Earnings Call Transcript
DECKERS OUTDOOR CORP (DECK)
Earnings Call Transcript - DECK Q4 2024
Operator, Operator
Good afternoon and thank you for standing by. Welcome to the Deckers Brands Fourth Quarter Fiscal 2024 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. I would like to remind everyone that this conference call is being recorded. I'll now turn the call over to Erinn Kohler, VP Investor Relations and Corporate Planning.
Erinn Kohler, VP 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; Steve Fasching, Chief Financial Officer; and Stefano Caroti, Chief Commercial 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 fact, are forward-looking statements and include statements regarding our current and long-term strategic objectives, anticipated impacts from our brand and marketplace management strategies, changes in consumer behavior, strength of our brands, demand for our products, product and channel distribution strategies, including direct to consumer, marketing plans and strategies, disruptions to our supply chain and logistics, our anticipated revenues, brand performance, product mix, margins, expenses, inventory levels and promotional activity, 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 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. 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 direct-to-consumer sales on a constant currency basis for operations that were open 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 Dave.
Dave Powers, President and CEO
Thanks, Erinn. Good afternoon everyone, and thank you for joining us today. I am thrilled to be here sharing and celebrating Deckers' incredible achievements in fiscal year 2024. For the full year, we delivered revenue growth of 18% versus last year, nearly reaching $4.3 billion of annual revenue, gross margin of 55.6%, a 530 basis point increase over last year, operating margin of 21.6%, and earnings per share of $29.16, representing a 51% and nearly $10 increase over last year. These extraordinary results are a testament to the success of our long-term strategies and the execution of our hardworking employees. Over the past four years, Deckers' revenue has grown at a compound annual growth rate of 19%, adding over $2 billion of incremental revenue. We also substantially expanded profitability as earnings per share has grown at a CAGR of 32%. With the scale of our organization's growth, we are continuing to bolster our foundation through investments that support the long-term success of our leading brands. HOKA and UGG have become two of the strongest and most in-demand brands in the footwear space. They are continuing to win with consumers by infusing performance and fashion into products that embrace their respective brand codes. Building on the outstanding progress we have made over the last few years, our teams are laser-focused on the significant opportunities that lie ahead as we seek to build HOKA into a multi-billion dollar global player in the performance athletic space, grow UGG with premium products and elevated experiences that enhance consumer connections, expand DTC through engagement, acquisition, and retention gains, and advance our international markets through targeted investments. Our robust and innovative product pipeline, comprised of relevant and distinct products, is amplified by our marketplace management strategies and gives us the confidence to continue progressing on these initiatives as we create the future of Deckers. Steve will provide further specifics about our fiscal year 2025 expectations, as well as our fiscal year 2024 financial performance, but first I would like to share some of the brand and channel highlights. Starting with the brand highlights. Global HOKA revenue in fiscal year 2024 was $1.8 billion, representing an increase of 28% versus the prior year. For the year, HOKA growth was driven by increased brand awareness with the US rising to approximately 40% and international regions on average reaching just over 20%. Global DTC increased 40% versus last year. Market share gains with key global wholesale partners, and most importantly, success with new performance innovations across the road, trail, and lifestyle product categories. From a brand awareness standpoint, these are significant strides for HOKA. Across the board, HOKA is experiencing significant gains on both a season-over-season and a year-over-year standpoint. Aligned with our strategy to solidify HOKA as a global player, international regions are driving particularly strong gains in awareness, increasing more than 80% versus the prior year. Global consumers who identify as runners remain our highest awareness group and continue to see strong increases, but we are also seeing really powerful growth among consumers who are more general fitness oriented. While HOKA is increasing its awareness across all age groups, growth is strongest among 18 to 34 year olds globally, with brand awareness among this influential age group nearly doubling year-over-year. We believe the continued progress in introducing HOKA to new consumers around the world has resulted from our increased investments in brand marketing through the expansion of the FLY HUMAN FLY campaign, including greater out-of-home digital and physical assets, dedicated and enhanced sponsorship of both globally recognized and local running events such as UTMB with HOKA becoming the new title sponsor. Enriched engagement with social media across various platforms, and a greater retail footprint that allows for community-building activities like our HOKA Run Club. We are pleased to see these investments paying off not only through increased awareness across markets but also by growing brand consideration and purchase intent, some of which is happening in real time. We’re proud of the great progress our teams are making, but also recognize that HOKA still has plenty of room to grow awareness, consideration and ultimately market share across all global regions. HOKA has an amazing opportunity ahead as the brand continues to win with consumers around the world, and we look forward to facing this challenge head-on through a relentless focus on product innovation and authentic consumer engagement. From a channel perspective, HOKA continues to excel across its ecosystem of global access points. Recall at the outset of fiscal year 2024, we noted the brand's focus on building full-price market share, with existing points of wholesale distribution through a pull-model and