the year, noting that while first-half growth was 32%, they anticipate a settling of growth in the second half as earlier wholesale expansion moderates. - They remain confident due to better-than-expected performance and focus on controlled, strategic distribution. -

2. Margin Outlook
   Q: Are you seeing pullback in full-price selling affecting margins?
   A: Management is cautiously assuming increased promotions in the second half due to macroeconomic challenges. - There is more product in the channel compared to last year, which may lead to promotions to manage inventory ahead of new product introductions in Q4 and Q1 FY'26. -

3. International Expansion
   Q: What's the outlook for HOKA's international growth?
   A: HOKA's international business is 2 to 3 years behind the U.S. but has significant upside. - Management aims for a 50-50 split between U.S. and international sales in the long term. - They are pleased with strong growth in Europe and are encouraged by progress in Asia and China. -

4. Inventory and Gross Margin
   Q: How will promotions and inventory affect gross margin?
   A: Management acknowledged a 70 basis point freight headwind impacting gross margin in Q2 but noted overall improvement due to product mix. - They anticipate increased promotions in the second half, especially for key styles like Clifton and Bondi, to manage inventory and launch new models. -

5. Early Wholesale Shipments
   Q: Are earlier wholesale shipments affecting future quarters?
   A: Earlier wholesale shipments, particularly for UGG, contributed to higher growth in Q2 as partners wanted product sooner. - This may impact the second half due to more inventory in the channel, but management remains disciplined in marketplace management. -

6. Performance in China
   Q: How is China performing amid tough conditions?
   A: Despite a challenging economic climate, the brands are performing well in China, connecting with consumers and communities. - HOKA is now a top-five brand in major races, and there's increasing store footprint. - Asia continues to grow at strong double digits. -

7. New Product Launches
   Q: What's the impact of new product introductions?
   A: The company delivered significant newness, including upgrades to major products like Bondi (launching in January) and Clifton (in April). - They also introduced new styles in lifestyle and cold-weather categories, with positive trade reactions. -

8. Door Expansion Strategy
   Q: What's the strategy for expanding retail doors?
   A: Management is selective and diligent in expansion, focusing on productivity before adding doors. - They continue to perform and open doors strategically with partners like Dick's Sporting Goods and Foot Locker. -

9. Demand Creation Spending
   Q: How are you investing in marketing for HOKA and UGG?
   A: The company is increasing marketing spend as a percentage of revenue, investing in demand creation for both HOKA and UGG. - They are creating localized content to resonate with international consumers and leveraging gross margin improvements to fund this investment. -

10. Tariff Considerations
    Q: How are you considering potential tariff impacts?
    A: Management stated it's too early to assess potential tariff impacts given uncertainties, and any effects are not currently figured into guidance. -

Annual guidance for FY 2025:

• Revenue growth: Approximately 12% to $4.8B - (raised from approximately 10% to $4.7B - - )
• HOKA: Expected to increase approximately 24% - (raised from approximately 20% - - )
• UGG: Mid-single-digit growth - (no change from prior guidance - - )
• Gross margin: 55% to 55.5% - (raised from approximately 54% - - )
• SG&A: Approximately 35% of revenue - (raised from 34% to 34.5% - - )
• Operating margin: 20% to 20.5% - (raised from 19.5% to 20% - - )
• Effective Tax Rate: 23% to 23.5% - (raised from 22% to 23% - - )
• Diluted EPS: $5.15 to $5.25 - (lowered from $29.75 to $30.65 - - )