Deckers Outdoor 10-Q 2023-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the Quarterly Period Ended September 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 October 12, 2023, the number of outstanding shares of the registrant’s common stock, par value $0.01 per share, was 25,730,874.

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES

For the Three and Six Months Ended September 30, 2023, and 2022

TABLE OF CONTENTS

*Not applicable.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for our second fiscal quarter ended September 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;

• our plans to divest the Sanuk brand and the related terms and timing;

• 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 expansion of our retail store footprint;

*•*the impacts of pandemics and 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. The 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 and 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 third-party manufacturers.

Financial Highlights

Consolidated financial performance highlights for the six months ended September 30, 2023, (fiscal year to date) compared to the prior period, were as follows:

• Net sales increased 18.6% to $1,767,698.

**◦**Channel

▪Wholesale channel net sales increased 11.2% to $1,185,595.

▪DTC channel net sales increased 37.2% to $582,103.

**◦**Geography

▪Domestic net sales increased 16.5% to $1,167,568.

▪International net sales increased 23.0% to $600,130.

• Gross margin increased 450 basis points to 52.6%.

• Income from operations increased 60.4% to $295,353.

• Diluted earnings per share increased 68.9% to $9.22 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

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

Brand and Omni-Channel Strategy

• We remain focused on increasing global consumer awareness and 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 and diverse 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 management strategy in Europe and Asia continues to drive UGG and HOKA brand awareness and consumer acquisition by building brand acceptance and heat 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.

• As we continue to focus on effective resource allocation and the execution of our long-term objectives, we intend to divest the Sanuk brand.

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 (primarily consisting of the Koolaburra brand), 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, as well as apparel and accessories. Originally designed for ultra-runners, the brand now appeals to world champions, taste makers, and everyday athletes. Strong marketing and strategic marketplace presence 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 and positively impact seasonality trends.

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 as 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 construction, 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 that uses plush materials and is intended to target the value-oriented consumer in order 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 of our brands and is comprised of our e-commerce websites and retail stores, which are intertwined and interdependent in an omni-channel marketplace. We believe many of our consumers interact with both our e-commerce websites and retail stores 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 net sales from our partner retail stores, which are recorded in our brands’ respective wholesale reportable operating segments.

*•*E-Commerce Business. Our global e-commerce business provides us with an opportunity to directly engage and connect with our consumers, and communicate a consistent message that promotes our brands’ promises and 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 UGG brand outlet stores, as well as HOKA brand stores, which we continue to launch in strategic locations. 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.

• Flagship Stores. Global concept stores include flagship stores, which are primarily located in major tourist locations. These are premium mono-branded 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). SIS are concept stores that are operated by us or non-employees within a department store, which we lease from the store owner by paying a percentage of store sales and for which we own the inventory.

• 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 September 30, 2023, Compared to Three Months Ended September 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 and wholesale channel sales for the UGG and HOKA brands, partially offset by lower Teva brand sales. Further, we experienced an increase of 12.9% in the total volume of pairs sold to 16,600 from 14,700, compared to the prior period. On a constant currency basis, net sales increased by 24.2%, compared to the prior period.

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

• DTC channel net sales increased primarily due to higher global net sales for the HOKA brand and UGG brand, driven by consumer acquisition and retention online as we experienced increased demand for both brands. Comparable DTC channel net sales for the 13 weeks ended October 1, 2023, increased by 36.8% compared to the prior period.

• Wholesale net sales of the UGG brand increased due to higher global sales growth, mainly as a result of strong global brand heat and the timing of certain shipments, which included some early Fall season demand.

• Wholesale net sales of the HOKA brand increased globally, from gaining market share with existing customer accounts, driven by higher demand across an assortment of performance products.

• Wholesale net sales of the Teva brand decreased driven by lower global net sales, particularly in the sandal category.

• International net sales, which are included in the reportable operating segment net sales presented above, increased by 33.3% and represented 31.5% and 29.5% of total net sales for the three months ended September 30, 2023, and 2022, respectively. These changes were primarily driven by higher net sales for the wholesale and DTC channels for the UGG and HOKA brands.

Gross Profit. Gross margin increased to 53.4% from 48.2%, compared to the prior period, primarily due to a decrease in freight costs, favorable UGG brand product mix shifts, favorable full-price selling for the UGG brand, favorable channel mix shift to DTC, and a slight benefit from 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 payroll and related costs of approximately $26,900, primarily due to higher employee headcount and higher performance-based compensation.

• Increased variable advertising and promotion expenses of approximately $14,700, primarily due to higher promotional marketing expenses for the UGG and HOKA brands to drive global brand awareness and market share gains, highlight new product categories, and provide localized marketing, as well as increased advertising expenses associated with higher DTC sales.

• Increased other variable net selling expenses of approximately $10,100, primarily due to higher rent and occupancy, warehouse costs, and credit card fees.

