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 of our 2021 Annual Report.

Certain statements made in this section constitute "forward-looking statements," which are subject to numerous risks and uncertainties, including those described in this section. 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 entitled “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, Sanuk, and Koolaburra. We believe that 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 e-commerce websites and retail stores. We seek to differentiate our brands and products by offering diverse lines that emphasize authenticity, functionality, quality, and comfort, and products tailored to a variety of activities, seasons, and demographic groups. All of our products are currently manufactured by independent third-party manufacturers.

Trends and Uncertainties Impacting Our Business and Industry

We expect our business and the industry in which we operate will continue to be impacted by several important trends and uncertainties, including the following:

COVID-19 Pandemic

• Geographic regions in which we and our business partners operate continue to experience the impacts of the pandemic, including recent increases in the number of positive COVID-19 cases in certain locations, which may result in additional or prolonged facility closures, further disrupt our supply chain, prompt changes in consumer behavior, or reduce discretionary spending. Such factors are beyond our control and could elicit further actions and recommendations from governments and public health officials which could negatively impact our business and results of operations. We believe the actions we have taken to respond to the pandemic, combined with our strong brands, diversified product portfolio, and favorable liquidity position have helped to mitigate the impact of the pandemic on our business thus far, however the impacts from the pandemic continue to be uncertain and subject to change.

Supply Chain

• Similar to other companies in our industry, our network of strategic sourcing partners, which includes material vendors and manufacturers, are actively experiencing delays and disruptions related to COVID-19 outbreaks, including government-mandated shutdowns. However, due to the low exposure of our partners' facilities in Southern Vietnam, combined with our dual sourcing capabilities enabling production shifts to alternate locations, our strategic product prioritization, and the seasonality of our business, we have been able to mitigate against significant production disruptions thus far. Consequently, we currently do not expect such sourcing and production disruptions to cause a material negative top-line net sales effect on our results of operations for the full fiscal year ending March 31, 2022 (current fiscal year). Furthermore, as part of our ongoing sourcing strategy, production capacity has been added or reallocated within existing sourcing partners, while additional long-term strategy sourcing partners have been onboarded to further

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diversify our country level manufacturing and sourcing lines. These efforts are intended to support our growing brands as well as mitigate against similar localized risks prospectively.

• Although our distribution centers, including our owned DC and third-party logistics (3PL) providers, are currently operating and supporting ongoing logistics, certain of these facilities continue to experience operational challenges. These challenges may result in delays distributing our products and cost pressures in future periods, which may have an adverse effect on our results of operations. For example, we have experienced start-up challenges during the transition to our new European 3PL which we expect will result in additional supply chain pressures as they refine their system and delivery levels, but we are working closely with them to improve the efficiency of their operations. While the transition has been difficult in the current logistics environment, we believe this is a critical investment to create long-term capacity that will facilitate anticipated growth in the UGG and HOKA brands in future periods.

• The most significant macro-level supply chain impacts we have experienced in our current fiscal year are extended transit times and cost pressures related to container shortages, port congestion, and trucking scarcity, which worsened through our second fiscal quarter ending September 30, 2021 (second fiscal quarter). For example, in light of these ongoing constraints, our inventory in transit as of the end of our current second fiscal quarter was significantly higher than our inventory in transit as of the end of our historical fiscal quarters ended September 30th. Additionally, our increased usage of air freight, together with higher ocean container shipment and trucking costs, has elevated our transportation and logistics costs and may negatively impact our gross margin in future periods, particularly as we seek to maintain strategic product launch timelines. As these supply chain disruptions continue and we work to manage product availability, the timing of sales to our wholesale partners and consumers may continue to be impacted, including the possibility of order cancellations. However, we remain focused on mitigating the impacts of these ongoing disruptions, including the early procurement of inventory which will likely result in higher levels of inventory to allow us to maintain expected service levels, while acting as a hedge to other inflationary pressures into our next fiscal year ending March 31, 2023.

• We continue making infrastructure investments to support our scaling business, including investments in our global distribution and logistics capabilities, end-to-end planning systems, and e-commerce platforms. For example, our new US DC is expected to begin limited operations during our third fiscal quarter ending December 31, 2021, and we expect this to create long-term capacity for the growth of the UGG and HOKA brands.

Workforce

• We are encountering ongoing challenges with recruiting, training, and retaining quality candidates to staff our DC operations as we increasingly compete with other companies that require additional personnel to support their growing e-commerce operations and meet heightened consumer demand. We have increasingly offered higher wages to our DC employees to positively impact attrition and remain competitive in the job market. We may continue to experience DC employee attrition and retention issues as we seek to employ part-time and seasonal personnel during periods of heightened consumer demand, particularly as we compete with companies that employ personnel full-time. We have and will continue to monitor and evaluate mitigation strategies for our DC employees while meeting local safety operating guidelines.

Consumer Shopping Patterns

• As government restrictions surrounding the pandemic have eased, allowing consumers to return to physical retail stores, fluctuations in consumer spending patterns have resulted in a channel mix shift. However, our aggregated DTC channel mix is above our historical pre-pandemic levels. Further, we believe DTC channel demand will continue to increase as we prioritize consumer acquisition and experience strong demand for the HOKA and UGG brands. Our long-term growth strategy remains focused on building our DTC channel to represent an increasing portion of our total net sales.

