Earnings Call Transcript - DECK Q1 2024

Operator, Operator

Good afternoon and thank you for standing by. Welcome to the Deckers Brands First 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. 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, Investor Relations and Corporate Planning. Please go ahead.

Erinn Kohler, Vice President, 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 fact, are forward-looking statements, and include statements regarding our current and long-term strategic objectives, changes in consumer behavior, strength of our brands, demand for our products, product distribution strategies, 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, and the impact of the macroeconomic environment on our operations and performance, including fluctuations in foreign currency exchange rates. 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 will now turn it over to Dave.

Dave Powers, President and Chief Executive Officer

Thanks, Erinn. Good afternoon, everyone, and thank you for joining us. I'm pleased to be here today to discuss another strong quarter for Deckers, starting off fiscal 2024 on the right path as we build towards delivering another year of great results. Our results give us increased confidence to achieve our updated outlook for full fiscal year 2024, which includes a raise to our prior expectations. For the first quarter, our performance slightly outpaced our expectations, with revenue increasing 10% versus last year, to $676 million, gross margin improving more than 300 basis points including beneficial brand and channel mix dynamics, and diluted earnings per share growing 45% to $2.41. Revenue growth versus last year was driven by our key areas of focus, with global HOKA expanding 27% to deliver $420 million, global DTC increasing 35% to represent 37% of portfolio revenue, up from 30% last year, and international UGG delivering strong growth. As anticipated, we had some offsets to the growth in the quarter due to timing dynamics in UGG U.S. wholesale, with accounts choosing to receive products later in the year as opposed to a frontloaded preference we saw in the last couple of years. As we look to best manage our wholesale account product flow, we also continue to monitor marketplace inventory levels to maintain a healthy omnichannel presence that services our end consumer in the best way possible, and preserves the premium nature of our brands. Our ability to propel the targeted opportunities of global HOKA, global DTC, and international UGG further demonstrates the success of our omnichannel marketplace management and strategic investments. We will continue to remain nimble in execution, as we always have, to deliver strong results on both the top and bottom line. With the continued execution of our long-term vision, we believe Deckers is emerging as a leading creator of compelling consumer connections through highly desirable products that infuse disruptive innovation across both fashion and performance. As a reminder, our long-term strategic vision remains focused on building HOKA into a multibillion-dollar major player in the performance athletic space, growing the UGG brand by connecting with consumers through elevated experiences and a segmented product offering, expanding our DTC business through consumer acquisition and retention, and driving international growth through strategic investments. Steve will provide further details around our increased forward-looking expectations later in the call. In the meantime, let's dive into the brand and channel performance for the first quarter of fiscal year 2024, starting with the brand highlights. As mentioned, global HOKA revenue increased 27% versus last year, to $420 million, a quarterly record, and the first time the brand eclipsed $400 million in a single quarter. The HOKA brand's well-managed ecosystem of access points continues to flourish. DTC was the primary growth driver in the quarter, increasing 63% versus last year, and accounting for approximately two-thirds of total brand growth. DTC growth was broad-based as each region grew the business more than 50% versus the prior year, global consumer acquisition increased 58%, global consumer retention increased 57%, and 18 to 34-year-old consumers in the U.S. increased 68%. This exceptional DTC demand resulted in an improvement in gross margin as HOKA maintained high levels of full-price selling, and continues to benefit from shifting a greater proportion of revenue mix to DTC. While the HOKA brand's DTC business is still predominantly ecommerce, our select retail stores are augmenting the brand's presence by increasing awareness and brand engagement with a physical presence in key strategic markets, creating