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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 September 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 October 13, 2022, the number of outstanding shares of the registrant's common stock, par value $0.01 per share, was 26,466,796.



DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
For the Three and Six Months Ended September 30, 2022, and 2021

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 second fiscal quarter ended September 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) and related legislative and local authority developments on our business, financial condition, results of operations and liquidity, including similar impacts on our customers, suppliers, and business partners;
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;
availability of raw materials and manufacturing capacity, and reliability of overseas production and storage;
global uncertainty geopolitical tensions, and the impact of resulting financial and economic sanctions on our transportation and energy costs, as well as other implications;
overall global economic, political, and social trends, including foreign currency exchange rate fluctuations, changes in interest rates, inflationary pressures, changes in commodity pricing, and recessionary concerns;
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 our product allocation and segmentation strategies;
trends impacting the purchasing behavior of wholesale partners and consumers, including those impacting our retail and e-commerce businesses;
changes in consumer preferences impacting our brands and products, and the footwear and fashion industries;
the impact of seasonality and weather on consumer behavior, demand for our products, and our results of operations;
our business, operating, investing, capital allocation, marketing, and financing plans and strategies;
expansion of and investments in our Direct-to-Consumer (DTC) capabilities, including our distribution facilities and e-commerce platforms;
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;
commitments and contingencies, including with respect to operating leases, purchase obligations for product and commodities, and legal or regulatory proceedings;
our interpretation of global tax regulations and changes in tax laws that may impact our tax liability and effective tax rates;
our cash repatriation strategy regarding earnings of non-United States (US) subsidiaries and the resulting tax impacts;
the outcomes of legal proceedings, including the impact they may have on our business and intellectual property rights; and,
the value of goodwill and other intangible assets, and potential write-downs or impairment charges.

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)

September 30, 2022March 31, 2022
ASSETS(AUDITED)
Cash and cash equivalents$419,259 $843,527 
Trade accounts receivable, net of allowances ($37,234 and $30,591 as of September 30, 2022, and March 31, 2022, respectively)
434,674 302,688 
Inventories925,043 506,796 
Prepaid expenses36,151 25,610 
Other current assets73,781 55,264 
Income tax receivable24,377 18,243 
Total current assets1,913,285 1,752,128 
Property and equipment, net of accumulated depreciation ($298,831 and $282,571 as of September 30, 2022, and March 31, 2022, respectively) (Note 11)
221,308 222,449 
Operating lease assets164,794 182,459 
Goodwill13,990 13,990 
Other intangible assets, net of accumulated amortization ($78,760 and $79,061 as of September 30, 2022, and March 31, 2022, respectively)
38,552 39,688 
Deferred tax assets, net60,410 64,217 
Other assets54,010 57,319 
Total assets$2,466,349 $2,332,250 
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable$482,928 $327,487 
Accrued payroll37,032 67,553 
Operating lease liabilities46,886 50,098 
Other accrued expenses87,624 81,400 
Income tax payable39,340 12,426 
Value added tax payable34,814 2,720 
Total current liabilities728,624 541,684 
Long-term operating lease liabilities150,259 171,972 
Income tax liability45,801 54,259 
Other long-term liabilities25,826 25,510 
Total long-term liabilities221,886 251,741 
Commitments and contingencies (Note 5)
Stockholders' equity
Common stock ($0.01 par value; 125,000 shares authorized; shares issued and outstanding of 26,481 and 26,982 as of September 30, 2022, and March 31, 2022, respectively)
265 270 
Additional paid-in capital219,113 210,825 
Retained earnings1,348,823 1,352,685 
Accumulated other comprehensive loss (Note 8)
(52,362)(24,955)
Total stockholders' equity1,515,839 1,538,825 
Total liabilities and stockholders' equity$2,466,349 $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 September 30,Six Months Ended September 30,
2022202120222021
Net sales (Note 2, Note 10, and Note 11)
$875,614 $721,902 $1,490,075 $1,226,580 
Cost of sales453,693 354,814 773,402 598,989 
Gross profit421,921 367,088 716,673 627,591 
Selling, general, and administrative expenses294,090 238,907 532,501 437,578 
Income from operations (Note 10)
127,831 128,181 184,172 190,013 
Interest income(1,884)(460)(3,098)(942)
Interest expense1,038 913 2,090 1,809 
Other (income) expense, net(241)48 (740)(185)
Total other (income) expense, net(1,087)501 (1,748)682 
Income before income taxes128,918 127,680 185,920 189,331 
Income tax expense (Note 4)
27,394 25,617 39,547 39,144 
Net income101,524 102,063 146,373 150,187 
Other comprehensive (loss) income, net of tax
Unrealized gain on cash flow hedges1,088 1,033 1,846 2,491 
Foreign currency translation loss(13,529)(2,537)(29,253)(644)
Total other comprehensive (loss) income, net of tax(12,441)(1,504)(27,407)1,847 
Comprehensive income$89,083 $100,559 $118,966 $152,034 
Net income per share
Basic$3.83 $3.69 $5.49 $5.42 
Diluted$3.80 $3.66 $5.46 $5.37 
Weighted-average common shares outstanding (Note 9)
Basic26,517 27,651 26,646 27,731 
Diluted26,682 27,896 26,815 27,978 

