Deckers Outdoor Corporation (NYSE:DECK) Q2 2024 Earnings Call Transcript

Deckers Outdoor Corporation (NYSE:DECK) Q2 2024 Earnings Call Transcript October 26, 2023

Deckers Outdoor Corporation beats earnings expectations. Reported EPS is $6.82, expectations were $4.41.

Operator: Good afternoon and thank you for standing by. Welcome to the Deckers Brands Second 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. [Operator Instructions] I’d 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.

Erinn Kohler: 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 impacts 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’ll now turn it over to Dave.

Dave Powers: Thanks, Erinn. Good afternoon, everybody, and thank you for joining today’s call. It’s great to be here with you today to discuss our exceptional second quarter, where our two marquee brands experienced high levels of full-price consumer demand, leading to revenue increasing 25% versus last year, eclipsing $1 billion for the first time in our September-ending quarter, gross margin improving 520 basis points versus last year and diluted earnings per share increasing nearly 80% versus last year to $6.82. Our direct-to-consumer business was the fastest-growing component of revenue growth in the second quarter, increasing nearly 40% versus last year, with HOKA growing 46% and UGG increasing 38% as both brands experienced a greater than 30% global increase in consumer acquisition.

Our global wholesale business also put up strong revenue growth in the second quarter, increasing 19% versus last year, again driven by our two largest brands, UGG and HOKA. Our wholesale accounts also continue to see incredible heat and momentum for our key styles across both brands. With this strong consumer demand, selling for wholesale in the quarter included some accelerated fall seasonal shipments, benefiting our first-half results, and increasing our confidence to achieve our outlook for the fiscal year. As we continue to focus on our strategic marketplace management, we are pleased to have captured this strong momentum of demand early in the year, particularly with these products capturing high levels of full-price selling across all channels.

As we focus on delivering the full-year, I think it’s important to reflect on our year-to-date performance. We closed out a record first-half for Deckers, with total portfolio revenue across all channels growing 19% versus last year, driven by HOKA revenue increasing 27% from global strength across its ecosystem of access points, UGG revenue increasing 18% primarily from gains across international regions and global DTC, total portfolio global DTC acquisition and retention increasing 29% and 27% respectively, and international revenue across all brands increasing 23% versus last year. While Steve will provide further details on our financial performance and related increased outlook later in the call, I’d like to emphasis how proud we are of the continued alignment of our strong near-term performance with Deckers’ long-term objectives to build HOKA into a multibillion dollar performance brand, grow UGG through direct-to-consumer connections with elevated products and experiences, expand DTC through consumer acquisition and retention gains, and drive international growth through targeted investments.

With that, let’s get into the highlights of our successful first-half, starting with HOKA. Global revenue in the first-half increased 27% versus last year. This impressive result reflects the HOKA brand’s successful marketplace management execution, which is driving more business to DTC in conjunction with market share gains from high full-price sale through at our existing points of wholesale distribution. HOKA revenue growth in the first-half was led by direct-to-consumer, which increased 54% versus last year, and represented 38% of revenue, up from 31% in the prior year. This was aided by global increases in brand awareness according to Deckers proprietary brand tracker study, consumer acquisition, which is up 47% versus last year; and consumer retention, which is up 52% versus the prior year, HOKA experienced significant growth in awareness across all major markets, with the U.S. growing to approximately 30%, and international regions, on average, rising to mid teens with much more room to grow.

Specific to our gains in DTC in the first-half, consumer acquisition in EMEA DTC nearly doubled to help achieve a 75% year-over-year increase in channel revenue for the region. This represents great progress for our EMEA region. And though DTC remains a relatively small percentage of its total revenue, we see this expansion as a positive indictor that HOKA is increasingly resonating with the European consumer. As we have demonstrated in the U.S., thoughtfully building brand awareness through marketing activations and strategic marketplace presence served as a catalyst to DTC acceleration as the brand begins to take hold with the local consumer. To that end, HOKA recently opened its first European flagship store in Covent Garden in London, giving the brand a powerful presence in one of the most influential footwear markets around the world.