• Increased other operating expenses of approximately $8,000, primarily due to higher IT expenses for programming and software costs, and contract expenses, partially offset by a decrease in legal expenses.

• Increased allowances for trade accounts receivable of approximately $5,700, primarily due to higher 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 due to higher gross margins on higher global net sales, combined with 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 global net sales at higher gross margins, as well as relatively flat SG&A expenses as a percentage of net sales.

• The increase in income from operations of the DTC channel was due to higher global net sales for the HOKA brand and UGG 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 global net sales at higher gross margins, as well as lower SG&A expenses as a percentage of net sales.

• The increase in unallocated overhead costs was primarily due to higher payroll costs related to higher headcount and performance-based compensation, as well as higher IT, contract, and rent-related expenses, partially offset by a decrease in legal expenses.

Total Other Income, Net. The increase in total other income, net, compared to the prior period, was due to higher interest income from higher invested cash balances and 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 due to changes in the jurisdictional mix of worldwide income before income taxes, and slightly lower net discrete tax benefits.

Foreign income before income taxes was $66,213 and $28,473 and worldwide income before income taxes was $234,317 and $128,918 during the three months ended September 30, 2023, and 2022, respectively. The increase 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 foreign gross profit as a percentage of foreign net sales compared to domestic gross profit as a percentage of domestic net sales.

Net Income. The increase in net income, compared to the prior period, was due to higher net sales, operating margins, and 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 higher 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 more favorable Asian and European foreign currency exchange rates.

Six Months Ended September 30, 2023, Compared to Six Months Ended September 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 and wholesale channel sales for the HOKA and UGG brands, partially offset by lower Teva and Sanuk brand sales. Further, we experienced an increase of 3.0% in the total volume of pairs sold to 27,400 from 26,600, compared to the prior period. On a constant currency basis, net sales increased by 18.8%, compared to the prior period.

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

• DTC channel net sales increased primarily due to higher global net sales for the HOKA brand and UGG brand, driven by consumer acquisition and retention online as we experienced increased demand for both brands. Comparable DTC channel net sales for the 26 weeks ended October 1, 2023, increased by 35.7%, compared to the prior period.

• Wholesale net sales of the UGG brand increased primarily due to higher international sales, driven by greater adoption of key product franchises as well as early global demand for Fall season product.

• Wholesale net sales of the HOKA brand increased domestically and in Asia, driven by higher consumer demand across an assortment of performance products. These effects were partially offset by lower net sales in Europe, including the timing of certain distributor shipments.

• Wholesale net sales of the Teva brand decreased driven by lower global net sales, primarily in the sandal category, including 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 23.0% and represented 33.9% and 32.7% of total net sales for the six months ended September 30, 2023, and 2022, respectively. These changes were primarily driven by higher net sales for the wholesale and DTC channels for the UGG brand, as well as higher net sales for the DTC channel for the HOKA brand.

Gross Profit. Gross margin increased to 52.6% from 48.1%, compared to the prior period, primarily due to favorable changes in freight costs, favorable HOKA brand mix and UGG product mix shifts, and a greater mix of sales in the DTC channel.

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 $42,100, primarily due to higher employee headcount and higher performance-based compensation.

• Increased other operating expenses of approximately $24,100, primarily due to higher IT expenses for programming and software costs, contract expenses, travel and entertainment expenses, sales meetings, depreciation expense, and sample expenses.

• Increased variable advertising and promotion expenses of approximately $24,100, primarily due to higher promotional marketing expenses for the HOKA and UGG brands to drive global brand awareness and market share gains, highlight new product categories, and provide localized marketing, as well as increased advertising expenses associated with higher DTC sales.

• Increased other variable net selling expenses of approximately $18,900, primarily due to higher rent and occupancy, warehouse costs, and credit card fees.

• Increased allowances for trade accounts receivable of approximately $2,300, primarily due to higher accounts receivable balances outstanding.

• Decreased net foreign currency-related losses of $9,600, primarily driven by remeasurements with favorable changes in Asian and Canadian exchange rates against the US dollar, partially offset by higher realized losses due to unfavorable changes in European exchange rates.

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 global net sales at higher gross margins, partially offset by slightly 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 for the HOKA brand and UGG brand, higher gross margins, as well as lower global SG&A expenses as a percentage of net sales.

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

• The increase in income from operations of HOKA brand wholesale was primarily due to higher global net sales at higher gross margins.

• The decrease in income from operations of Teva brand wholesale was due to lower global net sales as well as higher SG&A as a percentage of net sales, partially offset by higher gross margins.

• The increase in unallocated overhead costs was due to higher payroll costs, related to higher headcount and performance-based compensation, an increase in IT, contract, and rent-related expenses, partially offset by lower net foreign currency-related losses.

Total Other Income, Net. The increase in total other income, net, compared to the prior period, was due to higher interest income from higher invested cash balances and 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 due to changes in the jurisdictional mix of worldwide income before income taxes, and slightly lower net discrete tax benefits.