increasing the mix of DTC through consumer acquisition and retention gains. The result of our disciplined marketplace management strategy achieved both goals with HOKA delivering record gross margins as the brand benefited from maintaining exceptionally high levels of full-price selling, despite operating in a more promotional marketplace and shifting mix to DTC, which increased to 38%, up from 34% in the prior year. I would also note that the HOKA brand's strong growth through full-price selling in the wholesale channel was accomplished primarily through market share gains with existing distribution and greater efficiency with recently opened doors relative to locations that were eliminated. Regarding HOKA DTC, revenue growth was driven by global increases in acquired and retained consumers, which expanded 32% and 44% respectively. We remain encouraged by the growth across markets, with the US continuing to deliver strong increases in alignment with the global averages and international regions increasing more than 50% in both acquisition and retention. These consumer growth figures are leading indicators of HOKA brand adoption, highlighting the brand's ability to both expand the scope of HOKA consumers and retain existing consumers through consistent product innovations that delivered an unmatched wearing experience. As we continue to introduce HOKA to new consumers around the world, we view branded retail stores in key cities as an important consumer engagement vehicle. Just a few weeks ago, HOKA opened its second European retail store in Paris, France. Though only open for a short time, we have been very encouraged by the consumer feedback, conversion, and broad product adoption. We were excited for HOKA to have a footing in this important market, particularly as the location is expected to see high traffic during the upcoming summer Olympics. On the product front, HOKA is driving growth and consumer acquisition through innovative updates and new introductions across a diverse assortment of footwear. The HOKA brand's fiscal year 2024 performance was primarily driven by road running favourites like the Clifton and Bondi franchises, stability staples like the Arahi and Gaviota, both of which received updates during the year, trail conquerors like the Speed Go, Challenger and Stinson franchises and everyday performance lifestyle shoes like the Transport, Solimar and the Kawana. We expect these styles will continue to contribute to the growth of HOKA moving forward, but are also really excited about the brand's ongoing efforts to constantly infuse new innovations into the product assortment. Back in February, we highlighted the launch of the all-new Cielo X1, which represents the pinnacle of the HOKA brand's race offering. We have been in awe of the consumer response to this incredible shoe, which sold out almost immediately in the initial launch colorway. While we don't expect to drive significant volumes on this very specific ultra-performance shoe, we are excited and encouraged by the consumer demand validating HOKA in this category. Our progress in this more niche category is designed to emphasize the brand's performance roots, even as we expand the consumer aperture to more commercial styles. With respect to these broader, more commercially focused products, we have been impressed by the consumer response to our latest update of the Mach franchise, the Mach 6. This completely redesigned silhouette was upgraded with a supercritical foam midsole and strategic rubber coverage on the outsole for greater durability, while remaining our lightest Mach to date. Sell-through of this versatile and responsive style at our wholesale partners and in our DTC channel has been exceptional, with the Mach 6 becoming a top five style across all of Deckers since its launch. Innovation remains the HOKA brand's top priority, continuing to develop groundbreaking products that energize consumers around the world. We are fortunate to have a phenomenal roster of HOKA athletes, who we will continue partnering with to drive greater athlete-enhanced innovations into our most Pinnacle products, while also further developing the assortment to segment and differentiate HOKA distribution as we continue to scale. The recently launched Skyward X is the perfect example of new product innovation that benefits our segmentation efforts. This all-new style was developed as our first carbon-plated shoe that is designed for everyday runs with maximum cushion. The Skyward X has a revolutionary suspension system to pair with its convex carbon plate that gives the runner cushion for impact with a natural spring forward. This style helps elevate the HOKA assortment sitting above other Mach’s cushion styles from both a price point and performance perspective. This allows HOKA to widen distribution on other styles while the Skyward X is targeted for specific accounts like run specialty, top strategic performance stores, and our DTC channel. As we methodically open new access points for HOKA over the next year, we continue to fine-tune differentiated assortments across geographic markets and channels of distribution. I could not be prouder of the HOKA team's incredible results over the last year. We are pleased to now have a proven industry leader like Robin Green, who joined us in February, leading the team and are looking forward to the positive impact we believe she can have to drive HOKA into its next phase of growth. Moving on to UGG. Global revenue in fiscal year 2024 was $2.2 billion, representing an increase of 16% versus the prior year. For the year, UGG growth derived from the key initiatives set forth at the outset of FY '24, as aligned product, marketing, and commercial execution drove global increases in DTC acquisition and retention and expansion in international markets. These results are a testament to our powerful product engine and disciplined product management strategy. The UGG brand continues to maintain important relationships with valued wholesale partners while delivering strong results through the segmentation and differentiation of global marketplaces. With the allocation of core products driving high levels of full-price sell-through and lean inventories in the marketplace, UGG has become a leading brand in wholesale, while funneling upside demand to the DTC channel. For the year this contributed to global gains in both DTC acquisition and retention, which increased 18% and 17% respectively, contributing to the UGG brand's 