Deckers Outdoor's DECK CEO Angel Martinez on Q2 2015 Results
Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Deckers Brand's Second Quarter Fiscal 2015 Earnings Conference Call. [Operator Instructions] I would now like to remind everyone that this conference call is being recorded.
I will now turn the call over to Linda Pazin, Vice President of Investor Relations and Corporate Communications.
Welcome, everyone joining us today. Before we begin, I would also 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 security laws. 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 other than statements of historical fact are forward looking statements. These forward looking statements include statements related to the company's anticipated financial performance, including its projected revenues, expenses, gross margin, operating margin, capital expenditures, earnings per share and effective tax rate. These statements may also relate to the company's brand strategies, store expansion plans, inventory management systems and customer retention policy, as well as the outlook for the company's markets and the demand for its products.
The forward looking statements made on this call are based on currently available information. The company's business is subject to a number of risks and uncertainties, some of which may be beyond its control, and actual results may differ materially from the results expected at the current time. The company has explained some of these risks and uncertainties in its earnings press release and in its SEC filings, including the Risk Factor section of its Annual Report on Form 10 K and its other documents filed with the SEC. Listeners are cautioned not to place undue reliance on forward looking statements, which speak only as of the date hereof.
The company disclaims any intent or obligation to update any forward looking statements after the date hereof to conform to such statements to actual results or to changes in our opinions or expectations, except as required by applicable law or the rules of the New York Stock Exchange.
As a reminder, we have posted supplemental information about the 2015 second quarter in a document entitled Second Fiscal Quarter 2015 Commentary. You can access this document by clicking on the Investor Information tab and then scrolling down to the Featured Reports heading. We believe the approach of providing this additional background information to you will make it easier for you to digest the financial information from the quarter and free up more time on the call for explanations of our performance and outlook, discussions of our strategic initiatives and Q that, I'll now turn it over to our President, Chief Executive Officer and Chair of the Board of Directors, Angel Martinez.
Well, thanks, Linda, and hello, everyone. Tom, George, Chief financial Officer; Dave Powers, President, Omni Channel; and Zohar Ziv, Chief Operating Officer, are also on the call.
We delivered a very solid quarter with revenues and earnings up over 20% compared to the same period a year ago. Anchored by our company wide consumer centric focus, we believe our evolving Omni Channel strategy and compelling product offering has allowed us to drive increased conversions across our retail and E Commerce channels. We believe that our current momentum has the company well positioned as we head into our biggest, most important selling season.
Our second quarter, the quarter ending September 30th, is a transitional period for our business. The UGG, Teva and Sanuk brands summer collections wrapped up a solid selling season as consumers responded favorably to our improved offering of sandals and casual shoes.
At the same time, HOKA continued to grow at a rapid pace, driven by increased distribution of the brand's innovative running shoes that are now reaching a broader consumer audience.
We started shipping our fall collection for our global wholesale accounts in the second fiscal quarter and began resetting the presentations in our Direct to Consumer channel to reflect the change in seasons. This fall, we focused the UGG brand on providing customers with a more compelling offering of casual fall boots and shoes featuring a sharper opening price point. Our strategy had a positive impact on our sell in, which was the primary driver of our second fiscal quarter growth.
Sell in for the fiscal quarter was ahead of our projections as some international and domestic wholesale customers requested earlier deliveries into this quarter. In terms of sell through, it has been a good start to the fall, with consumer demand for our collections up nicely over last year and in line with our expectations.
Starting with the UGG brand, transitional sneakers, casuals and slippers sold well early in the second quarter, and this was followed by casual boots as consumers responded positively to the styling and stronger price value relationship we introduced this year. With temperatures turning cold in recent weeks, sell through of weather boots and classics have gained pace across the majority of our markets. As we move deeper into the fall season, our classics, including specialty classics, slippers, fashion and cold weather boots, historically our best selling collections, will become a better percentage UGG Classic Short rather bigger percentage of our merchandise offering and the focus of our marketing efforts.
We're also having success outside of women's. Men's casual shoes and boots have consistently sold well since our THIS IS UGG campaign with Tom Brady kicked off at the start of the NFL season. At the same time, early reads on UGG Home and lounge wear, 2 small but burgeoning category for the UGG Boots Cyber Monday brand have been very strong. Both of these categories will have strong presentation this fall and holiday in our DTC channel as well as in many of our important wholesale customers, including Nordstrom, Dillard's and Neiman Marcus.
So overall, we're clearly seeing the benefits of our expanded UGG product line as we build on the strengths of the UGG brand to increase our exposure to new audiences and improve our performance across all seasons.
Teva's performance continues to benefit from the work we've done, positioning the brand's original sports sandal with promotional platforms and events that are culturally relevant to today's market and the audience we want to reach. Our integrated digital PR social and sponsorship campaign has generated over 500 million impressions year to date, significantly broadening Teva's consumer reach. The Originals Collection has been a halo for the brand's entire product line, helping drive sales of flip flops, casual shoes and boots, and hiking boots during UGG Classic Short 5825 Black Boots the second quarter.
