Physical retail stores by Hoka serve as the main platform for selling items at their original price.
In the first quarter of 2023, Deckers, the footwear giant behind popular brands Hoka and Ugg, has demonstrated resilience in the face of economic uncertainties and tariffs. According to Stefano Caroti, Deckers' CEO, brick-and-mortar stores have proven crucial to the company's wholesale and direct-to-consumer (DTC) sales.
Hoka, Deckers' high-performance footwear brand, delivered very high single-digit to low double-digit growth rates in Q1. Ugg, the lifestyle brand, also posted positive sales gains, contributing significantly to Deckers’ overall revenue. Together, these two brands accounted for approximately 88% of the company's total revenue, reflecting robust consumer demand.
Deckers has effectively balanced its brick-and-mortar and e-commerce sales. The company's DTC strategy, which includes online sales, has significantly boosted margins, reaching around 55.9% in recent quarters. This strong online sales momentum, coupled with the importance of physical stores for brand experience and customer acquisition, has helped mitigate risks from retail store disruptions and economic uncertainties.
While tariffs and supply chain challenges pose risks, Deckers' strong brand equity, financial flexibility, and strategic focus on niche categories have allowed it to maintain healthy growth and profitability. In Q1 2023, the company did not report any major adverse impact from tariffs specifically.
Looking ahead, Deckers aims to recapture about $75 million via price hikes and "partial cost sharing with factory partners." However, Evercore ISI analysts believe that Deckers' tariff impact estimates may be conservative, with a potential drag of 200 to 300 basis points.
International sales have been a significant driver of growth for Deckers. In Q1, international net sales rose 49.7% to $463.3 million, with the largest gains in China and the Europe, Middle East, and Africa region. Ugg's wholesale sales have grown 30% year over year, both in the U.S. and internationally.
However, the DTC channel for Hoka has experienced some cannibalization by the wholesale channel. Ugg's DTC sales have decreased 1% year over year, while wholesale net sales rose 26.7%.
In terms of financial performance, Deckers' Q1 net sales rose nearly 17% year over year to $964.5 million. Net income for Q1 rose more than 20% to $139.2 million. However, the gross margin for Q1 shrank to 55.8% from 56.9% a year ago.
Despite the strong performance in Q1, global trade policy uncertainty has prevented Deckers from providing full-year guidance. M Science's MacFarlane believes that Deckers' margins will likely be impacted by tariffs, but it's challenging to fully gauge due to rapidly shifting trade policies.
In product news, Hoka's Clifton and Bondi models have received sneaker style upgrades, while men's growth at Ugg was almost double the brand's overall growth, with sandal sneaker styles as the main driver.
In conclusion, Deckers' key brands Hoka and Ugg have delivered solid sales growth in Q1 2023, despite macroeconomic challenges such as tariffs and economic uncertainty. The company's dual-brand strategy, effective channel mix, and robust international sales have helped Deckers maintain healthy growth and profitability. However, the ongoing trade policy uncertainties could pose challenges in the future.
- Deckers' resilience in the economic uncertainties and tariffs has been notable, despite the potential risks, as demonstrated by its financial performance in the first quarter of 2023.
- The science and technology of artificial intelligence (AI) could play a significant role in Deckers' future business strategies, potentially helping to navigate trade policy uncertainties and optimize both brick-and-mortar and e-commerce sales.
- As Deckers aims to recapture around $75 million via price hikes and cost sharing with factory partners, it would be prudent for the company to conduct research on consumer response to these changes to ensure sustainable growth and profitability.
- In the realm of finance and business, understanding market trends and policy developments on a global scale is essential for Deckers as it continues to expand its international sales, especially in high-growth regions like China and Europe, Middle East, and Africa.
