Earnings Call Transcript
DECKERS OUTDOOR CORP (DECK)
Earnings Call Transcript - DECK Q1 2022
Operator, Operator
Good afternoon, and thank you for standing by. Welcome to the Deckers Brands First Quarter Fiscal 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session, and instructions will be provided at that time for you to queue up for questions. I would like to remind everyone that this conference call is being recorded. I will now turn the call over to Erinn Kohler, Vice President of Investor Relations and Corporate Planning.
Erinn Kohler, Vice President of Investor Relations and Corporate Planning
Hello, and thank you, everyone, for joining us today. On the call is Dave Powers, President and Chief Executive Officer; and Steve Fasching, Chief Financial Officer. Before we begin, I would like to remind everyone of the company's safe harbor policy. Please note that certain statements made on this call are forward-looking statements within the meaning of the federal securities laws, which 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. All statements made on this call today, other than statements of historical facts, are forward-looking statements and include statements regarding changes in consumer behavior, strength of our brands and demand for products; changes to our product allocation, segmentation and distribution strategies; changes to our marketing plans and strategies; changes to our capital allocation strategies; the impact of the COVID-19 pandemic on our business; our anticipated revenues; brand performance; product mix; gross margins; expenses and liquidity position; and our potential repurchase of shares. 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 and in its SEC filings, including in the Risk Factors section of its annual report on Form 10-K and quarterly reports on Form 10-Q. Except as required by law or the listing rules of the New York Stock Exchange, the company expressly disclaims any intent or obligation to update any forward-looking statements. With that, I'll now turn it over to Dave.
Dave Powers, President and Chief Executive Officer
Thanks, Erinn. Good afternoon, everyone, and thank you for joining us today. We are excited to discuss a strong start to fiscal year 2022 for our portfolio of category-leading brands. First quarter revenue increased 78% versus last year, to $505 million. Gross margin increased 130 basis points to 51.6%, and we delivered a profitable June ended quarter with earnings per share of $1.71. While unique marketplace dynamics contributed to this, we believe the growing influence of HOKA, with its more evenly spread seasonal volumes, will continue to drive our organization toward a more balanced business across quarters. Performance in the first quarter was driven by global wholesale growth of the UGG, HOKA and Teva brands, whose compelling products are continuing to build market share and overcome a disruption in the channel that began during the pandemic. The direct-to-consumer growth in HOKA, as the brand continues to build awareness through digital marketing, introduced innovative products and category disruptors that drive new consumer acquisition and deliver a consistent consumer experience for online replenishment. Additionally, our brands are benefiting from strategic marketplace management globally, which continues to drive high rates of full price selling across our entire portfolio of brands. This quarter represents further progress toward our long-term strategies, which include accelerating consumer adoption of the HOKA brand globally, to build the brand's revenue to $1 billion and beyond, building UGG as a year-round global lifestyle brand through a diverse product offering and executing a digital-first approach by prioritizing direct-to-consumer acquisition online and working towards a direct business that will represent 50% of total revenue for the company over time. While we remain firmly committed to these strategies over the long term, it is important to recognize certain aspects unique to fiscal 2022 related to lapping the pandemic, which is still having varying effects in different locations. Specific to the quarter just completed, we experienced higher wholesale shipment volumes as well as earlier shipments as compared to the prior year. The earlier shipments primarily relate to replenishment of depleted UGG wholesale account inventories that resulted from exceptionally high levels of sell-through during fiscal 2021. These earlier shipments for UGG, combined with strong demand for spring and summer products across our entire portfolio of brands, drove a significant increase in our wholesale business. Given the momentum of our brands and their respective market share opportunities, we are focused on meeting consumers where they want to shop to optimize growth in this less than certain marketplace, but remain committed to driving direct-to-consumer demand over the longer term. Steve will provide more detail around the unique dynamics we are anticipating for the balance of this year, later in the call. For now, I will share more detail around first quarter brand and channel level performance and some context for the remainder of fiscal 2022. Starting with the brand highlights. Global UGG first quarter revenue increased 71% versus last year to $213 million. Performance was driven by strength in domestic and international wholesale as the brand lapped disruption in last year's spring season and refilled depleted domestic inventory that resulted from record sell-through in the prior season. Growth of international DTC, as UGG benefited from localized marketing investments to reignite the brand in Europe and China, which was partially offset by softness in domestic DTC resulting from the decline of extraordinary slipper growth unique to last year's stay-at-home orders. The strength of Global UGG wholesale resulted from the brand's marketplace management strategies that left UGG with unusually lean inventories entering the year. This positioned UGG to accelerate some shipments, helping avoid anticipated bottlenecks in the supply chain and providing the brand with an opportunity to meet in-store consumer demand. We saw this strategy play out effectively as online traffic for UGG was predictably lower than last year's exceptionally high levels, while sell-through at physical retail was strong. With a highly fluid consumer environment, we're managing our omnichannel business to ensure UGG has a meaningful presence with the brand's target consumers intent to spend. However, we continue to closely manage our product allocation and segmentation strategies to ensure UGG maintains healthy levels of full price sell-through. UGG continues to see high levels of consumer demand as the brand maintained positive mind share with 18 to 34 year olds in the US. According to YouGov, brand consideration among women in this group remained roughly flat to last year's record highs. And among men, UGG brand consideration is at an all-time high. These new levels of consideration among men are leading to the growth of UGG Men's continuing to outpace that of the total brand. Helping to drive more consumer connection for the brand, UGG recently held its fifth annual PROUD Prom event in partnership with the Pacific Pride Foundation. This event is an inclusive opportunity for UGG to connect with local LGBTQIA Plus and allied youth from Santa Barbara and surrounding coastal communities that celebrates identity and love. This year's event featured friends of the UGG brand that included musical artists, Lil Nas X and actress Hari Nef. Further on the brand-building front, UGG has continued to engage with brands and designers to create powerful product collaborations that elevate the brand's fashion credibility and perception among consumers. In June, UGG teamed up with famed fashion designer, Telfar Clemens’ namesake brand, Telfar, to release the first of multiple product collaborations. The first product drop sold out on ugg.com within just a few hours but more importantly, garnered positive press with the brand, which included features in leading fashion publications. We are excited to once again collaborate with this exciting designer as we unveiled the second UGG x Telfar product drop in September which will include more footwear and apparel items. From an international perspective, we have been pleased with the progress in Europe and Asia Pacific as the brand is building a younger audience through greater acceptance of the UGG brand's diverse product line. We are gaining confidence in the UGG brand's turnaround based on continued positive response from consumers in both regions. During the first quarter, DTC acquisition in Europe and the Asia Pacific region more than doubled pre-pandemic first quarter levels. And these new consumers are purchasing products such as fluff, sandals and sneakers. With the strong sell-through UGG is experiencing within wholesale accounts, growth in our international DTC business and exciting spring product innovations to come, UGG is well positioned to continue progress in the spring and summer season next year. Looking ahead to the balance of this fiscal year, we expect UGG to continue experiencing elevated levels of global wholesale demand as we replenish domestic inventories and reignite the brand in Europe and China, maintain positive momentum with younger consumers around the world, and work to convert a higher percentage of consumers to repeat purchases across categories, accelerate international DTC demand by showcasing the brand's diversified product offering through localized marketing tactics and mitigate pressures related to lapping heritage slipper demand in the US. Overall, we feel very positive about the UGG brand start to this year and the teams are working hard to acquire new and repeat consumers around the world with bold and exciting products. Moving to HOKA. Global revenue for the first quarter increased 95% versus last year to $213 million. This quarter represented a significant milestone for Deckers and HOKA as the brand's revenue slightly surpassed that of UGG for the first time in the company's history. As has become standard for HOKA, growth was balanced across the brand's ecosystem of access points with all regions and channels of distribution experiencing impressive growth. HOKA continues to build its consumer base through a combination of disruptive product innovation, emotionally connected inclusive marketing and a consistent consumer experience based on the premium quality of the brand's products and distribution partners. Helping to drive the HOKA growth during the quarter, the brand launched an update to its flagship Clifton franchise with the introduction of the Clifton 8. This eighth-generation Clifton features the brand's all-new innovative ultralight midsole foam, which is designed to offer maximum cushion with an energetic response to each step. Consumers have enthusiastically embraced this franchise update, making the Clifton 8 a top 5 style for hoka.com despite only launching in June. Search interest for HOKA in the US continues to expand as the brand experienced a 69% increase versus last year's first quarter according to Google Trends. The Clifton 8 launch helped boost traffic to hoka.com during the quarter. And on top of that, HOKA continues to build awareness with new consumers through targeted digital marketing. During Q1, 72% of online traffic was from consumers who had not previously shopped on the HOKA website. We have been encouraged by the loyalty of consumers who buy HOKA online. During Q1, the number of consumers who purchased HOKA more than twice increased 46% versus the prior year. Through these repeat purchases, HOKA is expanding closet share with existing consumers as the brand is seeing adoption across multiple categories. To help achieve this goal, the HOKA team is building innovative products in trail, hike and fitness categories. At the beginning of July, HOKA launched a brand-new hiking silhouette known as the Anacapa, which is available in low and mid height. We are excited about the launch of this franchise, which is intended to build market share in the hiking category and attract new consumers to the HOKA brand. This hiking boot features recycled materials, waterproof construction and a Vibram Megagrip outsole, but most importantly, is built with lightweight HOKA technology to feel like a sneaker. Coinciding with the Anacapa launch, HOKA has teamed up with non-profit organization Soltrack, to encourage outdoor exploration by participating in the HOKA x Soul Trak Hike Challenge on the Strava application. While virtual consumer touchpoints like the Strava challenge have been great avenues to connect with consumers globally. We have been excited about the return of in-person events over the last few months. In June, HOKA was a title sponsor of the Western States Endurance Run, which is the world's oldest 100-mile trail race. This event was the first trail ultramarathon to be covered by our live stream telecast with over 30 hours of coverage from start to finish. Congratulations to HOKA Athlete, Jim Walmsley, who wore the brand’s EVO Speedgoat trail shoe and adventure bucket hat to win the Western States event for the third consecutive year. The HOKA team's approach to product, marketing and distribution has been highly effective in building consumer awareness and an affinity for the brand. With the brand rooted in performance running, we continue to see higher awareness among those consumers, but recently, the growth of total consumers aware of HOKA has outpaced increases in awareness among runners, according to our proprietary HOKA brand tracking data. We view this as an important positive step in the evolution of HOKA and expanding the brand's addressable audience. For the balance of this year, we anticipate HOKA growth will continue at an impressive rate. They were lower than the quarter just experienced, driven by new consumer acquisition, as the brand expands global awareness, including a key market focus in Germany, the U.K. and China, innovative product updates and increased category adoption from consumers, market share gains with wholesale partners across the globe, greater global brand presence through in-person event sponsorship and higher frequency product drops to maintain excitement with loyal consumers. As we continue to scale HOKA, we are building the right team for the brand's long-term future success. As you may have seen in the press release not long ago, the brand has hired two key footwear design and apparel team members, intended to enhance the evolution of HOKA over the next three to five years. Shifting to Teva. Global revenue in the first quarter increased 66% versus last year to $58 million. What is truly impressive about the standout quarter from Teva is the brand's growth in both fashion with its heritage Universal franchise and function with a more rugged Hurricane franchise. Strength in the Hurricane franchise, we feel, has been driven by the brand's roots in the Grand Canyon, as national parks have seen record attendance this year. From a DTC perspective, Teva delivered solid growth on top of last year's extraordinary increase. As compared to last year's first quarter where Teva more than doubled consumer acquisition, the brand maintained a similar number of acquired consumers this year, increased retained consumers by 41% and saw a 10% increase in average order value among online purchasers. Additionally, growth of 18 to 34-year-old consumers continues to outpace total consumer growth, leading to younger consumers, maintaining the largest mix among all age groups for Teva. For the balance of this year, Teva is expected to build market