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Brand and Omni-Channel Strategy

• We remain focused on accelerating consumer adoption of the HOKA brand globally to execute our long-term growth strategy, including through our optimized digital marketing strategy. The HOKA brand’s growth has been balanced across its ecosystem of access points, with all geographic regions and distribution channels experiencing significant year-round growth, which has positively impacted our seasonality trends. We expect our e-commerce business for the HOKA brand will continue to be a key driver of long-term growth. We intend to focus our efforts on consumer acquisition in key markets and launching innovative product offerings to increase category adoption and market share gains with existing consumers to drive brand performance. For example, we opened the HOKA brand's first owned and operated retail stores in China and launched HOKA brand pop-up stores in North America during our second fiscal quarter to build upon the HOKA brand's retail strategy and define the optimal consumer experience and concept for the HOKA brand. We plan to open additional locations in China in the near term.

• Our marketplace strategies in Europe and Asia have continued to drive UGG brand awareness and consumer acquisition through building a foundation of diversified and counter-seasonal product acceptance, especially with younger consumers, which is fueling a healthier product mix and reducing the need for promotional activity, particularly in Europe. We believe that continuing to showcase these product offerings through localized marketing investments and converting a higher percentage of consumers to repeat purchases across diverse product categories will fuel global demand for the UGG brand throughout our current fiscal year.

Reportable Operating Segment Overview

Our six reportable operating segments include the worldwide wholesale operations of the UGG brand, HOKA brand, Teva brand, Sanuk 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 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 and a growing global audience that appeals to a broad demographic.

We believe demand for UGG brand products will continue to be driven by the following:

• Successful acquisition of a diverse consumer base.

• High consumer brand loyalty due to consistent delivery of quality and luxuriously comfortable footwear, apparel, and accessories.

• Diversification of our footwear product offerings, such as Women's spring and summer lines, as well as expanded category offerings for Men's products.

• Expansion of apparel, home goods, and accessories businesses.

HOKA Brand**.** The HOKA brand is an authentic premium line of year-round performance footwear that offers enhanced cushioning and inherent stability with minimal weight, apparel, and accessories. Originally designed for ultra-runners, the brand now appeals to world champions, taste makers, and everyday athletes. The HOKA brand is quickly becoming a leading brand within run-specialty wholesale accounts, with strong marketing fueling both domestic and international sales growth, bolstering the brand's net sales, which continue to increase as a percentage of our aggregate net sales. We continue to build product extensions in trail and fitness.

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We believe demand for HOKA brand products will continue to be driven by the following:

• Leading product innovation and key franchise management, including higher frequency product drop rates.

• Increased global brand awareness and new consumer adoption through enhanced global marketing activations and online consumer acquisition, including building a more diverse outdoor community through in-person event sponsorship.

• Category extensions in authentic performance footwear offerings such as lifestyle acceleration through the trail and hiking categories.

Teva Brand**.** The Teva brand created the very first sport sandal when it was founded in the Grand Canyon in 1984. Since then the Teva brand has grown into a multi-category modern outdoor lifestyle brand offering a range of performance, casual, and trail lifestyle products, and has emerged as a leader in footwear sustainability observed through recent growth fueled by young and diverse consumers passionate for the outdoors and the planet.

We believe demand for Teva brand products will continue to be driven by the following:

• Authentic outdoor heritage and a reputation for quality, comfort, sustainability, and performance in any terrain.

• Increasing brand awareness due to outdoor lifestyle participation amongst younger consumers.

• Category extensions in performance hike footwear, including key franchises.

Sanuk Brand**.** The Sanuk brand originated in Southern California surf culture and has emerged into a lifestyle brand with a presence in the relaxed casual shoe and sandal categories with a focus on innovation in comfort and sustainability. The Sanuk brand’s use of unexpected materials and unconventional constructions, combined with its fun and playful branding, are key elements of the brand's identity.

Other Brands**.** Other brands consist primarily of the Koolaburra by UGG brand. The Koolaburra brand is a casual footwear fashion line using sheepskin and other plush materials and is intended to target the value-oriented consumer in order to complement the UGG brand offering.

Direct-to-Consumer**.** Our DTC business encompasses all of our brands and is comprised of our retail stores and e-commerce websites which, in an omni-channel marketplace, are intertwined and interdependent. We believe many of our consumers interact with both our retail stores and websites before making purchasing decisions and purchase online and in store.

E-Commerce Business. Our e-commerce business provides us with an opportunity to directly engage with and communicate a consistent brand message to consumers that is in line with our brands’ promises, drives awareness of key brand initiatives, offers targeted information to specific consumer demographics, and drives consumers to our retail stores. As of September 30, 2021, we operate our e-commerce business through Company-owned websites and mobile platforms in 58 different countries, for which the net sales are recorded in our DTC reportable operating segment.

Retail Business. Our global Company-owned retail stores are predominantly UGG brand concept stores and UGG brand outlet stores, though also include recent openings of HOKA brand concept stores. Through our outlet stores, we sell some of our discontinued styles from prior seasons, full price in-line products, as well as products made specifically for the outlet stores.

