DECKERS BRANDS SECOND QUARTER FISCAL 2027 EARNINGS CALL - DECKERS OUTDOOR CORP

Financial Performance:

• Total company revenue for Q2 Fiscal 2027 reached $1.48 billion, a 3.5% year-over-year increase driven by HOKA (+7%) and UGG (+4%); the other brand segment declined 5.4% due to the wind-down of the Kulabura brand.
• Diluted EPS was $2.31, including a $0.28 benefit from IEPA tariff refunds; excluding this benefit, EPS was $2.03 (up 11.5% YoY), exceeding the high end of prior guidance.
• Gross margins improved to 60.5% (up 430 bps YoY), driven by a 310 bps benefit from tariff refunds and a 120 bps underlying improvement from favorable product mix and full-price selling discipline.
• SG&A expenses were $506 million (up 6% YoY) but below prior expectations, resulting in an operating margin of 26.3% (23.2% excluding tariff benefits).
• The company repurchased $299 million of shares in Q2 and $637 million YTD (approx. 5% of outstanding stock), with $4.4 billion remaining under the repurchase authorization.
• Cash and equivalents stood at $1.2 billion as of September 30, 2026, with no outstanding borrowings; inventory increased 3% YoY to $861 million.

Guidance and Future Outlook:

• Fiscal 2027 full-year revenue guidance increased to $5.70–$5.725 billion; HOKA is now expected to grow high single-digits and UGG low single-digits.
• Full-year gross margin guidance raised to ~58.5% (reflecting an ~$88M tariff benefit); underlying gross margin expected to reach 57%.
• Full-year operating margin guidance raised to ~23% (inclusive of benefits); underlying margin expected to remain slightly above 21.5%.
• Fiscal 2027 diluted EPS guidance raised to $7.80–$7.95; excluding tariff benefits, the implied growth remains robust.
• Q3 revenue guidance set for low-single-digit growth; HOKA expected low-to-mid single digits, UGG low single digits.
• Q3 EPS guidance set at $3.52–$3.60, including an approx. $0.24 benefit from tariff refunds.
• Management expects acceleration in Q4 revenue, particularly for HOKA, driven by international demand and global product launches.

Business Segments and Product Lines:

• HOKA: Global revenue grew 7% to $677M; wholesale up 9% to $444M, DTC up 4% to $234M. U.S. DTC faced pressure from promotional activity, while international DTC remained robust.
• UGG: Global revenue grew 4% to $786M; wholesale up 7% to $641M, DTC down 8% to $146M. Growth driven by wholesale sell-in across U.S. and international markets.
• Product Innovation (HOKA): Pipeline includes Bondi 10 (Jan), Mach Pro (April), and Mock 8 (Fall); price architecture expanding with FlyPace ($115) and Bondi Ultra X ($325).
• Product Innovation (UGG): Focus on expanding franchises like Lomel, Golden Star Evelina, Zora, and Quill; strong performance in fleece-led apparel and "head-to-toe" styling.
• Channel Strategy: Shifting focus to sharpen franchise segmentation and elevate marketing efficiency; international markets serving as proving grounds for lifestyle trends.

Market and Competitive Landscape:

• The U.S. athletic footwear market has seen increased promotional activity, forcing a strategic decision to prioritize full-price selling over chasing volume, which negatively impacted U.S. DTC.
• International markets (APAC and EMEA) continue to show strong growth; APAC delivered the highest percentage growth in Q2.
• EMEA experienced temporary revenue disruption (~$22M) due to a third-party logistics provider transition, though corrective actions are underway.
• HOKA maintains its position as the leading performance-running brand at premium price points ($120+), with ample runway for wholesale distribution expansion in sporting goods and run specialty.
• UGG is positioning itself as a global lifestyle brand with broadening wear occasions beyond winter, seeing success in "wear-now" consumer behavior.

Risks and Challenges:

• Promotional Environment: Increasing consumer pressure to find discounts and competitor promotional activity in the U.S. athletic category threaten full-price selling discipline.
• Logistics Disruptions: Operational hiccups with a third-party logistics provider in EMEA impacted shipment timing and Q2 revenue.
• Consumer Behavior: Shift toward "buy-now-wear-now" purchasing, delayed purchase decisions, and traffic concentration around promotional events.
• Product Execution: Feedback indicated some FY26 franchise updates did not resonate as expected, necessitating improved segmentation and execution for Spring/Fall 2027.
• Macroeconomic Factors: Currency fluctuations, potential tariff policy changes, and persistent inflationary pressures on costs (freight).

Management Commentary and Tone:

• Tone remained confident and disciplined, emphasizing "brand-led" growth and protecting long-term value over short-term revenue chasing.
• Management highlighted the resilience of the operating model, noting that discipline in full-price selling yielded exceptional margin results despite top-line headwinds.
• CEO Stefano Carotti reaffirmed belief in the long-term potential of HOKA and UGG, viewing current challenges as temporary and manageable.
• CFO Steve Fashing underscored the flexibility of the cost structure and the strong balance sheet, enabling continued investment while maintaining capital allocation discipline.
• Board update announced: Rati Sahiwal joined effective December 1st to bolster digital commerce expertise; Lori Shanahan is retiring.

Analyst Questions and Answers:

• Long-term Growth Guidance: Management clarified that the Q2/Q3 guidance reduction reflects the current promotional environment, not a degradation of brand health; long-term goals (HOKA low double-digit growth through FY30) remain intact.
• Gross Margin Drivers: The 120 bps underlying margin improvement was evenly split between full-price selling discipline and favorable product mix; Q3 underlying margin expected to improve YoY despite higher freight and slight promo increases, driven by tariff benefits.
• Channel Mix: Wholesale is expected to outpace DTC growth for HOKA in Q3 due to U.S. DTC promotional pressure; UGG wholesale outperformance is expected to continue into the holiday season.
• Inventory & Product Cycles: Bondi 9 remains strong at full price; markdowns expected to begin around Cyber Monday to ensure a clean transition to Bondi 10.
• Wholesale Expansion: HOKA has significant room for distribution growth in run specialty and sporting goods, with thoughtful expansion planned for Spring and Fall 2027.
• Holiday Outlook: UGG expects a strong holiday season driven by newness and "gift-giving" themes, though assuming lower re-order intensity compared to the previous year's weather-driven surge.

Other Key Points:

• IEPA Tariff Refunds: Significant non-recurring benefits recognized in Q2 ($0.28/share) and Q3 ($0.24/share); guidance includes approximately $88M in Q3 refunds but excludes unreceived amounts.
• Marketing Realignment: External review of marketing deployment is underway to improve efficiency, sharpen brand messaging, and better connect innovation with consumers.
• Strategic Pillars: Execution continues to be guided by consumer-first, brand-led, innovation-forward, and globally driven principles.
• Capital Allocation: Strong free cash flow generation supports aggressive share repurchases ($1B planned for FY27) while funding strategic brand investments.