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

FORM 10-K
(Mark One)
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended March 31, 2020

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)
Delaware
95-3015862
(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)
 
(805) 967-7611
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
DECK
New York Stock Exchange
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No

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 filer
 
Accelerated filer
 
 
 
 
 
Non-accelerated filer
 
Smaller 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 Act).
Yes No

At September 30, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting stock held by the non-affiliates of the registrant was approximately $4,102,074,000, based on the number of shares held by non-affiliates of the registrant as of that date, and the last reported sale price of the registrant’s common stock on the New York Stock Exchange on that date, which was $147.36. This calculation does not reflect a determination that persons are affiliates for any other purposes.

As of the close of business on May 14, 2020, the number of outstanding shares of the registrant’s common stock, par value $0.01 per share, was 27,999,468.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement on Schedule 14A relating to the registrant’s 2020 annual meeting of stockholders, to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, are incorporated by reference in Part III within this Annual Report on Form 10-K. With the exception of the portions of the Proxy Statement specifically incorporated herein by reference, the Proxy Statement and related proxy solicitation materials are not deemed to be filed as part of this Annual Report on Form 10-K.
 




DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES
For the Fiscal Year Ended March 31, 2020
TABLE OF CONTENTS
 
 
Page
 
 
Item 1B.
Unresolved Staff Comments
*
Item 4.
Mine Safety Disclosures
*
 
 
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
*
Item 9B.
Other Information
*
 
 
 
 
 
 
Item 16.
Form 10-K Summary
*
 
 
 
*Not applicable.
 


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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K for our fiscal year ended March 31, 2020 (Annual Report), and the information and documents incorporated by reference into this Annual 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 into, this Annual 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 Annual Report, and the information and documents incorporated by reference into this Annual Report, contain forward-looking statements relating to, among other things:

the impacts of the COVID-19 global pandemic on our operations, business, sales, and results of operations worldwide;
our business, operating, investing, capital allocation, marketing, and financing strategies;
the impacts of our ongoing operational system upgrades;
the expansion of our brands and product offerings, and changes to the geographic and seasonal mix of our products;
changes to our product distribution strategies, including the implementation of our product allocation and segmentation strategies and our decision to exit the warehouse channel for the Sanuk brand;
changes in consumer tastes and preferences to our brands and products, and the fashion industry;
trends impacting the purchasing behavior of wholesale customers and retail consumers, including those impacting retail and e-commerce businesses;
the impact of seasonality and weather on consumer behavior and our results of operations;
the impact of our efforts to continue to advance sustainable and socially conscious business operations;
expectations relating to the expansion of Direct-to-Consumer (DTC) capabilities;
our consolidation of certain distribution center operations;
availability of raw materials and manufacturing capacity, and reliability of overseas production and storage;
commitments and contingencies, including operating leases and purchase obligations for product and raw materials;
the impacts of new or proposed legislation, tariffs, regulatory enforcement actions or legal proceedings;
the value of goodwill and other intangible assets, and potential write-downs or impairment charges;
changes impacting our tax liability and effective tax rates;
repatriation of earnings of non-United States subsidiaries and any related tax impacts;
the impact from adoption of recent accounting pronouncements; and
overall global economic and political trends, including foreign currency exchange rate fluctuations, changes in interest rates and changes in fuel costs.

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 I, Item 1A, “Risk Factors,” and Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” within this Annual Report, as well as in our other filings with the Securities and Exchange Commission (SEC). You should read this Annual 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 from time to time 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 (NYSE), we expressly disclaim any intent or obligation to update any forward-looking statements. We qualify all our forward-looking statements with these cautionary statements.

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PART I

References within this Annual Report to “Deckers,” “we,” “our,” “us,” or the “Company” refer to Deckers Outdoor Corporation, together with its consolidated subsidiaries. UGG® (UGG), HOKA One One® (HOKA), Teva® (Teva), Sanuk® (Sanuk), Koolaburra® (Koolaburra), UGGpure® (UGGpure), and UGGplushTM (UGGplush) are some of our trademarks. Other trademarks or trade names appearing elsewhere in this Annual Report are the property of their respective owners. Solely for convenience, the trademarks and trade names within this Annual Report are referred to without the ® and™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

Unless otherwise specifically indicated, all dollar amounts in Items 1, 1A, 2, and 3 herein are expressed in thousands, except for per share amounts. The defined periods for the fiscal years ended March 31, 2020, 2019, and 2018 are stated herein as “year ended” or “years ended.”