Foreign income before income taxes was $103,302 and $61,496 and worldwide income before income taxes was $315,681 and $185,920 during the six months ended September 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 foreign SG&A as a percentage of foreign sales, compared to domestic SG&A as a percentage of domestic sales, partially offset by higher foreign gross profit as a percentage of foreign net sales compared to domestic gross profit as a percentage of domestic net sales.

Net Income. The increase in net income, compared to the prior period, was primarily due to higher net sales and 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 more favorable Asian and European foreign currency exchange rates.

Liquidity

Sources of 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 borrowing capacity under our revolving credit facilities. Our working capital requirements begin when we purchase raw and other 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 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 September 30, 2023, our cash and cash equivalents are $823,051, the majority of which is held in highly rated money market funds and interest-bearing demand deposit accounts with established national financial institutions. We believe our cash and cash equivalents balances, cash provided by operating activities, and available borrowing capacity 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 and will be sufficient to meet our long-term requirements and plans. However, there can be no assurance that sufficient capital will continue to be available or that it will be available on terms acceptable to us.

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.

Material Cash Requirements. There were no material changes outside the ordinary course of business during the six months ended September 30, 2023, to our cash requirements or contractual obligations, including those outside the ordinary course of business, disclosed in the sections titled “Liquidity” and “Contractual Obligations” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2023 Annual Report.

Stock Repurchase Program. Refer to Note 8, “Stockholders’ Equity,” of our condensed consolidated financial statements in Part I, Item 1 and to Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds,” within this Quarterly Report for further information regarding our stock repurchase program and capital allocation strategy.

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 six months ended September 30, 2023, and 2022, no cash and cash equivalents were repatriated. As of September 30, 2023, and March 31, 2023, we have $260,721 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 to the extent they have been subject to US income 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 regarding our cash repatriation strategy.

Capital Resources

Revolving Credit Facilities. During the six months ended September 30, 2023, we made no borrowings or repayments, there were no changes to the terms and there was no material change to the borrowing availability under our revolving credit facilities disclosed in our 2023 Annual Report. As of September 30, 2023, we have no outstanding balances under our revolving credit facilities and there were no material changes to outstanding letters of credit under our unsecured revolving credit facility or to outstanding bank guarantees under our credit facility in China disclosed in our 2023 Annual Report.

Debt Covenants. As of September 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 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 six months ended September 30, 2023, compared to the prior period, was primarily due to $253,976 of favorable changes in operating assets and liabilities, as well as $104,398 of favorable net income after non-cash adjustments. The favorable changes in operating assets and liabilities were primarily due to net favorable changes in inventories, trade accounts payable, income tax payables, other accrued expenses, and net operating lease assets and liabilities, partially offset by net unfavorable changes in trade accounts receivables, net and prepaid expenses and other current assets.

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 more tightly managed brand inventories in alignment with expected growth as we are operating in a less disrupted supply chain environment compared to the prior period, (2) higher net trade accounts payable due to timing of payments, partially offset by (3) higher trade accounts receivable, net, on higher net sales.

Investing Activities. The increase in net cash used in investing activities during the six months ended September 30, 2023, compared to the prior period, was primarily due to higher capital expenditures for leasehold improvements for our warehouses and DCs.

Financing Activities. The increase in net cash used in financing activities during the six months ended September 30, 2023, compared to the prior period, was primarily due to higher stock repurchases.

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 inflationary pressures, foreign currency exchange rate volatility, changes in interest rates, changes in commodity pricing, 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 circumstances available as of the reporting date and 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 sections titled “Use of Estimates” and “Recent Accounting Pronouncements” 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, as well as the impact of recent accounting pronouncements.

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 September 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 September 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 six months ended September 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. We have also discovered and are investigating several manufacturers and distributors of counterfeit UGG brand products, and we are 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 six months ended September 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 (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. The agreements under our revolving credit facilities allow us to make stock repurchases under this program, so long as we do not exceed certain leverage ratios. As of September 30, 2023, no defaults have occurred under our credit agreements.

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

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

(2) May not calculate on rounded dollars.

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

Subsequent to September 30, 2023, through October 12, 2023, we repurchased 88,928 shares in open-market transactions for $44,941 at a weighted average price per share paid of $505.36 and had an aggregate authorized amount of $1,100,756 remaining under the stock repurchase program.

Director and Officer Trading Plans and Arrangements

Our directors and officers may enter into trading plans or other arrangements with financial institutions to purchase or sell shares of our common stock, which plans or arrangements are intended to comply with the affirmative defense provisions of Rule 10b5-1 of the Exchange Act or which may represent a non-Rule 10b5-1 trading arrangement as defined under Item 408(a) of Regulation S-K. During the three months ended September 30, 2023, no non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by our directors and officers. Set forth below is a summary of the adoption, modification, and termination activity of our directors and officers in respect of their Rule 10b5-1 trading plans during the three months ended September 30, 2023:

*Not applicable.

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: November 2, 2023