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)

Six Months Ended September 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 
Stock-based compensation1 — 6,779 — — 6,779 
Shares issued upon vesting27 — 1,046 — — 1,046 
Exercise of stock options27 — 1,830 — — 1,830 
Shares withheld for taxes— — (5,059)— — (5,059)
Repurchases of common stock (Note 8)
(173)(1)— (50,246)— (50,247)
Net income— — — 101,524 — 101,524 
Total other comprehensive loss— — — — (12,441)(12,441)
Balance, September 30, 202226,481 $265 $219,113 $1,348,823 $(52,362)$1,515,839 

Six Months Ended September 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 
Stock-based compensation 1 — 6,288 — — 6,288 
Shares issued upon vesting36 — 914 — — 914 
Shares withheld for taxes— — (9,195)— — (9,195)
Repurchases of common stock (Note 8)
(133)(1)— (53,806)— (53,807)
Net income— — — 102,063 — 102,063 
Total other comprehensive loss— — — — (1,504)(1,504)
Balance, September 30, 202127,567 $276 $206,770 $1,271,596 $(14,896)$1,463,746 

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)

Six Months Ended September 30,
20222021
OPERATING ACTIVITIES
Net income$146,373 $150,187 
Reconciliation of net income to net cash (used in) provided by operating activities:
Depreciation, amortization, and accretion23,018 19,931 
Amortization on cloud computing arrangements1,001 767 
Bad debt expense (benefit)4,444 (10)
Deferred tax expense (benefit)788 (3,239)
Stock-based compensation10,550 11,792 
Loss on disposal of long-lived assets 24 23 
Impairment of operating lease and other long-lived assets1,068  
Changes in operating assets and liabilities:
Trade accounts receivable, net(136,430)(154,633)
Inventories(418,247)(358,028)
Prepaid expenses and other current assets(22,791)(10,942)
Income tax receivable(6,134)(7,505)
Net operating lease assets and lease liabilities(4,057)5,947 
Other assets2,308 (28,387)
Trade accounts payable157,155 256,028 
Other accrued expenses(14,688)(37,673)
Income tax payable26,915 (19,729)
Other long-term liabilities(8,143)2,797 
Net cash used in operating activities(236,846)(172,674)
INVESTING ACTIVITIES
Purchases of property and equipment(24,254)(26,719)
Net cash used in investing activities(24,254)(26,719)
FINANCING ACTIVITIES
Proceeds from issuance of stock1,046 914 
Proceeds from exercise of stock options1,830 69 
Repurchases of common stock(150,240)(135,973)
Cash paid for shares withheld for taxes(5,102)(9,280)
Net cash used in financing activities(152,466)(144,270)
Effect of foreign currency exchange rates on cash and cash equivalents(10,702)513 
Net change in cash and cash equivalents(424,268)(343,150)
Cash and cash equivalents at beginning of period843,527 1,089,361 
Cash and cash equivalents at end of period$419,259 $746,211 


