Good afternoon and thank you for standing by. Welcome to the Deckers Brands Third Quarter Fiscal 2021 Earnings Conference Call. All participants will be in the listen-only mode. [Operator Instructions] Following the presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Erinn Kohler, Vice President, Investor Relations and Corporate Planning. Please go ahead.

Hello, and thank you, everyone, for joining us today. On the call is Dave Powers, President and Chief Executive Officer; and Steve Fasching, Chief Financial Officer. Before we begin, I would like to remind everyone of the company’s Safe Harbor policy. Please note that certain statements made on this call are forward-looking statements within the meaning of the federal securities laws, which are subject to considerable risks and uncertainties. These forward-looking statements are intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements made on this call today other than statements of historical facts are forward-looking statements and include statements regarding the impact of the COVID-19 pandemic on our business and operations, business partners and industry, changes in consumer behavior in the retail environment, strength of our brands and demand for our products, changes to our product allocation, segmentation, and distribution strategies, changes to our marketing plans and strategies, investments in our business, our anticipated revenues, brand performance, product mix, gross margins, expenses, and liquidity position, and our potential repurchase of shares. Forward-looking statements made on this call represent management’s current expectations and are based on information available at the time such statements are made. Forward-looking statements involve numerous known and unknown risks and uncertainties, and other factors that may cause our actual results to differ materially from any results predicted, assumed or implied by the forward-looking statements. The company has explained some of these risks and uncertainties in its SEC filings including in the Risk Factors section of its Annual Report on Form 10-K and Quarterly Report on Form 10-Q. Except as required by law or the listing rules of the New York Stock Exchange, the company expressly disclaims any intent or obligation to update any forward-looking statements. With that, I’ll now turn it over to Dave.

Thanks, Erinn. Good afternoon, everyone, and thank you for joining us today. I'm excited to dive into the details of an extraordinary quarter for the company and the exceptional results that our teams have delivered. But first, I would again like to stress the paramount importance of the health and safety of our employees, customers, communities and stakeholders, as they remain top of mind with everyone continuing to navigate the COVID-19 pandemic. On behalf of Deckers, I hope everyone is staying safe and healthy. Our third quarter results include record setting revenue of $1.078 billion and record earnings per share of $8.99. Revenue grew by 15% over last year's third quarter to deliver Deckers’ first ever quarter to exceed $1 billion. Performance in the quarter was driven by delivering relevant and compelling product that consumers are demanding, focusing execution to maximize demand captured through direct-to-consumer channels, engaging consumers with authentic in a modern of product storytelling, executing marketplace management that set the table for high product sell-through and our dedicated employees working tirelessly to deliver strong results, despite the challenging environment. To achieve these results, we overcame both significant operational hurdles as well as macro pressures related to the ongoing pandemic. Steve will be providing more contexts on these unique dynamics later in today's call. We believe much of the strength we have seen in our business fiscal year to date is a result of our continued execution and dedication to our long-term strategies, including driving year-round demand for us through a diverse product assortment, accelerating consumer acquisition online, which increased 87% year-to-date across our portfolio of brands, prioritizing 18- to 34-year-old consumers, which have accounted for the largest percentage increase in our U.S. customer database this year, managing the wholesale marketplace strategically, which has continued to benefit UGG men's…

