Deckers Outdoor Corporation Price & Performance (DECK)

All statements made on this call, other than statements of historical fact, are forward looking statements and include statements regarding our current and long term strategic objectives, capital allocation, anticipated impacts from our brand and marketplace management strategies, changes in consumer behavior, strength and performance of our brands, demand for our products, product and channel distribution strategies including DTC plans for and the launch timing of new products, marketing plans and strategies, disruptions to our supply chain and logistics, our anticipated revenues, product mix, margins, expenses, inventory levels, promotional activity and our anticipated rate of full price selling, the expected timing of adjustments to certain brand operations, the impacts of the macroeconomic environment on our operations and performance, including fluctuations in foreign currency exchange rates and our ability to achieve our financial outlook. Forward looking statements made on this call represent management's current expectations, and are based on information available at the time such statements are made. Forward looking statements involve numerous known and unknown risks uncertainties and other factors that may cause our actual results to differ materially from any results predicted, assumed or implied by the forward looking statements. The company has explained some of these risks and uncertainties in its SEC filings, including the Risk Factors section of Annual Report on Form 10 ks, quarterly reports on Form 10 Q. Except as required by law or the listing rules of the New York Stock Exchange, company expressly disclaims any intent or obligation to update any forward looking statements.

Please note, as previously disclosed, the company affected 6 for-one forward stock split during the 2nd fiscal quarter. The share per share and resulting financial amounts mentioned on this call has been adjusted to reflect the effectiveness of this stock split. On this call, management may refer to financial measures that were not prepared in accordance with Generally Accepted Accounting Principles in the United States.

Including constant currency.

In addition, the company reports comparable to consumer sales on a constant currency basis for operations that were opened throughout the current and prior reporting periods.

The company believes that these non GAAP financial measures are important indicators of its operating performance because they exclude items that are unrelated to and may not be indicative of its core operating results. With that, I'll now turn it over to Stefano.

Thank you, Erin. Good afternoon, everyone. And thank you for joining today's call. It's great to be here with you today to discuss our superb Q3. The largest most profitable in Deckers history. Agenhocha continued to drive our success as both brands are creating unique and innovative products with purpose, that are increasingly embraced by consumers worldwide. Highlights of our record Q3 performance include revenue growing 17% over last year to $1,800,000,000 gross margins improving to 60.3 percent and diluted earnings per share increasing 19% to $3 We are very proud of the exceptional quarter just completed Thanks to the hard work of our global teams. I want to especially recognize employees supporting our distribution Deckers, retail stores, Customer and consumer experience. E commerce, marketing, planning and allocation, merchandising and sales, who collectively contributed the successful execution of our largest quarter ever. [indiscernible] Once again, our brands were able to maintain a high degree of full price business while competing with more promotional brand in the global marketplace, choosing to prioritize Brand Health. As we continue to manage and build our brands and business for the long term, we're even more encouraged by what Deckers has delivered over the last 9 months.

Our fiscal year to date performance as compared to last year includes significant revenue growth in key areas. With HOKA increasing 29%, [indiscernible] international markets rising 28%, and balance increases of 19% across the DTC wholesale channels. The shape of our growth and evolution of our business is directly tied to our long term strategies and guiding principles. Which provide the foundation for how we manage our brands to maintain a pull model of demand. Overall, Decker's 3rd quarter fiscal year to date performance has exceeded our expectations. Our increased revenue outlook for fiscal 'twenty 5 now calls for 15% growth. Which will be our 5th consecutive year of growing mid teens or higher. Steve will provide further details on 3rd quarter performance in this updated outlook later in the call. But before that, I will share our brand highlights from the Q3. Starting with our global revenue in the 3rd quarter increased 16% versus last year to $1,200,000,000 From a channel perspective, I delivered balanced revenue growth of 16% versus last year across both direct to consumer and wholesale. Our DTC channel highlights the 3rd quarter includes strong growth across all global markets, gains with new and existing consumers as the brand experienced double digit increases in both acquisition and retention a 25% increase [indiscernible] an encouraging progress for Ag Men's with growth outpacing total brand growth in the channel.

In the wholesale channel, I've experienced growth across all regions, with the majority of the increased revenue coming from international markets. Close partnerships with influential retailers continue to elevate the Ag brand and enhance global exposure with target consumers. During the Q3, I collaborated to create special corner shop takeovers with Sulfurages in London and Nordstrom in New York City. Both of these partnerships were activated with on-site events and media that drove great brand buzz and connections with consumers. Across the global wholesale marketplace, we believe that UGG was a top performing brand in the holiday quarter. Highlighted by exceptional levels of full price sell through that drove healthy margins for our partners and lean inventory in the channel exiting the month of December. We believe Ziad brand success around the world results from a purposeful [indiscernible] that is informed by consumer insights and infused without brand codes. This approach has driven consistent product performance throughout the fiscal year including Icos reimagined, with the Tasman and Ultra Mini franchises continuing to experience strong global adoption from consumers, [indiscernible] as the emerging Golden and Low Mail collections experienced rapid sellouts, while the weather hybrid collection more than doubled versus the prior year.

