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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2022
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-36436

DECKERS OUTDOOR CORPORATION
(Exact name of registrant as specified in its charter)

Delaware95-3015862
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

250 Coromar Drive, Goleta, California 93117
(Address of principal executive offices and zip code)
(805) 967-7611
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per shareDECKNew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of the close of business on July 14, 2022, the number of outstanding shares of the registrant's common stock, par value $0.01 per share, was 26,531,046.



DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
For the Three Months Ended June 30, 2022
TABLE OF CONTENTS

Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.Defaults Upon Senior Securities*
Item 4.Mine Safety Disclosures*
Item 5.Other Information*
Item 6.

*Not applicable.

1

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS


This Quarterly Report on Form 10-Q for our first fiscal quarter ended June 30, 2022 (Quarterly Report), and the information and documents incorporated by reference within this Quarterly Report, contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), which statements 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. Forward-looking statements include all statements other than statements of historical fact contained in, or incorporated by reference within, this Quarterly Report. We have attempted to identify forward-looking statements by using words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” “will,” or “would,” and similar expressions or the negative of these expressions. Specifically, this Quarterly Report, and the information and documents incorporated by reference within this Quarterly Report, contain forward-looking statements relating to, among other things:

the impacts of the COVID-19 global pandemic (pandemic) on our business, financial condition, results of operations and liquidity, and the business, financial condition, results of operations and liquidity of our customers, suppliers, and business partners;
changes to our business resulting from changes in discretionary spending, consumer confidence, unemployment rates, retail store activity, tourist activity, and governmental restrictions;
the impact of government orders, local authority mandates and expert agency guidance on retail store closures and operating restrictions;
our business, operating, investing, capital allocation, marketing, and financing plans and strategies;
the expansion of our brands and product offerings;
changes to the geographic and seasonal mix of our brands and products;
changes to our product distribution strategies, including the implementation of our product allocation and segmentation strategies;
changes in consumer preferences impacting our brands and products, and the footwear and fashion industries;
trends impacting the purchasing behavior of wholesale partners and consumers, including those impacting retail and e-commerce businesses;
bankruptcies or other financial difficulties impacting our wholesale or other business partners;
the impact of seasonality and weather on consumer behavior, demand for our products, and our results of operations;
the impact of climate change and related regulations on our business and results of operations;
the impact of our efforts to continue to advance sustainable and socially conscious business operations, and the expectations and standards that our investors and other stakeholders have with respect to our environmental, social and governance practices;
expansion of and investments in our Direct-to-Consumer (DTC) capabilities, including our distribution facilities and e-commerce platforms;
the operational challenges faced by our warehouses and distribution centers (DCs), our wholesale partners, our global third-party logistics providers (3PLs), and third-party carriers, including as a result of global supply chain disruptions and labor shortages, and the related impacts on our ability to timely deliver products;
global uncertainty resulting from Russia's invasion of Ukraine, including financial and economic sanctions resulting in higher transportation and energy costs, as well as other implications;
availability of raw materials and manufacturing capacity, and reliability of overseas production and storage;
inflationary pressures, including on labor costs and our raw material costs;
commitments and contingencies, including with respect to operating leases, purchase obligations for product and raw materials, and legal or regulatory proceedings;
the impacts of new or proposed legislation, tariffs, regulatory enforcement actions, or legal proceedings;
the value of goodwill and other intangible assets, and potential write-downs or impairment charges;
changes impacting our tax liability and effective tax rates;
repatriation of earnings of non-United States (US) subsidiaries and any related tax impacts; and,
overall global economic, political, and social trends, including foreign currency exchange rate fluctuations, changes in interest rates, and changes in commodity pricing.

Forward-looking statements represent management’s current expectations and predictions about trends affecting our business and industry and are based on information available at the time such statements are made. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy or completeness. Forward-looking statements involve numerous known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements predicted, assumed, or implied by the forward-looking statements. Some of the risks and uncertainties that may cause our actual results to materially differ from those expressed or implied by these forward-looking statements are described in Part II, Item 1A, "Risk Factors," and Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," within this Quarterly Report, as well as in our other filings with the Securities and Exchange Commission (SEC). You should read this Quarterly Report, including the information and documents incorporated by reference herein, in its entirety and with the understanding that our actual future results may be materially different from the results expressed or implied by these forward-looking statements. Moreover, new risks and uncertainties emerge occasionally, and it is not possible for management to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual future results to be materially different from any results expressed or implied by any forward-looking statements. Except as required by applicable law or the listing rules of the New York Stock Exchange, we expressly disclaim any intent or obligation to update any forward-looking statements. We qualify all our forward-looking statements with these cautionary statements.
2

PART I. FINANCIAL INFORMATION

References within this Quarterly Report to "Deckers," "we," "our," "us," "management," or the "Company" refer to Deckers Outdoor Corporation, together with its consolidated subsidiaries. UGG® (UGG), HOKA® (HOKA), Teva® (Teva), Sanuk® (Sanuk), and Koolaburra® (Koolaburra) are some of the Company's trademarks. Other trademarks or trade names appearing elsewhere within this Quarterly Report are the property of their respective owners. The trademarks and trade names within this Quarterly Report are referred to without the ® and ™ symbols, but such references should not be construed as any indication that their respective owners will not assert their rights to the fullest extent under applicable law.

Unless otherwise indicated, all dollar amounts herein are expressed in thousands, except for per share or share data.

3

ITEM 1. FINANCIAL STATEMENTS

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollar and share data amounts in thousands, except par value)

June 30, 2022March 31, 2022
ASSETS(AUDITED)
Cash and cash equivalents$695,230 $843,527 
Trade accounts receivable, net of allowances ($33,996 and $30,591 as of June 30, 2022, and March 31, 2022, respectively)
321,996 302,688 
Inventories839,509 506,796 
Prepaid expenses30,655 25,610 
Other current assets43,746 55,264 
Income tax receivable18,592 18,243 
Total current assets1,949,728 1,752,128 
Property and equipment, net of accumulated depreciation ($290,725 and $282,571 as of June 30, 2022, and March 31, 2022, respectively) (Note 11)
219,657 222,449 
Operating lease assets172,449 182,459 
Goodwill13,990 13,990 
Other intangible assets, net of accumulated amortization ($78,903 and $79,061 as of June 30, 2022, and March 31, 2022, respectively)
39,120 39,688 
Deferred tax assets, net63,215 64,217 
Other assets55,093 57,319 
Total assets$2,513,252 $2,332,250 
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable$604,104 $327,487 
Accrued payroll38,435 67,553 
Operating lease liabilities47,490 50,098 
Other accrued expenses88,352 81,400 
Income tax payable18,864 12,426 
Value added tax payable2,513 2,720 
Total current liabilities799,758 541,684 
Long-term operating lease liabilities159,305 171,972 
Income tax liability55,446 54,259 
Other long-term liabilities26,336 25,510 
Total long-term liabilities241,087 251,741 
Commitments and contingencies (Note 5)
Stockholders' equity
Common stock ($0.01 par value; 125,000 shares authorized; shares issued and outstanding of 26,599 and 26,982 as of June 30, 2022, and March 31, 2022, respectively)
266 270 
Additional paid-in capital214,517 210,825 
Retained earnings1,297,545 1,352,685 
Accumulated other comprehensive loss (Note 8)
(39,921)(24,955)
Total stockholders' equity1,472,407 1,538,825 
Total liabilities and stockholders' equity$2,513,252 $2,332,250 