In the U.S., HOKA continues to deliver exceptional growth. DTC revenue increased nearly 50% versus last year for the first-half, with strong growth among 18- to 34-year-old retained consumers, which increased 70%. We believe some of this demand was fueled by HOKA having increased resonance in the back-to-school timeframe with college-age students. Brand loyalty among this group is especially exciting given the increased potential lifetime value of repeat purchases. The HOKA marketing teams have done an exceptional job building global brand awareness through compelling Fly Human Fly campaign content, connecting with consumers at HOKA-sponsored events, and highlighting the incredible performances of HOKA athletes. We continue to sponsor key running events around the globe as part of our commitment to support the sport and provide a platform to showcase our innovative performance products.

This includes events from 5ks to elite ultramarathons for all types of athletes around the world, allowing us to elevate the brand with pinnacle performance-minded consumers and also to broaden worldwide awareness of the achievements capable in HOKA products. This year’s HOKA-sponsored UTMB or Ultra-Trail Mont-Blanc World Series Finals, held in Chamonix, France, is the perfect example of our team’s 360-degree collaborative approach to building HOKA brand awareness and performance credibility. This trail running event allows us to celebrate the roots of HOKA, which was born in the French Alps, further connecting the brand with European consumers. At the UTMB World Series Finals, the HOKA team set up a base camp that offered consumers the opportunity to engage with the brand in a unique way through athlete meet-and-greets, 24-hour product testing, and shoe personalization.

We received overwhelmingly positive feedback on the experience, and are already looking forward to leveraging these learnings at future events. HOKA made its mark on the event, both from a product and athlete performance standpoint, with several impressive achievements, including HOKA athlete Jim Walmsley making history becoming the first American man to win the Dacia UTMB, a 106-mile race that included more than six miles of elevation gain, completing the course in a record time of less than 20 hours. HOKA raking top among all brands with the most top-five finishes across the series of three races, and HOKA remaining the number one brand worn by UTMB participants. From a product standpoint, first-half HOKA growth was driven by a variety of categories and styles, which includes, among others; the Clifton franchise which benefited from the ninth addition launch as well as new successful lifestyle versions with suede uppers, stability staples like the Arahi and Gaviota franchises, the latter of which launched its fifth edition during the second quarter as we are seeing increased adoption of this category from consumers; trail and hike favorites, the Challenger and Anacapa franchises benefiting from new innovations incorporated in recent updates; speed shoes highlighted by the Rocket X Refresh and the all-new Mach X; and new lifestyle options including the popular Solimar and Transport styles.

We remain encouraged by the breadth of category adoption across the innovative HOKA product assortment, which continues to evolve and attract new consumers to the brand. We are implementing greater segmentation across the ecosystem of HOKA Access Points to ensure our accounts are best positioned to serve their respective consumers and emphasize DTC as the pinnacle destination to experience the full depth of the brand’s product offering. For the balance of the year, the HOKA team remains focused on executing its Marketplace Management Strategy which includes a focus on building global brand awareness and heat to increase demand which is helping to drive high full price sell-through at DTC and across wholesale allowing the brand to deliver healthy growth with best-in-class margins and inventory turns.

Complemented by several new innovative product launches coming up in our fourth quarter, we expect HOKA to continue delivering strong results for the remainder of this fiscal year and well beyond. Now shifting to UGG, global revenue in the first-half increased 18% versus last year. The brand’s strong first-half performance was driven primarily by high levels of brand heat, disciplined Marketplace Management leading to product scarcity on key styles exiting last Fall, and intentional pull forward of the brand’s Fall marketing campaign relative to past years. We currently have the most cohesive globally aligned product, marketing, and consumer targeting strategy I’ve ever seen for UGG. Marketplace Management has been a core strength of the UGG brand for some time now.

The allocation and segmentation of core and popular new styles continues to serve the brand well helping drive high levels of full price sell-through. Last year we shared that we did not fully capture demand on several key styles. As we began this fiscal year, we strategically developed targeted inventory that caters to the brand’s most popular products and seeded the Fall marketing campaign, field Like UGG, in July as opposed to the typical September timeframe. From July 15th to August 15th, we saw a groundswell of influencer public service announcements reminding consumers to buy UGG now. Videos using hashtag UGG’s received over 25 million views during that timeframe, and UGG saw twice the level of engagement on Instagram as compared to last year.