Item 1. Business

General

Deckers Outdoor Corporation was incorporated in 1975 under the laws of the State of California and, in 1993, reincorporated under the laws of the State of Delaware. We are a global leader in designing, marketing, and distributing innovative footwear, apparel, and accessories developed for both everyday casual lifestyle use and high-performance activities. We market our products primarily under five proprietary brands: UGG, HOKA, Teva, Sanuk, and Koolaburra. We believe that our products are distinctive and appeal broadly to women, men, and children. We sell our products through quality domestic and international retailers, international distributors, and directly to our consumers both domestically and internationally through our DTC business, which is comprised of our retail stores and e-commerce websites. We seek to differentiate our brands and products by offering diverse lines that emphasize authenticity, functionality, quality, and comfort, and products tailored to a variety of activities, seasons, and demographic groups. All of our products are currently manufactured by independent manufacturers.

Recent Developments

COVID-19 Global Pandemic. During early calendar year 2020, the COVID-19 pandemic (referred to herein as COVID-19 or the COVID-19 pandemic) spread globally, including throughout the geographic regions in which we operate our business, and where our wholesale customers, retail stores, manufacturers, and suppliers are located.

In response to the pandemic, many federal, state, local, and foreign governments have put in place, and others in the future may put in place, travel restrictions, “shelter-in-place” orders, and similar government orders and restrictions in an attempt to control the spread and mitigate the impact of the disease. Such restrictions or orders have resulted in the mandatory closure of “non-essential” businesses (including retail stores), increased unemployment rates, “social distancing” restrictions, reduced tourist activity, work-from-home policies, and other changes that have led to significant disruptions to businesses and global financial markets. The overall impact of the pandemic on our business and future results of operations is highly uncertain and subject to change, and we are not able to accurately predict the magnitude or scope of such impacts at this time.
We have experienced a number of material impacts resulting from the COVID-19 pandemic during the fiscal quarter ended March 31, 2020 and subsequent to our fiscal year end, and have taken certain precautionary measures intended to help minimize the risk to our business, employees, customers, and the communities in which we operate, including the following:

All of our Company-owned and operated stores, and nearly all of the retail stores of our wholesale customers and retail partners, were closed during a portion of our fourth fiscal quarter and largely remain closed during the first part of our first fiscal quarter ending June 30, 2020.
Our global e-commerce business, including both our owned websites as well as the online presence of our wholesale customers, has remained substantially operational throughout the COVID-19 pandemic, which has been positively impacted by customers migrating to online shopping and has mitigated some of the negative pressure we are experiencing within our wholesale and retail store businesses.
We experienced a brief period of disruption at our Moreno Valley, California, distribution center and, while operations have since returned, we are experiencing certain operational and logistical challenges

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as a result of limited and modified operations resulting from safety protocols and increased social distancing measures.
We experienced certain disruptions to sourcing with our third-party manufacturers and, while these disruptions have been mitigated, it is possible there will be disruptions in the future.
We have implemented a number of temporary measures to reduce operating expenses and mitigate the adverse impact the pandemic may have on our business and operations.
As of March 31, 2020, we had $649,436 in cash and cash equivalents and $469,473 available borrowings under our revolving credit facilities, providing a liquidity position of over $1,000,000.
We are temporarily pausing repurchases under our stock repurchase programs due to the disruption and uncertainty caused by the COVID-19 pandemic and our focus on liquidity and cash management.

Refer to Part I, Item 1A, “Risk Factors,” and Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” within this Annual Report for further information on the impacts to our business and results of operations and associated risks and uncertainties. Refer to Part II, Item 5, “Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,” for further information on our stock repurchase programs.