See accompanying notes to the condensed consolidated financial statements.
4

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(dollar and share data amounts in thousands, except per share data)
Three Months Ended June 30,
20222021
Net sales (Note 2, Note 10, and Note 11)
$614,461 $504,678 
Cost of sales319,709 244,175 
Gross profit294,752 260,503 
Selling, general, and administrative expenses238,411 198,671 
Income from operations (Note 10)
56,341 61,832 
Interest income(1,214)(482)
Interest expense1,052 896 
Other income, net(499)(233)
Total other (income) expense, net(661)181 
Income before income taxes57,002 61,651 
Income tax expense (Note 4)
12,153 13,527 
Net income44,849 48,124 
Other comprehensive income
Unrealized gain on cash flow hedges, net of tax758 1,458 
Foreign currency translation (loss) gain(15,724)1,893 
Total other comprehensive (loss) income(14,966)3,351 
Comprehensive income$29,883 $51,475 
Net income per share
Basic$1.67 $1.73 
Diluted$1.66 $1.71 
Weighted-average common shares outstanding (Note 9)
Basic26,777 27,813 
Diluted26,948 28,062 

See accompanying notes to the condensed consolidated financial statements.
5

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(amounts in thousands)
Three Months Ended June 30, 2022
Additional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Stockholders'
Equity
Common Stock
SharesAmount
Balance, March 31, 202226,982 $270 $210,825 $1,352,685 $(24,955)$1,538,825 
Stock-based compensation1 — 3,735 — — 3,735 
Shares withheld for taxes— — (43)— — (43)
Repurchases of common stock (Note 8)
(384)(4)— (99,989)— (99,993)
Net income— — — 44,849 — 44,849 
Total other comprehensive loss— — — — (14,966)(14,966)
Balance, June 30, 202226,599 $266 $214,517 $1,297,545 $(39,921)$1,472,407 

Three Months Ended June 30, 2021
Additional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Stockholders'
Equity
Common Stock
SharesAmount
Balance, March 31, 202127,910 $279 $203,310 $1,257,379 $(16,743)$1,444,225 
Stock-based compensation 1 — 5,469 — — 5,469 
Exercise of stock options1 — 69 — — 69 
Shares withheld for taxes— — (85)— — (85)
Repurchases of common stock (Note 8)
(249)(2)— (82,164)— (82,166)
Net Income— — — 48,124 — 48,124 
Total other comprehensive income— — — — 3,351 3,351 
Balance, June 30, 202127,663 $277 $208,763 $1,223,339 $(13,392)$1,418,987 

See accompanying notes to the condensed consolidated financial statements.
6

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
Three Months Ended June 30,
20222021
OPERATING ACTIVITIES
Net income$44,849 $48,124 
Reconciliation of net income to net cash (used in) provided by operating activities:
Depreciation, amortization, and accretion11,705 9,971 
Amortization on cloud computing arrangements380 377 
Bad debt expense (benefit)212 (2,454)
Deferred tax benefit(644)(4,002)
Stock-based compensation3,834 5,558 
Loss on disposal of long-lived assets 15 5 
Impairment of operating lease and other long-lived assets1,068  
Gain on settlement of asset retirement obligations (10)
Changes in operating assets and liabilities:
Trade accounts receivable, net(19,520)(633)
Inventories(332,713)(179,463)
Prepaid expenses and other current assets7,633 (25,375)
Income tax receivable(349)2,472 
Net operating lease assets and lease liabilities(4,900)6,645 
Other assets1,846 (26,451)
Trade accounts payable279,790 152,144 
Other accrued expenses(30,580)(34,418)
Income tax payable6,439 4,048 
Other long-term liabilities2,014 7,130 
Net cash used in operating activities(28,921)(36,332)
INVESTING ACTIVITIES
Purchases of property and equipment(12,467)(15,515)
Net cash used in investing activities(12,467)(15,515)
FINANCING ACTIVITIES
Proceeds from exercise of stock options 69 
Repurchases of common stock(99,993)(82,166)
Cash paid for shares withheld for taxes(43)(85)
Net cash used in financing activities(100,036)(82,182)
Effect of foreign currency exchange rates on cash and cash equivalents(6,873)1,380 
Net change in cash and cash equivalents(148,297)(132,649)
Cash and cash equivalents at beginning of period843,527 1,089,361 
Cash and cash equivalents at end of period$695,230 $956,712 


7

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
(continued)
Three Months Ended June 30,
20222021
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid during the period
Income taxes, net of refunds of $250 and $0, as of June 30, 2022, and 2021, respectively
$13,313 $10,811 
Interest525 493 
Operating leases17,589 14,055 
Non-cash investing activities
Change in accounts payable and other accrued expenses for purchases of property and equipment(3,658)2,510 
Accrued for asset retirement obligation assets related to leasehold improvements561 3,288 
Leasehold improvements acquired through tenant allowances 4,061 

See accompanying notes to the condensed consolidated financial statements.
8

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
Note 1. General

The Company. Deckers Outdoor Corporation and its wholly owned subsidiaries (collectively, the Company) is a global leader in designing, marketing, and distributing innovative footwear, apparel, and accessories developed for both everyday casual lifestyle use and high-performance activities. As part of its omni-channel platform, the Company's proprietary brands are aligned across its Fashion Lifestyle group, including the UGG and Koolaburra brands, and Performance Lifestyle group, including the HOKA, Teva, and Sanuk brands.

The Company sells its products through domestic and international retailers, international distributors, and directly to its global consumers through its DTC business, which is comprised of its retail stores and e‑commerce websites. Independent third-party contractors manufacture all of the Company's products. A significant part of the UGG brand business has historically been seasonal, requiring the Company to build inventory levels during certain quarters in its fiscal year to support higher selling seasons, which has contributed to the variation in its results from quarter to quarter. However, as the Company continues to take steps to diversify and expand its product offerings by creating more year-round styles, and as net sales of the HOKA brand continue to increase as a percentage of our aggregate net sales, the Company expects the impact from seasonality to continue to decrease over time.

