Deckers Outdoor 10-Q 2023-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the Quarterly Period Ended June 30, 2023

OR

For the transition period from to

Commission File Number: 001-36436

DECKERS OUTDOOR CORPORATION

(Exact name of registrant as specified in its charter)

250 Coromar Drive, Goleta, California 93117

(Address of principal executive offices and zip code)

(805) 967-7611

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of the close of business on July 13, 2023, the number of outstanding shares of the registrant's common stock, par value $0.01 per share, was 26,134,458.

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

For the Three Months Ended June 30, 2023, and 2022

TABLE OF CONTENTS

*Not applicable.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for our first fiscal quarter ended June 30, 2023 (Quarterly Report), and the information and documents incorporated by reference within this Quarterly Report, contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), which statements 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. Forward-looking statements include all statements other than statements of historical fact contained in, or incorporated by reference within, this Quarterly Report. We have attempted to identify forward-looking statements by using words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” “will,” or “would,” and similar expressions or the negative of these expressions. Specifically, this Quarterly Report, and the information and documents incorporated by reference within this Quarterly Report, contain forward-looking statements relating to, among other things:

• the operational challenges faced by our warehouses and distribution centers (DCs), wholesale partners, global third-party logistics providers (3PLs), and third-party carriers, including as a result of global supply chain disruptions and labor shortages;

• availability of materials and manufacturing capacity, and reliability of overseas production and storage;

• global geopolitical tensions, including the impact of economic sanctions on our transportation and energy costs;

• global economic trends, including foreign currency exchange rate fluctuations, changes in interest rates, inflationary pressures, changes in commodity pricing, and recessionary concerns;

• the expansion of our brands and product offerings;

• changes to the geographic and seasonal mix of our brands and products;

• changes to our product distribution strategies, including product allocation and segmentation strategies;

• trends impacting the purchasing behavior of wholesale partners and consumers;

• changes in consumer preferences impacting our brands and products, and the footwear and fashion industries;

• the impact of seasonality and weather on consumer behavior and the demand for our products;

• our business, operating, investing, capital allocation, marketing, and financing plans and strategies;

• expansion of and investments in our Direct-to-Consumer (DTC) capabilities, including our distribution facilities and e-commerce platforms;

*•*the impacts of the COVID-19 global pandemic and other incidence of disease on our business and the businesses of our customers, consumers, suppliers, and business partners;

• the effects of climate change, including changes in the regulatory environment and consumer demand to mitigate these effects, and the resulting impact on our business;

• the impact of our efforts to continue to advance sustainable and socially conscious business operations, and to meet the expectations our investors and other stakeholders have with respect to our environmental, social and governance practices;

• our interpretation of global tax regulations and changes in tax laws that may impact our tax liability and effective tax rates;

• our cash repatriation strategy regarding earnings of non-United States (US) subsidiaries and the resulting tax impacts;

• the outcomes of legal proceedings, including the impact they may have on our business and intellectual property rights; and

• the value of goodwill and other intangible assets, and potential write-downs or impairment charges.

Forward-looking statements represent management’s current expectations and predictions about trends affecting our business and industry and are based on information available at the time such statements are made. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy or completeness. Forward-looking statements involve numerous known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements predicted, assumed, or implied by the forward-looking statements. Some of the risks and uncertainties that may cause our actual results to materially differ from those expressed or implied by these forward-looking statements are described in Part II, Item 1A, "Risk Factors," and Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," within this Quarterly Report, as well as in our other filings with the Securities and Exchange Commission (SEC). You should read this Quarterly Report, including the information and documents incorporated by reference herein, in its entirety and with the understanding that our actual future results may be materially different from the results expressed or implied by these forward-looking statements. Moreover, new risks and uncertainties emerge occasionally, and it is not possible for management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual future results to be materially different from any results expressed or implied by any forward-looking statements. Except as required by applicable law or the listing rules of the New York Stock Exchange, we expressly disclaim any intent or obligation to update any forward-looking statements. We qualify all our forward-looking statements with these cautionary statements.