And new winter lifestyle highlighted by the mini dipper success in the U. S. The Yag team continues to build brand heat and relevance through powerful collaborations. During the quarter, I was able to reach a new audience and elevate the in line assortment through the release of 2 highly sought after collaborations, with Los Angeles based Fashion Brand Gallery Department and UK based [indiscernible] These partnerships featured iconic styles such as the Tasman, and the Ultra Mini. Which gained global exposure from being spotted on influential professional athletes and music superstars. The success of these iconic styles is closely linked to the emerging hybrid styles in the assortment, The Golden Star clog continued to see strong global growth in the quarter and we saw consumers in the U. S. And Europe embrace the low mail as a lifestyle sneaker, lending the style in the ad brand's top 10 during the Q3. Adding to our enthusiasm for the X Sneaker success, we've just added sizing for men's and kids and also launched a companion style the low low male that hits lower to the ankle and is built with greater versatility for warmer months. In other hybrid collection that performed well in the quarter, [indiscernible] featured as part of our men's focused marketing campaign starting post Malone.

This campaign drove significant increases in search and engagement with over 3,000,000,000 impressions in the U. S. Alone for both the product collection and the YAG brand overall. Through high impact out of home content, media placement with Amazon Thursday Night Football, ESPN and Spotify, and a 10 day experiential Fierhouse retail pop up store that culminated with a VIP performance by Post Malone. This campaign represents great progress in our journey to increase connections with male consumers around the world. Even propelling the Tasman with a hybrid to become YUG brands number 1 men's style in China this past quarter, a region with a brand continues to make solid headway. At the same time, we're seeing strong adoption of our UGG Men's product among professional athletes. A group that often shapes the future of fashion. Altogether, this was a splendid quarter for our as the brand continues to perform in the league of its own. Heading into the final stretch of fiscal 'twenty 5, Ag is delivering on the objectives we set for the year. With balanced growth across channels driven by outsized growth from international markets, and maintained strength in the U. S. We believe the special brand can continue to deliver sustainable growth through distinctive and that are uniquely UGG.

Congratulations to Anne in the bright future ahead.

As AUG has continued to solidify its positioning as a leading global lifestyle brand, I would like to provide an update regarding the Koolaburra brand. To maintain focus on our most significant organic opportunities, planning to phase out the Koolabra brand standalone product collections and operations. As part of this change, we expect to sunsetkoolaburra.com at the end of this fiscal year and wind down Koolaburra in the wholesale channel throughout the calendar year 2025. We'll provide a more complete update on this forthcoming change during our year end call in May, as part of our forward looking guidance, for fiscal year 2026. Okay, shifting to the HOKA brand.

Global revenue in the 3rd quarter increased 24% versus last year, to $531,000,000 From a channel perspective, HOKA delivered impressive revenue growth versus last year throughout the global marketplace. Is DTC increased 27% we saw growth across every region and wholesale grew 21%, primarily driven by outside increases from international distributor markets as we prepare the marketplace for upcoming key franchise upgrades. HOKA DTC channel highlights in the quarter include accelerated growth in the APAC region, with China contributing the largest incremental dollar revenue, of all international regions, persistent gains in consumer acquisition and retention, the latter of which was particularly strong indicating a high degree of loyalty from existing consumers. An increased mix of business from trail categories, which drove outsized growth in part due to the introduction of the Caja Frost weather collection. The Caja Frost collection features the HOKA brand's first cold weather rated styles.

Including a $280 hiking boot and $200 slip on moccasin, both of which are trail ready with the Vibram Mega Grip The consumer response was excellent around the globe, driving impressive softwares and generating great buzz for the brand, including being named the Best Multifunctional Hiking Shoe of 2024 by Gogo Shanghai, an influential annual publication of lifestyle awards in China and a must have item for A Weekend in the Mountains by Tangen Vogue. In the wholesale channel, our primary focus during the quarter was to set the stage for the Bondi 9 launch.