Products and Brands

We currently market our products primarily under five propriety brands, composed of our four primary brands and our other brands, which currently consist of the Koolaburra by UGG brand, as well as other discontinued brands during the periods presented (collectively, Other brands). Collectively, our brands compete across the fashion and casual lifestyle, performance, running and outdoor markets.

UGG. The UGG brand is one of the most iconic and recognized brands in our industry, which highlights our successful track record of building niche brands into lifestyle and fashion market leaders. With loyal consumers around the world, the UGG brand has proven to be a highly resilient line of premium footwear, apparel, and accessories with expanded product offerings and a growing global audience that appeals to women, men, and children. We intend to continue diversifying the UGG brand to drive year-round product sales, including through expansion of women’s spring and summer footwear, men’s products, apparel, home goods, and accessories. The UGG brand is sold both domestically and internationally in key markets including the United States (US), Europe, Asia-Pacific, Canada and Latin America.

HOKA. The HOKA brand is an authentic, premium line of year-round performance footwear and apparel that offers enhanced cushioning and inherent stability with minimal weight. Originally designed for ultra-runners, the brand now appeals to athletes around the world, regardless of activity. The HOKA brand is quickly becoming a leading brand within the run specialty wholesale accounts, with strong marketing fueling both domestic and international sales growth. We intend to leverage our domestic specialty strategy to expand and invest in international sales growth. We continue to build product extensions in trail and fitness. The HOKA brand is sold both domestically and internationally in key markets, including the US, Canada, Europe, and Asia-Pacific.

Teva. The Teva brand, which pioneered the sport sandal category, is born from the outdoors and rooted in adventure. The Teva brand is a global leader within the sport sandal and modern outdoor lifestyle categories by fueling the expression of freedom. The Teva brand’s product line includes sandals, shoes, and boots.

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

Other Brands. Other brands currently consist of the Koolaburra by UGG brand and a discontinued brand during the prior period presented. The Koolaburra brand is a casual footwear fashion line using sheepskin and other plush materials and is intended to target the value-oriented consumer in order to complement the UGG brand offering.

Sales and Distribution

US Distribution. In our wholesale channel, we distribute our products in the US through sales representatives, who are organized by account type or geographically and by brand. In addition to our wholesale channel, we also sell products directly to consumers through our DTC business.


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Currently, our sales force is typically separated by brand, as each brand generally has certain specialty consumers that expect a dedicated sales team with specialized knowledge of our brands’ product offerings. However, there is some overlap between the sales teams and customers, and we have aligned our brands’ sales forces to position them for the future success of each of our brands.

We distribute products sold in the US through our distribution center in Moreno Valley, California, as well as through a third-party logistics provider (3PL) in Pennsylvania. Our distribution center features a warehouse management system that enables us to efficiently pick and pack products for direct shipment to customers.

We completed the closure of our former distribution center in Camarillo, California during fiscal year 2020 and moved all of our Camarillo distribution operations to our Moreno Valley location.

Refer to Part I, Item 2, “Properties,” and Note 7, “Leases and Other Commitments,” of our consolidated financial statements in Part IV within this Annual Report for further disclosure and discussion.

International Distribution. Internationally, in our wholesale channel, we distribute our products through independent distributors and wholly-owned subsidiaries in many regions and countries, including Europe, Asia-Pacific, Latin America, and Canada, among others. We also sell products internationally, particularly in China, through partner retail stores, which are branded stores that are wholly-owned and operated by third parties. In addition, in certain countries we sell products through our DTC business. For our wholesale and DTC businesses, we distribute our products through a number of distribution centers managed by 3PLs in certain international locations.

UGG Wholesale. We sell our UGG brand products primarily through domestic higher-end department stores such as Nordstrom, Dillard’s, and Macy’s, as well as lifestyle retailers such as Journeys, and online retailers such as Amazon.com, Zappos.com, and Zalando.com. As the retail marketplace continues to evolve to reflect changing consumer preferences, we continually review and evaluate our UGG wholesale distribution and product segmentation approach.