7

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(amounts in thousands)
(continued)

Six Months Ended September 30,
20222021
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid during the period
Income taxes, net of refunds of $1,124 and $71, as of September 30, 2022, and 2021, respectively
$29,242 $74,312 
Interest901 936 
Operating leases17,589 28,470 
Non-cash investing activities
Change in accounts payable and other accrued expenses for purchases of property and equipment(2,516)5,959 
Accrued for asset retirement obligation assets related to leasehold improvements803 3,505 
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 and Six Months Ended September 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 September 30, 2022 and for the three and six months ended September 30, 2022 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 is 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 and Six Months Ended September 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 six months ended September 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 determined based on an estimate of the discounted future cash flows for the asset group. For the six months ended September 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 has evaluated the impact of the adoption of this ASU on its revolving credit facilities, lease agreements, and cash flow hedges; 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 and Six Months Ended September 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 six months ended September 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*26,444 (84,336)
Actual returns(24,378)82,497 
Balance, September 30, 2022$13,557 $(41,706)

Activity during the six months ended September 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*11,861 (46,731)
Actual returns(14,348)58,532 
Balance, September 30, 2021$8,217 $(25,916)

*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 six months ended September 30, 2022, related to loyalty programs were as follows:
Amounts
Balance, March 31, 2022$(10,883)
Redemptions and expirations for loyalty certificates and points recognized in net sales9,585 
Deferred revenue for loyalty points and certificates issued(10,106)
Balance, September 30, 2022$(11,404)

11

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
Activity during the six months ended September 30, 2021, related to loyalty programs were as follows:
Amounts
Balance, March 31, 2021$(12,231)
Redemptions and expirations for loyalty certificates and points recognized in net sales11,752 
Deferred revenue for loyalty points and certificates issued(10,901)
Balance, September 30, 2021$(11,380)

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 six months ended September 30, 2022, related to deferred revenue were as follows:
Amounts
Balance, March 31, 2022$(15,804)
Additions of customer cash payments(31,503)
Revenue recognized28,589 
Balance, September 30, 2022$(18,718)

Activity during the six months ended September 30, 2021, related to deferred revenue were as follows:
Amounts
Balance, March 31, 2021$(5,425)
Additions of customer cash payments(32,007)
Revenue recognized16,098 
Balance, September 30, 2021$(21,334)

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 and Six Months Ended September 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
September 30, 2022Level 1Level 2Level 3
Money-market funds$241,926 $241,926 $ $ 
Non-qualified deferred compensation asset 7,179 7,179   
Non-qualified deferred compensation liability(9,716)(9,716)  
Designated Derivative Contracts asset2,436  2,436  
Non-Designated Derivative Contracts asset1,916  1,916  
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 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 September 30, 2022, the non-qualified deferred compensation asset of $7,179 is recorded in other assets in the condensed consolidated balance sheets. As of September 30, 2022, the non-qualified deferred compensation liability of $9,716 is recorded in the condensed consolidated balance sheets, with $737 in other accrued expenses and $8,979 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.

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's non-financial assets, such as other long-lived assets and definite-lived intangible assets, which include operating lease assets, machinery and equipment, leasehold improvements, and definite-lived trademarks; as well as indefinite-lived intangible assets and goodwill, are not required to be carried at fair value on a recurring basis and are reported at carrying value. Instead, these assets are tested for impairment annually, or when an event occurs or changes in circumstances indicate the carrying value may not be recoverable. When determining fair value, Level 3 measurements are used for the estimates and assumptions, including undiscounted future cash flows expected to be generated by the asset groups based upon historical experience, expected market conditions, as well and management's plans.
13

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 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 September 30,Six Months Ended September 30,
2022202120222021
Income tax expense$27,394 $25,617 $39,547 $39,144 
Effective income tax rate21.2 %20.1 %21.3 %20.7 %

The tax provisions during the three and six months ended September 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 (current fiscal year), and March 31, 2022, respectively, and were adjusted for discrete items that occurred within the periods presented above.