As of September 30, 2021, we have a total of 145 global retail stores, which includes 76 concept stores and 69 outlet stores. While we generally open retail store locations during our second or third fiscal quarters and consider closures of retail stores during our fourth fiscal quarter, the timing of such openings and closures may vary. We will continue to evaluate our retail store fleet strategy in response to changes in consumer demand and retail store traffic patterns.

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Flagship Stores. Included in the total count of global concept stores are eight flagship stores, which are lead concept stores in certain key markets and prominent locations designed to showcase UGG brand or HOKA brand products in mono branded stores. Primarily located in major tourist locations, these stores are typically larger than our general concept stores with broader product offerings and greater traffic. We anticipate continuing to operate a curated fleet of flagship stores to enhance our interaction with our consumers and increase brand loyalty. The net sales for these stores are recorded in our DTC reportable operating segment.

Shop-in-Shop Stores. Included in the total count of global concept stores are 29 shop-in-shop (SIS) stores, defined as concept stores for which we own the inventory and that are operated by us or non-employees within a department store, which we lease from the store owner by paying a percentage of SIS store sales. The net sales for these stores are recorded in our DTC reportable operating segment.

Partner Retail Stores. We rely on partner retail stores for the UGG and HOKA brands. Partner retail stores are branded stores that are wholly owned and operated by third parties and not included in the total count of global Company-owned retail stores. When a partner retail store is opened, or a store is converted into a partner retail store, the related net sales are recorded in each respective brand's wholesale reportable operating segment, as applicable.

Use of Non-GAAP Financial Measures

Throughout this Quarterly Report we provide certain financial information on a constant currency basis, excluding the effect of foreign currency exchange rate fluctuations, which we disclose in addition to the financial measures calculated and presented in accordance with US GAAP. We provide these non-GAAP financial measures to provide information that may assist investors in understanding our financial results and assessing our prospects for future performance. However, the information included within this Quarterly Report that is 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 the performance of other companies relative to us. For example, in order to calculate our constant currency information, we calculate the current period financial information 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.

Further, we 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.

These non-GAAP financial measures are not intended to represent and should not be considered to be more meaningful measures than, or alternatives to, measures of operating performance as determined in accordance with US GAAP. 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 measures presented in accordance with US GAAP. 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.

Seasonality

Our business is seasonal, with the highest percentage of UGG and Koolaburra brand net sales occurring in the quarters ending September 30th and December 31st and the highest percentage of Teva and Sanuk brand net sales occurring in the quarters ending March 31st and June 30th. Net sales for the HOKA brand occur more evenly throughout the year reflecting the brand's year-round performance product offerings. Due to the magnitude of the UGG brand relative to our other brands, our aggregate net sales in the quarters ending September 30th and December 31st still significantly exceed our aggregate net sales in the quarters ending March 31st and June 30th. However, as we continue to take steps to diversify and expand our product offerings by creating more year-round styles, and as net sales of the HOKA brand continue to increase as a percentage of our aggregate net sales, we expect the impact from seasonality to continue to decrease over time. However, it is unclear whether seasonal impacts will be minimized or exaggerated in future periods as a result of the disruptions and uncertainties caused by the pandemic.

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Results of Operations

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020. Results of operations were as follows:

			Three Months Ended September 30,
			2021												2020												Change
			Amount						%						Amount						%						Amount						%
Net sales			$	721,902					100.0		%				$	623,525					100.0		%				$	98,377					15.8		%
Cost of sales			354,814						49.1						304,548						48.8						(50,266)						(16.5)
Gross profit			367,088						50.9						318,977						51.2						48,111						15.1
Selling, general, and administrative expenses			238,907						33.1						190,373						30.6						(48,534)						(25.5)
Income from operations			128,181						17.8						128,604						20.6						(423)						(0.3)
Other expense, net			501						0.1						640						0.1						139						21.7
Income before income taxes			127,680						17.7						127,964						20.5						(284)						(0.2)
Income tax expense			25,617						3.6						26,410						4.2						793						3.0
Net income			102,063						14.1						101,554						16.3						509						0.5
Total other comprehensive (loss) income, net of tax			(1,504)						(0.2)						5,595						0.9						(7,099)						(126.9)
Comprehensive income			$	100,559					13.9		%				$	107,149					17.2		%				$	(6,590)					(6.2)		%
Net income per share
Basic			$	3.69											$	3.62											$	0.07
Diluted			$	3.66											$	3.58											$	0.08

Net Sales. Net sales by location, and by brand and channel were as follows:

			Three Months Ended September 30,
			2021						2020						Change
			Amount						Amount						Amount						%
Net sales by location
US			$	514,635					$	427,412					$	87,223					20.4		%
International			207,267						196,113						11,154						5.7
Total			$	721,902					$	623,525					$	98,377					15.8		%
Net sales by brand and channel
UGG brand
Wholesale			$	348,776					$	291,994					$	56,782					19.4		%
Direct-to-Consumer			99,639						123,083						(23,444)						(19.0)
Total			448,415						415,077						33,338						8.0
HOKA brand
Wholesale			146,980						108,117						38,863						35.9
Direct-to-Consumer			63,443						34,980						28,463						81.4
Total			210,423						143,097						67,326						47.0
Teva brand
Wholesale			19,211						17,746						1,465						8.3
Direct-to-Consumer			9,610						9,972						(362)						(3.6)
Total			28,821						27,718						1,103						4.0