personal consumer connections through community-oriented experiences, and broadening category adoption by showcasing the depth of the HOKA product offering. For these reasons, we expect to continue testing potential permanent locations through pop-up stores. We are excited about a couple of new doors that are in the pipeline, and look forward to sharing more soon. From a wholesale perspective, HOKA continues to drive growth and manage the marketplace to build market share in existing points of distribution, maintain high levels of full-price sell-through, increase category shelf space through differentiated products, and expand brand awareness with a broader consumer demographic. HOKA has preserved high levels of full-price sell-through, and remains one of the fastest turning brands within the majority of its wholesale accounts. We continue to tightly manage the marketplace inventory and closely monitor HOKA key performance indicators in the channel to ensure the brand maintains its premium positioning across its ecosystem of access points. As excess consumer demand materializes, we prefer that HOKA satisfies upside through the brand's DTC business, which is what we saw happen this quarter. We are encouraged by the momentum that HOKA has sustained across its distribution landscape, and continue to make investments to build awareness and affinity for the brand across key markets. In June, HOKA launched the second edition of its Fly Human Fly global marketing campaign, and is already seeing the benefits of this upgraded rollout. This edition of the campaign was designed to reinforce that HOKA stands for joyful and inclusive performance at its highest level. As campaign content and activations continue to roll out across the globe, HOKA has seen a powerful response from consumers in the first few weeks, including robust growth in online engagement across social channels and digital platforms, especially with the release of the campaign's focal film, titled, Murmuration, which embodies the brand ethos of moving together. Heightened attention brought directly to HOKA.com with the vast majority of digital campaign asset clicks yielding first-time visitors to our brand's ecommerce platform globally, more than doubling the conversion rate of HOKA.com landing page visitors, and significant impressions from out-of-home activations. We are optimistic about the reach and broad appeal of this campaign as HOKA continues to introduce itself to new consumers around the world. And the brand is as visible as it has ever been, with connected TV advertising, billboards, special running events, and several compelling activations in the pipeline. On the heels of the Fly Human Fly campaign rollout, HOKA launched the all-new Mach X, which was designed for propulsive everyday running, and features high-rebound cushioning and a Pebax plate. Mach X media content was seamlessly weaved into the Fly Human Fly launch. And HOKA further celebrated this innovative product creation with several regional activations to aid Mach X awareness, including a demo run in Germany, where participants were challenged to run as far as they could for 30 minutes, a sprint relay in France across a two-kilometer loop, in Les Deux, Chamonix, a college event in Eugene, Oregon, hosting demo community runs to celebrate the U.S. Track and Field Championships, and a two-day HOKA experience clinic at our retail store in Japan, and at a pop-up location in Thailand. These global events, combined with the connected TV, social media, and digital out-of-home content have created significant energy behind the HOKA brand's latest shoe innovation. The Mach X was treated as an exclusive launch in our own DTC channel, and with our run specialty partners as we continue to work towards greater segmentation of the HOKA brand's compelling product line. Just a few weeks into the second quarter, the Mach X is close to cracking the top 10 sales globally on HOKA.com, and we are getting great feedback so far from our run specialty partners. HOKA continues to build a bigger business through the expansion and increased adoption of its lineup of innovative products. We see the Mach X as an incremental addition to the already stellar portfolio of our footwear, led by the brand's most popular styles, Clifton and Bondi. The Mach is a great example of franchise development where the team has innovated upon the original Mach which continues to perform exceptionally well, by introducing the snappier and more competitive version, the Mach X. It is with this approach to product line management that HOKA is able to broaden the aperture of HOKA consumers, while maintaining pinnacle positioning in the performance athletic space. HOKA has an