PART I. FINANCIAL INFORMATION

References within this Quarterly Report to "Deckers," "we," "our," "us," "management," or the "Company" refer to Deckers Outdoor Corporation, together with its consolidated subsidiaries. UGG® (UGG), HOKA® (HOKA), Teva® (Teva), Sanuk® (Sanuk), and Koolaburra by UGG® (Koolaburra) are some of the Company's trademarks. Other trademarks or trade names appearing elsewhere within this Quarterly Report are the property of their respective owners. T**he trademarks and trade names within this Quarterly Report are referred to without the ® and ™ symbols, but such references should not be construed as any indication that their respective owners will not assert their rights to the fullest extent under applicable law.

Unless otherwise indicated, all figures herein are expressed in thousands, except for per share or share data.

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(dollar and share data amounts in thousands, except par value)

See accompanying notes to the condensed consolidated financial statements.

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(dollar and share data amounts in thousands, except per share data)

See accompanying notes to the condensed consolidated financial statements.

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

(amounts in thousands)

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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, "Financial Statements and Supplementary Data," of our 2023 Annual Report.

Certain statements made in this section constitute "forward-looking statements," which are subject to numerous risks and uncertainties. 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 titled “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 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 manufactured by independent manufacturers.

Financial Highlights

Consolidated financial performance highlights for the three months ended June 30, 2023, compared to the prior period, were as follows:

• Net sales increased 10.0% to $675,791.

**◦**Channel

▪Wholesale channel net sales decreased 0.9% to $425,421.

▪DTC channel net sales increased 35.3% to $250,370.

**◦**Geography

▪Domestic net sales increased 9.1% to $419,535.

▪International net sales increased 11.4% to $256,256.

• Gross margin increased 330 basis points to 51.3%.

• Income from operations increased 25.5% to $70,736.

• Diluted earnings per share increased 45.5% to $2.41 per share.

Trends and Uncertainties Impacting Our Business and Industry

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

Supply Chain

• In the prior fiscal year, to support our growing business, we expanded our network of global warehouses and DCs, including our 3PLs, while diversifying and increasing the number of third-party manufacturers we engage, which will result in higher associated costs in the current fiscal year. We expect to continue to invest in and build upon these infrastructure capabilities to continue meeting customer and end consumer demand, which may result in higher costs in future periods.

Brand and Omni-Channel Strategy

• We remain focused on increasing consumer adoption of the HOKA brand, which has continued to positively impact our financial results and seasonality trends. Our efforts to drive HOKA brand performance are primarily focused on launching innovative product offerings and global marketing campaigns to drive brand awareness, further expanding the HOKA brand presence through our DTC channel, and distribution management.

• Our ongoing marketplace strategies in Europe and Asia have continued to drive UGG brand awareness and consumer acquisition by building brand acceptance through localized marketing investments.

• Our long-term growth strategy remains focused on building our DTC channel to represent an increased portion of our total net sales, and prioritizing consumer acquisition and experience to sustain strong demand and market positions for our brands.

Refer to Part I, Item 1A, “Risk Factors,” of our 2023 Annual Report for detailed information on the risks and uncertainties that may cause our actual results to differ materially from our expectations.

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.

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. Strong marketing has fueled both domestic and international sales growth of the HOKA brand, which has quickly become a leading brand within run and outdoor specialty wholesale accounts and is growing within selective key accounts. As a result, the HOKA brand is bolstering its net sales, which continue to increase as a percentage of our aggregate net sales.

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.

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 brand. The Koolaburra brand is a casual footwear fashion line using plush materials and is intended to target the value-oriented consumer to complement the UGG brand offering.

Refer to the “Reportable Operating Segment Overview,” in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” of our 2023 Annual Report for further discussion of our outlook on consumer demand drivers for our UGG, HOKA, Teva, Sanuk, and Other brands products.

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

Our net sales related to the businesses and stores outlined below are recorded in our DTC reportable operating segment, except for the net sales for partner retail stores, which are recorded in each respective brand's wholesale reportable operating segment, as applicable.