Thanks, Dave and good afternoon, everyone. As you just heard Decker's third quarter performance was incredibly strong and speaks well to the success of our strategies driving demand for our brands. While this year has been full of unique circumstances, our performance has been enabled by the work we have undertaken to transform Deckers to a digitally-led organization with strategically managed distribution channels and innovative product creation that consumers demand. I am proud of our organization's ability to effectively manage our resources, overcome operational obstacles, manage with financial discipline and achieve exceptional results in the face of adversity. I am confident that as we move forward and beyond the pandemic, our brands and organization are positioned to emerge with continued growth opportunities, strength and discipline. Before moving into our results for the quarter, I would like to start with a little context. Back on our second quarter earnings call, we laid out a number of tailwinds experienced in the first half of our fiscal year. These tailwinds included compelling products that are resonating with consumers in the current environment, accelerated adoption of e-commerce, our brands benefiting from consumer trends shifting toward casualization as people continue to work from home and heightened awareness of HOKA. With the results we just delivered, we were able to capitalize on these variables in the third quarter as well. We also discussed some potential headwinds that we anticipated could impact the third quarter as we stepped into our peak season. To quickly summarize, the assumed challenges were the potential for both owned and third-party shipping constraints. A second wave pandemic impact on operations. Limitations resulting from inventory purchase reductions at the onset of the pandemic. And finally higher shipping and warehouse costs related to increased safety and hazard pay as well as increased marketing costs…

Thanks Steve. To close today's call. I wanted to once again recognize our employees for staying committed to each other and to the success of our company throughout a year filled with uncertainty. I am so appreciative of how our teams rose to the occasion and enabled our brand to deliver exceptional results. Because of this hard work Deckers boast two of the strongest brands in the footwear industry that are both leaders in their respective spaces of fashion and athletic performance. While this year presented challenges and our strategies allowed us to capitalize on certain extraordinary circumstances there is no doubt our brands benefited from a unique consumer environment, where spending patterns shifted away from experiences and into products. As consumers look to brands and products that fit their needs for the current environment, we saw an acceleration of engagement with our brands. And as Steve noted in his comments, we believe the results just delivered will not be sustained at these levels in the longer run. As we return to a more normal environment and invest in our brand to continue to deliver growth globally. We will provide more insights regarding these investments on our fourth quarter call, but I think it's important to note in a year when we saw our accelerated growth, little to no promotion and constrained corporate spending while navigating a global pandemic, these results are exceptional. At Deckers, we like to say, as our organization performs well, it enables us to do good. With that in mind, we've continued to enhance our ESG programs and increased both our charitable contributions and our employee hours donated well above last year. Doing good and doing great is that the core of Deckers values and is the primary reason behind our leadership in the ESG arena. Moving forward, I have the utmost confidence in our strategies, our portfolio of brands and exemplary operating model that now more than ever give credence to the long-term trajectory of Deckers brands. Thank you to all of our stakeholders for your continued support. With that, I'll turn the call back over to the operator for Q&A. Operator?

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Camilo Lyon of BTIG. Please go ahead.

Thanks. Good afternoon, everyone. Great job on the results today. Dave, just kind of dovetailing from what you – on your last comments were, question that we get a lot is how do you – how do we think that you will lap the strong demand that you've seen in slippers as past year? And how do you pivot away from the work-from-home categories that you've leveraged? Maybe if you could help us understand the categories and how the categories shifted during COVID and how they might shift back when normalization occurs? And then secondarily on gross margin, with HOKA now starting to really gain momentum and the margins of that business reaching scale apparently, how should we think about your long run gross margin outlook when your channel mix stabilizes?

Yes, thanks, Camilo. Those are great questions. And the strength, first of all, the strength of the quarter in UGG with double-digit growth, which I think we all are excited to see, we haven't seen that in some time, is really driven by a diversified product offering. So it's – in past years we were talking about how much the Classics drove the business and how important weather was. And as you can tell, we didn't mention either of those specifically in the call and that's because we're seeing broad based success across all the categories in women's, but also in men's and kids and including apparel. Slippers is certainly a driver of the success of the Fluff franchise that continues to grow and provide upside for us, but core heritage slippers as well, such as Tasman and Ansley and Ascot. But Classics, as a core Classics business, whereas it's relatively flat and the growth came from non-Classic boots, such as the Classic Clear, the Ultra Mini and the Neumel. In fact, the Neumel this quarter globally was the number one style across all genders. And in the U.S., the men's Neumel was the number one style for the quarter in U.S. wholesale. So, it's great to see that our diversification efforts are paying off. Certainly there is a level of tailwind from COVID and the work-from-home environment, but what's exciting to see is we are bringing in, as we mentioned, a younger consumer. They're shopping more frequently. We saw consumers come into the franchise in Q2 that purchased on our websites, the Fluff product, but they came back in Q3 and they purchased the Classic Clear. And one of the things that I've learned in my tenure at the company here is that once a consumer is in UGG,…