During the three months ended September 30, 2022, the net increase in the effective income tax rate, compared to the prior period, was primarily due to changes in jurisdictional mix of worldwide income before income taxes as well as reduced net discrete tax benefits, primarily due to deductions for stock-based compensation.

During the six months ended September 30, 2022, the net increase in the effective income tax rate, compared to the prior period, was primarily due to changes in jurisdictional mix of worldwide income before income taxes, partially offset by increased net discrete tax benefits, primarily due to foreign return to provision adjustments and deductions 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 September 30,Six Months Ended September 30,
2022202120222021
Non-cash operating activities
Operating lease assets obtained in exchange for lease liabilities*$7,002 $12,930 $13,209 $26,294 
Reductions to operating lease assets for reductions to lease liabilities*(132)(243)(408)(624)

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

14

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
Operating lease liabilities recorded in the condensed consolidated balance sheets exclude an aggregate of $58,313 of undiscounted minimum lease payments due pursuant to leases signed but not yet commenced. These leases are primarily for the following:

additional space for the Company's US warehouse and DC in Mooresville, Indiana with an initial lease term of ten years, which the Company expects to be operational in the third quarter of its fiscal year ending March 31, 2024 (next fiscal year);

a new international UGG brand flagship retail store in Munich, Germany with an initial term of five years, which the Company expects to be opened in the first quarter of its next fiscal year; and,

a new HOKA brand retail store in New York City with an initial lease term of five years, which the Company expects to be opened in the second 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.

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 six months ended September 30, 2022, no additional awards were granted under the 2015 SIP, with the exception of the RSUs and LTIP PSUs awards 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:

Six Months Ended September 30,
20222021
Shares GrantedWeighted-average grant date fair value per shareShares GrantedWeighted-average grant date fair value per share
RSUs47,545 $334.74 37,764 $386.69 

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 September 30, 2022, was $22,098.

Long-Term Incentive Plan Awards. During the six months ended September 30, 2022, the Company approved awards under the 2015 SIP for the issuance of PSUs (2023 LTIP PSUs), which were awarded to certain members of the Company's management team, including the Company's named executive officers and vice presidents. The 2023 LTIP PSUs are subject to vesting based on service conditions over either two or three years. The Company must meet certain revenue and pre-tax income performance targets individually over three reporting periods for the fiscal years ending March 31, 2023, 2024, and 2025 (collectively, the Measurement Periods). The 2023 LTIP PSUs incorporate a relative total stockholder return (TSR) modifier for both the 24-month performance period (commencing April 1, 2022) ending March 31, 2024 and the 36-month performance period (commencing April 1, 2022) ending March 31, 2025 (collectively, the Performance Periods). To the extent financial performance is achieved above the threshold levels for each of these performance criteria, the number of 2023 LTIP PSUs that vest will increase up to a maximum of 200% of the targeted amount for that award. No vesting of any portion of the 2023 LTIP PSUs will occur if the Company fails to achieve the pre-established minimum revenue and pre-tax income amounts for each reporting period. Following the determination of the Company’s achievement with respect to the revenue and pre-tax income criteria for the Measurement Periods, the vesting of each 2023 LTIP PSU will be subject to adjustment based on the application of the TSR modifier. The amount of the adjustment will be determined based on a comparison of the Company's TSR relative to the TSR of a pre-determined set of peer group companies for the Performance Periods. A Monte-Carlo simulation model was used to determine the grant date fair value by simulating a range of possible future stock prices for the Company and each member of the peer group over the Performance Periods.