share with close to products such as the brand's Ember franchise and increased DTC consumer acquisition and continue to grow the already high percentage of loyalty among 18 to 34-year-olds. With respect to channel performance in Q1, global wholesale revenue increased 140% as compared to last year. Wholesale growth was unique this quarter, as a result of disruption in the channel last year, refilling domestic UGG inventories that were depleted from record product sell-through and shipping UGG products earlier than in prior years in order to mitigate macro supply chain pressures. As a result, UGG wholesale is up significantly relative to the past couple of years. HOKA also experienced meaningful growth as the brand is building market share and benefiting from the Clifton 8 launch. From a direct-to-consumer standpoint, global revenue increased 15% versus last year's first quarter. HOKA drove the majority of DTC growth as the UGG brand was pressured by exceptional demand last year that resulted from the stay-at-home orders benefiting online sales in the slipper category. Because of the pandemic disruption of both owned and wholesale physical retail locations last year, we experienced a significant increase in DTC mix during the first quarter of fiscal year 2021. Given physical store reopenings and shifting consumer shopping patterns, we saw a decline of DTC penetration this quarter as compared to last year but have been pleased to maintain DTC mix above pre-pandemic levels. Longer term, our focus remains on building DTC towards representing approximately 50% of our total business. Before I hand off the call to Steve, I wanted to take a moment to highlight some of our brand's recent activities on the sustainability, ESG and DEI fronts, which we believe are having a positive impact on consumers' passion for our brands and the culture at the company. Over the past few months, our Deckers Gives program provided meaningful donations as nominated by our employees and community to 10 non-profit organizations championing racial and social justice. We have improved the diversity of hiring with 49% of new hires over the past year coming from diverse communities. HOKA received the 2020 Vendor Partner of the Year Award from REI in recognition of the brand's performance and commitment to doing business in the right way, and our employees are close to finishing our first ever plastic-free July competition, which aims to reduce the abuse of single-use plastics. Here at Deckers, we have a philosophy known as Do Good and Do Great, which is a core value that drives and inspires our company and our people to make a positive impact. Our progress in the ESG and DDI space exemplifies this philosophy and our journey continues. With that, I'll hand the call over to Steve to provide further details on our first quarter financial results as well as our updated outlook on fiscal year 2022.
Steve Fasching, Chief Financial Officer
Thanks, Dave, and good afternoon, everyone. As Dave just covered, fiscal 2022 is off to a great start, and we are proud to have delivered our most profitable first quarter ever. Our long-term strategies continue to serve us well. We are in an advantageous position with two of the most in-demand brands in the footwear space and considerable opportunity ahead for our brands. While our strategies have helped propel performance, we recognize the existence of unique circumstances that have, in some cases, benefited results and in others put pressure on our brands. Through it all, we remain confident in the strength of our brands, our solid operating foundation, and ability to remain flexible and nimble in a dynamic marketplace. First quarter fiscal 2022 revenue came in at $505 million, representing an increase of 78% versus the prior year. Performance in the quarter aligns with our setup for the year and discussed on our last earnings call, with shipping more products earlier this year as we look to mitigate exposure to supply chain challenges and get product into the marketplace. Q1 growth versus the prior year was driven by the HOKA, UGG, and Teva brands. And for the first time, HOKA contributed the largest share of revenue in a quarter at $213 million, an increase of 95%. UGG increased 71% over the prior year to $213 million with global wholesale and international DTC growth offsetting a difficult domestic DTC comparison. And Teva increased 66% over the prior year to $58 million based on the strength of domestic wholesale. Across our entire portfolio of brands, HOKA was the primary driver of growth, increasing 140% over last year, in part due to unique marketplace dynamics which include lapping disruption in the channel last year, refilling depleted channel inventories for the domestic UGG accounts, and shipping UGG product earlier than the prior year to mitigate ongoing macro supply chain pressure and ensure we have product well-positioned in the marketplace. Irrespective of these unique dynamics specific to the pandemic, our brands are resonating well with consumers, and we are aggressively pursuing market share where we see opportunity. Gross margins for the quarter were up 130 basis points over last year to 51.6%. The increase was related to favorable brand and product mix as HOKA increased as a percentage of the total company and UGG benefited from earlier HOKA shipments of fall product. A reduction in reserves related to uncertainty in the prior year and favorable foreign currency exchange rates with offsets from channel mix and greater utilization of air freight. SG&A dollar spend for the quarter was $199 million, up 32% from last year's $150 million. Higher spend was primarily driven by increased compensation related to higher warehouse wages, including hazard pay, onboarding additional talent to scale the organization, and long-term incentive performance compensation reflecting noncash expense. Also, increased marketing to maintain momentum in our brands and reignite international markets for the UGG brand, increased variable warehouse logistics and IT costs with savings related to a reduction in bad debt. Our tax rate for the quarter was 21.9%, which compares to a 1.2% benefit on last year's pretax loss. This all resulted in diluted earnings per share of $1.71 for the quarter, which compares to a basic loss per share of $0.28 in Q1 of fiscal year '21. The nearly $2 increase as compared to last year was driven by revenue growth in HOKA, UGG and Teva, and related favorable mix of brand and product. SG&A leverage as revenue growth exceeded expense growth with offsets from channel mix favoring wholesale and taxes on net income this year as compared to last year's loss. Turning to our balance sheet at June 30, 2021. We ended June with $957 million of cash and equivalents. Inventory was $458 million, up 5% from $435 million at the same time last year, and we had no outstanding borrowings. During the first quarter, we repurchased approximately $82 million worth of shares at an average price of $329.55. As of June 30, 2021, the company had $728 million remaining under its stock repurchase authorization. Moving to our outlook, for fiscal year 2022, we are raising our guidance to reflect further strength in the HOKA and Teva brands and adjusting our gross margin and operating expense assumptions based on the latest available information. For the full fiscal year 2022, we now expect a year-over-year top line growth of 18% to 20%, resulting in revenue in the range of $3.01 billion to $3.06 billion, with HOKA increasing its growth rate over last year to be in the 50% range crossing the $850 million milestone. UGG still growing in the high single-digit to low double-digit range. Teva now growing in the high teens range. Koolaburra is still growing in the low double-digit range, and Sanuk is still expected to be approximately flat to last year. Gross margin is