We believe the UGG Team’s strategic marketing shift served as a catalyst for earlier Fall consumer demand globally. In the U.S. specifically, this shift helped fuel greater back-to-school demand, with search interest increasing 46% versus last year, according to Google Trends. To keep this momentum going, at the tail end of September, UGG celebrated the official kickoff of hashtag UG season. with music superstar Cardi B, whose video announcement featuring the new classic dipper had nearly 20 million views. This resulted in significant press and media coverage of our launch, with influential publications such as Billboard and Vogue featuring UGG. Brand Heat, created by the UGG team, directly translated to incredible first-half results, particularly from the global DTC business and international regions, which both experienced a revenue increase of above 25% versus last year.

Furthermore, UGG gross margins benefited from transitional and Fall products selling at full price during the second quarter. This dynamic is in contrast with prior years, with the brand’s DTC business has historically been more weighted towards end of Spring and summer products that generally carry a lower average selling price. The Tasman franchise, including the Taz platform as well as the classic mini and ultra mini franchises have been the focal products of UGG’s search interest and revenue growth in the first-half as expected. We are also excited that some of the new Fall franchises are beginning to resonate with consumers as well, including the aforementioned Classic Dipper, a key globally marketed style, the all gender hybrid weather collection, which includes modernized weather ready versions of the Tasman and Neumel, and the Lowmel, a sneaker hybrid take on the original Neumel.

UGG is well positioned to capture consumer demand during the holiday season with great products like these. Considering the demand we’ve seen thus far, we are already in chase mode for a select group of popular items and colors, for which we are expediting production to ensure greater DTC inventory through the season. The UGG brand’s first-half growth sets us up well, especially when factoring the signals of a weakening global economy and lower consumer confidence. Given this dynamic, we are glad to have captured some demand earlier to help reduce the pressure of competing with more promotional brands during this upcoming holiday season, as we see to continue selling premium UGG products at full price. Moving on to our discussion of consolidated channel performance, global growth was across both direct-to-consumer and wholesale, with DTC being the primary driver of revenue gains in the first-half, increasing 37% versus last year.

Our portfolio experienced DTC strength relative to last year across consumers with acquired and retained increasing 29% and 27% respectively, brands with HOKA and UGG revenue increasing 54% and 26% respectively, regions with international and domestic revenue increasing 48% and 34% respectively, and channels as consumer demand was robust in stores and online. Additionally, we saw a double-digit increase in average selling price as a result of a greater mix of HOKA, higher full-price selling for UGG combined with a focus on fewer proven SKUs and more favorable foreign currency exchange rates. Regarding global wholesale, revenue in the first-half increased 11% versus last year, growth was driven by strength in UGG and HOKA as well as across both our domestic and international regions.

Market share gains continue to be the primary avenue of wholesale growth for HOKA, which is now the top-selling brand in U.S.-run specialty stores in aggregate, according to third-party market sources. HOKA has also quickly become the top-running brand with key strategic partners in applicable doors. Our teams are extremely proud of the HOKA brand’s top market share achievement, which further validates the brand’s performance-rooted credibility. UGG wholesale performance in the first-half is right in line with our strategy this year, with international regions fueling the majority of growth, while the brand maintains its strong business in the U.S. With these first-half results, it is clear that our marketplace management strategies are working well, positioning our brands to excel during the holiday quarter and capture increased consumer demand across their respective ecosystems of access points.

Before I hand it off to Steve to discuss our results in more detail, I’ll note that we also announced our plan to divest Sanuk. At Deckers, we’re focused on the most effective allocation of our resources that are in alignment with long-term objectives. Consumers have long valued Sanuk for its fun, innovative, and comfort-first products. Over the coming months, we will work to find the right owner to support the brand’s next chapter while we continue to execute our growth priorities. Thanks, everyone. And now I’ll hand it over to Steve.

Steve Fasching: Thanks, Dave, and good afternoon, everyone. We are excited by the strong performance HOKA and UGG continued to exhibit through the first-half of fiscal year 2024, stemming from our strategic marketplace management execution that continues to benefit our brands. As Dave covered, HOKA drove another quarter of strong growth led by DTC, while UGG demonstrated broad-based growth across regions and channels by continuing to captivate consumers and elevate its presence around the world. Our record second quarter revenue exemplifies the exceptional demand for our brands, and we look forward to continuing this momentum as we enter our largest and most complex fiscal quarter. While ongoing macroeconomic challenges persist, we believe we are well-positioned to navigate this dynamic marketplace.