By moving through existing inventory of the Bondi 8 while also driving high full price sell throughs, across the lineup of innovating products we've introduced throughout the year. As brand awareness and consumer appetite for HOKA continues to build, we're excited to be adding select doors with our strategic partners worldwide. In conjunction with the start of our spring 2025 season. During the Q3, the HOKA team did an outstanding job in driving consumer engagement with the brand through events and activations around the world. Key global moments included HOKA being the 2nd most warm brand at Foot Locker Cross Country High School National Championships in the U. S. Hosting Hawker FlyLab experiences at the Frankfurt Marathon in Germany, and the RMM 7 Play 3 World Championships in Kaapol, New Zealand and producing a benchmark consumer experience at the Shanghai Marathon where HOKA was the 5th most won brand. As you can tell, our marketing teams are working hard to maintain and build performance credibility while growing global brand awareness through activations in key cities. The HOKA brand's shoe count achievements are made possible by the HOKA product team's laser focus to build product solutions that deliver transformational experiences for consumers around the world.

Hooker has 2 exciting products launching in the 4th quarter. Which are the Bondi 9, and a 2.0 update our fastest and most technically advanced ratio. The CLRx1. Having just launched a couple of weeks ago, we are very pleased with the early consumer response to the Bondi9. With the new premium midsole, increased tack height, is 3 d molded collar This franchise has been upgraded from top to bottom providing a soft yet resilient ride for everyday miles. [indiscernible] is the Hookah brand's most globally integrated launch date. Supported and enhanced by our Everybody Bondi marketing campaign, with out of home content on high trash displays in key cities around the world a Bondi 9 week fitness challenge that culminates in participants completing a 9 mile run, partnering with local and global influencers, including Deckers U. S. Olympic gymnasts [indiscernible] and activations at regional and global events such as the Miami Marathon Paris Half Marathon London Winter Run. While the Bondi 9 represents a significant upgrade, to one of our most accessible franchises, we've also enhanced our Pinnacle ratio, the CLO X1. Making it faster and smoother for the highest performing athletes. In the 2.0 version of the CLX1, we've tweaked the rocker and geometry, to provide greater stability without adding weight.

Enabling greater speed, through the tow transition. Commercially available in February, this issue that we have been testing with our athletes for months now and have high hopes to see on podiums in the future. HOKA has an exciting future ahead. With a strong pipeline of new innovations, and a growing global marketplace to serve the brand's increasing demand. Thanks everyone. I'll now hand it over to Steve to detail our Q3 financial results and provide an update to our fiscal year 'twenty five guidance.

Thanks, Stefano. Good afternoon, everyone. Our record Q3 performance illustrates the continued strength and robust momentum of the UGG and HOKA brands. As Stefano mentioned, UGG delivered another exceptional quarter of results as the brand attracts and maintains consumers around the world with a relevant and elevated product assortment. HOKA continues to deliver solid controlled global growth as the brand builds market share with performance products that consumers love. Our team's disciplined long term approach to managing these brands' respective global marketplaces supports our pull model while sustaining exceptional levels of full price selling. [indiscernible] Our results this quarter again demonstrate the power of our model and [indiscernible] maintaining this flexible operating model we will continue to build these incredible brands with long term health top of mind. Now let's get to the details of our 3rd quarter results. 3rd quarter fiscal 2025 revenue was $1,830,000,000 representing an increase of 17% versus the prior year on a reported and constant currency basis. Growth in the quarter was primarily driven by UGG increasing 16% versus last year, delivering record quarterly revenue of $1,240,000,000 with particularly strong demand captured later in the quarter as we maintained favorable inventory on key styles relative to the prior year, and consistent strength across the HOKA brands global marketplace.

With HOKA growing 24% versus last year, to deliver quarterly revenue of $531,000,000 Further on I would note that the brand experienced a strong December selling period relative to our last year. Our increased and earlier inventory position aided our ability to fulfill orders during the Q3 on Recall that in the Q3 of last year, we sold out of Key styles, While this dynamic was a tailwind to our 3rd quarter performance this year, it is highly likely to have an adverse comparison impact on the UGG brand's current quarter. Gross margin for the 3rd quarter was 60.3%, up 160 basis points from last year's 58.7%. 3rd quarter gross margin benefited from favorable product mix, primarily due to higher margin products within UGG driving a larger percentage of growth reduced closeouts to the wholesale channel, Higher levels of full price selling for UGG and a small benefit from favorable foreign currency exchange rates with partial offsets from higher freight costs and an increased discounting for HOKA as anticipated primarily related to preparing the marketplace for key model upgrade. While we are proud to deliver this record gross margin, I would caution that the extremely high levels of full price selling and very low levels of wholesale closeouts are abnormal and not something we would normally expect to repeat going forward.