22% increase in global DTC revenue. This is a truly impressive result for our DTC channel and speaks to the work our brand, marketing, and PR teams have been doing to maintain high levels of brand heat year-round from seeding products with global and regional influencers, creating compelling product collaborations with prominent brands, and showing up on the runway at fashion weeks around the world to deepening consumer connections through elevated brand experiences like the Field House or a recent Formula 1 activation. The UGG team has consistently developed interesting and on-brand content to stay top of mind with consumers. We believe the continued focus of our teams are working with local individuals across global markets has helped UGG connect and resonate more effectively with international consumers. Whether it be partnering with Honey from K-Pop Group NewJeans or the collaboration with Gallery Department expanding access to influential retailers in Europe, these efforts have helped establish UGG in its healthiest position to date across influential international markets. This contributed to UGG delivering an international growth rate of more than two times that of the double-digit revenue growth from the US market. The success of these initiatives drove significant shifts in the composition of UGG revenue aligned with our long-term strategy with DTC increasing to a record 50% of mix and international increasing to 37% of mix, up from approximately 30% three years ago. Both of these shifts were margin accretive and when combined with exceptionally high levels of full-price selling and benefits from select price increases, resulted in record high gross margins for the UGG brand in fiscal year 2024. Of course, this is all underpinned by the UGG brand's ongoing creation of compelling products that are resonating around the world. What impresses me most about the UGG brand's performance in fiscal year 2024 is that the brand drove a 16% increase in revenue through single-digit unit growth with significantly fewer SKUs than the prior year. UGG was able to achieve this because of the increased global alignment on the brand product assortment, creating efficiencies on marketing stories and inventory purchasing. Last year, we spoke about the UGG team's focus to reimagine iconic styles, and that is exactly what we saw play out during FY'24, and what we continue to see consumers excited about in the upcoming fiscal year. The UGG product team continues to delight consumers by creating threads that connect new styles to existing icons. Over the last couple of years we've seen this take shape with the Ultra Mini inspired by the Classic Mini, Platform Classics, inspired by the original classics and the Tazz inspired by the Tasman. These are just a few examples of product evolutions that have helped UGG build the shoulder seasons outside of fall and winter, attracting new consumers while remaining rooted in the brand's heritage. Keeping an eye on the future, UGG continues to build upon franchises that are reimagining existing icons in new categories. The Golden Collection is one we continue to be very excited about. UGG first introduced the Goldenstar Sandal a couple of years ago, which is a strappy sandal inspired by the original classic boot. This style has continued to blossom on its own, and we are also seeing great enthusiasm for new adjacent styles in the collection, including the Golden Glow sandal, a water-friendly colorful version of the original Goldenstar, which has become an instant hit and the Goldenstar Clog, which was spotted on basketball superstar Caitlin Clark, shortly after she was drafted first overall to the WNBA. Outside of the Golden Collection, UGG is developing compelling new products in the slip-on shoe and sneaker category, which includes the Lowmel, a sneaker silhouette inspired by the original Neumel boot that continues to sell out quickly as new inventory comes into the marketplace and Venture Days, a rugged outdoor take on the original Tasman, which sold out quickly in China and was recently worn by Formula One star Pierre Gasly at the Miami Grand Prix. These emerging franchises, along with complementary styles give us confidence that UGG will continue to capitalize on high levels of brand heat and demand to deliver strong performance for years to come. Congratulations to the UGG team on another excellent year. Moving to our discussion of consolidated channel performance. Deckers' fiscal year 2024 results reflected the success of our omni-channel marketplace management strategies that continue to preserve our brand's premium positioning around the world. By tightly managing marketplace inventory, we were able to drive strong full-price sell-through, increase market share, and capture upside demand in our direct-to-consumer channel. This led to outstanding DTC growth, which for fiscal year 2024 increased revenue 27% versus last year by adding nearly $400 million of incremental business. DTC represented 43% of total company revenue which is up from 40% in the prior fiscal year. DTC gains resulted from strength across brands with HOKA and UGG DTC increasing 40% and 22%, respectively. Regions with international and domestic DTC increasing 37% and 22%, respectively, and consumers with acquired and retained increasing 21% and 24% respectively across all brands. On a DTC comparable basis, revenue increased 25% versus last year, reflecting positive engagement and conversion of demand for the great products that our brands are bringing to market across both online and in-store direct-to-consumer touch points. From a wholesale perspective, fiscal year 2024 revenue increased 13% versus last year. Growth was primarily driven by high levels of full-priced global demand for the UGG and HOKA brands, which resulted in healthy sell-throughs at our valued partners as we maintain lean inventories in the wholesale marketplace. We are entering fiscal year 2025 in a position of strength because of the successful execution of our omni-channel brand and marketplace management strategy. As our brand teams continue to delight consumers with unique and innovative products, our commercial teams will continue to execute on this strategy, working with our fantastic partners to maintain our brand's premium positioning in their respective marketplaces. With that I will hand it over to Steve to provide further details on our fourth quarter and full fiscal year 2024 results, as well as our initial outlook on fiscal year 2025.