amazing roster of athletes around the world who are competing at the highest level, and achieving incredible results wearing commercially available versions of our shoes. During this past quarter, HOKA athlete, Cole Watson finished first in the Canyons Endurance 100K wearing the HOKA Tecton X carbon-plated trail running shoe. Congratulations to Cole who, with this victory, punched his ticket to the UTMB Mont-Blanc, a HOKA-sponsored event to be held in Chamonix, France, at the end of August. Moving to UGG, global revenue in the first quarter decreased 6% versus last year, to $196 million. As expected, this decline resulted from lapping earlier wholesale shipping patterns over the last couple of years in the U.S. UGG was able to offset this challenging compare in the U.S. with the strength of the brand's international regions. International strength was broad-based across multiple regions, and in both wholesale and DTC channels. In particular, our EMEA region, as well as China, which benefited from lapping lower demand from lockdowns in the prior year, drove above-average growth. These regions found success attracting consumers with more transitional styles, like the Ultra Mini, Tasman, and Classic Mini, as well as seasonal franchises, like the Goldenstar and LA Cloud. We are encouraged by the continued progress of international regions to increase the adoption of key global franchises year-round. Part of the excitement behind these franchises is being driven by the brand's more focused approach to product marketing, creating greater global alignment of key stories. With this more focused approach, UGG is maintaining high levels of brand heat with more consumers actively searching for the brand. During the first quarter, online search interest across Europe increased 60% versus last year, with outsized strength in the U.K. and France. The same is true in the U.S., where search interest increased 21% versus last year according to Google Trends. UGG brand momentum also benefited from this spring's Feel House activation at Coachella. The Feel House, first launched in the fall of 2022, is a multisensory community experience dedicated to making self-expression comfortable for all. UGG invited individuals from around the world to experience this latest iteration of the Feel House, which was designed as an oasis for creatives, in Palm Springs, California. The Feel House was decorated with signature artwork from New York City-based artist, KidSuper, who partnered with UGG to design a quick-strike collaboration of the Tasman X, whose global activation drove significant press coverage with the likes of influential publications, such as Esquire, Teen Vogue, Daily Mail, and Hypebeast. As a result of the UGG team's continued brand activations and compelling products, UGG global DTC increased 6% versus last year. UGG experienced consumer demand both in stores and online. We have been particularly excited by the interest of consumers who are shopping in person, especially during the spring and summer seasons. We believe this dynamic is partly attributable to the development and greater adoption of transitional franchises that embrace the brand's heritage DNA and have greater year-round wearing occasions. By maintaining this momentum, the entire UGG product portfolio benefits, especially in our stores, where consumers can feel and directly engage with the broader product offering. For this reason, and in line with our focus on elevating the UGG brand in an influential international market, subsequent to quarter-end, we opened our newest flagship store in the high tourist traffic Harajuku shopping district of Tokyo. With the first quarter behind us, we remain confident in executing the UGG plan we outlined for fiscal year 2024, evidenced by the continued momentum of global markets as consumers actively search for UGG, growth of global direct-to-consumer with improved margins from full-price business, and strength of iconic silhouettes like the Ultra Mini and Tasman driving year-round excitement. Entering the second quarter, the UGG team is working hard to state its global omnichannel marketplace to connect with consumers through engaging experiences in the autumn/winter season. To execute this vision, UGG will be expanding on and embracing the celebration of culture and community by creating meaningful experiences, such as the Feel House, that serve as an invitation to develop an emotional connection with the brand. This fall, UGG will celebrate its brand heritage through consumer-centric moments around the world, with new winter lifestyle-themed Feel House executions, an exciting new winter product aimed at capturing more of the winter fashion and resort-focused consumer.