Yes. Camilo, probably just a little bit more color. In terms of, as we think about normalizing on the gross margin, I think in the quarter we saw about a 100 basis points due to promotion. As we think about that going forward, that would normalize. So we wouldn't necessarily see kind of really as much full price selling that we saw in the current quarter. And then we did have a little bit of channel mix and then FX, which is probably about another 100 basis points. And that we would also begin to see normalize as we get into kind of a more normal quarter with more promotion in a normal environment, and then not the FX lift that we saw in the current quarter either.

Yes. So we're going to do everything we can to maintain these levels of channel mix and continue to drive upside in DTC. But longer term, it's hard to say at this point what the supply chain environment will look like overseas with tariffs and demand and logistics and other things that we'll have to consider. So there will be some headwinds in the future, but trust, we're doing everything we can to maintain healthy levels of margin.

Great. Thank you for that color. So, Steve, just to clarify, that was 200 basis points in the quarter for the overall, right?

Yes. I would say 200 that would – due to the exceptional quarter that we would attribute, and then – and it always changes, right, as you think about promotion and how much. But I think the very clean quarter as we talked about in the prepared remarks, definitely contributed at least a 100 basis points. As I said, FX about 50 and then channel mix with the higher proportion of DTC, we would expect some of that to come back as there was a higher proportion of DTC selling in the current quarter.

Yes.

Got it. And if I could sneak one in, one last one in on HOKA. Dave, I think you said that over half the pairs are sold internationally, but that's not the mix from a dollars perspective.

Yes.

So clearly you're using distributors. What's the intention there to either bring those distributors sells to direct or more to a wholesale? How do you think about improving that profitability of those international direct sales?

Yes. It's nothing to share on that front yet, but trust, it’s something we're taking a good look at longer term. We do believe that when we control markets that serves us better obviously from a margin and also consumer data perspective to have their DTC channel. So we're keeping close eye on that. There's a lot of heavy lifting that's involved in that and we'll share a little more color on investments going forward and to be able to maintain this level of growth. But it's certainly something that we're keeping a close eye on. In longer term, it's a great opportunity.

Excellent. Congrats again on a great quarter.

All right. Thanks, Camilo.

The next question comes from Jonathan Komp of Baird. Please go ahead.

Yes. Hi. Great. Thank you. Maybe just a broader question on UGG to start. Dave, just given all the new customers you've brought into the brand domestically, and then getting past the distribution cleanup in Europe, just any broader stroke thoughts on how large do you think the opportunity here is for UGG as you look out into the future years?

Yes, I think certainly the inventory levels, if you see how we've ended this quarter and how clean the channel is, that's going to serve us well going into next year and beyond. Like I said, the demand broad base globally is very, very strong. And the strength of what we're seeing now with – returned to growth in FY 2022 for Europe and then some opportunities that we're seeing in China, we're very optimistic about it. I think one of the things that we're learning and we learned over the last six months is the power of localized marketing efforts. And that's what you're seeing in both Europe and China to be driving adoption of new categories, such as Fluff, resetting the brand from a consumer perspective, and we're going to continue to invest to drive that growth. So we still think there's definitely growth in the UGG brand globally. And when you start looking at these new categories and the strength of men's, which was a driver this past quarter as well as kids and apparel, it's a very exciting proposition going forward.

Yes. I think just to add onto that, Jon. The diversity that we saw on a product in Q3 was really impressive.

Yes.

So UGG had its most diverse selling quarter, probably ever.