Further, though we experienced a small revenue and gross margin benefit from favorable foreign currency exchange rates in the 3rd quarter, we have since seen rates move against us. And as a result expect to face an FX headwind in the upcoming quarter. SG and A dollar spend in the 3rd quarter was 5 $35,000,000 up 25% versus last year's $429,000,000 as we continue investing in key areas of the business. As a percentage of revenue SG and A was 29.3%, which is above last year's rate of 27.5 percent primarily driven by increased marketing spend, unfavorable impacts from foreign currency exchange rate, remeasurement and higher headcount across strategic growth areas of the business. [indiscernible] Our tax rate for the quarter was 21.8%, which compares to 21.9% for the prior year. These results culminated in diluted earnings per share of $3 for the quarter which is $0.48 above last year's $2.52 diluted earnings per share representing EPS growth of 19%. Turning to our balance sheet at December 31, 2024, we ended December with $2,200,000,000 of cash and equivalents. Inventory was $577,000,000 up 7% versus the same point in time last year and during the period we had no outstanding borrowings.

During the Q3, we repurchased approximately $45,000,000 worth of shares at an average price of $162.85 As of December 31, 2024, the company had approximately $641,000,000 remaining authorized for share repurchase.

In Now moving into our updated guidance for fiscal year 2025. Based on the strong demand experienced in the 3rd quarter, we are raising our full year revenue expectations to just above $4,900,000,000 which equates to approximately 15% growth which compares to our prior guidance for growth From a brand standpoint, we now expect UGG revenue growth of approximately 10% up from our prior expectations of mid single digits as a result of stronger global demand, and with continued execution against our full year expectation, we still expect HOKA to increase approximately 24% versus last year. While we do not provide quarterly guidance, we acknowledge that with only 1 quarter left in our fiscal year, this provides visibility in into our anticipated 4th quarter growth expectations. And we realized that while we have increased our full year guidance, this update highlights distorted growth rates implied in the 4th quarter for our 2 largest brands, each for unique reasons. For the UGG brand, as planned, our improved product in stock positioning versus the prior year allowed us to satisfy incremental consumer demand during our Q3. While in the prior year, we ran low on product availability and continued to catch up to fulfill demand through Q4 last year.

This year, we believe this demand was captured in Q3 Given how strong UGG has performed year to date, we are limited in the 4th quarter by available inventory left to sell. For HOKA, our guidance implies the Q4 to be the largest volume quarter for the brand ever. This is on top of last year's Q4 that included a significant amount of [indiscernible] as we set up fiscal year 2025. And while this creates some year on year variations in the quarterly growth rates, we are still on track to achieve an annual growth rate of 24%. Then with the strong gross margin achieved in the 3rd quarter, we are increasing our full year expectation to now be at or slightly better than 57%. As we recognize the exceptional levels of full price selling UGG achieved in the 3rd quarter, and continued product mix benefits. But maintain our expectation for continued freight headwinds and a more promotional and closeout environment in the balance of the year as compared to last year's unusually low levels. And as mentioned, a headwind from unfavorable foreign currency exchange rates in the 4th quarter. SG and A is still aligned with our commitment to continue investing responsibly to support the long term sustainable growth of our business.

With these adjustments, we now expect an operating margin of We expect our effective tax rate to be approximately 23 point 5%. And as a result of our improved revenue and gross margin expectation, We are increasing our diluted earnings per share expectations to now be in the range of $5.75 to $5.80 Please note this guidance excludes any unforeseen charges that may be considered non recurring to our ongoing business or impact from any future share repurchases. Additionally, our guidance assumes no meaningful deterioration of current risk and uncertainties that may include, but are not limited to, fluctuations in foreign currency exchange rates, changes in consumer confidence and recessionary pressures, inflationary pressures, supply chain disruptions and geopolitical tensions. We are proud of the outstanding 3rd quarter and year to date results that our brands have delivered thus far in fiscal year 2025. As our guidance for the full fiscal year indicates, we expect to report Decker's 5th consecutive year of double digit top line revenue growth while continuing to deliver top tier levels of operating profitability. I remain confident in our in demand brands which benefit from our flexible model and robust financial profile. That we believe continue to position us well to drive sustainable growth over the long term.

With that, I'll now hand the call back to Stefano for his final remarks.