Basis of Presentation. The unaudited condensed consolidated financial statements and accompanying notes thereto (referred to herein as condensed consolidated financial statements) as of June 30, 2022 and for the three months ended June 30, 2022 (current fiscal quarter) and 2021 (the prior period) are prepared in accordance with generally accepted accounting principles in the US (US GAAP) for interim financial information pursuant to Rule 10-01 of Regulation S-X issued by the SEC. Accordingly, the condensed consolidated financial statements do not include all the information and disclosures required by US GAAP for annual financial statements and accompanying notes thereto. The condensed consolidated balance sheet as of March 31, 2022, is derived from the Company's audited consolidated financial statements. In the opinion of management, the condensed consolidated financial statements include all normal and recurring entries necessary to fairly present the results of the interim periods presented but are not necessarily indicative of actual results to be achieved for full fiscal years or other interim periods. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022, which was filed with the SEC on May 27, 2022 (2022 Annual Report).

Consolidation. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates. The preparation of the Company's condensed consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the amounts reported. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements, and other factors that management believes to be reasonable. In addition, the Company has considered the potential impact of the pandemic, as well as certain macroeconomic factors, including inflation, rising interest rates, and recessionary pressures, on its business and operations. Although the full impact of these factors are unknown and cannot be reasonably estimated, the Company believes it has made appropriate accounting estimates and assumptions based on the facts and circumstances available as of the reporting date. However, actual results could differ materially from these estimates and assumptions, which may result in material effects on the Company's financial condition, results of operations, and liquidity. To the extent there are differences between these estimates and actual results, the Company's condensed consolidated financial statements may be materially affected.

Significant areas requiring the use of management estimates and assumptions relate to inventory write-downs; trade accounts receivable allowances, including variable consideration for net sales provided to customers; contract assets and liabilities; stock-based compensation; impairment assessments, including for goodwill, other intangible assets, and long-lived assets; depreciation and amortization; income tax receivables and liabilities; uncertain tax positions; the fair value of financial instruments; the reasonably certain lease term; lease classification; and the Company's incremental borrowing rate utilized to measure its operating lease assets and lease liabilities.
9

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)

Reportable Operating Segments. The Company's six reportable operating segments include the worldwide wholesale operations for each of the UGG brand, HOKA brand, Teva brand, Sanuk brand, and Other brands, as well as DTC (collectively, the Company's reportable operating segments). Refer to Note 10, “Reportable Operating Segments,” for further information on the Company's reportable operating segments.

Impairment of Operating Lease and Other Long-Lived Assets. During the three months ended June 30, 2022, the Company recorded impairment charges of $1,068 within its DTC reportable operating segment in selling, general, and administrative (SG&A) expenses in the condensed consolidated statements of comprehensive income for retail store related operating lease assets and leasehold improvements (asset group). These impairment charges were due to underperformance of certain retail stores that resulted in the carrying value exceeding the estimated fair value of the asset group, which is based on discounted future cash flows. For the three months ended June 30, 2021, the Company recorded no impairment charges on operating lease and other long-lived assets.

Recent Accounting Pronouncements. The Financial Accounting Standards Board has issued Accounting Standard Updates (ASU) that have not yet been adopted by the Company for its annual and interim reporting periods, as stated below.

Not Yet Adopted. The following is a summary of each ASU issued that is applicable to and has not yet been adopted, as well as the planned period of adoption, and the expected impact on the Company upon its adoption:
StandardDescriptionPlanned Period of AdoptionExpected Impact Upon Adoption
ASU No. 2020-04, 
Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting
(as amended by ASU 2021-01)
London Interbank Offered Rate (LIBOR) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. At the end of calendar year 2021, banks will no longer be required to report information that is used to determine LIBOR. As a result, LIBOR could be discontinued. Other interest rates used globally could also be discontinued for similar reasons.


This ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. Guidance is limited for adoption through December 31, 2022.
Q3 FY 2023The Company is currently evaluating the impact of the adoption of this ASU on its revolving credit facilities, lease agreements, and other transactions; however, the Company does not expect that the adoption will have a material impact on its condensed consolidated financial statements.

Note 2. Revenue Recognition

Revenue is recognized when a performance obligation is completed at a point in time and when the customer has obtained control. Control passes to the customer when they have the ability to direct the use of, and obtain substantially all the remaining benefits from, the goods transferred. The amount of revenue recognized is based on the transaction price, which represents the invoiced amount less known actual amounts or estimates of variable consideration.

Variable Consideration. Components of variable consideration include estimated sales discounts, markdowns or chargebacks, and sales returns. Estimates for variable consideration are based on the amounts earned or estimates to be claimed as an adjustment to sales. Estimated variable consideration is included in the transaction price to the extent it is probable that a significant reversal of the cumulative revenue recognized will not occur in a future period. The Company's customer contracts do not have a significant financing component due to their short durations, which are typically effective for one year or less and have payment terms that are generally 30 to 60 days.

10

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
Sales Return Asset and Liability. Reserves are recorded for anticipated future returns of goods shipped prior to the end of the reporting period. In general, the Company accepts returns for damaged or defective products for up to one year. The Company also has a policy whereby returns are generally accepted from customers and end consumers between 30 to 90 days from the point of sale for cash or credit. The amounts of these reserves are determined based on several factors, including known and actual historical returns and any recent events that could result in a change from historical return rates. Sales returns are a refund asset for the right to recover the inventory and a refund liability for the stand-ready right of return. Changes to the refund liability are recorded against gross sales and changes to the refund asset for the right to recover the inventory are recorded against cost of sales in the condensed consolidated statements of comprehensive income. The refund liability is recorded in other accrued expenses and the related asset for the right to recover the inventory is recorded in other current assets in the condensed consolidated balance sheets.

Activity during the three months ended June 30, 2022, related to estimated sales returns were as follows:
Recovery AssetRefund Liability
Balance, March 31, 2022$11,491 $(39,867)
Net additions to sales return liability*13,844 (40,498)
Actual returns(12,680)41,017 
Balance, June 30, 2022$12,655 $(39,348)

Activity during the three months ended June 30, 2021, related to estimated sales returns were as follows:
Recovery AssetRefund Liability
Balance, March 31, 2021$10,704 $(37,717)
Net additions to sales return liability*5,803 (20,896)
Actual returns(6,750)27,883 
Balance, June 30, 2021$9,757 $(30,730)

*Net additions to the sales return liability include a provision for anticipated sales returns, which consists of both contractual return rights and discretionary authorized returns.

Contract Liabilities. Contract liabilities are performance obligations that the Company expects to satisfy or relieve within the next 12 months, advance consideration obtained prior to satisfying a performance obligation, or unconditional obligations to provide goods or services under non-cancelable contracts before the transfer of goods or services to the customer has occurred. Contract liabilities are recorded in other accrued expenses in the condensed consolidated balance sheets.