now expected to be slightly below 53%, which is lower than our prior guidance due to pressures from increasing costs related to ocean containers and greater utilization of air freight. SG&A is now expected to be approximately 35% of revenue, reflecting a similar dollar spend as reflected in our prior guidance on increased revenue estimates. Similar to commentary from our year-end call, we expect SG&A spend to ramp throughout the year. The lowered ratio of spend to revenue is related to expected delays in the pace of hiring as the labor market remains highly competitive and more efficient variable marketing spend fueling demand for our brands. We anticipate these adjustments will help offset higher-than-expected logistics costs that are pressuring gross margins, allowing us to maintain prior operating margin guidance of 17.5% to 18%. We still expect a tax rate of approximately 23%. With these updates and the share repurchase executed in the first quarter, we are raising our earnings per share guidance for fiscal year 2022 to now be in the range of $14.45 to $15.10. As a reminder, during this fiscal year, we are thoughtfully investing to create the long-term future and success of Deckers. These foundational strategic investments include adding logistics capacity with another distribution center in the US and larger facilities internationally; enhancing consumer experience on our e-commerce platform with increased personalization capabilities; improving planning and data analytics with new tools to optimize logistics efficiencies and data insights; seating HOKA and reigniting UGG brand heat in China through localized investments; and bringing in new talent across the organization as we scale, enabling emerging opportunities with added capabilities. And while disruption in the supply chain persists across the industry, we are working hard to mitigate impacts on our brands, including working with factories to prioritize certain products to ensure timely marketplace entry, planning greater DC bypass and collaborating with wholesale partners to get product onto shelves more quickly, utilizing air freight where necessary to maintain strategic product launches, and optimizing distribution center workflow to support peak season DTC shipments. While we have tried to incorporate what we know at this point, our full-year guidance does not anticipate any further significant supply chain disruption, excludes any charges that may be considered onetime in nature, and does not contemplate any impact from additional share repurchases. Our teams have a great handle on what is under our control and will remain nimble to react to this dynamic environment. Our brands are well positioned to deliver another fantastic year, despite these challenging circumstances. And I’d like to thank our employees for their tremendous work and dedication to delivering consistently exceptional results. I'm excited for what lies ahead as we evolve our brands and business model to create the future of Deckers. Thanks, everyone, and I'll now hand the call back to Dave for his final remarks.
Dave Powers, President and Chief Executive Officer
Thanks, Steve. As we just covered, fiscal 2022 is off to a great start, and we are pleased with the result we have delivered despite macro challenges. We are especially excited about the expanded consumer adoption we are seeing across brands, gender and categories within our entire portfolio. There is a high degree of confidence in our organization about the strong demand our brands are experiencing and our teams are working hard to minimize any macro pandemic-related challenges that persist in the current environment. We are focused on our long-term strategies to increase consumer awareness and adoption of the HOKA brand to build a multibillion-dollar global performance brand over time, enhancing the year-round adoption of UGG as a global lifestyle brand with broad acceptance of the brand's diverse product offering, and driving consumers to our online ecosystem to increase our DTC mix to 50% of total company revenues over time. We are actively building our workforce and making other key investments in the business to support these strategies now and for the future. Thank you to all of our stakeholders for your continued support. With that, I'll turn the call over to the operator for Q&A.
Operator, Operator
Thank you. Our first question comes from Jay Sole from UBS. Please go ahead.
Jay Sole, Analyst
Great. Thank you so much. I just want to ask if you can elaborate a little bit on the growth with HOKA. Can you just talk about within the North America market, how much of the growth has been with new products? How much has been the existing products? How much is new doors? How much is just comp in the existing doors, particularly in the wholesale channel? And can you give us a sense of sort of what your expectation was for HOKA growth in Q1 versus where it shook out and sort of how do you see it playing out by quarter over the rest of the year? Thank you.
Dave Powers, President and Chief Executive Officer
Yes. Thanks, Jay. I appreciate the question. Obviously, HOKA is on quite a tear. And the good news is that it is absent really any increased distribution. So we're continuing to sell in the very strategic accounts that we've been in. The only place we're really expanding a little bit is a few more doors in DICK'S that will go to 40 doors. And then in Nordstroms, we're about 25 doors, but not expected to go up until more until the spring. So the growth that you experienced in the past quarter was driven largely by our DTC business and existing distribution. At the same time, the majority of the business that we're seeing is in core franchise styles such as Bondi and Clifton, but we're starting to see more adoption in for other categories as we talked about in trail and hike. The launch of Anacapa hiking boot has been received extremely well also. So it's broad-based growth across both channels, across franchise styles and extended into new categories. The demand is just continuing to be super strong. And the awareness of the brand among runners is still in the mid-20% and even lower across all consumers. So what we find is when people hear about the brand and they try it, they're hooked and they're in. So our job now is just continued to increase awareness and adoption of the brand in the existing distribution plan globally. So we're super excited about how things are continuing to perform. The performance in the quarter, it was in line, but a little bit better than expected, hence the way for the rest of the year. And we're continuing to focus and drive that momentum and continue to reinvest marketing dollars to keep it going.
Steve Fasching, Chief Financial Officer
Yes. And Jay, this is Steve. Just to add on to that. The improvement in revenue guidance that we're now flowing through for the full year outlook, the majority of that increase is coming from the better-than-expected results of HOKA in Q1. And I think as you think about the balance of the year, as we compare against bigger quarters last year, the percentage increase in growth is expected to reduce. Overall, we're still growing significantly with HOKA, but we're going to start lapping bigger quarters against last year. So that percentage growth may decrease. And the nice thing about HOKA is it's a nice balanced year, right? There isn't the seasonality that we have seen, say, with the UGG brand. So, as you think about HOKA continued growth, a little bit less on percentage terms and a nice balanced year.
Jay Sole, Analyst
Got it. Thank you so much.
Steve Fasching, Chief Financial Officer
Thanks, Jay.
Operator, Operator
The next question comes from John Kernan from Cowen. Please go ahead.
John Kernan, Analyst
Yes, excellent. Thanks for taking my question and congrats on a great start to the fiscal year.