			Three Months Ended September 30,
			2021						2020						Change
			Amount						Amount						Amount						%
Sanuk brand
Wholesale			7,020						6,085						935						15.4
Direct-to-Consumer			3,045						3,396						(351)						(10.3)
Total			10,065						9,481						584						6.2
Other brands
Wholesale			23,253						27,672						(4,419)						(16.0)
Direct-to-Consumer			925						480						445						92.7
Total			24,178						28,152						(3,974)						(14.1)
Total			$	721,902					$	623,525					$	98,377					15.8		%
Total Wholesale			$	545,240					$	451,614					$	93,626					20.7		%
Total Direct-to-Consumer			176,662						171,911						4,751						2.8
Total			$	721,902					$	623,525					$	98,377					15.8		%

Total net sales increased primarily due to higher UGG and HOKA brand wholesale sales, as well as higher HOKA brand DTC sales, partially offset by lower UGG brand DTC sales. Further, we experienced an increase of 11.8% in total volume of pairs sold to 12,300 from 11,000, compared to the prior period. On a constant currency basis, net sales increased by 14.8%, compared to the prior period. Drivers of significant changes in net sales, compared to the prior period, were as follows:

• Wholesale net sales of the UGG brand increased primarily due to higher sales in North America, including the benefit of the UGG brand lapping disruptions from the pandemic during our prior fiscal year, as well as growth across a diversified product lineup, particularly for non-core Women's products, as well as our Men's and Kids' product lines. These effects were impacted by supply chain constraints, including extended transit lead times for fall shipments and the impacts of our transition to our new European 3PL.

• Wholesale net sales of the HOKA brand increased primarily due to higher sales in North America and Europe resulting from market share gains, including new consumer acquisition, driven by increased brand awareness through expanded sponsorship events and digital marketing, as well as core franchise updates.

• DTC net sales increased primarily due to higher global HOKA brand sales, partially offset by lower domestic UGG brand sales driven by lapping the benefit of consumer demand online in our prior fiscal year. Comparable DTC net sales for the 13 weeks ended September 26, 2021 increased by 1.0%, compared to the same prior period.

• International sales, which are included in the reportable operating segment sales presented above, represented 28.7% and 31.5% of total net sales for the three months ended September 30, 2021 and 2020, respectively. The decrease in international net sales as a percentage of total net sales was primarily driven by a higher rate of domestic sales for the HOKA brand in all channels and the UGG brand in the wholesale channel. However, international net sales increased by 5.7% compared to the prior period, primarily due to higher HOKA brand sales across all channels in Europe, partially offset by a decrease in wholesale channel sales for the UGG brand in Europe due to the impacts arising out of our transition to our new European 3PL. These effects were further impacted by supply chain constraints, including extended transit lead times.

Gross Profit. Gross profit as a percentage of net sales (gross margin) decreased to 50.9% from 51.2%, compared to the prior period, primarily due to higher freight costs, including usage of air freight, and unfavorable channel mix resulting from increased penetration of the wholesale versus DTC channels, partially offset by favorable product mix for the UGG and HOKA brands, favorable HOKA brand mix, favorable changes in foreign currency exchange rates, and fewer closeouts.

Selling, General and Administrative Expenses. The net increase in SG&A expenses, compared to the prior period, was primarily the result of:

• Increased variable advertising and promotion expenses of approximately $19,500, primarily due to higher digital marketing and advertising expenses for the UGG, HOKA, and Teva 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 $14,500, primarily due to higher headcount, including for warehousing teams, and other related compensation.

• Increased other variable net selling expenses of approximately $9,900, primarily due to higher warehousing fees, as well as e-commerce technology costs and shipping supplies due to higher sales and commissions, and higher operating costs for retail store re-openings.

• Increased other operating expenses of approximately $4,900, primarily due to higher information technology costs, travel expenses, and general insurance premiums.

• Increased foreign currency-related losses of $1,700, primarily driven by unfavorable changes in the US dollar exchange rate against Canadian and Chinese foreign currency exchange rates.

• Decreased expenses for allowances for trade accounts receivable of approximately $2,100, primarily due to a decrease in bad debt expense to account for the lower risk of wholesale customer payment defaults resulting from the ongoing recovery from the pandemic.

Income from Operations. Income (loss) from operations by reportable operating segment was as follows:

			Three Months Ended September 30,
			2021						2020						Change
			Amount						Amount						Amount						%
Income (loss) from operations
UGG brand wholesale			$	121,701					$	106,726					$	14,975					14.0		%
HOKA brand wholesale			43,294						33,826						9,468						28.0
Teva brand wholesale			4,908						4,762						146						3.1
Sanuk brand wholesale			1,523						1,139						384						33.7
Other brands wholesale			8,158						9,869						(1,711)						(17.3)
Direct-to-Consumer			38,734						43,284						(4,550)						(10.5)
Unallocated overhead costs			(90,137)						(71,002)						(19,135)						(26.9)
Total			$	128,181					$	128,604					$	(423)					(0.3)		%

The decrease in total income from operations, compared to the prior period, was due to higher SG&A expenses as a percentage of net sales as well as lower gross margin, partially offset by higher 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 UGG brand wholesale was due to higher net sales, as well as lower bad debt expenses, partially offset by higher variable marketing expenses.