To build on current momentum and extend the brand's selling season, this month, we launched an innovative collaboration campaign with Woolrich, titled Socks And Sandals. In addition, we are pulling forward a select 2015 introductions in time for the start of the gift giving season to further support selling, especially in warmer weather locations.
Looking ahead to next year, we're refreshing our Originals line with new colors and new materials, while at the same time leveraging the Originals DNA to launch a new collection of lifestyle footwear, featuring canvas casuals and boots for men and women.
Turning to Sanuk, sales of women's sandals, especially from the brand's popular Yoga Mat collection, performed very well during the quarter. On the men's side, new styles of the brand's iconic Sidewalk Surfer as well as new canvas casuals helped drive sales. The plan is to build early momentum for spring '15 over the next 2 quarters by emphasizing new product introductions in stores and on our website, including women's Yoga Ballet flats, our women's Cat Collection of casual contemporary shoes, and men's casual with a focus on the stylish Boulevard Collection. We believe that we have a great long term potential for Sanuk with the casual footwear market, and believe that we can leverage the brand's authentic surf heritage into more mainstream opportunities.
Turning to HOKA. The second fiscal quarter was highlighted by the introduction of the award winning Clifton, which had a very positive impact on the brand's performance and market perception. With a more commercial aesthetic, the Clifton has broadened HOKA's consumer appeal and helped bolster its position as a serious player in highly competitive world of performance running. The Clifton won Editor's Choice Award from both Runner's World and Competitor Magazine, which has validated HOKA for many runners. The recognition and broad appeal of the Clifton has come at an important time for the brand as we prepare to expand distribution of HOKA beyond running specialty doors and international sporting goods chains early next year. These sporting goods chains, combined with Sports Chalet and others, will put us in 100 sporting goods stores by spring of 2015, and in addition, we're launching a trail running shoe exclusively for REI, called the Challenger ATR, which will be featured this holiday season in all 136 REI doors.
So overall, we're very pleased with how the brand is progressing at this stage and we're excited about the broader distribution opportunities that lie ahead. In support of our strong product collections this holiday season, we've invested in our most comprehensive marketing plan to date, THIS IS UGG, the brand's first global brand marketing campaign, which launched in mid August, will anchor our consumers' outreach strategies across all media, including print, digital, social, in store and out of phone. Continuing with the theme of connecting with consumers on a more emotional level, by showing how the brand fits into consumers' lives, we created 4 expansions of THIS IS UGG for the holidays: This is Magic, This is Joy, This is Warmth and This is Cheer. Each showcase is a different key holiday classic or slipper style against the backdrop of a creatively executed snowflake. This campaign will feature both women's and men's styles and will have a focus on gift giving.
We're also incorporating a new classics campaign aimed at generating top of mind awareness of our classic products, reminding consumers of the love for our heritage iconic boots and their special place in their lives.
Our holiday media plan launches on November 17 and runs until December 28. For this period, we're taking the wins from a successful holiday campaign last year and expanding our relationship with our top performing partners to create targeted advertisements at spike at key times during the season. We'll also be very active on social media with content that ties to seasonal events, such as the arrival of cold wet weather, holiday travel, and of course, gift giving, as the UGG brand is one of the most sought after holiday gifts in the world.
I should note that our new weather related creative on the UGG side and merchandising focus is also helping drive conversion and sales in our women's boots category. We're seeing that there is a very attractive opportunity for the UGG brand to grow in the rainy weather category, and we intend to put more focus on this area in the fourth quarter.
We're really excited about what we planned from a product and marketing standpoint for the holidays, and we believe that our combined efforts will drive consumers to our global Omni Channel network of retail stores, E Commerce website and wholesale partners.
Now let me turn the call over to Dave, who will discuss our Direct to Consumer business and our international wholesale and distributor businesses in more detail. Dave?
Thanks, Angel. Our Direct to Consumer business posted a solid gain with second fiscal quarter totaled sales increasing approximately 26% over the same period last year, and DTC comparable sales, which includes combined worldwide retail same store sales and worldwide E Commerce sales increasing approximately 3% compared to the same period last year. and Europe. We were able to partially offset this headwind by improving conversion by double digits versus a year ago, which we believe underscored the effectiveness of our recent efforts to elevate the in store experience and expand the breadth of our product offering. We remained focused on evolving our DTC model to quickly adapt to changing consumers' shopping behaviors and preferences. As we continue to innovate, we believe the net effect will be consistent growth of our overall DTC business and a positive impact on the company's profitability.
We are continuing to see the benefits stores have on E Commerce sales in markets where we have opened new stores, affirming our Omni Channel approach to creating a seamless shopping experience for consumers. In North American markets, where we have opened up stores in the last 12 months, traffic to the UGG side is up on average over 20% compared with a year ago. Further, while revenue for the UGG brand in North America through our E Commerce site was up approximately 29% in total compared to same stores a year ago to the same period a year ago, we've seen even higher sales in markets where UGG Boots Black Friday we have opened stores. We expect this trend will continue when we open more stores in under penetrated, high traffic areas.