*•*E-Commerce Business. Our global 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, promotes awareness of key brand initiatives, offers targeted information to specific consumer demographics, and drives consumers to our retail stores.

• Retail Business. Our global Company-owned mono-branded retail stores are predominantly UGG brand concept stores and outlet stores, as well as new openings of HOKA brand stores.

• Flagship Stores. Primarily located in major tourist locations, these are premium mono-branded concept stores in key markets designed to showcase UGG and HOKA brand products. Flagship stores provide broader product offerings and generate greater traffic that enhance our interaction with consumers and increase brand loyalty.

*•*Shop-in-Shop Stores (SIS). 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.

*•*Partner Retail Stores. Represent UGG and HOKA mono-branded stores which are wholly owned and operated by third parties and not included in the total count of our global Company-owned retail stores.

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 certain 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 results of operations and assessing our prospects for future performance. However, the information 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 our performance relative to other companies. For example, 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 more meaningful measures than, or alternatives to, measures of financial or 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 or operating 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 have historically significantly exceeded 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 have seen and expect to continue to see the impact from seasonality decrease over time.

Results of Operations

Three Months Ended June 30, 2023, Compared to Three Months Ended June 30, 2022. Results of operations were as follows:

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

Total net sales increased primarily due to higher DTC channel sales and HOKA brand wholesale channel sales, partially offset by lower UGG brand and Teva brand wholesale channel sales. Further, we experienced a decrease of 9.2% in the total volume of pairs sold to 10,800 from 11,900 compared to the prior period. On a constant currency basis, net sales increased by 11.1% compared to the prior period.

Drivers of significant changes in net sales, compared to the prior period, were as follows:

• DTC net sales increased primarily due to higher global net sales for the HOKA brand, driven by higher consumer acquisition and retention online across an assortment of performance products. Comparable DTC net sales for the 13 weeks ended July 2, 2023, increased by 33.4%, compared to the prior period.

• Wholesale net sales of the HOKA brand increased domestically, driven by higher consumer demand across an assortment of performance products. These effects were partially offset by lower net sales in Europe due to lapping benefits from earlier distributor shipments in the prior period.

• Wholesale net sales of the UGG brand decreased primarily due to lower domestic net sales, primarily driven by lapping earlier shipment patterns in the prior period as customers front-loaded shipments to avoid risks of supply chain disruptions. These effects were partially offset by higher international net sales, primarily in Europe, driven by greater adoption of key product franchises.

• Wholesale net sales of the Teva brand decreased driven by lower domestic net sales, primarily in the sandal category, including quarterly shipping timing differences compared to the prior period.

• International net sales, which are included in the reportable operating segment net sales presented above, increased by 11.4% and represented 37.9% and 37.4% of total net sales for the three months ended June 30, 2023, and 2022, respectively. These changes were primarily driven by higher net sales for the DTC channel for the UGG and HOKA brands, as well as higher net sales for the wholesale channel for the UGG brand, partially offset by lower net sales for the wholesale channel for the HOKA brand. These results include effects from lapping earlier distributor shipments in the prior period, as discussed above under our reportable operating segments.

Gross Profit. Gross margin increased to 51.3% from 48.0%, compared to the prior period, primarily due to favorable changes in freight costs, a greater mix of sales in the DTC channel and for the HOKA brand, partially offset by domestic promotional and closeout activity and unfavorable changes in foreign currency exchange rates.

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 other operating expenses of approximately $16,100, primarily due to higher IT expenses for programming and software costs, legal expenses, sales meeting expenses, travel expenses, samples expenses, and net insurance premiums.

• Increased payroll and related costs of approximately $15,200, primarily due to higher employee headcount and higher performance-based compensation.

• Increased variable advertising and promotion expenses of approximately $9,400, primarily due to higher promotional marketing expenses for the HOKA 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 $8,800, primarily due to higher rent and occupancy expenses, credit card fees, and IT expenses.

• Decreased net foreign currency-related losses of $7,700, primarily driven by remeasurements with favorable changes in Asian and Canadian exchange rates against the US dollar.