And more just near-term on UGG, when – how do you think about in a marketplace that supplies obviously less than demand for multiple styles? How should we expect that to play out from a wholesale order book perspective? And just thinking of the next fall, what the replenishment factor might look like?

Yes. We’re obviously not going to share any details of that on this call. We'll have a little more color in the next call. But just as you said, there is great demand out there. And what's impressive about it is it’s diversified across consumer and category by our account segmentation. And the teams have done an amazing job of segmenting our distribution and then supplying them with relevant products. So in the past where everybody was clamoring to get their hands on the Classic, each account now has a different assortment that works for them and we're servicing them more specifically than we ever had before. So that bodes well for the order book. They're seeing new opportunities with younger consumers. And as I said, men’s, when you start looking at folks like Genesco and Foot Locker group, there's great opportunity to expand into new consumers and styles. So at this point that's the best way to look at it, but the demand is certainly very, very strong.

Understood. Appreciate the colors. Thank you.

Yes. Thank you.

The next question comes from Paul Lejuez of Citi. Please go ahead.

Hey, guys. Thanks. Just wanted to ask about inventory, down a ton. Curious how much of that was planned versus whether you’re might be seeing some supply chain disruption. Is that a function of just stronger sell-throughs? Maybe if you could talk about how you're planning inventory over the next couple of quarters. And then also curious about the HOKA business. If you could give us an update on the apparel initiative, where are you in terms of building the design talent? When should we expect to see a greater emphasis on a push into the apparel category? Thanks.

Yes, you bet, Paul. So on the inventory side, the intentional side of this was on the international regions. We talked about with the transformation of the European market cleaning up their inventory, creating more of a pull model, particularly in Classics. So our inventory levels were expected to come down and there that the strength of the brand and the demand helped us get there faster than we anticipated, but that was by design. And then also in Asia, specifically, China cleaning up the channel there as well. So those were work of the teams in those regions. We’re focused on anticipating, but the demand helped us accelerate that even further. Steve, I'll let you comment on the total company.

Yes. So Paul, kind of as we saw total company down, it was really all brands except for HOKA. HOKA’s inventory was up. But as you would expect with the brand growing kind of over 50%, trying to just keep pace with that growth is a challenge. I think from an inventory perspective, as Dave said, lower than what we thought, but helped us kind of chase incremental sales. Going forward, there are still disruptions in the supply chain. So we'll be working to bring inventory kind of as quickly as we can as we continue to see demand. So that'll be an area that we're working very closely with our suppliers, really to make sure that we're getting inventory in. So as we've depleted it, as we've seen inventory levels in the channel significantly lower, it's a big focus of our supply chain to manage that inventory and manage that incoming inventory. So pleased with the position, but also know it's lower than what we expected and so how do we replenish it really going forward.

Yes. And I think it gives us a great opportunity to kind of reset in the channel. And I know the teams are working on that. It also allows us to get orders in earlier which will help with our supply chain in our production going into this year, which we know will be challenging, but we're getting ahead of that because of the current situation. But it allows us to really set the channel the way we want it to be and to maintain the strengths and then the positioning of the brand and control it better by distribution type, whether it's DTC or wholesale or depending on the account in wholesale. So it's an enviable position for us to be in and we're going to take advantage of it as best we can. On the HOKA side, what we said before still holds true. We see this as a $1 billion brand with footwear doing the majority of that business and we're still focused on that. Wendy, the President of the HOKA brand, myself and the rest of the LT are evaluating the apparel opportunity. We do believe longer term that this is a significant opportunity for us, but you're looking two to three years out before it has a real meaningful impact. But we want to do it right. We want to make sure that we do hire the right design talent to your point, and that we have the operational and distribution tactics in place to be able to do it in a quality way. We're known for the innovation and the bold approach to footwear. And we need to have the right design talent and supply chain to be able to do that also in apparel and it's something that we're very excited about. And as we talk about investments going forward, apparel, not just in HOKA, but also in UGG is going to be a key area of investment for us over the next couple of years.