Loyalty Programs. The Company has a loyalty program for the UGG brand in its DTC channel where consumers can earn rewards from qualifying purchases or activities. The Company defers recognition of revenue for unredeemed awards until one of the following occurs: (1) rewards are redeemed by the consumer, (2) points or certificates expire, or (3) an estimate of the expected unused portion of points or certificates is applied, which is based on historical redemption patterns. The Company’s contract liability for loyalty programs is recorded in other accrued expenses in the condensed consolidated balance sheets.

Activity during the three months ended June 30, 2022, related to loyalty programs were as follows:
Amounts
Balance, March 31, 2022$(10,883)
Redemptions and expirations for loyalty certificates and points recognized in net sales4,649 
Deferred revenue for loyalty points and certificates issued(3,760)
Balance, June 30, 2022$(9,994)

11

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
Activity during the three months ended June 30, 2021, related to loyalty programs were as follows:
Amounts
Balance, March 31, 2021$(12,231)
Redemptions and expirations for loyalty certificates and points recognized in net sales6,121 
Deferred revenue for loyalty points and certificates issued(5,001)
Balance, June 30, 2021$(11,111)

Deferred Revenue. Revenue is deferred for wholesale channel transactions when certain conditions outlined within the contract terms, including the transfer of control or delivery of product, has not occurred, such as when a wholesale channel customer prepays for ordered product. The contract liability for deferred revenue is recorded in other accrued expenses in the condensed consolidated balance sheets.

Activity during the three months ended June 30, 2022, related to deferred revenue were as follows:
Amounts
Balance, March 31, 2022$(15,804)
Additions of customer cash payments(20,510)
Revenue recognized12,429 
Balance, June 30, 2022$(23,885)

Activity during the three months ended June 30, 2021, related to deferred revenue were as follows:
Amounts
Balance, March 31, 2021$(5,425)
Additions of customer cash payments(18,047)
Revenue recognized5,163 
Balance, June 30, 2021$(18,309)

Refer to Note 10, “Reportable Operating Segments,” for further information on the Company's disaggregation of revenue by reportable operating segment.

Note 3. Fair Value Measurements

The accounting standard for fair value measurements provides a framework for measuring fair value, which is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy under this accounting standard requires an entity to maximize the use of observable inputs, where available.

The following summarizes the three levels of inputs required:

Level 1: Quoted prices in active markets for identical assets and liabilities.

Level 2: Observable inputs other than quoted prices in active markets for identical assets and liabilities.

Level 3: Unobservable inputs in which little or no market activity exists, therefore requiring the Company to develop its own assumptions.

12

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
The carrying amount of the Company’s financial instruments, which principally include cash and cash equivalents, trade accounts receivable, net; trade accounts payable, accrued payroll, and other accrued expenses, approximates fair value due to their short-term nature. When the Company makes short-term borrowings, the carrying amounts, which are considered Level 2 liabilities, approximates fair value based upon current rates and terms available to the Company for similar debt. The Company does not currently have any Level 3 assets or liabilities.

Assets and liabilities that are measured on a recurring basis at fair value in the condensed consolidated balance sheets are as follows:
As ofMeasured Using
June 30, 2022Level 1Level 2Level 3
Money-market funds$381,828 $381,828 $ $ 
Non-qualified deferred compensation asset 7,614 7,614   
Non-qualified deferred compensation liability(9,901)(9,901)  
Designated Derivative Contracts asset1,000  1,000  
Non-Designated Derivative Contracts asset80  80  
As ofMeasured Using
March 31, 2022Level 1Level 2Level 3
Money-market funds$524,063 $524,063 $ $ 
Non-qualified deferred compensation asset 8,933 8,933   
Non-qualified deferred compensation liability(9,573)(9,573)  

The carrying value of money-market funds approximates the fair value as it is considered a highly liquid investment with an original maturity of three months or less when purchased. Money-market funds are recorded in cash and cash equivalents in the condensed consolidated balance sheets.

The fair value of foreign currency forward or option contracts are determined using quoted forward spot rates at the end of the applicable reporting period from counterparties, which are corroborated by market-based pricing (Level 2). The fair values of assets and liabilities associated with derivative instruments and hedging activities are recorded in other current assets and other accrued expenses, respectively, in the condensed consolidated balance sheets. Refer to Note 7, “Derivative Instruments,” for further information, including definitions of the terms Designated Derivative Contracts and Non-Designated Derivative Contracts.

The Company sponsors an unfunded, non-qualified deferred compensation plan (NQDC Plan) that permits certain members of its management team the opportunity to defer compensation into the NQDC Plan. A rabbi trust was established as a reserve for benefits payable under the NQDC Plan, with the assets invested in Company-owned life insurance policies. Deferred compensation is recognized based on the fair value of the participants' accounts. As of June 30, 2022, the non-qualified deferred compensation asset of $7,614 is recorded in other assets in the condensed consolidated balance sheets. As of June 30, 2022, the non-qualified deferred compensation liability of $9,901 is recorded in the condensed consolidated balance sheets, with $630 in other accrued expenses and $9,271 in other long-term liabilities. As of March 31, 2022, the non-qualified deferred compensation asset of $8,933 is recorded in other assets in the condensed consolidated balance sheets. Further, the non-qualified deferred compensation liability of $9,573 is recorded in the condensed consolidated balance sheets, with $936 in other accrued expenses and $8,637 in other long-term liabilities.


13

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
Note 4. Income Taxes

Income tax expense and the effective income tax rate were as follows:
Three Months Ended June 30,
20222021
Income tax expense$12,153 $13,527 
Effective income tax rate21.3 %21.9 %

The tax provisions during the three months ended June 30, 2022, and 2021 were computed using the estimated effective income tax rate applicable to each of the domestic and foreign taxable jurisdictions for the fiscal years ending March 31, 2023, and March 31, 2022, respectively, and were adjusted for discrete items that occurred within the periods presented above.

During the three months ended June 30, 2022, the decrease in the effective income tax rate, compared to the prior period, was primarily due to lower income from operations, and changes in jurisdictional mix of worldwide income before income taxes. Further, there were higher net discrete tax benefits, primarily due to foreign return to provision adjustments, partially offset by higher reserves for uncertain tax position adjustments for foreign and state audits, and a lower deduction for stock-based compensation.

Note 5. Commitments and Contingencies

Leases. The Company primarily leases retail stores, showrooms, offices, and distribution facilities under operating lease contracts. Some of the Company's operating leases contain extension options between one to 15 years. Historically, the Company has not entered into finance leases and its lease agreements generally do not contain residual value guarantees, options to purchase underlying assets, or material restrictive covenants.