With a strong financial framework and in-demand brands, we remain committed to building the foundation for success that drives long-term sustainable growth. Now, let’s get into the details of second quarter results. Second quarter fiscal 2024 revenue was $1.092 billion, representing an increase of 25% versus the prior year. On a constant currency basis, revenue grew 24% versus last year. Growth in the quarter was primarily driven by strong demand experienced across the HOKA DTC channel, which increased 46% versus last year, and contributed to delivering total brand revenue of $424 million for the quarter and broad-based UGG growth across regions and channels, delivering $610 million of revenue, with global DTC increasing 38% and wholesale increasing 25%.

With the HOKA brand’s performance consistent with our expectation, the outsized UGG growth in the second quarter benefited from, first, a higher level of wholesale shipments in Q2 this year than in the past couple of years were captured in the first quarter, as transit times have reduced, supply chain logistics have improved, and availability of inventory is more consistent relative to during the pandemic. Second, seeding the fall global UGG campaign earlier in the quarter, reminding consumers of the scarcity that took place in the prior year, which created brand heat and demand for those same popular styles that sold out quickly last year, driving earlier consumer purchasing this year. And third, an increased level of demand for the brand during the back-to-school period, which signaled some wholesalers to desire shipments on an accelerated timeframe relative to our original plan.

Gross margin for the second quarter was 53.4%, up 520 basis points from last year’s 48.2%. Second quarter gross margin benefited from lower ocean freight rates, favorable UGG product mix partially driven by earlier fall demand, favorable UGG full price mix, favorable channel mix with DTC continuing to grow faster than wholesale, and a slight benefit from foreign currency exchange rates. SG&A dollar spend in the second quarter was $358 million, up 22% versus last year’s $294 million, as we continue investing in key areas of the business. As a percentage of revenue, SG&A was 32.8% versus 33.6% in the prior year, 80 basis points lower than last year. This resulted primarily from the aforementioned timing, considerations regarding earlier consumer demand and timing of certain spend.

Our tax rate was 23.8%, which compares to 21.2% for the prior year. These results culminated in diluted earnings per share of $6.82 for the quarter, which is just over $3 above last year’s $3.80 diluted earnings per share, representing EPS growth of 79%. This increase in diluted earnings per share was approximately evenly split between gross margin benefits and higher revenue, with a small benefit from a reduced share count resulting from the share repurchases made over the past year. Turning to our balance sheet at September 30, 2023, we ended September with $823 million of cash and equivalents. Inventory was $726 million, down 21% versus the same point in time last year, and during the period we had no outstanding borrowings. During the second quarter, we repurchased approximately $185 million worth of shares at an average price of $534.53.

As of September 30, 2023, the company had approximately $1.1 billion remaining authorized for share repurchases. Now, moving into our updated guidance for fiscal year 2024, we are increasing our full-year revenue guidance to be approximately $4.025 billion from our previous guidance of approximately $3.98 billion. This increase now equates to a full-year growth expectation of approximately 11% versus last year. From a brand perspective, we now expect UGG growth of mid-single digits, up from our prior expectation of low single digits. This upside comes from the continued strength of global brand heat driven by robust early demand. We still expect full-year HOKA revenue growth of above 20%, with third quarter percentage growth anticipated to be slower due to this year’s timing of product launches being weighted towards the fourth quarter.

And we have reduced our expectation for Teva due to softening macro backdrop. In addition to our fiscal year 2024 updated revenue outlook, gross margin is now expected to be in the range of 52.5% to 53%, reflecting the strength of UGG full-price selling in the second quarter as the brand was able to capture DTC demand early. SG&A as a percentage of sales is now expected to be in the range of 34% to 34.5% as we continue to invest in key areas of the business. Operating margin is now expected to be approximately 18.5%, reflecting the improvement in the gross margin. Our effective tax rate is still projected to be in the range of 22% to 23%, and we are increasing our diluted earnings per share expectation to now be in the range of $22.90 to $23.25.