Dave Powers, President and Chief Executive Officer
Thanks, John.
John Kernan, Analyst
You’ve talked about HOKA obviously being, I think, $50 million of the $60 million increase in guidance for revenue, but UGG had a phenomenal quarter in the first quarter. Can you talk to the dynamics of UGG that's embedded in the guidance for the rest of the year?
Dave Powers, President and Chief Executive Officer
Yes, sure. I'll take a crack at it first. So I think it goes back to what we said on the last earnings call, which was, we were going to shift UGG shipments earlier in the year. And part of the reason we haven't given quarterly guidance, is because we weren't certain of the timing of that. But I think as indicated in Q1, we have been able to ship more in Q1. So that's what's driven significant growth with the HOKA brand, but also within the wholesale channel. And just as a reminder there, the intent there was to get more product out into the marketplace, because we saw disruption within the supply chain. So this was a strategic move on our part to work with wholesale customers to take product earlier than they traditionally do. And this is for UGG, right? This is what's really driving the UGG growth to your question. So it's atypical in the sense of we're moving more product in Q1 in anticipation of mitigating supply chain disruption. We've been able to move more, but it also aligns with what we said again on the last earnings call, which was, the growth of the UGG brand was really going to occur in the first half, as we were shipping and anticipate shipping in the first half, product that we typically have shipped on a wholesale account basis in Q3. And so that's what's driving the very strong UGG result in Q1. Again, it's not necessarily that we're doing more at this stage, it's more about anticipating supply chain disruption and trying to get more product out into the marketplace to mitigate any disruptions. But it also then allows us to focus on fulfillment of DTC as we get into that space. So that's kind of the strategy and the growth behind UGG that you're seeing in Q1.
John Kernan, Analyst
Understood. I don't think that's my line, but one more for me. You talked about DTC going to 50% longer term of the business. We can see from the model that's direct-to-consumer from a contribution margin or segment margin, you want to look at it, up 700 basis points over the last two years, and it's now exceeds wholesale in terms of overall margin. How should we think about the profitability of DTC versus wholesale as the scale towards 50%?
Steve Fasching, Chief Financial Officer
Yes. We haven't given specifics on profitability other than to say our e-commerce channel is our most profitable segment, and hence, our significant emphasis on growing that part of the business and is the big driver of the total DTC growth to get to 50%. So again, we haven't given specifics on that per se in terms of profitability, but it is our most profitable channel and why we are intently focused on driving that proportion DTC as a total of sales to 50%.
John Kernan, Analyst
That’s great. Thank you.
Dave Powers, President and Chief Executive Officer
Thanks, John.
Operator, Operator
The next question comes from Jim Duffy from Stifel. Please go ahead.
Jim Duffy, Analyst
Thanks. Good afternoon, guys. Thanks for taking my question. I wanted to start asking about UGG and some of the seasonal and comparison influence. With the wholesale business, is there a possibility we're going to see similar pull forward from the fiscal third quarter, the fiscal second quarter or with more product now in the marketplace, should we not think about that as an influence? And then I'm also curious, the difficult comparison influence on DTC. Will that continue into the fiscal second quarter and fiscal third quarter?
Steve Fasching, Chief Financial Officer
Yes. So Jim, I'll take a stab at first and Dave, feel free to jump in here. I think the HOKA dynamic is a little bit different than UGG. So with UGG, because of the seasonality of the business, it was easy to identify what we traditionally sell-in in Q3 and especially from a wholesale account and how we could identify and strategically move up some of those shipments. With HOKA, what we're seeing is we're shipping to wholesale, but we're also seeing demand increase. And so that's where you're seeing the outperformance and the carry-through and the outperformance to our full-year outlook. So there it's about really the success of HOKA driving kind of additional sales that we're seeing in the quarter. What we're more aligned, I would say, in terms of kind of a traditional cadence as it relates to wholesale accounts for HOKA, there it's about just getting inventory in to accommodate our wholesale dates, as well as some of the launch dates and that is where we are seeing some pressure and looking to expedite and use some of that air freight. So there, it's a little bit about less pull forward, and it's more about seeing increased demand and how we meet that increased demand in the marketplace and bring product in, in an expedited manner to match that demand. And so that's where HOKA is a little bit different than UGG and a little bit more challenged in the sense of how much more can we do given constraints and disruption in the supply chain and how we then work around that with expedited freight. So it's not so much about a pull forward, but it's more about increasing demand and meeting that increased demand.
Jim Duffy, Analyst
Okay. Related to that, before we get into the DTC comparison dynamic, Steve, the gross margin guidance change pencils to about $20 million. Is that all air freight? Is that how we should think of it?
Steve Fasching, Chief Financial Officer
Yes. The large, large majority. So yes, I think the way you're thinking about it is about right in terms of what we anticipate, I would say, not just airfreight, but kind of all additional costs associated with trying to get inventory in sooner. So it's not solely all air freight, but air freight is a big component of that. We're also seeing an increase in other costs related to trying to expedite shipping.
Jim Duffy, Analyst
Okay. And then the DTC comparisons? Sorry, I know this is stretched to be more than 1 question. It was – it started as one, I promise. The DTC comparisons with strong slipper sales and so forth. Is that a dynamic you expect will challenge progress in the DTC business in fiscal 2Q, 3Q, or are you kind of through that now, given?
Dave Powers, President and Chief Executive Officer
Yes. Yes. I think it's to call the ball on that right now at this point, Jim. We did see a little bit of that challenge in lapping last year's stay-at-home orders because of primarily the slipper growth that we saw. I think you're going to still see some more challenges, more so on the UGG side of DTC as wholesale opens up versus last year. But our philosophy is at this point is, we want to be ready in all channels to wherever the consumer wants to shop. And so, we're making sure that we're getting our wholesale inventory levels in line. We're prepared on DTC, both in stores and e-commerce globally. And it's still a very uncertain environment. So, if there are further lockdown orders or the Delta variant takes on a whole new life, we're going to be ready no matter where the consumer has to shop. But we're confident that we'll be ready to meet the demand across all those channels. So you'll probably still see a little bit more pressure on DTC in the short term. But longer term, we think we'll get back to a normal mix and more increased growth in DTC over time.