• The increase in income from operations of HOKA brand wholesale was primarily due to higher net sales, as well as lower bad debt expenses, partially offset by lower gross margin and higher variable marketing expenses.

• The decrease in income from operations of DTC was primarily due to higher variable marketing and selling expenses, higher retail operating costs, and higher variable e-commerce operating costs, partially offset by higher net sales at higher gross margin.

• The increase in unallocated overhead costs was primarily due to higher payroll and related costs due to higher headcount, including for warehouse teams, as well as higher operating expenses, including warehousing fees, insurance costs, and information technology, in addition to higher foreign currency-related losses.

Other Expense, Net. The decrease in total other expense, net, compared to the prior period, was primarily due to a lower interest expense resulting from the repayment of our mortgage during our prior fiscal year.

Income Tax Expense. Income tax expense and our effective income tax rate were as follows:

			Three Months Ended September 30,
			2021						2020
Income tax expense			$	25,617					$	26,410
Effective income tax rate			20.1		%				20.6		%

The decrease in our effective income tax rate, compared to the prior period, was primarily due to lower income from operations as well as changes in the jurisdictional mix of worldwide income before income taxes forecasted for the fiscal year ending March 31, 2022, partially offset by lower net discrete tax benefits, primarily driven by increased reserves net of additional tax deductions for stock-based compensation recorded in the current period.

Foreign income before income taxes was $37,393 and $49,793 and worldwide income before income taxes was $127,680 and $127,964 during the three months ended September 30, 2021 and 2020, respectively. The decrease in foreign income before income taxes, as a percentage of worldwide income before income taxes, compared to the prior period, was primarily due to higher domestic sales as a percentage of worldwide sales.

Refer to the section “Six Months Ended September 30, 2021 Compared to Six Months Ended September 30, 2020," below for further details on our pre-tax earnings and the effective income tax rate for the fiscal year ending March 31, 2022.

Net Income. The increase in net income, compared to the prior period, was due to higher net sales at lower gross margins, higher SG&A expenses, and lower income tax expense. Net income per share increased, compared to the prior period, due to higher net income, combined with lower weighted-average common shares outstanding driven by higher stock repurchases.

Total Other Comprehensive Loss, Net of Tax. The increase in total other comprehensive loss, net of tax, compared to the prior period, was primarily due to higher foreign currency translation losses relating to changes to our net asset position for unfavorable Asian and European foreign currency exchange rates, partially offset by higher unrealized gains on cash flow hedges.

Six Months Ended September 30, 2021 Compared to Six Months Ended September 30, 2020. Results of operations were as follows:

			Six Months Ended September 30,
			2021												2020												Change
			Amount						%						Amount						%						Amount						%
Net sales			$	1,226,580					100.0		%				$	906,694					100.0		%				$	319,886					35.3		%
Cost of sales			598,989						48.8						445,151						49.1						(153,838)						(34.6)
Gross profit			627,591						51.2						461,543						50.9						166,048						36.0
Selling, general, and administrative expenses			437,578						35.7						340,638						37.6						(96,940)						(28.5)
Income from operations			190,013						15.5						120,905						13.3						69,108						57.2
Other expense, net			682						0.1						1,013						0.1						331						32.7
Income before income taxes			189,331						15.4						119,892						13.2						69,439						57.9
Income tax expense			39,144						3.2						26,311						2.9						(12,833)						(48.8)
Net income			150,187						12.2						93,581						10.3						56,606						60.5
Total other comprehensive income, net of tax			1,847						0.3						6,601						0.7						(4,754)						(72.0)
Comprehensive income			$	152,034					12.5		%				$	100,182					11.0		%				$	51,852					51.8		%
Net income per share
Basic			$	5.42											$	3.34											$	2.08
Diluted			$	5.37											$	3.30											$	2.07

Net Sales. Net sales by location, and by brand and channel were as follows:

			Six Months Ended September 30,
			2021						2020						Change
			Amount						Amount						Amount						%
Net sales by location
US			$	850,694					$	611,712					$	238,982					39.1		%
International			375,886						294,982						80,904						27.4
Total			$	1,226,580					$	906,694					$	319,886					35.3		%
Net sales by brand and channel
UGG brand
Wholesale			$	483,832					$	335,422					$	148,410					44.2		%
Direct-to-Consumer			177,625						204,395						(26,770)						(13.1)
Total			661,457						539,817						121,640						22.5
HOKA brand
Wholesale			298,127						178,736						119,391						66.8
Direct-to-Consumer			125,409						73,379						52,030						70.9
Total			423,536						252,115						171,421						68.0
Teva brand
Wholesale			62,570						39,157						23,413						59.8
Direct-to-Consumer			24,728						23,805						923						3.9
Total			87,298						62,962						24,336						38.7
Sanuk brand
Wholesale			17,402						13,313						4,089						30.7
Direct-to-Consumer			7,709						9,402						(1,693)						(18.0)
Total			25,111						22,715						2,396						10.5