Steve Fasching, CFO
Thanks, Dave, and good afternoon, everyone. As you've just heard, Deckers' performance in fiscal year 2024 was exceptional as we drove our fourth consecutive year of double-digit top-line growth and delivered top-tier levels of profitability. Deckers has added over $1.1 billion of incremental revenue in two years, driven by the strength of the HOKA and UGG brands, as innovative and consumer obsessed product creation continues to resonate globally. Our flexible operating model and disciplined approach to marketplace management has allowed us to capitalize on these high levels of brand heat while maintaining exceptional levels of full-price selling leading to our record earnings in fiscal year 2024. Our dedication to our long-term strategic initiatives continues to be the foundation for our success as we remain committed to driving profitable growth over the long term. With that, let's get into a recap of our fourth quarter and full fiscal year 2024 results. For the fourth quarter, revenue came in at $960 million, representing an increase of 21% versus the prior year. Performance in the quarter was driven by HOKA and UGG, which saw increases of 34% and 15% respectively. On HOKA, the brand delivered its first-ever $0.5 billion quarter, as DTC maintained momentum with volume continuing to grow quarter-over-quarter and wholesale reaccelerated from both a percentage and volume perspective, as the brand benefited from key product launches and the wholesale fill-in activity. For UGG, the brand delivered an exceptional quarter, as DTC was able to maintain momentum from Q3, delivering another strong increase despite some inventory shortages on certain key products, and wholesale drove growth versus last year, despite selling significantly fewer units as the brand was able to replace the majority of last year's closeout volume with full-price shipments into a depleted marketplace and international strength was maintained. Gross margin in the fourth quarter was 56.2%, a 620 basis point increase from the prior year. The improved gross margin primarily relates to extraordinary benefits from a higher mix of UGG full-price selling, including lower closeouts, select price increases, as well as favorable brand and product mix and freight savings. SG&A for the fourth quarter was $395 million, representing 41.2% of revenue, which compares to last year's $290 million and a 36.7% of revenue. SG&A as a percentage of revenue was up 450 basis points year-over-year, primarily as we accelerated top-of-funnel marketing spend to build longer-term awareness and our strong fiscal 2024 results drove higher performance-related compensation. These results, coupled with higher interest income and a lower share count from our share repurchase program drove diluted earnings per share of $4.95, which compares to $3.46 in the prior year period, representing a 43% increase. With the strength of our fourth quarter, Deckers delivered exceptional full year fiscal 2024 results, which includes revenues increasing 18% versus last year to a record $4.288 billion, as compared to last year, revenue growth was driven by robust HOKA growth across regions and channels led by strong DTC growth of 40% as the brand continues to gain awareness across its well-managed ecosystem of access points and broad-based UGG growth, as the brand grew 16% and eclipsed $2.2 billion of revenue primarily through DTC and international strength. Gross margins for the year were 55.6%, up 530 basis points versus last year. The increase in gross margin was primarily related to favorable UGG full-price selling, freight savings, select pricing benefits, as well as favorable brand and product mix and favorable channel mix with DTC growth outpacing wholesale. SG&A dollar spend for the year was $1.46 billion, up 24% versus the prior year's $1.17 billion. SG&A represented 34% of revenue, which is 170 basis points above last year's rate. The SG&A increase as compared to last year was driven primarily by investments in talent to support key functions within our growing organization, higher performance compensation, higher marketing spend including strategic spend to amplify HOKA awareness in leading international markets, and infrastructure investments and related depreciation to support the continued growth of our organization. This all resulted in a full fiscal year 2024 operating margin of 21.6%, which is 360 basis points above last year, reflecting the improvement in gross margin experienced partially offset by the normalization of our rate of SG&A spend. As illustrated by our results, we continue delivering top-tier levels of profitability. And while we are pleased with these results, we remain mindful that the outsized margin expansion experienced, particularly from historically low levels of promotion and discounting may not repeat to the same degree in future periods. For the year, our effective tax rate was 22.4%, which is flat to last year. Our strong performance, along with higher interest income and a lower share count from share repurchase activity culminated in a record diluted earnings per share of $29.16, which represents a 51% increase over last year's $19.37. Turning to our balance sheet. At March 31, 2024, we ended the year with $1.5 billion of cash and equivalents. Inventory was $474 million, down 11% versus the same point in time last year. And during the period, we had no outstanding borrowings. During the fourth quarter, we repurchased approximately $104 million worth of shares at an average price of $875.01 per share. For the entire fiscal year 2024, we repurchased over 700,000 shares for approximately $415 million at an average per share price of $580.44. At March 31, 2024, the company still had approximately $942 million remaining under its stock repurchase authorization. Now moving to our outlook. For the full fiscal year 2025, we expect top-line revenue growth of approximately 10% versus the prior year to $4.7 billion with HOKA as the main driver of growth increasing approximately 20%, versus the prior year through consumer acquisition and retention gains in our DTC channel, expanding strategically through key partners, while maintaining disciplined marketplace management and a dedicated focus on growing awareness and market share internationally. UGG is expected to increase mid-single digits, driven primarily by international expansion and managing a healthy US marketplace, which includes prioritizing our DTC channel as we focus on maintaining the brand's pull model. Gross margins are expected to be approximately 53.5%, which is down 210 basis points versus last year, as we are anticipating a more normalized promotional environment with lower full-price selling than the exceptional levels achieved in fiscal year 2024 and higher freight costs. SG&A is expected to be approximately 34% of revenue as we continue reinforcing our foundation and supporting key growth initiatives, which includes increased levels of marketing spend, primarily related to our continued focus to expand global HOKA awareness, investment in talent to bolster integral teams supporting the growth of our organization, and IT and warehouse investments. We expect an operating margin of approximately 19.5%, reflecting our commitment to deliver top-tier levels of profitability while continuing to invest for the long-term growth of our brands. We are projecting an effective tax rate in the range of 22% to 23%, with this all resulting in an expected diluted earnings per share in the range of $29.50 to $30. Capital expenditures are expected to be in the range of $115 million to $125 million, which is above last year as we invest in supply chain and warehouse capabilities, capital IT projects, retail refreshments, including opening select new strategic locations and updates to office facilities. Please note, this guidance excludes any charges that may be considered onetime in nature and does not contemplate any impact from additional share repurchases. Additionally, our guidance assumes no meaningful deterioration of current risks and uncertainties, which include, but are not limited to changes in consumer confidence and recessionary pressures, inflationary pressures, geopolitical tensions, supply chain disruptions, and fluctuations in foreign currency exchange rates. Looking ahead, we remain focused on executing against our strategic initiatives and delivering towards the full fiscal year. Per normal course, we will not be providing formal quarterly guidance. However, given we are more than halfway through the first quarter, we wanted to provide some context around our expectations for the quarter ending June 30. These include revenue growth in the high-teens, as we continue to refill depleted channel inventory that is pulling forward demand this year, and HOKA has maintained strong momentum in the DTC channel. Gross margin slightly above the full fiscal year guided rate as we benefit from reduced UGG promotion activity relative to last year in this quarter, select price increases on popular UGG style that we begin to lap in the second quarter, and the largest proportion of HOKA revenue contribution. I would additionally note that beyond the first quarter, our gross margin will be up against exceptional levels of full-price selling for the UGG brand. And thus, we do not expect the favorability relative to last year to continue beyond Q1. Regarding SG&A, our dollar growth rate in the first quarter is planned significantly higher as we front-load investments to support our growing organization. The higher earlier planned spending is driven by investments in marketing to launch brand campaigns that are further supporting some of the demand shifts we are seeing, as well as some earlier FX remeasurement headwinds resulting from the recent strengthening of the US dollar.