Steve Fasching, Chief Financial Officer

Thanks, Dave, and good afternoon everyone. As Dave just covered, Deckers delivered strong results in the first quarter and demonstrated great progress toward our full fiscal year and raised outlook. HOKA was the driver of growth in the quarter, led by strong performance in the DTC channel, and UGG continues to elevate its presence globally, as represented by international growth. As anticipated, UGG's global revenue was lower than last year, primarily due to lapping earlier selling during the prior year. But the brand maintains high levels of consumer interest, capturing increased demand through our DTC in the quarter. As we continue to operate in a very dynamic consumer environment, we remain committed to executing against our strategic priorities, and maintaining our disciplined approach to managing our business. We are encouraged by the demand signals we are seeing, and believe our portfolio of leading brands continues to resonate with consumers globally. With that, let's get into the details of our first quarter fiscal year 2024 results. Revenue was $676 million, up 10% versus prior year. HOKA revenue increased 27% versus last year, due to the exceptional demand experienced across the brand's DTC channel and global ecosystem of access points. Gross margins for the quarter were 51.3%, which is up 330 basis points from last year's 48%. First quarter gross margin benefited from lower freight costs, a greater mix of HOKA brand revenue, and an increased mix of DTC business with slight offsets from unfavorable foreign currency exchange rates compared to the same period last year, and select closeouts of seasonal inventory. SG&A dollar spent in the first quarter was $276 million, which is up 16% from last year's $238 million. SG&A growth was driven by reinvestment in key areas of the business in support of our growth targets, which includes strategic marketing, including the spend intended to amplify HOKA awareness in leading international markets, supply chain footprint to match the growing scale of our organization, enhanced e-commerce capabilities, and talent across the organization, including areas we've delayed in the enterprise support functions. Our tax rate was 21.9%, which compares to 21.3% in the prior year. These results coupled with higher interest income and a lower share count as a result of our share repurchases program drove diluted earnings per share of $2.41 for the quarter, which was $0.75 above last year's $1.66 per share, representing growth of 45%. Turning to our balance sheet, at June 30, 2023, we ended June with $1.05 billion of cash and equivalents. Inventory was $741 million, down 12% versus the same point in time last year, and we had no outstanding borrowings. During the first quarter, we repurchased approximately $25 million worth of shares at an average price of $485.95. As of June 30, 2023, the company had approximately $1.3 billion remaining under its stock repurchase authorization. Now, moving on to our updated outlook for fiscal year 2024, with the HOKA brand's DTC business exceeding our expectations in the first quarter, we are increasing our full-year top-line revenue guidance to be approximately $3.98 billion from our previous range of approximately $3.95 billion. This increase represents full-year growth expectations of approximately 10% versus the prior year. As a result of this update, we now expect HOKA growth to exceed 20% for the fiscal year 2024, compared to fiscal year 2023, with the majority of growth anticipated to come from the brand's direct-to-consumer business. UGG revenue is still expected to increase low single-digits, driven by international expansion and a focus on driving more business to DTC. Beyond our updated revenue outlook for full fiscal year 2024, gross margin is still expected to be approximately 52%, representing a more than 150 basis point improvement relative to last year. SG&A is still expected to be approximately 34% of revenue, as we reinvest gross margin improvements in key areas of the business. Operating margin is still expected to be approximately 18%. Our effective tax rate is still projected to be 22% to 23%, and we are increasing our diluted earnings per share expectation now to be in the range of $21.75 to $22.25. The $0.65 increase is related to the increased expectation for HOKA DTC and an increased expectation for interest income as we benefit from working capital improvements, including inventory management, driving higher cash balances that are earning at a higher interest rate. Please note, this guidance excludes any charges that may be considered one-time in nature, and does not contemplate any impact from future share repurchases. Additionally, our guidance assumes no meaningful deterioration of current risks and uncertainties, which includes but not limited to supply chain disruptions, constraints, and related expenses, labor shortages, inflationary pressures, changes in consumer confidence, and recessionary pressures, foreign exchange rate fluctuations, and geopolitical tensions. We remain confident in our disciplined operating model, well-positioned brands, robust financial profile, and ability to remain nimble as we adapt to evolving marketplace dynamics. Thanks, everyone, and I will now hand the call back to Dave for his final remarks.

Dave Powers, President and Chief Executive Officer

Thanks, Steve. Fiscal year 2024 is off to a strong start, with HOKA continuing its strong momentum, and the balance of our brand portfolio on track to our full-year expectations. While keeping our long-term strategies top of mind, we are operating fiscal year 2024 with a sharp focus to prioritize DTC growth across all of our brands, while managing wholesale marketplace inventory to drive online acquisition in a high level of full-price selling, expand HOKA brand awareness globally, lead with UGG products that are proven to resonate with global consumers, thoughtfully manage inventory to align with consumer demand, and invest in enterprise infrastructure in key strategic growth areas. We believe Deckers' unique ability to introduce exciting innovation into both fashion and performance products is why our differentiated brands are able to create lasting consumer connections. This along with our financial discipline, agile operating platform, exceptional marketplace management and purpose-led culture allow us to continue to deliver best-in-class results, and exceptional shareholder value. On behalf of our management team, I would like to thank our employees for their continued dedication to delivering results and making Deckers a great place to work. And I would also like to thank all of our stakeholders for their continued support. With that, I will turn the call over to the operator for Q&A.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Today's first question comes from Jay Sole with UBS. Please go ahead.