Got you. Thanks. Just a follow-up. Can you talk a little bit about the UGG business within China to what you're seeing there in terms of what's working, what's not? How you feel about the marketing? And how you plan to invest in that region over the next couple of quarters?

Yes, that's a great question. A year ago – two years ago now actually, a year has gone by so fast, Stefano, our Leader of Omnichannel, Andrea, the President of the UGG brand, and the leadership team involved with China and then the brand here, put a plan in place to transform that business. It was traditionally a Classics driven approach or business there. It still is for an enlarged part, but with the focus on localized marketing, on utilizing local influencers, creating excitement around the Fluff franchise and other fashionable styles, such as the UGG Classic Clear, which blew out in no time in China, we're starting to see a turnaround in that business. And again, it's beyond the Classic, it's new, fresh exciting styles from a fashion perspective. The impression of the brand is improving based on the localized marketing efforts and the influencers that we're using there. And this quarter was successful from an inventory cleanup, both for ourselves and our partners over there, which again allows us to set the channel going into FY 2022 the way we want to see it and make sure that we're still driving healthy full price sales at a diversified offering. And we're confident that we continue on that path, but it is going to take investment. And as Steve mentioned in the script, we're starting to reinvest in this quarter, Q4. We were a shy in investment last year for obvious reasons. But now in Q4 and going in FY 2022, China is going to be a pretty significant focus for us in investments, not just in UGG, in marketing, but also to get HOKA off the ground in a real meaningful way.

Got it. Thank you, guys. Good luck.

Thank you.

The next question comes from Sam Poser of Williams Trading. Please go ahead.

Yes, I changed my name to yours, Dave.

I like that.

Happy New Year. A couple of questions. Number one, how should we think – I mean, given the clean inventory and everything else, and the way of the momentum of these brands, should we consider the gross margin in the fourth quarter to have a similar year-over-year increase in basis points. And then the same question with SG&A. You said the SG&A is going to be elevated. Is that going to be in line sort of with the percent change we saw in Q3? Or is that going to be higher than that?

Yes, I'll take that, Sam, first. So on the SG&A, it's going to be more, right. Because we've been holding back really kind of through the pandemic as Dave just said. And even as we've looked at marketing, now I think with the success that we're seeing with the brands, the need to invest more.

And to drive spring business as well.

Yes. So we're looking at how you can drive an increased kind of spring-summer business year-over-year. And that is contributing to a disproportionate increase in the SG&A spend in Q4. So again, haven't given full guidance, but expect that to be seen in Q4. Then on the gross margins, I would not extrapolate what we saw in Q3 from a gross margin perspective year-over-year into Q4. I think some of the tailwinds that we saw in Q3 were much bigger than what we would anticipate in Q4. So I wouldn't necessarily increase Q4 gross margins like you saw in Q3. We won't be getting – we'll get some, but not the extent that you saw in Q3.

And I would say from an investment standpoint in SG&A, we do have – we believe we have a significant opportunity in spring and summer business, particularly for the UGG brand that's obvious than HOKA, but we want to take advantage of this time right now with the momentum in that brand to really drive success in spring and summer this quarter. Obviously we're looking at the full-year results, which will be exceptional based on Q3. But we want to make sure that we're continuing to invest to drive opportunities for the long-term.

Thanks. And then lastly, just some housekeeping stuff. Could you give us either the wholesale or the direct-to-consumer by brand either the absolute dollars for Teva, UGG, Sanuk, HOKA and so on, please?

Yes. Okay. So wholesale sales in Q3 for UGG call it $408.9 million, HOKA was call it $101 million, wholesale Teva was $12.1 million, Sanuk was $3.8 million and this is in millions and then other brands was $32.2 million.

And then you can back into DTC.

Okay. Thanks so much. Appreciate it.

Okay. Sure. Thanks Sam.

The next question comes from Tom Nikic of Wells Fargo. Please go ahead.