HOKA Wholesale. We sell select HOKA brand footwear primarily through full-service domestic specialty retailers and select online retailers, including Fleet Feet, Road Runner Sports, Running Specialty Group, REI, Zappos.com, and Running Warehouse. We expect to expand our HOKA brand wholesale distribution into international markets, including through strategic partners such as Intersport and Sport 2000 in Europe and Xebio Group in Japan.

Teva Wholesale. We sell our Teva brand footwear primarily through specialty outdoor retailers, sporting goods and department stores, including REI, Famous Footwear, DSW, Urban Outfitters, Free People, and online retailers such as Amazon.com and Zappos.com.

Sanuk Wholesale. We sell our Sanuk brand footwear primarily through domestic independent action sports and outdoor specialty footwear retailers, larger national retail chains, and online retailers, including Journeys, Dillard’s, DSW, REI, and online retailers such as Amazon.com and Zappos.com.

Other Brands Wholesale. We sell our other brands’ footwear primarily through department stores and online retailers. Key accounts of the Koolaburra brand include Kohl’s, DSW, QVC, and Rack Room Shoes.

Direct-to-Consumer. Our DTC business is comprised of our retail stores and e-commerce websites. Our retail stores and websites are largely intertwined and interdependent. In an omni-channel marketplace, we believe many of our consumers interact with both our retail stores and our websites before making purchasing decisions. For example, consumers may feel or try on products in our retail stores and then place an order online later. Conversely, they may initially research products online, and then view inventory availability by store location and make a purchase in store. Some examples that demonstrate the extent to which the sales channels are combined, which are collectively designed to engender brand loyalty while increasing product sales and improving our inventory productivity, include the following:

“UGG Rewards”: We have implemented a consumer loyalty program under which points and awards are earned across the DTC business.

“Infinite UGG”: We provide online shopping access inside retail stores for all SKUs available on our e-commerce websites.


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“Ship from Store”: Inventory that is available in our stores but out of stock online can be shipped from our stores. We expect future advancements in this capability will use algorithms to select the optimal fulfillment source.

“UGG Closet”: A limited e-commerce outlet channel that offers an online portal designed to provide an efficient way to close out inventory through direct sales to consumers.

“Buy Online / Return in-Store”: Our consumers can buy online and return products to our retail stores.

“Click and Collect”: Our consumers can buy online and have products delivered to certain retail stores for pick-up.

“Retail Inventory Online”: Our consumers can view specific store location inventory online before visiting the store.

Our retail stores enable us to expose consumers to a greater selection of products, directly impact our consumers’ experience with our brands, and sell our products at retail prices thereby generating larger gross margins. Our retail stores are predominantly UGG brand concept stores and UGG brand outlet stores. Through our outlet stores, we sell some of our discontinued styles from prior seasons, full price in-line products, as well as products made specifically for the outlet stores.

As of March 31, 2020, we had a total of 145 global retail stores, which includes 76 concept stores and 69 outlet stores, and operated our e-commerce business through an aggregate of 28 Company-owned websites and mobile platforms in ten different countries.

Refer to Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” within this Annual Report for further information on our DTC business.

Product Design and Development

The design and development functions for all of our brands are performed by a combination of internal design and development staff and outside freelance designers. Our design and development staff work closely with brand management to develop new styles and product lines. Throughout the development process, we have multiple design and development reviews, which we then coordinate with our independent manufacturers. To ensure quality, consistency, and efficiency in our product design and development process, we continually evaluate the availability and cost of raw materials, the capabilities and capacity of our independent manufacturers, and the target retail price of new products.

Manufacturing and Supply Chain

We outsource the production of our products to independent manufacturers, which are primarily located in Asia. We generally purchase products from our manufacturers on the basis of individual purchase orders or short-term purchase commitments, rather than maintaining long-term purchase commitments, which provides us greater flexibility to adapt to changing consumer preferences, changes in international trade relations, and evolving inventory management requirements. However, we do have long-standing relationships with most of these independent manufacturers, and we may not be able to identify substitute alternative manufacturers to satisfy our desire for such flexibility. We require our independent manufacturers and designated suppliers to adopt our Ethical Supply Chain Supplier Code of Conduct, which specifies that they comply with all local laws and regulations governing human rights, working conditions, and environmental compliance before we are willing to conduct business with them. We also require our manufacturing partners and licensees to comply with our Restricted Substances Policy, Anti-Corruption Policy, Conflict Minerals Policy and Ethical Sourcing and Animal Welfare Policy, as well as other compliance policies and procedures, as a condition to conducting business with us.