Jim Duffy, Analyst
Thank you so much, guys.
Dave Powers, President and Chief Executive Officer
Thanks, Jim.
Operator, Operator
The next question comes from Sam Poser from Williams Trading. Please go ahead.
Sam Poser, Analyst
Thank you for taking my question. So I'm just going to ask this. Could you give us what the DTC revenue was by brand for the quarter or the wholesale revenue by brand for the quarter, either way you want to do it?
Erinn Kohler, Vice President of Investor Relations and Corporate Planning
Hi Sam, I'll take that one. So by brand, this will be global wholesale, including distributor. So for the total wholesale channel for UGG in the quarter, that was $135 million, for HOKA in the quarter, $151 million; Teva, $43 million; Sanuk $10 million; and other brands $4 million.
Sam Poser, Analyst
Thank you very much. And then 2 other questions real quick. How do you view just the clean merchandise margins? What do they look like? What are you doing with pricing of products? And then do you have any thoughts on M&A, Dave? Thanks.
Dave Powers, President and Chief Executive Officer
Yes, the first topic is margins and pricing. We have a streamlined distribution for all our brands in wholesale and are achieving high levels of full-price sell-through. This year, we haven’t implemented significant price increases. Our products are either in transit or already at distribution centers and accounts. The margins are considered in our guidance moving forward, accounting for some supply chain disruptions. We are confident in the sell-through and margins we’ll achieve this year. For next year, we anticipate some price increases globally across all brands as part of an exercise the management team will be undertaking in the next few months to address potential expense increases from the supply chain. For this year, we expect steady and healthy margins, and we see no reason to change that outlook. Our focus remains on maintaining high premium sell-through and effective distribution of our brands. Regarding M&A, it's not a major focus for us. While we continue to have discussions similar to the past three to five years, we are not pursuing a significant acquisition that would drastically alter our organization. We are seeing strong organic growth in our key brands across footwear, geography, and channel, as well as in apparel. We want to ensure we remain focused, especially on UGG and HOKA. However, we are open to smaller brands, whether in footwear or apparel, that may offer healthy growth in the coming years. We can nurture these, as we did with HOKA over the last several years. If we were to pursue anything, it would be in that area, though it is not a major priority. We will continue to explore and assess available opportunities.
Sam Poser, Analyst
Thanks very much. Continue the success.
Dave Powers, President and Chief Executive Officer
Thank you.
Operator, Operator
The next question comes from Camilo Lyon from BTIG. Please go ahead.
Camilo Lyon, Analyst
Hi, everyone. Thank you. Dave, I was wondering if, given the consumer data that you're tracking and the work that you do on your own consumers that have come to your channel, have you seen those customers that were new to the brand last year that probably came through and bought slippers, come back this year and buy a different type of footwear products? Have you seen any sort of retention that's come back to the brand?
Dave Powers, President and Chief Executive Officer
Yes, we are certainly observing that. In recent quarters, we have been attracting a younger and more diverse consumer base across all of our brands. Additionally, we are witnessing an increase in repeat purchases. Last year around this time, we noted that customers were initially buying classic styles, but now they are exploring other categories, like fluff, for the first time and returning for more. In particular, the fluff franchise has generated a lot of excitement and innovation as we evolve it into more of a sandal than just a slipper, which is leading to higher purchase rates. Our loyalty program is also performing exceptionally well, contributing significantly to our sales and repeat business, with many of our repeat customers being loyalty members. It’s encouraging to see new consumers join our loyalty program, allowing us to develop further opportunities across our diverse product range. This marks a significant shift from previous years, as we now offer compelling products beyond traditional core items like slippers and sandals, including sneakers, rain boots, and fashionable winter boots. These categories are starting to resonate well, which is promising. As you know, diversifying our offerings is a key strategy. We are also seeing strong interest in apparel. What's exciting about the current momentum for UGG is its broad appeal across genders, categories, and regions. We believe there is substantial potential to further explore these new categories and establish a year-round business.
Camilo Lyon, Analyst
Okay. That's good to hear. Thank you for that color. If I could just ask just one more. I think Steve, you addressed this a little bit, but I want to kind of try and pin down and see if you can give us some sort of quantitative benchmarks to help understand the dynamics around slippers. If you could help us understand the pre-pandemic mix of slippers in this quarter relative to what it was last year and what it went down to this year. And maybe help us understand how that will modulate into the next quarter. So just really trying to understand the depth of the comparison that we're facing as we transition into the fall season into a more normalized shopping behavior pattern relative to where we were last year at this time?
Steve Fasching, Chief Financial Officer
Yes, Camilo. I can provide a high-level overview rather than specific numbers because we are looking at two unusual years. A year ago, during the pandemic, as people started working from home, we experienced a significant increase in the slipper business, mostly driven by our direct-to-consumer channels. We saw considerable growth in the UGG slipper line. While we are comparing that growth now, it is important to note that it is changing due to our decision to ship more product earlier this year, making it difficult to directly compare the two periods. We can say that growth is ongoing, with some of this year's product shipped ahead of schedule. We will need to observe how the next few quarters unfold in terms of growth. The positive news is that this category continues to grow, building on last year's exceptional performance. However, since we are shipping some of the product earlier, we may see growth moderate in the upcoming quarters, and we will gain clearer insights as we progress through the season. Overall, we remain optimistic about the growth in this category.
Dave Powers, President and Chief Executive Officer
The HOKA franchise continues to be the top style for the quarter, similar to last year, and we are witnessing a slight increase in that style compared to last year. We have a strong program that we plan to expand on, and demand remains robust.
Camilo Lyon, Analyst
Got it. So that's encouraging to hear that. Slippers was part of that big replenishment that you had in this quarter. Is there a way to quantify what the total replenishment was to this quarter, if we separate out just generically spring product sell-through versus reflection? What does that add to the product?