Hi everybody. Thanks for taking my question. So when I look at UGG for the quarter and then I guess beyond, I know you said UGG growing, but I was wondering if you could contextualize that a little bit. It would seem between the easy compare, the brand momentum, the channel inventories being extremely low, like you talked about on the call, which would give an opportunity for some restocking, the strength in the fluff, in the spring style. It would seem like this could end up being like a really, really strong UGG quarter. So I was just kind of wondering if you could contextualize a little bit in how you think about it for Q4 and maybe into early FY 2022.

Yes, I think Tom it's a little bit hard. It's again, why we're not giving guidance. We see opportunity, we're also dealing as I kind of mentioned on the previous question, some supply constraints with bringing inventory in and so forth, so that's affecting Q4. So we're really not in a position to give a lot. We see, clearly it's something like we've said when we were approaching the fall-winter season, the demand is there. The opportunity is there. We still have to manage through kind of inventory, bringing inventory in, expediting inventory. And that's really why we're not giving kind of more specifics. The opportunity is there for UGG, but there are some constraints in the system as we continue to kind of navigate the current environment. So I would just say, the opportunity to do more is there, but there are other constraints that will provide headwinds against the ability to meet the demand that's out there right now.

And still a very uncertain environment, we still have store closes in the UK and sporadically across the world. And we're going to be coming into Q1 up against last year's pandemic and that's mixed results based off category and region, and channels. So there's a lot to navigate still, but you can't deny the demand and the strength of the brand at the current time, but we just have to balance that out, the fact that we're still in an uncertain environment.

Got it. And just a quick follow-up, Dave when I look at the balance sheet, I see almost $1.2 billion of cash and obviously some good cash generation for the business overall. And I know you said you're looking to restart to the buyback program. Would there be a scenario where M&A would start to become more appetizing to you to have a sort of third leg of the stool so to speak or is that not in the cards right now?

Yes. Tom, I think it's a good question. And clearly it's we're having a lot of conversation around capital allocation with the cash that we have on hand. Now having our strongest quarter of the year behind us and having an exceptional result for the quarter gives us opportunity to look at a number of things and so that is what we're doing right now. More conversations with management and board in terms of capital allocation, I would say just more to come, but recommencing our share repurchase is a good start to that.

Yes. And I think, listen we have incredible opportunities with organic growth with our brands. And we need to make sure that first and foremost we're executing on that opportunity. And that includes global expansion, continued extension of HOKA particularly in China, which we're really just getting started still. Apparel opportunities and then also the necessary infrastructure to support the kind of growth both for our DTC channels globally and logistics to wholesale. So as we continue to look at where to invest our money, we feel like the first place is organic growth opportunities, and talent and resources, and our digital transformation. M&A is something we're certainly always keeping an eye on, but honestly I think smaller with high growth potential is more in our warehouse than a big transformative acquisition.

Understood. Well, congratulations on a great quarter and a great year. And talk to you soon.

Thanks, Tom.

The next question comes from Dana Telsey of Telsey Advisory Group. Please go ahead.

Good afternoon everyone and congratulations on the quarter and the success. As you think about the marketing spend which is increasing where's the marketing spend going, what have you seen in terms of marketing expense in particular through any channels where you may see higher returns? And then on average costs, any change in average cost in terms of what you're seeing on product? And then lastly, on the shipments and shipping surcharges, how much is that impacting next quarter as compared to this quarter in terms of what you're seeing? Thank you.