Production by our independent manufacturers is performed in accordance with our detailed product specifications and rigorous quality control standards. We maintain a buying office in Hong Kong, as well as on-site supervisory offices in China and Vietnam, which collectively serve as a strong link to our independent manufacturers. We believe our strong regional presence enhances our manufacturing processes by providing predictability of material availability, compliance with laws and regulations, and adherence to quality control standards and final design specifications. In addition, we have instituted pre-production, in-line, and post-production inspections to meet or exceed our product

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quality requirements, as well as the expectations of our consumers. Our quality assurance program includes our own employee on-site inspectors at our independent manufacturers, who oversee the production process and perform quality assurance inspections. We also routinely inspect our products upon arrival at our distribution centers.

The majority of the materials and components used in the production of our products by these independent manufacturers are purchased from independent suppliers that we designate. At our direction, our manufacturers currently purchase the majority of the sheepskin used in our products from two tanneries in China, which source their sheepskin primarily from Australia and the United Kingdom (UK). We maintain routine communication with the tanneries to closely monitor the supply of high-quality sheepskin for our projected UGG brand production. To ensure an adequate supply of sheepskin, we forecast our expected usage in advance at a forward price. We also enter into purchasing contracts and other pricing arrangements with certain sheepskin and leather suppliers to manage the supply of sheepskin. We believe current supplies are sufficient to meet our current and anticipated demand, but we continually monitor our supply chain and investigate options to accommodate our expected growth, as well as unexpected supply chain issues. Refer to Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and Note 7, “Leases and Other Commitments,” of our consolidated financial statements in Part IV within this Annual Report for further information on our minimum purchase commitments.

In an effort to partially reduce our dependency on sheepskin, we use a proprietary raw material, UGGpure, which is re-purposed wool woven into a durable backing, and UGGplush, which is re-purposed wool and lyocell woven into a durable backing, in some of our UGG brand products. As part of an ongoing effort to eliminate waste as part of our corporate sustainability efforts, most of the wool in UGGpure and UGGplush is sheared from the hides we are already using in our products. In addition, we are continuing to drive our strategy of introducing counter-seasonal products through category expansion, including the UGG brand’s spring and summer products, as well as the year-round performance footwear product offering of the HOKA brand, which we believe will help further reduce our dependency on sheepskin. Excluding sheepskin, UGGpure and UGGplush, we believe that substantially all raw materials and components used to manufacture our products, including wool, rubber, leather, and nylon webbing, are generally available from multiple sources at competitive prices.

Inventory Management and Product Returns

We have an extended design and manufacturing process, which involves the initial design of our products, the purchase of raw materials, the accumulation of inventories, the subsequent sale of the inventories, and the collection of the resulting accounts receivable. This production cycle results in significant liquidity requirements and working capital fluctuations throughout our fiscal year. Because our production cycle typically involves long lead times, which requires us to make manufacturing decisions several months in advance of an anticipated purchasing decision by the consumer, it is challenging for us to estimate and manage our inventory and working capital requirements.

We seek to manage our inventory levels by considering existing customer orders, forecasted sales and budgets, and the delivery requirements of our customers. As part of our operating profit improvement plan, we implemented systems and processes designed to improve our product forecasting, inventory control and supply chain management capabilities. In addition, added discipline around SKU productivity, product purchasing decisions, the reduction of production lead times, and the sale of excess inventory through our liquidation channels, are key areas of focus that we expect will further enhance inventory performance.

Our practice, and the general practice in our industry, is to offer retail customers the right to return defective or improperly shipped merchandise.

Backlog

We encourage our wholesale and distributor customers to place a significant portion of orders as pre-season orders, which are typically placed up to 12 months prior to the anticipated shipment date, as well as in-season fill-in orders that can be shipped immediately. We work with our customers through pre-season programs to enable us to better plan our production schedule, inventory, and shipping requirements.