The Company granted awards of 32,735 2023 LTIP PSUs at the target performance level during the six months ended September 30, 2022. The weighted-average grant date fair value per share of these 2023 LTIP PSUs was $387.44. Based on the Company's current long-range forecast, the Company determined that the achievement of at least the minimum threshold target performance criteria was probable as of September 30, 2022.

Future unrecognized stock-based compensation for the current performance attainment level of all LTIP PSUs outstanding as of September 30, 2022, including the 2023 LTIP PSUs discussed above, the 2022 LTIP PSUs, and the 2021 LTIP PSUs, is $21,556.

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 and Six Months Ended September 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
As of September 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$26,713 $31,044 $57,757 
Fair value recorded in other current assets2,436 1,916 4,352 

As of September 30, 2022, the Company's outstanding derivative contracts are held by an aggregate of three counterparties, all with various maturity dates within the next six 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 September 30,Six Months Ended September 30,
2022202120222021
Gain recorded in Other comprehensive income$1,805 $2,125 $2,805 $4,049 
Reclassifications from Accumulated other comprehensive loss into net sales(369)(762)(369)(762)
Income tax expense in Other comprehensive income(348)(330)(590)(796)
Total$1,088 $1,033 $1,846 $2,491 

The following table summarizes the effect of Non-Designated Derivative Contracts recorded in the condensed consolidated statements of comprehensive income:

Three Months Ended September 30,Six Months Ended September 30,
2022202120222021
Gain recorded in SG&A expenses$1,836 $413 $1,916 $748 

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 September 30, 2022, the amount of unrealized gains on derivative contracts recorded in AOCL is expected to be reclassified into net sales within the next six 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, including a July 27, 2022 approval to increase its stock repurchase authorization by $1,200,000, (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 September 30, 2022, the aggregate remaining approved amount under the stock repurchase program is $1,503,767.

16

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
Stock repurchase activity under the Company's stock repurchase program during the six months ended September 30, 2022, was as follows:
Amounts
Total number of shares repurchased*557,675 
Weighted average price paid per share$269.41 
Dollar value of shares repurchased**$150,240 

*All share repurchases were made pursuant to our publicly announced stock repurchase program in open-market transactions.
** May not calculate on rounded dollars.

Subsequent to September 30, 2022, through October 13, 2022, the Company repurchased 15,002 shares at a weighted average price of $333.21 per share for $4,999 and had $1,498,768 remaining authorized under the stock repurchase program.

Accumulated Other Comprehensive Loss. The components within AOCL, net of tax, recorded in the condensed consolidated balance sheets are as follows:
 September 30, 2022March 31, 2022
Unrealized gain on cash flow hedges$1,846 $ 
Cumulative foreign currency translation loss(54,208)(24,955)
Total $(52,362)$(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 September 30,Six Months Ended September 30,
 2022202120222021
Basic26,517,000 27,651,000 26,646,000 27,731,000 
Dilutive effect of equity awards165,000 245,000 169,000 247,000 
Diluted26,682,000 27,896,000 26,815,000 27,978,000 
Excluded
RSUs and PSUs45,000 2,000 47,000 10,000 
LTIP PSUs115,000 145,000 115,000 145,000 
Deferred Non-Employee Director Equity Awards2,000  2,000  

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.

17

DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended September 30, 2022, and 2021
(dollar amounts in thousands, except share and per share data)
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, 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 September 30,Six Months Ended September 30,
2022202120222021
Net sales
UGG brand wholesale$361,305 $348,776 $499,167 $483,832 
HOKA brand wholesale223,035 146,980 454,920 298,127 
Teva brand wholesale19,587 19,211 66,482 62,570 
Sanuk brand wholesale5,060 7,020 15,786 17,402 
Other brands wholesale27,559 23,253 29,552 27,559 
Direct-to-Consumer239,068 176,662 424,168 337,090 
Total$875,614 $721,902 $1,490,075 $1,226,580 
Income (loss) from operations
UGG brand wholesale$112,083 $121,701 $142,748 $157,539 
HOKA brand wholesale63,576 43,294 133,192 89,657 
Teva brand wholesale<