Jay Sole, Analyst

Great, thank you so much. My question is on HOKA. You talked about, obviously, really strong DTC performance for HOKA in the quarter. Can you just talk about a little bit what you see at wholesale, and then talk about what you're seeing for the rest of the year? And really just going back to the quarter for a second, just talk about some of the drivers of the HOKA growth just across channels in terms of product that would be great? Thank you.

Dave Powers, President and Chief Executive Officer

Yes, thanks, Jay. So, yes, obviously we are super excited about the continued momentum of HOKA, broad-based, it's just continuing to meet or exceed expectations for us, and we're really optimistic about the rest of the year. DTC growth, as you saw from both brands, was exceptional. Wholesale for HOKA is about where we expected it to be for this quarter; couple puts and takes here and there by channel and region. But generally speaking, right in line with our marketplace management expectations. We love how this flywheel is working for us. We're creating awareness out in the marketplace at a top level of the funnel. The awareness is increasing dramatically for the brand, up 20% over last year. And that's driving all channels, but particularly, as designed, into DTC. So, there's some noise out in the wholesale channel with markdowns and promotions from other brands, a lot of inventory in the channel, so we're managing that tightly by purpose. But again, as I say, raising awareness at a high level and seeing the brand interest coming directly to our DTC business is super exciting for us. Obviously it's our most profitable sale. We gain all the data from that and it creates even a stronger flywheel going forward in the marketplace as we expand globally. Some of the things that are driving HOKA for the quarter, this was a HOKA-driven quarter, as expected, right? So, this isn't a big quarter for UGG. A lot of the top-selling styles for the company overall for the quarter were driven by HOKA. Again, the Clifton and the Bondi continue to be the frontrunners here. The Clifton 9 has been received extremely well globally, and we're looking to get more inventory into that franchise and continue the upside of that franchise going forward. And then also in the hike side of things, that business is still very strong. In places like REI, we're the number one running brand, and also in hike. And then in the international regions, particularly in China, we have a very strong hike business. So, we're going to continue to go after that. We've got some new innovations launching. We just launched the Mach X, which has been received very well with the PEBA plate, and there's a little more attainable price point, and then continuing to update franchises throughout the year with some very, very exciting launches of existing upgrades, but also some new product coming into Q4.

Jay Sole, Analyst

Got it. Okay, thank you so much.

Operator, Operator

Thank you. And our next question today comes from Laurent Vasilescu with BNP Paribas. Please go ahead.

Laurent Vasilescu, Analyst

Good afternoon. Thank you very much for taking my questions. Congrats on such good results. Hey, Steve, I'd love to ask about your HOKA DTC strategy. I think in the 10-K it's noted that you have 18 HOKA stores. I believe those are permanent stores; predominantly located in Asia, correct me if I'm wrong. But can you provide a little bit of color on how these stores are performing and what lessons are you learning from the store you opened up in New York? And how many stores do you envision for the brand over the next couple of years?

Dave Powers, President and Chief Executive Officer

I can address that, and then Steve can discuss specifics. We're approaching this like everything else in our marketplace by testing and learning. When we see positive indications, we move quickly to seize opportunities, and retail has been promising so far. Our experience with UGG retail stores over the past 20 years gives us a solid foundation, and we're effectively utilizing our global operations. The stores we've opened, including both pop-ups and permanent locations, are performing well and meeting our expectations, with no concerns at this time. However, we are being cautious, ensuring we don’t overextend ourselves while entering markets that enhance our overall strategy and raise awareness among key consumers worldwide. We need retail success in China; a distributor business won't succeed without strong retail capabilities, so we're refining that aspect. Our partners are satisfied, and we're positive about our retail prospects there. We're particularly excited about our first permanent store in New York City, which has received outstanding feedback. Our focus now is on enhancing the consumer experience in stores. We have fine-tuned operations, but we aim for an exceptional experience that extends beyond just the products. We're planning events and run clubs to engage the community and foster repeat visits from existing customers while attracting new ones and showcasing our full product range. We're off to a good start—still small in the grand scheme, but we see potential for growth. As for the number and size of stores, we haven’t set a specific target yet; it will depend on how the marketplace evolves. Our primary goal is direct-to-consumer growth, using our stores to increase online sales and vice versa. You’ll see a few key stores opening in important cities and locations as we continue to use our pop-up and testing model before making long-term commitments.