Thank you, Steve. This was truly a special quarter highlighting the strength of our industry leading brands. Eigen HOKA continued to drive consistent full price growth through the purposeful creation of relevant, distinct and innovative products that are meeting the demands of our consumers who are discovering our products in a well managed global marketplace. I'm confident that we'll continue to execute our strategy in the 4th quarter to close another great year for Deckers. Looking ahead to fiscal 'twenty 6, our teams have set the foundation for continued growth with an exciting pipeline of products to come. We remain dedicated to our long term strategies of building HOKA to become a leading performance brand disruptive innovation, growing UGG through the evolution of iconic franchises and the creation of new icons, expanding our DTC business through consumer acquisition and retention and increasing our international business through the implementation of our successful domestic playbook. As we execute against these strategies, we remain committed to maintaining our financial discipline to deliver top tier levels of profitability. And we'll continue to be guided by our consumer first mindset. Brand led philosophy emphasis on innovation, and globally driven approach. On behalf of our management team, I want to express our sincere gratitude to all of our employees for their continued efforts to build the future of Deckers.

Thank you all for joining us today. And thank you to our shareholders for your continued support. With that, I'll turn the call over to the operator for Q and A. Thank you. We will now begin the question and answer session. Your first question comes from the line of Jaeme Sool from UBS. Line is open. Great. Thank you so much.

Jeff, I'm wondering if you can sort of pull together a couple of the different teams that you brought up in the prepared remarks One is just how you're managing the brand, particularly HOKA for the long term and protecting the health of the brand even in [indiscernible] Then maybe sort of connected to how you're thinking about 4th quarter how you're thinking about growth by channel? And then maybe you talked about the Bondi 9 launch. And the CLO the next version of CLO X1. You just talk about some other product launches you have coming beyond March And if you still think that HOKA is the type of brand that can deliver 20% growth on an annual basis, [indiscernible] [indiscernible] Of course. HOKA is a transformational brand. That has the potential of becoming one of the major brands in the athletic footwear space. Our strategy for HOKA stayed consistent throughout the globe. It's about building awareness and consideration, delivering compelling innovation stories and managing the marketplace for long term and sustainable growth. In terms of the BOND99, we're very pleased with the BOND99 launch so far. It's happening in a controlled retail environment, but we're very, very encouraged with early response to the Bandai9.

In terms of additional launches, as I mentioned in my prepared remarks, the Cielo X X1 is launching in February over the previous model we launched a year ago. We have Clifton 10 launching in April And as you guys know, Clifton 10 is our biggest franchise. In May, we are launching a new product in the trail category not an enormous program, but it's a pinnacle, should call them Mafata X. Which is going to be followed by [indiscernible] which is a motion control shoe and one of our biggest franchises. So we have a strong lineup of innovation stories hitting in Q4 and in the first half of fiscal twenty twenty six. I think I may you may have another question.

Yes. And I think it was you had kind of talked about how do we think about growth for HOKA. Jay, this is Steve. I think this is really, as Stefano said, about how we manage the marketplace. And it's not about necessarily chasing growth for the sake of increasing growth rates. We are building this brand for the long term. We want to sustain growth for the long term. I think you see us as innovative leaders in the space. And so really it's about how we continue to grow global market share with the right cadence. And again, it's not trying to do too much too soon. I think what you've seen us do is continue to build this brand. We think the global opportunity exists. You're seeing kind of that demonstrated haven't given targets yet for next year. That will be something that comes up on our next call on the year end as we get guidance out into the future. But this is really about we continue to build this brand for the long term, continue to build it successfully across the globe. And so it's not again about necessarily chasing numbers. It's about how we continue just to build the base.

Got it.

Okay. Thank you so much.

Your next question comes from the line of Laurent Vasilescu from BNP Paribas. Your line is open. Good afternoon, Stephanie and Steve. Thank you very much for taking my question.

I wanted to follow-up on Jay's question with regards to the HOKA launches that are coming up. I think, Stefan, to your point, you've mentioned Clifton is the largest franchise. I think Arahi is maybe potentially the 3rd largest franchise. I know you don't have any DTC read throughs on that, but I just want to get what the reception is from some of your key retail partners And then on the domestic growth, in 3Q of 11%, Just curious to know if there was balance there between the 2 key brands And how should we think about domestic growth over time? That would be very helpful. Thank you. Yes. As I said, if bond died then we're very pleased with the with the Bondi launch. And the reaction to both Clifton and Arahi 8 has been very positive from the trade. Again, we don't have any consumer read just yet, but both models book well and within our expectations. But again, to Steve's point, we want to manage the environment. We want to drive a pull model and continue to drive the scarcity that we've created so far.