Please note this guidance excludes any charges that may be considered one-time 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, labor shortages, and fluctuation in foreign currency exchange rates. We are proud of the first-half performance by the HOKA and UGG brands, two of the strongest in our industry, which led us to increase revenue guidance heading into the back half of our fiscal year, despite what appears to be a more challenging macroeconomic environment. The HOKA brand’s global gains in awareness combined with the early Fall demand we are seeing from UGG give us the confidence to achieve this exceptional outlook.

Thanks everyone. I’ll now hand the call back to Dave for his final remarks.

Dave Powers: Thanks, Steve. HOKA and UGG have delivered incredible results for the first-half, and we believe our company is well positioned to deliver on the increased full fiscal year objectives we outlined today. Marketplace Management remains paramount to the ongoing success of Deckers and our continued ability to buck industry trends as we build awareness and drive demand for our brands. Our proficiency in the implementation and delivery of strategic objectives is what truly differentiates Deckers as an organization, allowing our brands to create lasting consumer connections. We are focused on continuing to deliver meaningful consumer experiences with great products and dedicated to doing so with our long-term objectives at the forefront of everything we do.

This approach, alongside our flexible operating model, financial discipline, innovation across fashion and performance brands, and our purpose-led culture are what empowers our highly engaged employees to deliver exceptional results and shareholder value. I’d like to thank our entire executive leadership team and all of our employees across the organization for their continued dedication to Deckers values as our company seeks to do good and do great. For more information on these efforts, I’d encourage you to read our forthcoming FY ’23 Creating Change report, which launches next week. Thanks everyone for joining us here today and thank you to all of our stakeholders for your continued support. We look forward to continue sharing the exciting future ahead of Deckers.

With that, I’ll turn the call over to the operator for Q&A. Operator?

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Q&A Session

Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from John Kernan from TD Cowen. Please go ahead.

John Kernan: Excellent. Congrats on a phenomenal quarter. And I guess wanted to hone in on – obviously, tremendous momentum as you go into Q3. Q3 is almost 50% of the full-year sometimes in terms of total revenue. So, just curious, given all the momentum you see, particularly in DTC in Q2, how should we think about UGG in the back-half of the year, and particularly Q3?

Dave Powers: Yes, this is Dave. It’s a great question. First of all, I want to recognize the momentum that you called out, but the UGG brand experience in Q2, the team did a phenomenal job of recognizing the opportunity earlier in the year, capturing demand that we left on the table last year, cleaning up the marketplace, putting some exciting activations in place with Cardi B and other influential partners for that brand. And the buzz is something that, in my experience at the company, I had never witnessed before, it’s palpable. The full-price sell through, the health of the marketplace, the teams just collectively have done an amazing job across the globe to set this brand up for success. And we’re really excited that we were able to capture some demand early in the season before holiday shopping and before the potential slowdowns in the marketplace.

So, we’re set up incredibly well. We’re optimistic that this is going to continue for us throughout the year. We’re mindful of the fact that this could be a challenging marketplace, so we’re not naïve to that fact, but we are prepared for it. As we mentioned in the prepared remarks, some of the key styles that we put into the marketplace this year have sold out or sold very well so far. We are in a bit of a chase mode in some of those styles. But I think, across the board, we feel really confident that we have a breadth of product across many silhouettes that are performing well. We have inventory in the right places, a little bit lean in some but we’re going to react and chase those. We’ve eliminated a lot of noise in the assortment in the marketplace.

We have incredibly powerful campaigns and activations across the franchises in the brand. We have an exciting new launch of UGGextreme, which is a winter lifestyle collection that we’re going to start investing in, in a deeper way. And we have great relationships with our wholesale partners. They need us, especially in this environment. And we want to stay about the promotional marketplace, so we don’t want to get caught up in that. We want to maintain a healthy and clean marketplace and continue to drive real strength through our DTC channel. And that’s our strategy, and it’s working well so far. We’re really excited how the fall season has kicked off, and we feel really good about how it’s going to continue.

John Kernan: Got it. May be one quick follow-up just on the margin profile in the back-half of the year. It looks like SG&A dollars are planned out on a growth basis pretty significantly. Can you just talk to some of the investments you’re making behind UGG and HOKA?