			Six Months Ended September 30,
			2021						2020						Change
			Amount						Amount						Amount						%
Other brands
Wholesale			27,559						28,307						(748)						(2.6)
Direct-to-Consumer			1,619						778						841						108.1
Total			29,178						29,085						93						0.3
Total			$	1,226,580					$	906,694					$	319,886					35.3		%
Total Wholesale			$	889,490					$	594,935					$	294,555					49.5		%
Total Direct-to-Consumer			337,090						311,759						25,331						8.1
Total			$	1,226,580					$	906,694					$	319,886					35.3		%

Total net sales increased primarily due to higher UGG, HOKA, and Teva brand wholesale sales, as well as higher HOKA brand DTC sales, partially offset by lower UGG brand DTC sales. Further, we experienced an increase of 34.5% in total volume of pairs sold to 22,200 from 16,500 compared to the prior period. On a constant currency basis, net sales increased by 33.9% compared to the prior period. Drivers of significant changes in net sales, compared to the prior period, were as follows:

• Wholesale net sales of the UGG brand increased primarily due to higher sales in North America and Asia. The increase in sales included the benefit of the UGG brand lapping disruptions from the pandemic during our prior fiscal year, as well as growth across a diversified product lineup, particularly for non-core Women's products, as well as our Men's and Kids' product lines. These effects were impacted by supply chain constraints, including extended transit lead times for fall shipments and the impacts of our transition to our new European 3PL.

• Wholesale net sales of the HOKA brand increased primarily due to higher global sales resulting from market share gains, including new consumer acquisition, driven by increased brand awareness through expanded sponsorship events and digital marketing, as well as core key franchise updates.

• Wholesale net sales of the Teva brand increased primarily due to accelerated domestic demand for Teva brand products, as well as positive impacts of recovery from the pandemic, including higher reorders from our wholesale partners through the brands' peak sell-in period.

• DTC net sales increased primarily due to higher global HOKA brand sales, partially offset by lower domestic UGG brand sales driven by lapping the benefit of consumer demand online during our prior fiscal year. Due to the disruption of our retail store base throughout the six months ended September 30, 2020, we are not reporting a comparable DTC net sales metric for our year-to-date second fiscal quarter.

• International net sales, which are included in the reportable operating segment net sales presented above, represented 30.6% and 32.5% of total net sales for the six months ended September 30, 2021 and 2020, respectively. The decrease in international net sales as a percentage of total net sales was primarily driven by a higher rate of domestic sales for the HOKA brand in all channels as well as the UGG and Teva brands in the wholesale channel. However, international net sales increased by 27.4% compared to the prior period, primarily due to higher net sales for the HOKA and UGG brands in Europe and Asia across all channels. These effects were impacted by supply chain constraints, including extended transit lead times for fall shipments and the impacts of our transition to our new European 3PL.

Gross Profit. Gross profit as a percentage of net sales increased to 51.2% from 50.9%, compared to the prior period, primarily due to favorable product mix for the UGG and HOKA brands, favorable HOKA brand mix, favorable changes in foreign currency exchange rates, and a reduction in provisions as a percentage of sales, partially offset by higher freight costs, including usage of air freight, and unfavorable channel mix resulting from increased penetration of the wholesale versus DTC channels.

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 payroll and related costs of approximately $38,600, primarily due to higher headcount, including for warehouse teams, and other related compensation.

• Increased variable advertising and promotion expenses of approximately $38,000, primarily due to higher digital marketing and advertising expenses for the UGG, HOKA, and Teva brands to drive global brand awareness and market share gains, highlight new product categories, and provide localized marketing.

• Increased other variable net selling expenses of approximately $18,100, including higher transaction and warehousing fees, as well as e-commerce technology costs and shipping supplies due to higher sales and commissions, and higher operating costs for retail store re-openings, partially offset by insurance recovery proceeds.

• Increased other operating expenses of approximately $10,100, primarily due to higher information technology costs, legal settlements, travel expenses, and general insurance premiums.

• Increased foreign currency-related losses of $2,400, primarily driven by unfavorable changes in the US dollar exchange rate against Canadian and Chinese foreign currency exchange rates.

• Decreased expenses for allowances for trade accounts receivable of approximately $7,600, primarily due to a decrease in bad debt expense to account for the lower risk of wholesale customer payment defaults resulting from the ongoing recovery from the pandemic.

• Decreased impairments of operating lease and long-lived assets of approximately $2,700.

Income from Operations. Income (loss) from operations by reportable operating segment was as follows:

			Six Months Ended September 30,
			2021						2020						Change
			Amount						Amount						Amount						%
Income (loss) from operations
UGG brand wholesale			$	157,539					$	102,991					$	54,548					53.0		%
HOKA brand wholesale			89,657						51,061						38,596						75.6
Teva brand wholesale			19,411						8,964						10,447						116.5
Sanuk brand wholesale			4,927						1,627						3,300						202.8
Other brands wholesale			10,865						8,599						2,266						26.4
Direct-to-Consumer			78,417						74,311						4,106						5.5
Unallocated overhead costs			(170,803)						(126,648)						(44,155)						(34.9)
Total			$	190,013					$	120,905					$	69,108					57.2		%

The increase in total income from operations, compared to the prior period, was primarily due to higher net sales at higher gross margin, as well as 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 UGG brand wholesale was due to higher net sales at higher gross margin, as well as lower bad debt expenses, partially offset by higher variable marketing expenses.