• Decreased allowances for trade accounts receivable of approximately $3,400, primarily due to lower accounts receivable balances outstanding.

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

The increase in total income from operations, compared to the prior period, was primarily due to higher net sales at higher gross margins, partially offset by higher SG&A expense 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 the DTC channel was due to higher global net sales, primarily for the HOKA brand, at higher gross margins, as well as lower SG&A expenses as a percentage of net sales.

• The increase in income from operations of HOKA brand wholesale was due to higher domestic net sales at higher gross margins, partially offset by higher global SG&A expenses as a percentage of net sales.

• The decrease in income from operations of UGG brand wholesale was due to lower domestic net sales at lower gross margins, as well as higher SG&A expenses as a percentage of net sales.

• The increase in unallocated overhead costs was due to higher payroll costs, primarily for performance-based compensation and higher headcount, higher other operating expenses, primarily for IT programming and software costs and legal expenses, and higher occupancy and rent costs, partially offset by lower net foreign currency-related losses.

Total Other Income, Net. Total other income, net, compared to the prior period, increased due to higher interest income on higher invested cash balances, combined with higher average interest rates.

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

The net increase in our effective income tax rate, compared to the prior period, was primarily driven by higher income from operations, including changes in jurisdictional mix of worldwide income before income taxes, as well as reduced net discrete tax benefits, primarily due to stock-based compensation.

Foreign income before income taxes was $37,089 and $33,023 and worldwide income before income taxes was $81,364 and $57,002 during the three months ended June 30, 2023, and 2022, 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 income before income taxes as a percentage of worldwide income before income taxes, as well as an increase in foreign operating expenses as a percentage of worldwide sales.

Net Income. The increase in net income, compared to the prior period, was primarily due to higher operating margins as well as higher interest income. Net income per share increased, compared to the prior period, due to higher net income and lower weighted-average common shares outstanding driven by stock repurchases.

Total Other Comprehensive Loss, Net of Tax. The decrease in total other comprehensive loss, net of tax, compared to the prior period, was primarily due to lower foreign currency translation losses relating to changes to our net asset position for favorable European and Asian foreign currency exchange rates.

Liquidity

We finance our working capital and operating requirements using a combination of 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 and other materials and inventories and continue until we collect the resulting trade accounts receivable. Given the historical seasonality of our business, our working capital requirements fluctuate significantly throughout our fiscal year, and we utilize available cash to build inventory levels during certain quarters in our fiscal year to support higher selling seasons. While the impact of seasonality has been mitigated to some extent, we expect our working capital requirements will continue to fluctuate from period to period.

As of June 30, 2023, our cash and cash equivalents are $1,046,889. 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 contractual obligations for at least the next 12 months.

Our liquidity may be impacted by a number of factors, including our results of operations, the strength of our brands and market acceptance of our products, 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 manage supply chain constraints, our ability to respond to macroeconomic, political and legislative developments, and various other risks and uncertainties described in Part I, Item 1A, “Risk Factors,” of our 2023 Annual Report. 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 there are unexpected material impacts on our business in future periods and we need to raise or conserve additional cash to fund our operations, 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. Although we believe we have adequate sources of liquidity over the long term, factors such as a prolonged or severe economic recession or inflationary pressure, could adversely affect our business and liquidity.

Repatriation of Cash. Our cash repatriation strategy, and by extension, our liquidity, may be impacted by several additional considerations, which include future changes to or interpretations of global tax law and regulations, and our actual earnings in future periods. During the three months ended June 30, 2023, and 2022, no cash and cash equivalents were repatriated. As of June 30, 2023, and March 31, 2023, we have $299,392 and $299,114, respectively, of cash and cash equivalents 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 only to the extent they have already been subject to US tax, if such cash is not required to fund ongoing foreign operations. Refer to Note 5, “Income Taxes,” of our consolidated financial statements in Part IV of our 2023 Annual Report for further information on the impacts of the recent Tax Reform Act.

Stock Repurchase Program. 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. As of June 30, 2023, the aggregate remaining approved amount under our stock repurchase program is $1,331,166. The stock repurchase program does not obligate us to acquire any amount of common stock and may be suspended at any time at our discretion.