Supplemental information for amounts presented in the condensed consolidated statements of cash flows related to operating leases, was as follows:
Three Months Ended June 30,
20222021
Non-cash operating activities
Operating lease assets obtained in exchange for lease liabilities*$6,207 $13,364 
Reductions to operating lease assets for reductions to lease liabilities*(276)(381)

*Amounts disclosed include non-cash additions or reductions resulting from lease remeasurements.

Operating lease liabilities recorded in the condensed consolidated balance sheets exclude an aggregate of $52,379 of undiscounted minimum lease payments due pursuant to leases signed but not yet commenced. These leases are primarily for additional space, which the Company expects to be operational in the third quarter of the fiscal year ending March 31, 2024 (next fiscal year), at the Company’s US warehouse and DC in Mooresville, Indiana with an initial lease term of ten years, as well as a new international UGG brand flagship retail store with an initial term of five years, which the Company expects to be opened in the first quarter of its next fiscal year.

Litigation. From time to time, the Company is involved in various legal proceedings, disputes, and other claims arising in the ordinary course of business, including employment, intellectual property, and product liability claims. Although the results of these matters cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not, individually or in the aggregate, have a material adverse effect on its business, results of operations, financial condition, or cash flows. However, regardless of the outcome, these ordinary course matters can have an adverse impact on the Company because of legal costs, diversion of management time and resources, and other factors.
14

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
Note 6. Stock-Based Compensation

From time to time, the Company grants various types of stock-based compensation under the 2015 Stock Incentive Plan (2015 SIP), including time-based restricted stock units (RSUs), performance-based restricted stock units (PSUs), and long-term incentive plan PSUs (LTIP PSUs), to key personnel, including employees and directors. During the three months ended June 30, 2022, no additional awards were granted under the 2015 SIP, except for the RSU grant activity summarized below. Refer to Note 8, “Stock-Based Compensation,” of our consolidated financial statements in Part IV of our 2022 Annual Report for further information on previously granted awards under the 2015 SIP.    

Annual Awards. The Company granted the following awards under the 2015 SIP during the periods presented, which are recorded in the condensed consolidated statements of comprehensive income:

Three Months Ended June 30,
20222021
Shares GrantedWeighted-average grant date fair value per shareShares GrantedWeighted-average grant date fair value per share
RSUs2,198 $272.68 4,073 $335.87 

RSUs are subject to time-based vesting criteria and typically vest in equal annual installments over three years following the date of grant. PSUs are typically earned based on the achievement of pre-established Company performance criteria measured over the fiscal year during which they are granted, and, to the extent the performance criteria are met, vest in equal annual installments over three years thereafter.

Stock-based compensation is recorded net of estimated forfeitures in SG&A expenses in the condensed consolidated statements of comprehensive income. Future unrecognized stock-based compensation for annual awards, including RSUs and PSUs outstanding as of June 30, 2022, was $10,513.

Note 7. Derivative Instruments

The Company enters into foreign currency forward or option contracts (derivative contracts), generally with maturities of 15 months or less, to manage foreign currency risk and certain of these derivative contracts are designated as cash flow hedges of forecasted sales (Designated Derivative Contracts). The Company may also enter into derivative contracts that are not designated as cash flow hedges (Non-Designated Derivative Contracts), to offset a portion of anticipated gains and losses on certain intercompany balances until the expected time of repayment. The Company does not use derivative contracts for trading purposes.

The after-tax unrealized gains or losses from changes in fair value of Designated Derivative Contracts are recorded as a component of accumulated other comprehensive loss (AOCL) and are reclassified to net sales in the condensed consolidated statements of comprehensive income in the same period or periods as the related sales are recognized. When it is probable that a forecasted transaction will not occur, the Company discontinues hedge accounting and the accumulated gains or losses in AOCL related to the hedging relationship are immediately recorded in other comprehensive income (OCI) in the condensed consolidated statements of comprehensive income. The Company includes all hedge components in its assessment of effectiveness for its derivative contracts.

Changes in the fair value of Non-Designated Derivative Contracts are recorded in SG&A expenses in the condensed consolidated statements of comprehensive income. The changes in fair value for these contracts are generally offset by the remeasurement gains or losses associated with the underlying foreign currency-denominated intercompany balances, which are recorded in SG&A expenses in the condensed consolidated statements of comprehensive income.

15

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
As of June 30, 2022, the Company has the following derivative contracts recorded at fair value in the condensed consolidated balance sheets:
Designated
Derivative Contracts
Non-Designated Derivative ContractsTotal
Notional value$39,684 $7,841 $47,525 
Fair value recorded in other current assets1,000 80 1,080 

As of June 30, 2022, the Company's outstanding derivative contracts are held by an aggregate of two counterparties, all with various maturity dates within the next nine months. As of March 31, 2022, the Company has no outstanding derivative contracts.

The following table summarizes the effect of Designated Derivative Contracts and the related income tax effects of unrealized gains or losses recorded in the condensed consolidated statements of comprehensive income for changes in AOCL:
Three Months Ended June 30,
20222021
Gain recorded in Other comprehensive income$1,000 $1,924 
Income tax expense in Other comprehensive income(242)(466)
Total$758 $1,458 

The following table summarizes the effect of Non-Designated Derivative Contracts recorded in the condensed consolidated statements of comprehensive income:
Three Months Ended June 30,
20222021
Gain recorded in SG&A expenses$80 $335 

The non-performance risk of the Company and the counterparties did not have a material impact on the fair value of its derivative contracts. As of June 30, 2022, the amount of unrealized gains on derivative contracts recorded in AOCL is expected to be reclassified into net sales within the next nine months. Refer to Note 8, “Stockholders' Equity,” for further information on the components of AOCL.

Note 8. Stockholders' Equity

Stock Repurchase Program. The Company's Board of Directors has approved various authorizations under the Company's stock repurchase program to repurchase shares of its common stock (collectively, the stock repurchase program). The stock repurchase program does not obligate the Company to acquire any amount of common stock and may be suspended at any time at the Company's discretion. As of June 30, 2022, the aggregate remaining approved amount under the stock repurchase program is $354,014.

Stock repurchase activity under the Company's stock repurchase program during the three months ended June 30, 2022, was as follows:
Amounts
Total number of shares repurchased*384,413 
Average price paid per share$260.12 
Dollar value of shares repurchased**$99,993 

*All stock repurchases were made pursuant to the Company's publicly announced stock repurchase program in open-market transactions.
** May not calculate on rounded dollars.
16

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)

Subsequent to June 30, 2022, through July 14, 2022, the Company repurchased 68,674 shares at an average price of $262.09 per share for $17,999 and had $336,015 remaining authorized under the stock repurchase program. Refer to Note 12, “Subsequent Events,” for further information on the approval of an additional stock repurchase authorization.