Dave Powers, President and CEO
Thanks, everyone. And with that, I'll now hand off the call to Dave for his closing remarks. Thanks, Steve. I am so proud of the tenacity that our teams have consistently demonstrated to outperform expectations while continuously evolving in a dynamic consumer environment. As I near the end of my tenure leading the Deckers organization, I could not be prouder of how far we have come over the last eight years. Our company has transformed into a leading portfolio of consumer-favorite brands. We have experienced explosive growth by incredible and still increasing brand heat across HOKA and UGG. Our organization has proven to be incredibly resilient, and we have worked with agility to continuously deliver outstanding results. The company's success is largely attributable to our aligned long-term strategies, our highly effective leaders across the organization, and hard-working and caring employees that continue to execute as we transform the business. Deckers is in an excellent position to continue on this path as Stefano steps into the role of CEO in just a few months. He has been a key contributor to our successful transformation and knows what it takes to lead Deckers on this continued journey. He and I are continuing to work together to ensure a smooth transition. Together, we are deeply committed to fostering Deckers’ collaborative and inspiring culture inclusive of encouraging authenticity, teamwork, and a common goal to do good and to do great. This has cultivated a strong and growing team of exceptionally talented long-time employees and critical new hires across our global organization, which are the driving force behind our iconic brands, and I believe we will continue to galvanize the pathway for future success. On behalf of our executive leadership team and Board of Directors, I'd like to once again thank our employees for all their dedication to Deckers' values and delivery of yet another full year of record results. Thank you to all of our stakeholders for their continued support along the way. With that, I'll turn the call over to the operator for Q&A.
Operator, Operator
Thank you. We will now begin the question-and-answer session. Our first question comes from Laurent Vasilescu with BNP Paribas. Please go ahead.
Laurent Vasilescu, Analyst
Hello, good afternoon. Thank you for taking my question. Dave, I wanted to ask about HOKA. HOKA direct-to-consumer sales made up 38% of the total for the year, indicating that wholesale grew by 40% in the fourth quarter. You mentioned something about wholesale fill-ins for the quarter. The first quarter is also benefiting. What are you observing in the wholesale channel? Are retailers placing reorders broadly or selectively? How should we anticipate HOKA's wholesale growth for the year?
Dave Powers, President and CEO
Yes. Good question, Laurent. We're still seeing healthy demand from our wholesale partners. There was a little bit of pull forward and sell-throughs are strong, so that kind of pulled forward mentality is still in place. It's right in line with our pull-forward model. So we keep our wholesale channels tight and we try to drive more revenue to DTC. And we are going to continue that playbook going into 2025 and beyond. Remember, last year we maintained net new doors across wholesale. So in the wholesale channel, in FY '25, we'll be opening select doors with select strategic partners, more focused on our international marketplace. But we still have opportunity in international run specialty. In the US run specialty, we are regularly generally one or two in market share. So just still optimizing that channel, but we have room to grow in our international strategic partners as well. So, yes, the marketplace is still strong. The demand is out there from the consumer, we're upgrading our pull model. And in addition to that, we have DTC, which we are expecting to grow faster than wholesale as we try to bolster that business and we get more interest in the brand from awareness increasing globally, which will help drive that model as well. Stefano, do you want to add anything there?
Stefano Caroti, Chief Commercial Officer
Yes, Laurent, to build on what Dave just said, sales have been strong. Our key innovation stories for the season have performed very well. The Mach 6, not huge volumes there, but has performed super, super well beyond our expectations. And Skyward X, which we just launched a couple of weeks ago, the early read is also very, very, very encouraging across the globe.
Laurent Vasilescu, Analyst
That's great to hear, Stefano. And then on HOKA International, I think you called it out Dave, the $1.8 billion in sales. Is it fair to assume that HOKA International is about 30% of the mix? And if that is the case, where do you think that goes this year over time? And what region are you most excited about for FY '25?
Dave Powers, President and CEO
Yes, you're right. It's roughly around 30%. We do see that creeping up over time. We haven't given hard targets on that, but we are going to be focusing more energy on building awareness. As I said, door expansion, bolstering up our DTC engines in those markets. From a volume perspective, you'll definitely see upside in Europe. China is still a small market for us with tremendous upside and a lot of exciting things going on there. But from a dollar percentage increase, it's still going to be led by Europe in the short term. I was in Asia last week together with Rob and Anne and the two leadership teams, there's definitely significant potential for both brands in China and the rest of Asia.
Laurent Vasilescu, Analyst
Wonderful. Thank you very much for taking my question.
Operator, Operator
Our next question comes from Jay Sole with UBS. Please go ahead.