• The increase in income from operations of HOKA brand wholesale was due to higher net sales, as well as lower bad debt expenses, partially offset by higher variable marketing and selling expenses and lower gross margin.

• The increase in income from operations of Teva brand wholesale was due to higher net sales at higher gross margin, partially offset by higher variable marketing expenses.

• The increase in income from operations of DTC was due to higher net sales at higher gross margin, partially offset by higher variable marketing and selling expenses, higher variable e-commerce operating costs, and higher retail operating costs.

• The increase in unallocated overhead costs was primarily due to higher payroll and related costs due to higher headcount, including for warehousing teams, as well as higher operating expenses, including warehousing fees, insurance costs, legal settlements, information technology, and depreciation expenses, in addition to higher foreign currency-related losses.

Other Expense, Net. The decrease in total other expense, net, compared to the prior period, was primarily due to lower interest expense resulting from repayment of our mortgage during our prior fiscal year as well as lower interest income on invested cash balances driven by lower average interest rates.

Income Tax Expense. Income tax expense and our effective income tax rate were as follows:

			Six Months Ended September 30,
			2021						2020
Income tax expense			$	39,144					$	26,311
Effective income tax rate			20.7		%				21.9		%

The decrease in our effective income tax rate during the six months ended September 30, 2021, compared to the prior period, was primarily due to higher net discrete tax benefits related to increased tax deductions for stock-based compensation recorded in the current period, as well as changes in the jurisdictional mix of worldwide income before income taxes forecasted for the fiscal year ending March 31, 2022, partially offset by additional return to provision adjustments.

Foreign income before income taxes was $58,571 and $49,797 and worldwide income before income taxes was $189,331 and $119,892 during the six months ended September 30, 2021 and 2020, respectively. The decrease in foreign income before income taxes as a percentage of worldwide income before income taxes, compared to the prior period, was primarily due to higher domestic sales and lower domestic operating expenses as a percentage of worldwide sales, partially offset by higher foreign gross margin.

We expect our foreign income or loss before income taxes, as well as our effective income tax rate, will continue to fluctuate from period to period based on several factors, including the impact of our global product sourcing organization, our actual results of operations from sales generated in domestic and foreign markets, and changes in domestic and foreign tax laws (or in the application or interpretation of those laws). Foreign income before income taxes will continue to grow in the long-term, in both absolute terms and as a percentage of worldwide income before income taxes, as we focus on the global composition of our business, localized strategies for international markets, and investments in international regions. In addition, we believe our effective income tax rate will be impacted by our actual foreign income or loss before income taxes relative to our actual worldwide income or loss before income taxes. Refer to Note 5, “Income Taxes,” of our consolidated financial statements in Part IV of our 2021 Annual Report for further information on our tax strategy.

Net Income. The increase in net income, compared to the prior period, was due to higher net sales at a higher gross margin, partially offset by higher SG&A expenses and higher income tax expense. Net income per share increased, compared to the prior period, due to higher net income, combined with lower weighted-average common shares outstanding driven by higher stock repurchases.

Total Other Comprehensive Income, Net of Tax. The decrease in total other comprehensive income, net of tax, compared to the prior period, was due to higher foreign currency translation losses relating to changes to our net asset position for unfavorable Asian and European foreign currency exchange rates, partially offset by higher unrealized gains on cash flow hedges.

Liquidity

We finance our working capital and operating requirements using a combination of our cash and cash equivalents balances, cash provided from ongoing operating activities, and, to a lesser extent, available borrowings under our revolving credit facilities. Our working capital requirements begin when we purchase raw 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 the fiscal year, and we are required to utilize available cash to build inventory levels during certain quarters in our fiscal year to support higher selling seasons.

While we are subject to uncertainty surrounding the pandemic, we believe our cash and cash equivalents balances, cash provided from ongoing operating activities, and available borrowings under our revolving credit facilities, will provide sufficient liquidity to enable us to meet our working capital requirements and timely service our debt obligations for at least the next 12 months.

During the six months ended September 30, 2021, no cash and cash equivalents were repatriated. As of September 30, 2021, we have $126,904 of cash and cash equivalents outside the US and 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 we currently anticipate repatriating current and future unremitted earnings of non-US subsidiaries, to the extent they have been and will be subject to US tax, if such cash is not required to fund ongoing foreign operations. Our cash repatriation strategy, and by extension, our liquidity, may be impacted by several additional considerations, which include clarifications of, future changes to, or interpretations of global tax law and regulations, and our actual earnings for current and future periods. Refer to Note 5, “Income Taxes,” of our consolidated financial statements in Part IV of our 2021 Annual Report for further information on the impacts of the recent Tax Reform Act.