Accumulated Other Comprehensive Loss. The components within AOCL recorded in the condensed consolidated balance sheets are as follows:
 June 30, 2022March 31, 2022
Unrealized gain on cash flow hedges, net of tax$758 $ 
Cumulative foreign currency translation loss(40,679)(24,955)
Total $(39,921)$(24,955)

Note 9. Basic and Diluted Shares

The reconciliation of basic to diluted weighted-average common shares outstanding was as follows:
 Three Months Ended June 30,
 20222021
Basic26,777,000 27,813,000 
Dilutive effect of equity awards171,000 249,000 
Diluted26,948,000 28,062,000 
Excluded
RSUs and PSUs18,000  
LTIP PSUs50,000 104,000 
Deferred Non-Employee Director Equity Awards2,000  

Excluded Awards. The equity awards excluded from the calculation of the dilutive effect have been excluded due to one of the following: (1) the shares were antidilutive; (2) the necessary conditions had not been satisfied for the shares to be deemed issuable based on the Company's performance for the relevant performance period; or (3) the Company recorded a net loss during the period presented (such that inclusion of these equity awards in the calculation would have been anti-dilutive). The number of shares stated for each of these excluded awards is the maximum number of shares issuable pursuant to these awards. For those awards subject to the achievement of performance criteria, the actual number of shares to be issued pursuant to such awards will be based on Company performance in future periods, net of forfeitures, and may be materially lower than the number of shares presented, which could result in a lower dilutive effect, respectively.

Note 10. Reportable Operating Segments

Information reported to the Chief Operating Decision Maker (CODM), who is the Company's Chief Executive Officer (CEO), President, and Principal Executive Officer (PEO), is organized into the Company's six reportable operating segments and is consistent with how the CODM evaluates performance and allocates resources. The Company does not consider international operations to be a separate reportable operating segment, and the CODM reviews such operations in the aggregate with the reportable operating segments.

Segment Net Sales and Income from Operations. The Company evaluates reportable operating segment performance primarily based on net sales and income (loss) from operations. The wholesale operations of each brand are generally managed separately because each requires different marketing, research and development, design, sourcing, and sales strategies. The income (loss) from operations of each of the reportable operating segments includes only those costs which are specifically related to each reportable operating segment, which consist primarily of cost of sales, research and development, design, sales and marketing, depreciation,
17

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
amortization, and the direct costs of employees within those reportable operating segments. The Company does not allocate corporate overhead costs or non-operating income and expenses to reportable operating segments, which include unallocable overhead costs associated with the Company's warehouses and DC's, certain executive and stock-based compensation, accounting, finance, legal, information technology (IT), human resources, and facilities, among others. Inter-segment sales from the Company’s wholesale reportable operating segments to the DTC reportable operating segment are at the Company’s cost, and there is no inter-segment profit on these inter-segment sales, nor are they reflected in income (loss) from operations of the wholesale reportable operating segments as these transactions are eliminated in consolidation. Reportable operating segment information, with a reconciliation to the condensed consolidated statements of comprehensive income, was as follows:
Three Months Ended June 30,
20222021
Net sales
UGG brand wholesale$137,862 $135,056 
HOKA brand wholesale231,885 151,147 
Teva brand wholesale46,895 43,359 
Sanuk brand wholesale10,726 10,382 
Other brands wholesale1,993 4,306 
Direct-to-Consumer185,100 160,428 
Total$614,461 $504,678 
Income (loss) from operations
UGG brand wholesale$30,665 $35,838 
HOKA brand wholesale69,616 46,363 
Teva brand wholesale12,493 14,503 
Sanuk brand wholesale2,466 3,404 
Other brands wholesale(469)2,707 
Direct-to-Consumer41,220 39,683 
Unallocated overhead costs(99,650)(80,666)
Total$56,341 $61,832 

Segment Assets. Assets allocated to each reportable operating segment include trade accounts receivable, net; inventories; property and equipment, net; operating lease assets, goodwill, other intangible assets, net; and certain other assets that are specifically identifiable for one of the Company's reportable operating segments. Unallocated assets are those assets not directly related to a specific reportable operating segment and generally include cash and cash equivalents, deferred tax assets, net; and various other corporate assets shared by the Company's reportable operating segments. Assets allocated to each reportable operating segment, with a reconciliation to the condensed consolidated balance sheets, are as follows:
June 30, 2022March 31, 2022
Assets
UGG brand wholesale$620,608 $382,837 
HOKA brand wholesale394,862 293,025 
Teva brand wholesale87,074 91,140 
Sanuk brand wholesale42,393 40,766 
Other brands wholesale44,188 32,429 
Direct-to-Consumer188,600 191,193 
Total assets from reportable operating segments1,377,725 1,031,390 
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DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three Months Ended June 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
June 30, 2022March 31, 2022
Unallocated cash and cash equivalents695,230 843,527 
Unallocated deferred tax assets, net63,215 64,217 
Unallocated other corporate assets377,082 393,116 
Total$2,513,252 $2,332,250 

Note 11. Concentration of Business

Regions and Customers. The Company sells its products globally to customers and end consumers in various countries, with net sales concentrations as follows:
Three Months Ended June 30,
20222021
International net sales$229,946 $168,619 
% of net sales37.4 %33.4 %
Net sales in foreign currencies$108,941 $89,433 
% of net sales17.7 %17.7 %
Ten largest customers as % of net sales29.5 %26.5 %

For the three months ended June 30, 2022, and 2021, no single foreign country comprised 10.0% or more of the Company's total net sales and no single customer accounted for 10.0% or more of the Company's net sales. As of June 30, 2022, the Company has one customer that represents 14.6% of trade accounts receivable, net, compared to one customer that represents 11.2% of trade accounts receivable, net, as of March 31, 2022. Management performs regular evaluations concerning the ability of the Company’s customers to satisfy their obligations to the Company and recognizes an allowance for doubtful accounts based on these evaluations.

Suppliers. The Company's production is concentrated at a limited number of independent manufacturing factories, primarily in Asia. Sheepskin is the principal raw material for certain UGG brand products and most of the Company's sheepskin is purchased from two tanneries in China, which is sourced primarily from Australia and the United Kingdom (UK). The Company believes significant factors affecting the price of sheepskin include weather patterns, harvesting decisions, incidence of disease, the price of other commodities such as wool and leather, the demand for the Company's products and the products of its competitors, the use of substitute products or components, and global economic conditions.

Long-Lived Assets. Long-lived assets, which consist of property and equipment, net, recorded in the condensed consolidated balance sheets, are as follows:
 June 30, 2022March 31, 2022
United States$205,794 $208,078 
Foreign*13,863 14,371 
Total$219,657 $222,449 

*No single foreign country’s property and equipment, net, represents 10.0% or more of the Company’s total property and equipment, net, as of June 30, 2022, and March 31, 2022.