Steve Fasching, Chief Financial Officer
Yes. We don't have a specific number to share regarding replenishment yet since it will rely on future sell-through. So, we can't assign a number at this time. I would say stay tuned on that. However, as I mentioned in a previous question, the growth in UGG during the quarter is significantly tied to building inventory in the wholesale channel. Therefore, replenishment will be influenced by what sells through. We need the next couple of quarters for clarity on this, as we have shipped some fall products in Q1 to address the supply chain disruptions. I don't have a specific number right now, other than to emphasize that the growth in UGG wholesale in Q1 reflects our strategy to release more product early to replenish wholesale inventory, which we have accomplished. We are seeing good sell-through, but a portion of that product is aimed at rebuilding inventory, and we will better understand the replenishment aspect as we progress through the next couple of quarters.
Camilo Lyon, Analyst
Very great color. One last one, if I could. Given that it's becoming pretty well known, I think even by consumers that inventories are fairly lean and if you see something may you want and you should probably buy it. Are you seeing that materialize in earlier purchases of fall products?
Dave Powers, President and Chief Executive Officer
I wouldn't say that's necessarily happening just yet. What we're selling is a good healthy mix of spring and summer in fashion, classics, and particularly in slippers and the new mill. If we're seeing it anywhere, it's probably in the new mill and the Classic Mini versus previous years, but we're not seeing a lot of early shopping based on inventory. We've been able to maintain a good healthy mix of inventory, the wholesale channels are getting fulfilled again and sell-through is healthy. But I wouldn't say we're necessarily seeing people shop early because they're afraid of not being able to get it.
Camilo Lyon, Analyst
Got it. Thanks a lot guys and good luck.
Operator, Operator
The next question comes from Jonathan Komp from Baird. Please go ahead.
Jonathan Komp, Analyst
Yes. Thank you. I want to ask about HOKA. Steve, maybe first, just when you think about seasonally for HOKA, typically, it looks like the first quarter is among the lowest in terms of the sales by quarter throughout the year. It doesn't look like that's the way you're planning or at least embedded in the guides. So any additional color kind of seasonally how we should think about HOKA and any constraints to growth, if there are any?
Steve Fasching, Chief Financial Officer
Sure, John. So I'll go first and talk a little bit about HOKA. So you're right. I think traditionally, we've seen Q1 be smaller. That is why you're seeing higher percentage growth currently. So as we see it become a more seasonally balanced brand, that's why you're seeing higher levels of growth in what have traditionally been or historically been smaller dollar a quarter. So with the higher percentage, they're catching up to some of the bigger quarters. In terms of constraints, right now, it's not demand, it's product and getting product in quick enough to fulfill demand. There is demand out there for HOKA, and we're just trying to meet that demand in a constrained environment. And so again, to one of the earlier questions where I was talking about airfreight, HOKA is a brand that we're looking to expedite freight to get it in to meet the demand. So we've gotten a few questions in terms of HOKA, how we clearly, it is a big grower. It's growing very rapidly. The challenge is more just us getting products made into the market. The sell-through is incredible. Pricing is very clean, sell-through is great. We're building the smaller quarters. And so here, the challenge really is just getting inventory in and getting it in time to meet the demand in the marketplace. And in some cases, that's where we're seeing some pressure with the brand. So overall, very healthy, growing incredibly well. We're very pleased with the progress that we're making, and we're just trying to keep up with the growth that we're seeing out there.
Dave Powers, President and Chief Executive Officer
Jon, can you remind us about the question you had regarding multi-brand?
Jonathan Komp, Analyst
Yes, yes. I misspoke. The multibillion-dollar opportunity you see for the HOKA brand, Dave, could you just talk about any broad strokes how you view that playing out by channel or geography or even product category? Just trying to conceptualize how you're thinking about the opportunity for HOKA?
Dave Powers, President and Chief Executive Officer
Yes, we believe we can exceed the $1 billion milestone with our current distribution and category mix, primarily driven by road and trail running. The Bondi and Clifton franchises are good examples. Looking ahead, there's a multibillion-dollar opportunity in taking market share from global competitors in core running and expanding our outdoor hiking business, with REI showcasing this potential. We’re also gaining traction in that area. Additionally, there’s a significant lifestyle opportunity, and we are beginning to see success in that category, with plans for compelling crossover styles that maintain a performance focus but appeal to a broader consumer base, particularly in spring 2022 and fall 2023. We're developing an apparel segment and have appointed a new head of design to strengthen our efforts. Over time, we expect our international presence to grow, especially in the U.S., driven by a healthy mix of direct-to-consumer and wholesale sales, while we continue to expand our product range and reach in markets like Europe and Asia Pacific, with a strong emphasis on China alongside ongoing growth in North America.
Jonathan Komp, Analyst
That’s great. I appreciate all the color. Thank you.
Dave Powers, President and Chief Executive Officer
You bet.
Operator, Operator
And our last question comes from Janine Stichter from Jefferies. Please go ahead.
Janine Stichter, Analyst
Hi. Thanks so much for taking my question. I want to ask about the SG&A. I think you said you're looking at dollars similar to how you had previously planned it, but with the better sales. So can you help us just think about the relationship of fixed versus variable in the model? And then, it sounds like maybe there are some areas where you would ramp SG&A more if you could, maybe speak to those areas and what your optimal level of spend would be?
Steve Fasching, Chief Financial Officer
Sure, Janine, I'll address that. What we're seeing, as mentioned in the last earnings call, is our commitment to increasing efforts. Last year was unique in that we experienced significant revenue growth while not fully aligning our investments during such uncertain times. Therefore, this year, our focus has shifted to enhancing our infrastructure and marketing to boost brand awareness as we aim to expand our organization and brands. We're seeing an increase as a percentage of sales, with our guidance indicating that about 35% of revenue is a solid target for this year. We're also increasing the variable component of our spending. We're maintaining strict management of our fixed costs, which allows for more variable spending, particularly in marketing and global marketing efforts to enhance brand awareness. As we see impressive growth in these brands, we're investing in marketing to further drive awareness. Simultaneously, we're effectively leveraging our fixed costs, which reflects our overall strategy while setting aside last year's circumstances. We're comfortable with our current guidance, which provides us flexibility. However, we've encountered some challenges in hiring talent, leading to the reductions reflected in our current SG&A guidance compared to previous expectations. This situation may evolve as we work on building a strong talent pool to support our anticipated growth in the coming years. Overall, we are at ease with our guidance for this year, focusing on variable spending to enhance global marketing and brand awareness while leveraging fixed costs, though we acknowledge we're slightly behind our earlier expectations from a quarter ago, providing us some flexibility this year.