Steve Fasching, Chief Financial Officer

Yes, Laurent, this is Steve. You are correct that there are 16 company-owned stores, which do not account for our retail partners in Asia or with some distributors. The 18 mentioned are indeed company-owned and do not include our retail partners. As Dave noted, the performance of these stores has exceeded our expectations in terms of both revenue and profit. We utilize pop-ups to guide our decision-making regarding locations, as their strong performance suggests good opportunities for permanent stores. We will maintain this approach and continue to explore areas for expanding our HOKA retail presence.

Laurent Vasilescu, Analyst

Very helpful, thank you for all that color. And then just as a follow-up, I think Stefano was elevated to Chief Commercial Officer in April.

Dave Powers, President and Chief Executive Officer

I'm really pleased to promote Stefano to this role; he truly deserves it. In our last call, we discussed how the HOKA business is thriving under his leadership. He has an exceptional understanding of this market, and we're enthusiastic about the accelerated innovation and management taking place there. As for the full-time president position at HOKA, we don't have any updates to share yet. However, I want to assure you that we remain confident in the business until we make an announcement, and we look forward to sharing that news when the time is right.

Steve Fasching, Chief Financial Officer

And then, Dana, regarding inventory, we have made significant improvements compared to the same period last year when we had a higher amount of inventory, especially in transit. That situation has been resolved and improved, and we are in a much better position this year. You will continue to see that improvement throughout this year, although it may not be to the same extent as before. We were making steady improvements throughout last year, and you can expect us to keep making progress, though not necessarily at the same level you saw in Q1.

Dana Telsey, Analyst

Hi, good afternoon, everyone. Dave, you had mentioned Teva and Sanuk, what is happening with those two brands now? How do you see their progress this year? And then, if you think about inventory levels, it certainly seems very clean, how you're looking for the progress of inventory going forward? Thank you.

Dave Powers, President and Chief Executive Officer

Yes, thanks, Dana, good question. We don't talk very often about Teva and Sanuk, and from the quarter results it makes sense there are questions about them. We recently have reorganized our smaller brands, Teva, Sanuk, and some incubation work that we're doing, and emerging brands for leveraging resources, and we are resetting those brands. So, we have a new leader there, Lee Cox, who spent a lot of time in the HOKA brand early days, he is appointed to get a long-term strategy for both of those brands, and right now they're doing brand work, so, resetting their positioning, tightening their positioning and proposition, understanding who their consumers are deeply, and elevating their innovation pipeline. So, I would say the biggest opportunity right now that we see down the road in the short and long-term is Teva. We have looked at a number of brands externally that we could acquire, and quite honestly, none of them look as good as Teva does. It's a beloved brand. It's got a great 30-plus year history, and a lot of heritage product. And it's healthy in the marketplace. It's got great margins, and we think that is a brand that we invest in for the long-term. So, right now it's just about resetting the marketplace. That's where you're seeing some degradation in the top line, and both Teva and Sanuk were cleaning things up, and we basically getting geared up to go back at it with a new and improved version of both brands. But the Teva opportunity is continued within sports sandals, and we are working on trail sandals for that brand, we are going to be launching early next year, which we think will be clearly exciting, trail running sandals, and then, also expanding into closed toe and year-around business through our innovation engine.

Steve Fasching, Chief Financial Officer

Regarding inventory, we have made notable improvements compared to last year, when we had a higher level of inventory and more items in transit. This situation has been resolved, and we are in a much stronger position this year. You can expect to see continued improvement throughout the quarters of this year; while it may not be to the same extent as before, we have been making steady progress throughout last year.

Operator, Operator

Thank you. And ladies and gentlemen, this concludes today's question-and-answer session, and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful evening.