Note 12. Subsequent Events

On July 27, 2022, the Company's Board of Directors approved an increase of $1,200,000 to the Company's stock repurchase authorization, bringing the aggregate outstanding share repurchase authorization to approximately $1,500,000 at this date. Refer to Note 8, “Stockholders' Equity,” for further information on the Company's stock repurchase program.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read together with our condensed consolidated financial statements and the related notes, included in Part I, Item 1, "Financial Statements," within this Quarterly Report, and the audited consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data," of our 2022 Annual Report.

Certain statements made in this section constitute "forward-looking statements," which are subject to numerous risks and uncertainties, including those described in this section. Our actual results of operations may differ materially from those expressed or implied by these forward-looking statements as a result of many factors, including those set forth in the section entitled “Cautionary Note Regarding Forward-Looking Statements” and Part II, Item 1A, "Risk Factors," within this Quarterly Report.

Overview

We are a global leader in designing, marketing, and distributing innovative footwear, apparel, and accessories developed for both everyday casual lifestyles use and high-performance activities. We market our products primarily under five proprietary brands: UGG, HOKA, Teva, Sanuk, and Koolaburra. We believe that our products are distinctive and appeal to a broad demographic. We sell our products through quality domestic and international retailers, international distributors, and directly to our global consumers through our DTC business, which is comprised of our e-commerce websites and retail stores. We seek to differentiate our brands and products by offering diverse lines that emphasize authenticity, functionality, quality, and comfort, and products tailored to a variety of activities, seasons, and demographic groups. All of our products are currently manufactured by independent manufacturers.

Financial Highlights

Consolidated financial performance highlights for the three months ended June 30, 2022, compared to the prior period, were as follows:

Net sales increased 21.8% to $614,461.
Channel
Wholesale channel net sales increased 24.7% to $429,361.
DTC channel net sales increased 15.4% to $185,100.
Geography
Domestic net sales increased 14.4% to $384,515.
International net sales increased 36.4% to $229,946.
Gross profit as a percentage of net sales (gross margin) decreased 360 basis points to 48.0%.
Income from operations decreased 8.9% to $56,341.
Diluted earnings per share decreased by $0.05 per share to $1.66 per share.

Trends and Uncertainties Impacting Our Business and Industry

We expect our business and the industry in which we operate will continue to be impacted by several important trends and uncertainties, including the following:
Supply Chain

Similar to other companies in our industry, we continue to experience global supply chain challenges. Extended transit lead times and ocean freight cost pressures, including due to container shortages and port congestion, had the most significant impact on our business and results of operations during the current fiscal quarter. Although we are beginning to see improvements in transit lead times compared to the prior period, these disruptions required a higher usage of air freight (almost exclusively for the HOKA brand) and we continued to incur higher ocean freight costs compared to the prior period, which negatively impacted our gross margin during the current fiscal quarter. We expect to continue to experience negative impacts from ocean freight costs in future periods. As we manage product availability in all channels, we believe we can reduce the need for higher air freight costs through the early procurement of inventory in the country of sale, which has resulted in higher levels of inventory to allow us to maintain expected service
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levels. We remain focused on implementing our long-term growth strategy and will continue to be flexible in adapting to fluid conditions, including implementing additional measures to mitigate the effects of supply chain disruptions.

We continue to encounter headwinds transitioning to our new European 3PL as that provider refines its system and delivery levels, which have exacerbated supply chain pressures. While this transition has been difficult in the current logistics environment, we believe this is a critical investment to create long-term capacity to facilitate future growth.

Brand and Omni-Channel Strategy

We remain focused on accelerating consumer adoption of the HOKA brand globally with all geographic regions and distribution channels experiencing significant year-round growth, which has positively impacted our seasonality trends. Our efforts to drive HOKA brand performance are primarily focused on distribution management, launching innovative product offerings and global marketing campaigns to drive brand awareness, and further expanding the HOKA brand presence through select owned and operated retail stores. For example, we are working towards opening our first US HOKA brand permanent location in New York City during spring of calendar year 2023, with an elevated store design fit for our premier performance brand.

Our marketplace strategies in Europe and Asia (international reset strategies) have continued to drive UGG brand awareness and consumer acquisition by building a foundation of diversified and counter-seasonal product acceptance, especially with younger consumers, through localized marketing investments. However, we expect negative impacts to potential UGG brand international growth due to unfavorable foreign currency exchange rates anticipated to continue during our fiscal year ending March 31, 2023 (current fiscal year).

We continue to adopt selective price increases as appropriate by brand and product, which we believe can help mitigate the impacts of higher freight costs and experienced some benefits during the current fiscal quarter for the HOKA brand.

Refer to Part I, Item 1A, “Risk Factors,” of our 2022 Annual Report, for detailed information on the risks and uncertainties that have the potential to cause our actual results to differ materially from our expectations.

Reportable Operating Segment Overview

Our six reportable operating segments include the worldwide wholesale operations of the UGG brand, HOKA brand, Teva brand, Sanuk brand, and Other brands, as well as DTC. Information reported to the CODM, who is our CEO, President, and PEO, is organized into these reportable operating segments and is consistent with how the CODM evaluates our performance and allocates resources.

UGG Brand. The UGG brand is one of the most iconic and recognized brands in our industry, which highlights our successful track record of building niche brands into lifestyle and fashion market leaders. With loyal consumers around the world, the UGG brand has proven to be a highly resilient line of premium footwear, apparel, and accessories with expanded product offerings and a growing global audience that appeals to a broad demographic.

HOKA Brand. The HOKA brand is an authentic premium line of year-round performance footwear that offers enhanced cushioning and inherent stability with minimal weight, apparel, and accessories. Originally designed for ultra-runners, the brand now appeals to world champions, taste makers, and everyday athletes. Strong marketing has fueled both domestic and international sales growth of the HOKA brand, which has quickly become a leading brand within run and outdoor specialty wholesale accounts and is rapidly growing within selective key accounts. As a result, the HOKA brand is bolstering its net sales, which continue to increase as a percentage of our aggregate net sales.

Teva Brand. The Teva brand created the very first sport sandal when it was founded in the Grand Canyon in 1984. Since then, the Teva brand has grown into a multi-category modern outdoor lifestyle brand offering a range of performance, casual, and trail lifestyle products, and has emerged as a leader in footwear sustainability observed through recent growth fueled by young and diverse consumers passionate for the outdoors and the planet.

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Sanuk Brand. The Sanuk brand originated in Southern California surf culture and has emerged into a lifestyle brand with a presence in the relaxed casual shoe and sandal categories with a focus on innovation in comfort and sustainability. The Sanuk brand’s use of unexpected materials and unconventional constructions, combined with its fun and playful branding, are key elements of the brand's identity.