Capital Resources

Revolving Credit Facilities. During the three months ended June 30, 2023, we made no borrowings or repayments under our revolving credit facilities. As of June 30, 2023, we have no outstanding balances under our revolving credit facilities, outstanding letters of credit of $958 under our unsecured revolving credit facility (Primary Credit Facility), and outstanding bank guarantees of $28 under our credit facility in China (China Credit Facility), with available borrowings for all revolving credit facilities of $440,354. There were no changes to the terms and borrowing availability under our revolving credit facilities disclosed in our 2023 Annual Report.

Debt Covenants. As of June 30, 2023, we are in compliance with all financial covenants under our revolving credit facilities.

Refer to Note 6, “Revolving Credit Facilities,” of our consolidated financial statements in Part IV of our 2023 Annual Report for further information on our revolving credit facilities.

Cash Flows

The following table summarizes the major components of our condensed consolidated statements of cash flows for the periods presented:

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

The increase in net cash provided by operating activities during the three months ended June 30, 2023, compared to the prior period, was primarily due to $134,646 of favorable changes in operating assets and liabilities, as well as $19,537 of favorable net income after non-cash adjustments, including from favorable changes in stock-based compensation and deferred tax expense. The favorable changes in operating assets and liabilities were primarily due to net favorable changes in inventories, trade accounts receivables, net, and net operating lease assets and liabilities, partially offset by net unfavorable changes in trade accounts payable, prepaid expenses and other current assets, and income tax receivable.

Significant impacts to working capital compared to the prior period were primarily due to changes in the following: (1) fewer purchases of inventories due to better in-transit times compared to the prior period, (2) a higher rate of collections for trade accounts receivable, net, on higher net sales, partially offset by (3) lower net trade accounts payable due to timing of payments and lower freight costs, and (4) changes due to timing of tax refunds and payments.

Investing Activities. The increase in net cash used in investing activities during the three months ended June 30, 2023, compared to the prior period, was primarily due to higher capital expenditures for leasehold improvements for our warehouses and DCs, partially offset by lower IT infrastructure, system, and other technology costs.

Financing Activities. The decrease in net cash used in financing activities during the three months ended June 30, 2023, compared to the prior period, was primarily due to lower stock repurchases.

Contractual Obligations

There were no material changes outside the ordinary course of business during the three months ended June 30, 2023, to the contractual obligations and other commitments disclosed in our 2023 Annual Report. Refer to the section titled "Contractual Obligations" in Part II, Item 7, within our 2023 Annual Report for further information on our contractual obligations and other commitments.

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 we believe to be reasonable, but actual results could differ materially from these estimates. The full impact of macroeconomic factors on our business and operations, including inflation, foreign currency exchange rate volatility, changes in interest rates, changes in commodity pricing, changes in discretionary spending and recessionary concerns, is unknown and cannot be reasonably estimated. However, management believes it has made appropriate accounting estimates in accordance with US GAAP based on the facts and circumstance available as of the reporting date. Actual results could differ materially from these estimates and assumptions, which may result in material effects on our financial condition, results of operations and liquidity. Refer to the section titled "Use of Estimates" within Note 1, "General," of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report, for additional information regarding applicable key estimates and assumptions.

There have been no material changes to the critical accounting policies and key estimates and assumptions disclosed in the section titled "Critical Accounting Policies and Estimates" in Part II, Item 7, within our 2023 Annual Report.