Yes. Thanks Dana. On the marketing side, I believe this is a real strength of Deckers and the way we set up our marketing spend is a centralized team that manages all of our spent for our brands globally, by region, by channel and consumer type. And we manage that very closely as a leadership team. We review that those numbers on an ongoing basis and are continually fine tuning the dials to optimize spend. Digital spend is obviously what's driving a great deal of our business. But I also have to give credit to the PR teams across our brands that are just doing an amazing job of creating brand heat at the top of the funnel. And then we're driving that down to our DTC channels through effective marketing tactics. Obviously we have all the traditional marketing channels that we've been using over the years, everything from Facebook, and email, and Instagram, but we did some great tests over the last six months with Snapchat and Pinterest and using influencers, then consumer generated content. And those are all paying off extremely well also. So just getting more targeted, more specific with our trend – sorry, our spend by channel and consumer type and then as I said putting more into the regions with more localized content leveraging local user-generated content in those regions and then amplifying the strength of our reach through localized channels, particularly in China, where they have different channels than we do in the U.S. But the philosophy, the approach, the financial guardrails around our marketing spent and expected return on investment is managed essentially across the globe. And then we have fantastic teams on ground in regions who are localizing it for the best return. So we're going to continue to invest in marketing, if you think about it, even at the rates we're spending now, we still haven't really invested to the extent we should, in men's particularly outside of the U.S. or apparel and particularly in China, there's still a lot of opportunity for us to invest in UGG, but certainly in HOKA to drive awareness of that brand. So it's working, it's very productive and there's a lot more opportunity for us to drive growth through increased marketing spent.

And then Dana, just to answer, I think the other two questions were on average selling price. So average selling price for the company is actually going up and that's being driven by HOKA and the higher proportion of DTC business. So as that proportion has increased and a higher proportion of HOKA it is driving our ASP. Now within UGG, where you have kind of in corresponding channels, you will have a slight decrease as diversity has increased and we're selling more product and lower price product. So interesting dynamics overall, again driving higher ASPs but some dynamics within the brand in a healthy way, driving kind of diversity of product. And then your question on shipping costs. And this relates a little bit to a previous question about gross margin for quarter four. On a proportional basis we're seeing higher expedited shipping costs as we're trying to bring in inventory due to the depleted inventory that we currently have. So that's going to be a headwind on the gross margin as you look at Q4, because again on a proportional basis we'll be looking to increase that.

Thank you.

Thanks, Dana.

And the last question for today will be Jim Duffy with Stifel. Please go ahead.

Thank you guys and great execution through it all.

Thanks Jim.

Actually I wanted to talk about international markets, Dave really encouraging to hear you're expecting growth for EMEA in fiscal 2022. I know a big part of the success in North America has been through diversifying the consumer base. Are you seeing similar success with the customer base in EMEA and Asia? Are you seeing the same kind of uptake with men in same side of – same kind of age group diversification?

Yes, it's a good question, Jim. And we are starting to see signs of that. We've traditionally in Europe, particularly and really driven by the UK have had just kind of a core consumer, a little bit older consumer and that's why you saw the business stagnate over the last few years. But with the focus on a more diverse consumer and speaking to them in a really authentic way, making sure that we are showing up in the right points of distributions, such as JD Sports and Foot Locker, and ASOS in the UK, and also Zalando across Europe and then just showing more exciting, fresh, relevant product on influencers, it's having a positive impact. And what's encouraging to me is we're starting to see younger consumers come in to the brand for the first time through fashion product. It's not the traditional classic that they're buying for the first time they're buying Fluff, they're buying Classic Clear, they're buying Ultra Mini. So it's a new way to enter the brand, it's a much more fun and fashionable consumer that's coming into the brand and they're seeing more wearing opportunities versus just when the cold weather hits and putting on their classic boot. So we're starting to see early days of that, the slipper and the fluff phenomenon was slower to take hold in Europe and Asia, but we did start to see that over the last three to six months in those markets. And it certainly increased opportunity as we go into FY 2022 in those international markets. The other areas, as I said the Ultra Mini and the Classic Clear, but also rain is a great category for us and we're starting to see a lot of traction there, we've had some production issues with our rain boots in the past, but now that we're bringing those to market, we're seeing great success there as well. So we do believe that the playbook so to speak that has enabled the growth in North America, 20% growth in North America for the quarter is a playbook that will serve us well in international. We're starting to see early signs of success.