Other Brands. Other brands consist primarily of the Koolaburra brand. The Koolaburra brand is a casual footwear fashion line using plush materials and is intended to target the value-oriented consumer in order to complement the UGG brand offering.

Refer to the “Reportable Operating Segment Overview,” in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” of our 2022 Annual Report for further discussion of our outlook on consumer demand drivers for our UGG, HOKA, Teva, Sanuk, and Other brands products.

Direct-to-Consumer. Our DTC business encompasses all our brands and is comprised of our e-commerce websites and retail stores that are intertwined and interdependent in an omni-channel marketplace.

E-Commerce Business. Our global e-commerce business provides us with an opportunity to directly engage with and communicate a consistent brand message to consumers that is in line with our brands’ promises, encourages awareness of key brand initiatives, offers targeted information to specific consumer demographics, and drives consumers to our retail stores.

Retail Business. Our global Company-owned retail stores are predominantly UGG brand concept stores and UGG brand outlet stores, as well as new openings for HOKA brand stores.

Flagship Stores. Primarily located in major tourist locations, these are lead stores in prominent locations designed to showcase UGG and HOKA brand products in mono branded stores that are typically larger than our general concept stores with broader product offerings and greater traffic that enhance our interaction with our consumers and increase brand loyalty.

Shop-in-Shop Stores (SIS). Concept stores for which we own the inventory and that are operated by us or non-employees within a department store, which we lease from the store owner by paying a percentage of SIS store sales.

Partner Retail Stores. Represent UGG and HOKA mono branded stores which are wholly owned and operated by third parties and not included in the total count of our global Company-owned retail stores.

Our net sales related to the businesses and stores above are recorded in our DTC reportable operating segment, except for the net sales for Partner Retail Stores, which are recorded in each respective brand's wholesale reportable operating segment, as applicable.

Use of Non-GAAP Financial Measures

Throughout this Quarterly Report we provide certain financial information on a constant currency basis, excluding the effect of foreign currency exchange rate fluctuations, which we disclose in addition to certain financial measures calculated and presented in accordance with US GAAP. We provide these non-GAAP financial measures to provide information that may assist investors in understanding our financial and operating results, and assessing our prospects for future performance. However, the information presented on a constant currency basis, as we present such information, may not necessarily be comparable to similarly titled information, presented by other companies, and may not be appropriate measures for comparing our performance relative to other companies. For example, in order to calculate our constant currency information, we calculate the current period financial information using the foreign currency exchange rates that were in effect during the previous comparable period, excluding the effects of foreign currency exchange rate hedges and remeasurements in the condensed consolidated financial statements. Further, we report comparable DTC sales on a constant currency basis for DTC operations that were open throughout the current and prior reporting periods, and we may adjust prior reporting periods to conform to current year accounting policies.

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These non-GAAP financial measures are not intended to represent and should not be considered to be more meaningful measures than, or alternatives to, measures of operating performance as determined in accordance with US GAAP. Constant currency measures should not be considered in isolation as an alternative to US dollar measures that reflect current period foreign currency exchange rates or to other financial measures presented in accordance with US GAAP. We believe evaluating certain financial and operating measures on a constant currency basis is important as it excludes the impact of foreign currency exchange rate fluctuations that are not indicative of our core results of operations and are largely outside of our control.

Seasonality

Our business is seasonal, with the highest percentage of UGG and Koolaburra brand net sales occurring in the quarters ending September 30th and December 31st and the highest percentage of Teva and Sanuk brand net sales occurring in the quarters ending March 31st and June 30th. Net sales for the HOKA brand occur more evenly throughout the year reflecting the brand's year-round performance product offerings. Due to the magnitude of the UGG brand relative to our other brands, our aggregate net sales in the quarters ending September 30th and December 31st have historically significantly exceeded our aggregate net sales in the quarters ending March 31st and June 30th. However, as we continue to take steps to diversify and expand our product offerings by creating more year-round styles, and as net sales of the HOKA brand continue to increase as a percentage of our aggregate net sales, we expect the impact from seasonality to continue to decrease over time. However, our seasonality has been impacted by supply chain challenges and it is unclear whether these impacts will be minimized or exaggerated in future periods as a result of these disruptions.

Results of Operations

Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021. Results of operations were as follows:
 Three Months Ended June 30,
 20222021Change
 Amount%Amount%Amount%
Net sales$614,461 100.0 %$504,678 100.0 %$109,783 21.8 %
Cost of sales319,709 52.0 244,175 48.4 (75,534)(30.9)
Gross profit294,752 48.0 260,503 51.6 34,249 13.1 
Selling, general, and administrative expenses238,411 38.8 198,671 39.4 (39,740)(20.0)
Income from operations56,341 9.2 61,832 12.2 (5,491)(8.9)
Other (income) expense, net(661)(0.1)181 — 842 465.2 
Income before income taxes57,002 9.3 61,651 12.2 (4,649)(7.5)
Income tax expense12,153 2.0 13,527 2.7 1,374 10.2 
Net income44,849 7.3 48,124 9.5 (3,275)(6.8)
Total other comprehensive (loss) income, net of tax(14,966)(2.4)3,351 0.7 (18,317)(546.6)
Comprehensive income$29,883 4.9 %$51,475 10.2 %$(21,592)(41.9)%
Net income per share
Basic$1.67 $1.73 $(0.06)
Diluted$1.66 $1.71 $(0.05)

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Net Sales. Net sales by location, and by brand and channel were as follows:
 Three Months Ended June 30,
20222021Change
 AmountAmountAmount%
Net sales by location    
Domestic$384,515 $336,059 $48,456 14.4 %
International229,946 168,619 61,327 36.4 
Total$614,461 $504,678 $109,783 21.8 %
Net sales by brand and channel    
UGG brand    
Wholesale$137,862 $135,056 $2,806 2.1 %
Direct-to-Consumer70,059 77,986 (7,927)(10.2)
Total207,921 213,042 (5,121)(2.4)
HOKA brand
Wholesale231,885 151,147 80,738 53.4 
Direct-to-Consumer98,141 61,966 36,175 58.4 
Total330,026 213,113 116,913 54.9 
Teva brand    
Wholesale46,895 43,359 3,536 8.2 
Direct-to-Consumer12,725 15,118 (2,393)(15.8)
Total59,620 58,477 1,143 2.0 
Sanuk brand    
Wholesale10,726 10,382 344 3.3 
Direct-to-Consumer3,431 4,664 (1,233)(26.4)
Total14,157 15,046 (889)(5.9)
Other brands    
Wholesale1,993 4,306 (2,313)(53.7)
Direct-to-Consumer744