Jay Sole, Analyst
Great. Thank you so much. I just want to ask about your guidance to mid-single-digit growth for this year on top of, obviously a really big year last year. What gives you the confidence that UGG can continue to build on the big growth you've seen not just last year over the last couple of years as we think about fiscal 2025? Thank you.
Dave Powers, President and CEO
I've been with the company for nearly 12 years, and the UGG brand is seeing significant growth among consumers aged 18 to 24, as well as a strong performance across all our channels, including retail stores, e-commerce, and wholesale partnerships globally. The marketplace pull model we implemented in North America a few years ago is now also active in international markets, leading to increased brand recognition and consumer interest in these areas. We prefer to keep our products slightly scarce, which contributed to the success we experienced in the past Q4, as demand for our reimagined icons like the Tazz and Ultra Mini remains strong, extending their popularity beyond the typical seasonal trends. Last year, we achieved low single-digit growth in units along with an impressive 18% increase in revenue, indicating a robust full-price sales environment with fewer markdowns and suitable assortments for our consumers in the right locations. Additionally, we are experiencing great success with new lines like Goldenstar and Venture Days. Combined with strong brand presence and positive consumer responses to our localized marketing and store improvements, we are optimistic about the future of the UGG brand. We anticipate continued growth in direct-to-consumer sales and are focusing on expanding our international presence.
Steve Fasching, CFO
Yes, Jay, this is Steve. To add to that, it's important to note that in FY '24 we experienced a significant dollar increase, although unit sales didn’t show a comparable rise. This was largely due to full-price selling and a favorable channel mix, which contributed significantly to the dollar growth. While we did see some increase in units, our confidence in the mid-single-digit guidance stems from the growing consumer engagement with the brand. Demand continues to rise. Although we expect to maintain a similar level of gross margin in our guidance, the current demand and the positive consumer response to the products introduced in Q4, particularly those mentioned by Dave, reinforce our optimism for the UGG brand moving forward.
Jay Sole, Analyst
Got it. That makes sense. If I can follow up on that. Can you just maybe dimensionalize a little bit and help us understand how UGG is growing by telling us sort of how you think about growth of sort of the classics versus all the what I would call the relatively new stuff since the last few years or so. How do you see the growth rates in those two? But how is that driving the UGG brand?
Dave Powers, President and CEO
Yes, it's interesting you ask that because classics used to dominate our discussions and our business. We have successfully maintained them as a reliable, premium segment of our brand, accounting for about 25% to 30%, with steady sell-through, consistent margins, and good control over inventory and flow. The exciting developments are coming from the reimagined classics we are introducing, such as new versions of the Tasman, Lowmel, Ultra Mini, and Ultra platform. These styles are appealing to younger consumers and are being showcased by influencers effectively. Our men's line is also showing promising signs with similar styles. This is where our growth is primarily originating. We have a fantastic product pipeline that will advance these styles over the next 18 to 24 months, offering some of the most thrilling products available. Additionally, we are innovating with hybrid slipper-sandal models that provide enhanced comfort, which we believe will be well received. Anne and the team have done a wonderful job refining our assortment, moving away from styles that don't resonate to focusing on our core UGG identity across everything we produce. We also have a robust public relations and social media strategy to support these efforts. Currently, the brand is in a strong position, very healthy, and we believe there is still significant room for growth at this momentum.
Jay Sole, Analyst
Got, it. Thank you so much.
Dave Powers, President and CEO
Thanks, Jay.
Operator, Operator
Our next question comes from John Kernan with TD Cowen. Please go ahead.
John Kernan, Analyst
Congrats on a phenomenal year. Thank you for taking my question. Stefano, great to hear your voice. Just curious how you're thinking about UGG and HOKA, the international opportunity, both from a top-line perspective and channel perspective? And then also how the margin profile of the business internationally can evolve? Thank you.
Stefano Caroti, Chief Commercial Officer
Yes, our business is currently divided into two-thirds US and one-third international. Of the international segment, about 50% of that comes from Europe, approximately 35% from Asia Pacific, and the rest from Canada and Latin America. We see significant potential for growth internationally. While we expect continued growth in the US, our long-term goal is for international growth to outpace it. As mentioned by Dave, our brand awareness for HOKA is considerably lower internationally, around 20 points behind the US. Therefore, we have been increasing our investments in international markets to speed up that growth. Additionally, we plan to selectively expand our distribution with key partners while closely monitoring the performance of newly opened locations. There is significant potential for us in the international market, both regarding revenue and margins.
Steve Fasching, CFO
Yes. John, this is Steve. Regarding the margin question, we experienced significant gross margin expansion in FY'24. However, we do not expect to see the same benefits in FY'25. On a comparable basis, we anticipate that strong margins will likely trend back to a more normalized level, as we have indicated in our guidance. Overall, we do not foresee any major changes in the margins we are achieving as we transition into a more normalized environment.
John Kernan, Analyst
Got it. Extraordinary is an appropriate term to describe the situation. Additionally, the direct-to-consumer segment's contribution margin has increased significantly over the last several years, and I believe it is now over 900 basis points higher than wholesale. What are your thoughts on the sustainability of profitability at the high 30% level for direct-to-consumer? Do you anticipate that this shift in margin mix will continue for the direct-to-consumer channel?