Great. And then that I was pleased and frankly surprised to hear the Neumel was the number one style globally. Are you seeing a balanced penetration of that across region the through, is that more of a North American phenomenon with some catch up to be done in other international markets?

Yes, it's similar to what we're seeing with a lot of our new revenue drivers as it takes hold in the U.S. first and then we see a trickling into the European and international – Asia-Pacific market. So we've been driving the Neumel business pretty hard in North America. It hadn't really taken hold in the international markets until the last three to six months. So it's an emerging opportunity for us in those markets, which is great. And again the strength of the men's Neumel and also we have a women's Neumel, so the combination of those two styles gives us great opportunity going forward. And it's also a style that is a really exciting when you start thinking about iterations on that and creating seasonal styles with materials and collabs and things of that sort – I think it's going to be a stylist got a tremendous runway for us going forward.

Thank you. Then, Steve. I know there's been a lot of questions around the inventory but I'm just curious on the mechanics, specific to the December quarter were you able to pull forward receipts to deliver some of that upside in the third quarter? Or was that not how we should think about it, it was really just consuming inventory that was already on the books. And I'm curious in that December quarter did you indeed consume any of the air freight expense? And then is there a way that you can put some shape around the airfreight impact to the margins in the fourth quarter?

Yes. Good question, I think you had multiple so I try to unpack some of that. In terms of what happened in Q3. I would say we consumed mostly inventory that we had or inbound inventory that came in and went out in the quarter. And that's why you're seeing inventory down kind of nearly 17%. So it was more about selling out the inventory that we had. We also, as I mentioned kind of shifted some of the orders to in-stock inventory, so that helped lower inventory too. So where we didn't have inventory and an inability to bring it in or have it coming in Q3, shift some of that into product that we did have, that was a successful move. And then in talking about kind of Q4, we're still working through components of that, as I said as a proportion again, the expedited amount that will be coming in Q4 will be higher, remember but Q3 is a much bigger quarter. So not necessarily giving direction on a specific gross margin, but I think where your question was in relationship to one of the previous questions was can we proportionately flow the same level of lift in Q3 or similar into Q4? And I'm saying, no, don't do that, because of our depleted inventory, as we're shifting to more spring and summer, trying to get that inventory in we are having to expedite it. We're still working through some disruptions in the supply chain. So we haven't necessarily quantified, but I would say as you're thinking to build out Q4, I would not extrapolate Q3.

Those headwinds exist.

No doubt, I was hoping you could quantify the airfreight impact in Q4. And then maybe related to that, are you expecting the airfreight to continue to have consequences you didn't for the first half of fiscal 2022 into?

Yes, I think potentially I think there is a disruption. I can tell you in Q3, the headwind of FX on the gross margin was probably 20 basis points to 50 basis points. And so on a gross margin basis, I would think that will be bigger in kind of Q4, again on a comparable basis. I don't see things getting better in the next six months. So I think for the foreseeable future, we're going to continue to have kind of disruptions in the supply chain. I think there's pressure on factories to get product out, there's pressure on shipping companies to get ships across the ocean.

Cost of containers are going up.

There's issues within logistics, within the ports of moving containers and then just getting it to your warehouse and then trying to turn it around. So at multiple steps, we're still seeing headwinds now, I think did a very good job in Q3, but it took a lot. If things aren't getting better, like we have not seen things get better at this point.

The silver lining is that brands are strong, so the customers, although they are disappointed, they're willing to wait to get the product because the demand for it is so strong, but the costs are still there.

And sorry Jim, just to clarify, I misspoke. I think I said FX it's freight, freight was at 20 basis points to 50 basis points, sorry.

Yes. So that makes more sense. Oh, well, great guys. Thank you so much and congratulations on the great quarter.

Thanks Jim. Take care.

This concludes our question-and-answer session. And the Deckers Brands third quarter fiscal 2021 earnings conference call. Thank you for attending today's presentation. You may now disconnect.