There have been no material changes in the quantitative and qualitative disclosures about market risk disclosed in the section titled "Quantitative and Qualitative Disclosures About Market Risk" in Part II, Item 7, within our 2023 Annual Report.

a) Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, which are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. In designing and evaluating our disclosure controls and procedures, our management recognized that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours is designed to do, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Under the supervision and with the participation of management, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2023. Based on that evaluation, our Principal Executive Officer (PEO) and Principal Financial and Accounting Officer (PFAO) concluded that our disclosure controls and procedures are effective at a reasonable assurance level as of June 30, 2023.

b) Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rule 13a-15(d) of the Exchange Act during the three months ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

c) Principal Executive Officer and Principal Financial and Accounting Officer Certifications

The certifications of our PEO and PFAO required by Rule 13a-14(a) of the Exchange Act are filed as Exhibit 31.1 and Exhibit 31.2, and furnished as Exhibit 32, to this Quarterly Report. This Part I, Item 4, should be read in conjunction with such certifications for a more complete understanding of the topics presented.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

As part of our global policing program to protect our intellectual property rights, from time to time, we file lawsuits in various jurisdictions asserting claims for alleged acts of trademark counterfeiting, trademark infringement, patent infringement, trade dress infringement, and trademark dilution. We generally have multiple actions such as these pending at any given point in time. These actions may result in seizure of counterfeit merchandise, out of court settlements with defendants, or other outcomes. In addition, from time to time, we are subject to claims in which opposing parties will raise, either as affirmative defenses or as counterclaims, the invalidity or unenforceability of certain of our intellectual property rights, including allegations that the UGG brand trademark registrations and design patents are invalid or unenforceable. Furthermore, we are aware of many instances throughout the world in which a third-party is using our UGG brand and HOKA brand trademarks within its internet domain name, and we have discovered and are investigating several manufacturers and distributors of counterfeit UGG brand products, and we are also investigating various markets for indications of counterfeit HOKA brand manufacturing.

From time to time, we are involved in various legal proceedings, disputes, and other claims arising in the ordinary course of business, including employment, intellectual property, and product liability claims. Although the results of these ordinary course matters cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not, individually or in the aggregate, have a material adverse effect on our business, results of operations, financial condition, or cash flows. However, regardless of the merit of the claims raised or the outcome, these ordinary course matters can have an adverse impact on us as a result of legal costs, diversion of management's time and resources, and other factors.

An investment in our common stock involves risks. Before making an investment decision, you should carefully consider all the information within Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as in our condensed consolidated financial statements and the related notes contained in Part I, Item 1 within this Quarterly Report. In addition, you should carefully consider the risks and uncertainties described in Part I, Item 1A, “Risk Factors,” of our 2023 Annual Report, as well as in our other public filings with the SEC. If any of the identified risks are realized, our business, results of operations, financial condition, liquidity, and prospects could be materially and adversely affected. In that case, the trading price of our common stock may decline, and you could lose all or part of your investment. In addition, other risks of which we are currently unaware, or which we do not currently view as material, could have a material adverse effect on our business, results of operations, financial condition, and prospects.

During the three months ended June 30, 2023, there were no material changes to the risks and uncertainties described in Part I, Item 1A, “Risk Factors,” of our 2023 Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Use of Proceeds

Not applicable.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Our Board of Directors has approved various authorizations under our stock repurchase program to repurchase shares of our common stock in the open market or in privately negotiated transactions, subject to market conditions, applicable legal requirements, and other factors (collectively, the stock repurchase program).

Our stock repurchase program does not obligate us to acquire any amount of common stock and may be suspended at any time at our discretion. Our current revolving credit agreements allow us to make stock repurchases under this program, so long as we do not exceed certain leverage ratios. As of June 30, 2023, no defaults have occurred under our credit agreements.

Stock repurchase activity under our stock repurchase program during the three months ended June 30, 2023, was as follows:

(1) The dollar value of shares repurchased excludes the cost of broker commissions, excise taxes, and other costs associated with our program.

(2) May not calculate on rounded dollars.

(3) All share repurchases were made pursuant to our publicly announced stock repurchase program in open-market transactions.

Director and Officer Trading Plans

Certain of our directors and officers have entered into a trading plan with a financial institution to either purchase or sell shares of our common stock, which plans are intended to comply with the provisions of Rule 10b5-1 under the Exchange Act. Set forth below is a summary of the adoption, modification, or termination activity during the three months ended June 30, 2023:

*Not applicable.

(1) This trading plan was terminated automatically prior to the contract end date upon the sale of all shares covered by the plan.

EXHIBIT INDEX

• Filed herewith.

** Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 3, 2023