Steve Fasching, CFO
Yes. Again, we benefited in all channels with what we saw in FY '24. And so clearly, with some normalization, a bit of a setback. But again, it's still delivering even in a normalized mode exceptional levels of profitability. So the way we're seeing the profile or the framework, not significant change again as we normalize. But as Stefano indicated and Dave has indicated, we're always looking at how we can drive a higher proportion of our DTC business, which overall does have a positive accretive impact on the business. Now it doesn't happen overnight, right? And so with some of the wholesale expansion that we are forecasting in FY '25, that does take some of the growth. So the other thing that we benefited from was a bit of a step-up in our proportion of DTC business in '24 versus '23, and that's because we were running the scarcity model in wholesale. And so we were able to fuel more of that demand over into the DTC channel. That fueled some of our gross margin expansion as we open up a little bit more wholesale in FY '25, again being very strategic and thoughtful about it. That will put some pressure on the DTC growth. But as Dave said, we're still looking to move a higher proportion to DTC, but it won't necessarily be the same step function that you saw in FY '24.
John Kernan, Analyst
Got it. Well, congrats on a phenomenal year, Dave, best of luck, and I'll turn it over.
Dave Powers, President and CEO
All right. Thank you. Appreciate it.
Operator, Operator
Our next question comes from Sam Poser with Williams Trading. Please go ahead.
Sam Poser, Analyst
Well, thank you for taking my question. And let's do it, and then we can go on to the other stuff out of the way.
Erinn Kohler, VP Investor Relations and Corporate Planning
I think you're asking about the full year, so I'll provide that information for you.
Sam Poser, Analyst
For the quarter. Could you just give us Q4 just so really clear on either wholesale or DTC by brand to come back into the other part of it?
Erinn Kohler, VP Investor Relations and Corporate Planning
Sure, I can give you fourth quarter. So fourth quarter fiscal '24 that we just completed. So this is going to be a global wholesale and distributor combined by brand. For UGG was about $139 million. For HOKA was about $350 million. For Teva, $46 million, Sanuk about $5 million that you get the other.
Sam Poser, Analyst
Thank you, Dave, and congratulations. Let's discuss UGG. You released a lot of product early last year, and it performed exceptionally well in both your direct-to-consumer and wholesale accounts. By Thanksgiving, most retailers, including yourselves, were sold out. This suggests there is significant potential for demand that was left unmet in December. How should we interpret this, especially considering the month of December is typically strong for direct-to-consumer sales? Everyone noticed that business seemed slow, but that was largely due to a lack of inventory in the market. Can you explain how this mid-single digit performance makes sense given the apparent opportunity?
Dave Powers, President and CEO
Yes. I think what we're experiencing now and you start in fourth quarter is a lot of that demand that we missed in December came to us in Q4. And so when we got back in stock in some of those styles, people still wanted them. And so they were buying them in January, February, March and still are. So I wouldn't say that we missed whatever opportunity we missed in December, it's all lost. We did fulfill some of that demand over the last three to four months. That being said yes, there's opportunity this year. We are excited about the assortment. And I also mentioned, we think we can maintain high levels of full-price sales. But it is still going to be a challenging environment out there. I think, that the way we are pegging the business with the assortment, we don't have any necessarily any new price increases this year. And I think, maintaining a tight rein on wholesale and driving it to DTC, I think that's about right, the way we pegged it and the way we're looking at the business going into it now.
Steve Fasching, CFO
Yes. I think also, Sam, this is Steve. Just on that, too, the other consideration is we did expedite product in Q3, and that sold through on DTC, so through e-commerce. This year, we are going to be expanding some of the amount that wholesale is ordering. Again we'll be very careful and strategic about it. But that will put some of the pressure on the DTC growth right? And so again, going back to my earlier answer to one of the previous questions, a big piece of the revenue beat on UGG was this full-price selling channel mix shift. And so you're not necessarily going to have that same benefit in FY '25 that we had in '24.
Dave Powers, President and CEO
Comping an 18% growth, there is no cakewalk.
Sam Poser, Analyst
No, I appreciate that, but I have seen some of the fall product. It looks pretty promising, and you have a few things in store that could exceed your expectations. Let me ask you this: at the beginning, you exceeded the high end of your initial revenue guidance by 8.5%. You surpassed your initial EPS guidance by 35% and your gross margin by 310 basis points, along with beating your EBIT margin by 360 basis points compared to last year's initial guidance. Are you guiding for this year in a relatively different manner? Are you viewing the market the same way as you did a year ago, or is your perspective different?
Steve Fasching, CFO
Yes. Sam, we recognize that we won't experience the same advantages in fiscal year 2025 that we did in 2024. It's important to note that the difference between revenue change and unit change is significant. In 2024, we benefitted from full-price selling, price increases, and a scarcity model that increased traffic to direct-to-consumer channels. However, we won't see the same level of benefit from price increases in fiscal year 2025 as we did in 2024. We will observe the promotional environment, which is always challenging to predict, especially given the current uncertain conditions discussed by other companies. We're doing well with a controlled marketplace and will keep monitoring it. Nonetheless, I don't believe the circumstances are the same. In 2024, we had more clear factors that would benefit us compared to 2025, but we will manage through 2025 and see how it develops.
Sam Poser, Analyst
Thank you guys very much and continued success and good luck as you walk off into the sunset.
Dave Powers, President and CEO
Thanks Sam. I will miss you.
Operator, Operator
Our next question comes from Janine Stichter with BTIG. Please go ahead.