Yes. I think, Laurent, just in terms of and the last part of the question fell off a little bit, but I think it was kind of how are we thinking about the kind of growth rates in between quarters? I think just one thing I'll bring up is at the beginning of this year, we growth rates between quarters was going to be kind of moving in different directions. It wasn't necessarily going to be consistent across the year. And I think you're you're seeing that and that's why we call that out in Q4. That is not an indication of any change in demand. The demand for these brands is still incredible. This is about how we're managing a the marketplace with the inventory that we have. And you're seeing that kind of with the success that we've had with UGG in Q3. Run a scarcity model. It continues to drive demand. And we're again, we're not chasing outsized numbers just for the sake of delivering a higher number This is again about long term sustainable growth. As it relates to HOKA, I think one of the things that you're seeing in Q4 is a comparison to last year.

So as you recall last year what we talked about was opening up new points of distribution within wholesale A lot of that sell in happened in Q4. The sell through happened in FY So on that dynamic, the comparison does look a little bit distorted as I said in the prepared remarks. So again, this is not about any change in how we're thinking about demand. This is about how we're managing these brands, again for the long term. Why we don't guide quarterly. We're not getting hung up on these quarterly compares. These brands continue to resonate with consumers and are doing incredibly well.

Very helpful. And then beyond the quarters to your point, Steve, I think 18 months ago, I think it was called out that over time you can achieve $5,000,000,000 to $6,000,000,000 in sales of the company. The guide today effectively gets to that range. How do we think about longer term the opportunity going forward Could we see a path and I know you don't do investors, but can we see a path to effectively $7,000,000,000 to $8,000,000,000 Are there limitations to the brand to both brands that couldn't that would prevent you to get to that kind of number over time?

I don't think there are any limitations in the brand The brands are performing very well in the marketplace. UGG is stronger than it's ever been. UGG remember used to be a boot and a slipper brand. And now we're playing in sneakers, we're playing clogs, we're playing in sandals. So the brand is more solid and more balanced than it's ever been across seasons, genders, All our genders are growing in double digits. It's been fantastic. And the Hookah brand has the potential of being one of the major players in the performance space. So I think yes, aspirationally, we definitely want to get there.

Over time.

I think Laurent, we're not giving any long term targets on here. But I think as we've demonstrated this year, right, both grants continue to perform above our level of expectation, but we're not going to let them run away either. So this is again about how do we continue to the demand that we're seeing in the marketplace, but at the same time keep control of our brands. The marketplace. And that's what you're going to see us deliver. That hasn't changed. We still have incredible confidence in our ability to grow the brands. But again, we I think you would agree are disciplined managers of the marketplace and you see the benefit of that in terms of the growth that we're delivering combined with the gross margins that we're delivering. So good question. Nothing's changed on the front of how we're thinking about the opportunity. Other than we continue to see these brands perform very well with consumers.

Yes. We don't want to be in a position to have to trade brand equity for short [indiscernible] Very helpful, Stefano. Steve, thank you very much and best of luck.

Thanks, Ryan.

Your next question comes from the line of John Kernan from TD Cowen.

Good afternoon. Thanks for taking my question. So maybe just to go back to Laurent's question a bit, how did the 12 compared to your expectations? And me talk to the drivers of that growth. Also, within that, how should we think about international growth potential both in Q4 and then where you see the most opportunity internationally into fiscal 'twenty 6?

Yes, the U. S. Grew to a to our expectations. It's our biggest market. As you know, it's 2 thirds of our business. And they perform super well.

So we'll expect international to outpace the U. S. In terms of percentage growth. That's what we said. Over time, we'd like international to be 50% of sales. And going into Q4 fiscal 'twenty 6, yes, we continue to expect international to outpace the U. S. Yes. I think, John, just a little bit more color kind of on how we saw a bit of that play out in Q3 and how that is impacting Q4. So to Stefano's point, definitely kind of continuing to see our brands perform well, largely aligned with our expectation. I think some of the timing of that probably happened a little bit earlier than what we anticipated. And so you saw some of those UGG sales especially come forward from our expectations. So it's part of the inventory issue that we're dealing with in Q4 and an inability with the stock outs that you're seeing on our most popular style. So that's a bit of a limitation, but again, that's okay. Because it continues to drive brand heat and demand for our brands. In terms of then how we're thinking about the international growth, again, as we said a few years ago, continue to grow these brands domestically, but above large numbers knowing that the percentage growth would be a little bit less, turning much more focus on the international growth rates.

And I think the quarter demonstrated how strong our international business performed. And we're continuing to see these brands resonate extremely well across the globe and in the international market. That's helpful. Maybe just one follow-up. A lot of questions on top line so far, but the operating margin profile of the business is the highest among the sector peers as you look at OCA and UGG, what opportunities are left to improve or maintain this level of margin rate while still reinvesting to grow the business?