Dave Powers: Yes, I’ll let Steve get into the details, but the top four things that we’re investing in, which is similar to what we talked about earlier in the year, which is important for us to maintain this level of growth going forward and to be able to continue to grow these brands is really around people, talent, and culture. We’re big believers that our culture is one of our secret sauce component, so to speak, and that we have incredibly motivated and collaborative teams that are fired up to win. We’re continuing to invest in innovation. We have a powerful innovation pipeline that we want to continue to bolster that supports all of our brands. Systems and data, I don’t think there’s a company out there right now that feels good about their systems and data, where they’re at.

We’re not alone there. We have some work to do there, but we want to be providing our teams with the right level of visibility so they can run their businesses effectively and leverage AI technologies coming down the pike and then continue to heavily invest in marketing. We feel that, in a constrained environment and a lot of other peers are struggling with inventory and promotions and lower margins, with our profile right now, we have an opportunity to continue to take share in this environment, and we’re going to stay aggressive with marketing dollars to do that.

Steve Fasching: Yes, John, this is Steve. I think just to kind of further on Dave’s comment, what we’ve said now for a number of years is that, I think, one, we’re very well financially disciplined as an organization, and we’re very careful about where we’re placing investments. And I think an indication of that is the increase in the operating margin that we’re now guiding to. And so I think we’re taking these times of performance and using that to invest in the business. And that’s what we’ve been saying for the past few quarters, is that trust us, we’re going to make the investments in the right places. We know that sales have been outpacing what we originally thought. And so, we are making the proper investments, as Dave said, in the business that continue to drive these levels of sales.

I think we’re demonstrating marketplace management, disciplined investment approach, and that’s the way we’re operating, and even with that increased investment, leveraging some of the increase in the gross margins to lift our profitability for the year. So, we’re doing it in a very strategic, thoughtful, disciplined way.

Dave Powers: Yes. And the last thing I would add on that, as you guys know, we’ve worked hard to ensure that more of our SG&A is variable versus fixed, and so we maintain a pretty agile, flexible model should we need to cut back on some of those things in the second-half of the year.

John Kernan: Got it. Thank you.

Dave Powers: Thanks, John.

Operator: Our next question comes from Jonathan Komp from Baird. Please go ahead.

Jonathan Komp: Yes. Hi, good afternoon. Thank you. I want to ask about HOKA just to follow up. Could you maybe share a little more detail on the product shifts you mentioned and how that might impact the growth rates in Q3 and Q4? And then as we think about really the pipeline into next calendar year, just how are you thinking about staying ahead of the competition? Everyone seems to be chasing the maximalist cushioning trend. And any color what you’re hearing from your retail partners in terms of some of the order trends?

Dave Powers: Yes, great question. I’m glad you asked that. So, to put a little bit color on how we’re thinking about the launches in the second-half in the year, we’re strategically pushing launches into the Q4 timeframe. That’s when we really get into the beginning of the spring/summer season, when running starts to kick in again. Traditionally, the holiday season is kind of less exciting, so to speak, still a lot of volume to do. But we want to make sure that we come out really powerfully at the beginning of spring, next year in our Q4 timeframe. It also allows us to stay out of the fray of the promotional marketplace in Q3. So, we’re anticipating that, particularly in the athletic space where there’s a lot of situations where it’s over-inventoried with a lot of inventory in the channel and the slowdown of the marketplace, we feel we’re better to stay above the fray, so to speak.

I don’t want to launch two of our major innovation launches coming in Q4 in Q3 when there’s a lot of markdowns and promotions going on. So, the teams have strategically decided to push those launches to Q4. I can tell you the innovation that’s coming out in two of our launches are incredibly exciting. And then we’ll address how the oversized trends are evolving for us. And we’re taking that very seriously. We don’t want to lose that dominant position in the category that we created. There is a lot of activity, obviously, from competitive brands going in that direction, some good, some bad. But the bottom line is we’re not as differentiated as we were three or four years ago with that type of profile. But our technology, our focus on materials and geometry, product testing, new use of plates, different foams, different compounds, et cetera, continues to be at the forefront of everything we do.