Janine Stichter, Analyst
Hi, good afternoon, congratulation on the really strong year. To start out, a question on HOKA. You mentioned seeing awareness from non-runner everyday athletes and more casual styles. So how do you think about just further segmenting the assortment and the distribution dedicated to this consumer while still keeping your heritage? And then one for Steve, on SG&A. You're flipping to basically a flat SG&A rate this year after a year of deleverage. Just how to think about where you are in that reinvestment cycle? I know you've been saying a little bit of catch-up on SG&A. And if you do see upside to your revenue guide on revenues, how do you think about further reinvestment in here? Thank you.
Dave Powers, President and CEO
Thank you, Janine. The consumer base of HOKA is quite exciting. I can assure you that our performance business will always come first. We are an innovation-driven company focused on performance, and that remains our top priority. We will consistently prioritize our specialty run accounts and cater to serious runners and trail running enthusiasts. However, we have also seen significant adoption from lifestyle consumers. This is due to the performance features of our products; they don't just look good, they feel good and have become essential for these consumers. They seek the latest colors and versions of models like the Bondi, Clifton, Arahi, and Mach, which will continue to grow over time. We've been innovating from the beginning, segmenting our offerings based on channels and consumer types, especially as we expand into retailers like DICK's, JD, and Foot Locker. Additionally, there's a broader trend emerging where running has become a new form of streetwear, appealing to a wider audience than ever before, and we see this trend persisting. We welcome these consumers into our brand, but they will be purchasing our performance products, not our lifestyle designs.
Steve Fasching, CFO
And then, Janine, just on the SG&A. So I think in terms of where we landed FY '24, the 34% spend to revenue and the guide equivalent for FY '25, we think that kind of the appropriate level, we'll see. It is increasing from where we have been in the past couple of years as we've made investments and continue to make investments, and I called it out in the script in terms of building talent, infrastructure, distribution. So as we are growing and continue to grow at a slightly faster pace than what we anticipated, there is still a bit of a catch-up that you're seeing. I think as we continue to look at the year, we'll manage accordingly. I think that has served us well. We haven't gotten ahead of the growth, but we're carefully monitoring to keep pace with it. And that's some of the increases that you've seen really over the last couple of years.
Janine Stichter, Analyst
Great. Thanks so much. That’s really helpful and best of luck.
Steve Fasching, CFO
Thanks, Janine.
Operator, Operator
Our last question for today comes from Jonathan Komp with Baird. Please go ahead.
Jonathan Komp, Analyst
Hi, thank you, good afternoon. I wanted to ask about HOKA. If I could just ask a near-term question. It looks like D2C was up in the low 20s in the fourth quarter year-over-year, and you're assuming D2C outgrows for fiscal 2025. So are you assuming a little bit of a reacceleration? And if so, could you maybe talk about the drivers? And when you think about the product launch strategy for HOKA this year, could you just give insight to some of the shifts there? I know we haven't seen the next version of a few of your key icons or your biggest styles like Clifton and Bondi, so just how should we think about the product launch cadence or cycle?
Dave Powers, President and CEO
Yes, I will address the comparison between direct-to-consumer and wholesale. Overall, we expect a slight increase in the growth rate of direct-to-consumer, which may result in a slightly lower performance in wholesale, but the difference is not significant. As our brand awareness grows and we expand our international distribution while opening select retail stores, we drive more traffic and strengthen our direct-to-consumer channel. We have a high conversion rate when visitors come to our website, and we are seeing increasing repeat business from our existing customers. The new product launches also attract attention to our site. Our strategy is to accelerate direct-to-consumer growth over time because it benefits us in terms of margins and the overall health of the marketplace, and this approach is proving to be very effective. This year, we have projected better performance for direct-to-consumer compared to wholesale, but wholesale will remain strong on a regional level as well.
Steve Fasching, CFO
Yes. And what I would add, Jonathan, just to that is just to be careful about kind of relying too much on a quarter performance. We are managing this for the long run. So again when you have depleted inventory in the channel, that might impact your wholesale growth in one quarter as you're refilling that. It's not necessarily indicative of the longer-term views. Back to Dave's point, as we look at growth, clearly, our focus is on trying to grow DTC faster, which is kind of what we are doing and growing the proportion of that. I wouldn't rely too much just on one quarter, or a dynamic in that quarter because there are other factors that affect the short-term, but we're looking at the long-term.
Dave Powers, President and CEO
I think that's an important point to consider. We do not have a consistent approach to introducing new products and making drops; this has been somewhat fluid from year to year. We are beginning to formalize this process. However, when there is a decline in sales, like what credit card data might show, it's essential to analyze the market conditions, the timing of our product drops, and the comparison of what was sold at full price last year versus markdowns. Therefore, it's more insightful to evaluate our performance over a 12 to 18-month period instead of just three months, as there are many factors at play, including new product introductions and markdowns from both this year and last. So, I believe Steve's observation is very relevant.
Stefano Caroti, Chief Commercial Officer
Yes. And two new products, John, we have a couple of big programs hitting the market same fall and early next year. Speedgoat is our biggest trail franchise, a new Speedgoat 6 with the market in June. Skyflow is a new run specialty exclusive and DTC exclusive that's going to hit the market in July. That's a sizable program for us. And Bondi, which is our second biggest shoe, will hit Q4 next year, an updated Bondi, and the shoe looks fantastic. I'm very excited about how it's been received by our partners.
Jonathan Komp, Analyst
That's great. Thanks for all the color. And Dave, best of luck. Thanks again.
Dave Powers, President and CEO
Thanks, Jonathan. Take care, man.
Operator, Operator
This will conclude our question-and-answer session. And with that, we will conclude today's conference call. Thank you all for your participation. You may now disconnect.