Yes, good question. And I think the again, the power of the scarcity model, people paying full price for these brands. As these brands get bigger and we've said this in the past, it's going to be difficult to maintain this level of margin We continue to see pressures, whether it's inflationary pressures or foreign exchange pressures growing So I think you're seeing some of that impact our Q4. So as you model out the year, you'll see that we are seeing some impacts related to that, including freight. Our ability to maintain these brands will continue to command high gross margin levels, but you are going to have some other factors that will be impacting our ability to maintain these or deliver these. So stay tuned. We'll continue to evaluate the year. We anticipate some pressures in Q4 But as you point out, these are incredible brands that are delivering incredible margins of the other macro effects are going to affect everybody, but there will be some pressures and headwinds in kind of the months and year to come.

Understood. Thank you. Best of luck.

Thank you. Your next question comes from the line of Jonathan Komp from Baird. Your line is open. Yes. Hi, good afternoon. Thank you.

The commentary on the 4th quarter was really helpful, but the the consolidated growth rate looks very low and the lowest you've seen in a while. So I'm just wondering given the positive commentary you have on consumer demand, as we look forward into 2026, should we be thinking that double digit growth is possible again or just any other context can provide Yes, sure, John. So again, we are giving guidance in terms of next year. In terms of how we think about these brands and how they resonating with consumers has not changed.

We continue to see demand. You see it on our website. If you go to our popular styles on UGG, you're seeing them sold out. So some of the percentage and this is why we always talk about trying not to get too hung up on quarters. Because quarters are not an indicative underlying indicator of the health of the brand. These brands are performing in incredibly well with consumers. Again, we're going to control some of that market. We're not going to necessarily try to feed all the demand that's out there. To the prior question, that is what's helping feed some of these exceptionally high level gross margin levels. So I think again, Q4, as we indicated at the beginning of the year, there was going to be some flow of product that was going to impact growth rates within the quarters. That's what's played out. So this is not necessarily a surprise to us. We've increased our outlook on the year given the performance that we've had. And we'll continue to manage the business. We are not looking at the business any differently today than we were a couple of weeks ago or 6 months ago. These brands are incredible.

And that's what we're going to continue to manage. Yes, that's really helpful. And if I could just ask one follow-up on HOKA Could you share what you're seeing out there in terms of the competitive dynamics either now or over the next few quarters? And then just updated thoughts on how you're thinking about distribution going forward for HOKA? Thank you.

Yes. As I said in my prepared remarks, Jonathan, We are going to be very selective and thoughtful in our distribution of HOKA.

Yes, we'll be opening a few more doors, especially internationally. But we continue to be very thoughtful. In terms of competitive landscape, All brands are offering better products. What is fortunate for us is that we have strong lineup of great innovation stories that we believe will do well in the marketplace. As I said, 0.99 early read is very positive. And some of the innovation stories that I mentioned book very well. In wholesale. For the back for Q4 and the first half of next year.

That's great. Thanks again.

Next question comes from the line of Paul Lejuez from Citi. Line is open.

Hey, thanks guys. Within the Hope this wholesale channel, can you remind us what percent of your business you would consider specialty running how that channel performed for you? And then also as you look out to F26, how many stores do you have, new stores on the HOKA front do you have in the pipeline for that F. 6 and on what base is that Any color you can give on where those stores might be open? Thanks.

Yes, starting with the stores.

Paul, we don't disclose number of stores. Our strategy is about building presence in key cities. And where we've seen the highest concentration of the brand stores so far, London, Paris, New York, L. A, Tokyo, Shanghai, Beijing. We've opened stores there this year. And they're performing very well. So that's where you'll see an expansion of door count on an operated door count. We'll be opening a flagship in Shanghai on May 7 next year. And but we don't disclose the number of stores we'll be opening. We also will be opening partner stores, especially in Asia. And as our partners continue to develop the brand, in those marketplaces. Your first question was on It was HOKA wholesale.

HOKA wholesale, run specialty, yes, we don't disclose the percentage of business we do. By channel. But the HOKA brand continues to perform well. In that channel and some of the exclusives we've given the channel like the Skyflow have performed super well.

Yes. And I think also just to recall because your referencing kind of the wholesale growth. So I think just recall that a year ago in FY24, we really didn't grow wholesale. So FY25 was the year that we were expanding wholesale doors, some more distribution points. That is what led into that Q4 last year. Higher wholesale number because we were selling in product that would sell through after April 1. Year, we don't have that dynamic. So we're not increasing our wholesale door count going into FY26 like we were in FY25. So continued expansion, not the extent this year that you saw last year.

Got it. Thank you.

Your next question comes from the line of Samuel Opposer from Williams Trading.