Dave Powers, President and Chief Executive Officer
Yes, I would like to add that we are having ongoing discussions about our hiring progress. As Steve mentioned, this has proven to be more challenging in the current environment than we expected. Therefore, wherever we have unspent funds, we are working to reallocate those resources toward marketing to enhance our brand presence and support international growth, allowing us to improve these markets more quickly.
Janine Stichter, Analyst
Great. I know it's very hard to look out on a multiyear basis now, but you're very much in brand-building mode, especially for HOKA. Do you think the current level of marketing spend is optimal, or could we see it moderate as brand awareness starts to grow?
Dave Powers, President and Chief Executive Officer
I think it's a very healthy rate right now for HOKA. The athletic sector tends to have higher rates of marketing with athletes and events and everything else. So it's working for us. We're continuing to drive it. I don't see us reducing that anytime soon. If we have an opportunity to ramp it up even more so, we probably will because we want to stay super aggressive and competitive here. On the UGG side, we have been increasing the rate of spend over the last 3 years to very healthy and comparable to some of our peer groups. And we're going to continue raising that. But I think right now, we're in a very good spot where we have a lot of flexibility and agility with how we spend our money, where we spend our money by brand, region, channel and type, and we're constantly having conversations with our brand leaders and commercial teams on how we can optimize that. So marketing is a big lever for us. In this environment, we're competitive. We want to stay aggressive, and we're going to put as many marketing dollars into play as we can, making sure that we also are building our infrastructure to support the growth that we're driving.
Janine Stichter, Analyst
Thank you. Thanks for all the color.
Dave Powers, President and Chief Executive Officer
You bet.
Operator, Operator
And our last question comes from Mitch Kummetz from Pivotal Research. Please go ahead.
Mitch Kummetz, Analyst
Yes, thanks for taking my questions. Steve, on the earlier shipping that you talked a lot about, can you quantify the impact that had in the quarter? Your sales were up $228 million. I think you said earnings up nearly $2 from a year ago. Can you parse out the impact on those 2 numbers from the earlier shipping? And then I have a follow-up on UGG?
Steve Fasching, Chief Financial Officer
It's a good question, Mitch. We haven't provided quarterly guidance, so it's best to look at the changes in our annual guidance. With the increased revenue of $60 million, we have achieved better performance than we expected, primarily driven by HOKA and Teva. Regarding UGG, we're adhering to our strategy from the start of the year to ship as much as we can as early as possible, which is why the full-year outlook for UGG hasn't changed at this stage. In Q1, we are shipping significantly more than usual, but that's not entirely due to increased business; it's partly due to HOKA and Teva's performance. For UGG, this is about shipping more product early to replenish inventories and prepare for a successful fall season. This strategy is reflected in the numbers. The substantial revenue increase, together with the timing for UGG, is leading to a significant profit this quarter. While some of that is being passed through, not all of it represents over-performance; a lot relates to timing. Looking at our full-year outlook can help clarify this. In terms of our P&L, we are experiencing supply chain constraints affecting inventory, which is pressing our gross margin profile as we anticipate higher costs. However, we are managing to offset some of these increases with leverage in SG&A compared to prior guidance, enabling us to maintain our operating profit profile, while the higher sales contribute to the increase in EPS that we are passing through.
Mitch Kummetz, Analyst
And then just real quick on UGG maybe two quick ones. Just following up on Camilo's question around slippers, and I can appreciate all the dynamics there that you mentioned. But I'm curious, the other guide is high singles to low doubles. Are you expecting slippers to be better or worse in line with that? And then maybe a second on UGG. You made some positive comments about men's consideration. Can you remind us kind of where the split is men's versus women's and kind of how the growth rates compare these days?
Dave Powers, President and Chief Executive Officer
Yes, sure. I think from an overall standpoint, right, as I said, we're still looking at growth. Again, it's not on a percentage basis similar to what you saw last year because of the dynamics of last year and what drove the growth there. But the good news is we're maintaining and continue to build on that growth. And then from a men's shift in terms of percentage of the business, we are continuing to see some increases as we resonate with the male consumer. Yes, we're still in kind of growing above or at kind of roughly around that 15% range, where historically, if you go back a few years, it was probably closer to around the 10% to 12%. So in proportion to sale. So not only are we growing the dollar amount, right? We're also growing the percentage of that business, too. So again, good growth increasing on the male side. As Dave said earlier, as we're resonating with younger consumers, that includes males and so bringing more new customers into the brand. We have better strength in a place like China, where the penetration of men's is bigger and more broad-based. So we're going to continue to build on that. We're allocating more marketing dollars against the men's opportunity. We feel that, that is a significant space that we can build and take share from competitors in that space and be a meaningful brand for men over the long term. So the progress there is exciting. And we have a new leader in the men's business that joined us during the pandemic, had tremendous experience in the innovation pipeline for product is strong, and we're going to continue to build on that. In closing, I want to express my appreciation for the management team and the entire organization for their efforts over the past 18 months. We have maintained a strong approach with our brands, aiming to capture market share and expand our shelf space globally. The executive team and their global teams have effectively managed factory planning and have remained aggressive in purchasing, even as other brands reduce inventory. This strategy has been incredibly beneficial. We are tackling various supply chain challenges by coordinating early shipments and partnering closely with key wholesalers to acquire products ahead of schedule. Our brands are maintaining tight market management by promoting a clean and premium image. The existing product pipeline and upcoming innovations are very promising. Combined with our purpose-driven culture, there is much to be enthusiastic about at Deckers, and I am proud of our teams' accomplishments. I am also looking forward to what lies ahead for all our brands worldwide. Thank you for your time.
Operator, Operator
This concludes our question-and-answer session. Thank you for attending the Deckers Brands first quarter fiscal 2022 earnings call. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.