We continue to evaluate our capital allocation strategy and to consider further opportunities to utilize our global cash resources in a way that will profitably grow our business, meet our strategic objectives, and drive stockholder value, including by potentially repurchasing additional shares of our common stock. Our Board of Directors approved an additional authorization of $750,000 during April 2021 to repurchase our common stock under the same conditions as our prior stock repurchase program. As of September 30, 2021, the aggregate remaining approved amount under our stock repurchase programs is $674,687. Our stock repurchase programs do not obligate us to acquire any amount of common stock and may be suspended at any time at our discretion. Subsequent to September 30, 2021 through October 21, 2021, we repurchased 130,517 shares for $46,684 at an average price of $357.69 per share, and have $628,003 remaining authorized under our stock repurchase programs.

Our liquidity may be further impacted by additional factors, including our results of operations, the strength of our brands, impacts of seasonality and weather conditions, our ability to respond to changes in consumer preferences and tastes, the timing of capital expenditures and lease payments, our ability to collect our trade accounts receivables in a timely manner and effectively manage our inventories, our ability to respond to the impacts and disruptions caused by the pandemic, and our ability to respond to economic, political, and legislative developments. Furthermore, we may require additional cash resources due to changes in business conditions, strategic initiatives, or stock repurchase strategy, a national or global economic recession, or other future developments, including any investments or acquisitions we may decide to pursue, although we do not have any present commitments with respect to any such investments or acquisitions.

If our existing sources of liquidity are insufficient to satisfy our working capital requirements, we may seek to borrow under our revolving credit facilities, seek new or modified borrowing arrangements, or sell additional debt or equity securities. The sale of convertible debt or equity securities could result in additional dilution to our stockholders, and equity securities may have rights or preferences that are superior to those of our existing stockholders. The incurrence of additional indebtedness would result in additional debt service obligations, as well as covenants that would restrict our operations and further encumber our assets. In addition, there can be no assurance that any additional financing will be available on acceptable terms, if at all.

Capital Resources

Primary Credit Facility. Our Primary Credit Facility provides for a five-year, $400,000 unsecured revolving credit facility, and contains a $25,000 sublimit for the issuance of letters of credit. As of September 30, 2021, we have no outstanding balance, outstanding letters of credit of $549, and available borrowings of $399,451 under our Primary Credit Facility.

China Credit Facility. Our China Credit Facility is an uncommitted revolving line of credit of up to CNY300,000, or $46,445. As of September 30, 2021, we have no outstanding balance, outstanding bank guarantees of $31, and available borrowings of $46,414 under our China Credit Facility.

Japan Credit Facility. Our Japan Credit Facility is an uncommitted revolving line of credit of up to JPY3,000,000, or $26,854. As of September 30, 2021, we have no outstanding balance and available borrowings of $26,854 under our Japan Credit Facility.

Debt Covenants. As of September 30, 2021, we are in compliance with all financial covenants under our credit facilities.

Refer to Note 5, “Revolving Credit Facilities,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report, for further information on our capital resources.

Cash Flows

The following table summarizes our cash flows for the periods presented:

			Six Months Ended September 30,
			2021						2020						Change
			Amount						Amount						Amount						%
Net cash used in operating activities			$	(172,674)					$	(15,961)					$	(156,713)					(981.8)		%
Net cash used in investing activities			(26,719)						(13,284)						(13,435)						(101.1)
Net cash (used in) provided by financing activities			(144,270)						3,816						(148,086)						(3,880.7)

Operating Activities. Our primary source of liquidity is net cash provided by operating activities, which is primarily driven by our net income, other cash receipts and expenditure adjustments, and changes in working capital.

The increase in net cash used in operating activities during the six months ended September 30, 2021, compared to the prior period, was primarily due to a net negative change in operating assets and liabilities of $203,929, partially offset by positive net income after non-cash adjustments of $47,216. The changes in operating assets and liabilities were primarily due to net negative changes in inventories, net, other accrued expenses, income taxes payable, and other assets, partially offset by net positive changes in trade accounts payable.

Investing Activities. The increase in net cash used in investing activities during the six months ended September 30, 2021, compared to the prior period, was primarily due to higher capital expenditures for our new US DC and information technology, partially offset by lower capital expenditures for retail stores.

Financing Activities. The increase in net cash used in financing activities during the six months ended September 30, 2021, compared to the prior period, was primarily due to higher stock repurchases.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Contractual Obligations

During the six months ended September 30, 2021, there were no material changes outside the ordinary course of business to the contractual obligations and other commitments disclosed in our 2021 Annual Report.

Critical Accounting Policies and Estimates

Management must make certain estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements, based on historical experience, existing and known circumstances, authoritative accounting pronouncements, and other factors that management believes to be reasonable, but actual results could differ materially from these estimates. Management believes the following critical accounting estimates are most significantly affected by judgments and estimates used in the preparation of our condensed consolidated financial statements: allowances for doubtful accounts, sales discounts, and chargebacks; estimated sales return liability; inventory valuations and related reserves; valuation of operating lease assets and lease liabilities; valuation of goodwill, other intangible assets, and long-lived assets; and performance-based compensation. The full impact of the ongoing pandemic is unknown and cannot be reasonably estimated for these key estimates. However, we made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent there are differences between these estimates and actual results, our condensed consolidated financial statements may be materially affected. Refer to the section "Use of Estimates" within Note 1, “General,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report, for a summary of applicable key estimates and assumptions.

There have been no material changes to the critical accounting policies and estimates disclosed in our 2021 Annual Report.