Good afternoon. Thanks for taking my questions. I guess, Aaron, I only have 2, the Teva and the other. Since he gave us everything else. And then I have other questions.

Sure, Sam. I believe you're probably referring to global wholesale and distributor for each brand for the 3rd quarter. So I can provide that. So for the UGG brand, global wholesale and distributor, was approximately $468,000,000 dollars HOKA was approximately 305,000,000 dollars Tabula was approximately 24,000,000 dollars. Thanks. Okay. And so Steve, you've brought up the fact that sort of more normalized markdowns happening in Q4, which you would expected more normalized markdowns all year. Given that and I doubt that's happening in HOKA, there's planned markdowns in HOKA as you convert to the Clifton 10. But what why should we expect markdowns, I mean, unless it happens in March when like you won't have anything left anyway because all our checks are saying everything is selling at full price right now.

Yes.

So the way we're looking at it Sam, and again, we'll see how it [indiscernible] the product that's sold in Q3, so again, we're looking at year on year comparisons stronger products selling at full price in Q3 with some of the inventory that's remaining in Q4 [indiscernible] expectation that we might experience some more closeouts. We'll see how that plays out. In addition, as you pointed out, we do have some model changeover [indiscernible] there's a bit of seasonal closeout this year that we anticipate will be higher than it was last year. Plus with some of the model changeovers this year, you're going to have some additional closeouts in Q4 of this year to move some of that inventory out.

Okay. Also, is there a chance you could give us what the EBIT margin I know it comes out in the queue, but could you give us the EBIT margin for UGG wholesale HOKA wholesale and the DTC. Do we have to wait for the queue for that?

Yes. Why don't you wait for the queue? That will be out early next week. So And then And then last, I mean, I still don't understand it. The operating I mean, every you've said the same thing, but you managed the business well. You hit like a record gross margin in the quarter even with the mark downs. So now in Q4, you have your expected normalize, I hate to beat a horse here, but you're talking about normalized more normalized promotional activity we know about the Clifton and then you have the headwind of you have some FX headwind. But you also have bigger international growth, which is I think is an offset [indiscernible] I mean, and probably more weighted to DTC because of the issue you brought up with HOKA and the big shipments in last year. So why would that's a benefit. I'm very confused. And FX should also be a benefit on and A, which you've maintained like you called out yes, just to kind of move it along, Sam. I think the basically the 2 issues on the gross margin because you're you're kind of now talking different margins, but let's stick with gross margin.

So the freight issue that we have this Q4, we did not have last year. So we were continuing to benefit last year Q4 with unsustainably low freight rates and we've called that out, right? Those came in during the year about midpoint, a little bit earlier than midpoint this year. So that is a headwind for us and fairly significant one probably in the 150 basis point range for the freight hit that we anticipate for Q4. So the other the FX on the gross margin, while call it out correctly, there is a bit of a benefit in the SG and A. There is a hit related to Q4 as the dollar has strengthened. So that will be another headwind. So again, kind of macro that are impacting our gross margins that we really don't have much control over.

Can you break out, you just gave us 150 basis points for freight. Could you give us sort of how you're foreseeing the gross margin to play in a range the same way you gave us freight Can you give us FX on the headwind side? And could you give us promotions on the headwind side? And then I guess tailwinds on some kind of mix perspective as you've guided?

Sure. I think on kind of on the FX call it in the 50 basis point range, And then on the closeout promos, could be up to 100 basis points.

And then on the other side of it, the like mix and geographic and channel mix I assume those are positive.

Yes, they will be, but less I would call it less than 50 basis points all in.

Okay.

Thanks very much. Continued success.

And your final question comes from the line of Chris Nardone from Bank of America.

Great. Thanks guys. Good afternoon.

Can you elaborate some more on the Clifton 10 launch? Just want to confirm if most of the initial selling will be recognized in the Q4 and if there's any changes to your product segment Then on the Clifton 9, is there any way we can think about the impact to sales and margins from sunsetting that product ahead of the Clifton 10 launch?

Yes. So just on the margins, a little bit on the Clifton 10. We're going to be flowing that product. So it won't necessarily all be a Q4 event. Some of that will trickle into Q1. We haven't disclosed that Some of that will be wholesale selling in Q4 that is included in our guidance and anticipated. Some of the flow will actually also happen in Q1. In terms of the margin hits, on the Clifton 9, that's embedded. And so in that number I just gave Sam of around 100 basis points. Anticipated as a part of that among other product is part of that Clifton 9 closeout. So that's embedded in in some of that gross margin movement that we've guided to.

Got it. That's very clear. Thank you.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.