We have historically defined backlog as unfilled customer orders from our wholesale customers and distributors as of any particular date, which represent orders expected to be shipped at a future date, some of which are subject to cancellation prior to shipment. Our calculation of backlog also includes bulk orders, which generally comprise larger volume orders from significant customer accounts. These types of orders typically have terms that allow customers to vary the location and timing of shipments. We believe backlog is an imprecise indicator of our actual product shipments

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and future results of operations and is not material to an overall understanding of our business, especially given that backlog excludes sales within our DTC segment, as well as in-season orders. The backlog as of a particular date is affected by a number of factors, including seasonality, the timing of customer orders, and the timing of product shipments.

As of March 31, 2020, our backlog was $1,022,900, which represents a 4.6% annual increase over our backlog as of March 31, 2019. Subsequent to March 31, 2020, we have experienced some cancellations related to COVID-19 disruptions, and as a result, as of May 14, 2020, our backlog has declined to be roughly flat compared to the prior period. We are currently reviewing the order book with our wholesale customers, and our backlog may decrease further due to additional order cancellations or deferrals.

Our People and Our Culture

Employees. As of March 31, 2020, we employed approximately 3,600 employees in North America, Europe, and Asia. This includes approximately 1,600 employees in our retail stores worldwide, which includes part-time and seasonal employees. For a variety of reasons, we believe that our relationship with our employees is favorable.

Encouraging Diversity. We strive to create a culture of inclusion where employees are able to freely contribute equally regardless of gender, age, race, disability or sexual orientation. Our Code of Ethics, which all employees are trained on bi-annually, codifies these values. Our employee-led initiative, VOICES, is an avenue that elevates employee issues and celebrates our uniqueness. We have obtained EDGE (Economic Dividends for Gender Equality) Certification in the US, the leading global assessment and business certification for gender equality.

Environmental, Social and Governance (ESG)

As a global leader in designing, marketing and distributing innovative footwear, apparel, and accessories, our worldwide scope and impact is significant. Equally significant is the responsibility we believe we have to our stakeholders, including our consumers, employees, stockholders, and the communities we serve. We believe consumers are increasingly buying brands that advance sustainable business practices and deliver quality products while striving for minimal environmental impact with socially conscious operations. We employ socially conscious operations and sustainable business practices, with the goal of continuing to deliver quality products to our consumers and sound financial performance to our stockholders, while minimizing the environmental impact of our business footprint. Our sustainability policies and strategies are aligned with, and informed by, our ongoing efforts with multi-stakeholder initiatives, which involve our employees, our suppliers and our customers, as well as other brands and non-governmental organizations. Through our Corporate Responsibility and Sustainability Program, we expect to continue to advance our sustainable business initiatives with the goal of consistently delivering brand promises that meet consumer expectations. As a result of our efforts, we have been recognized by Investor’s Business Daily as one of the “50 Best ESG Companies” during fiscal year 2020.
 
ESG Governance. Our Sustainability and Compliance Officer is responsible for the day-to-day management of our Corporate Responsibility and Sustainability program. The Corporate Governance Committee of our Board of Directors, which is comprised of three independent directors, oversees our Corporate Responsibility and Sustainability efforts.

Our Sustainability and Compliance program aligns our internal teams with our sustainable development goals (SDGs) and establishes policies to encourage our partners and suppliers to employ sustainable business practices. We annually assess risks related to ESG issues as part of our overall enterprise risk management approach. In addition, our internal audit team provides periodic targeted reviews of our ESG-related policies and procedures to the Audit Committee.

Sustainable Development Goals. Achieving measurable sustainability success is critical to our future economic and business growth, and we work to establish SDGs that we believe will make the most significant impact for our business, our stockholders, and our communities. We are members of the United Nations Global Compact (UNGC), which is the world’s largest voluntary corporate sustainability initiative. This membership requires an annual statement of progress, which is reflected in our Corporate Responsibility Report. Our Sustainability and Compliance Officer identifies specific SDGs set forth in the UNGC, which guide our supply chain and brand business teams’ efforts to address environmental and social challenges. Our SDGs are currently focused on eight categories where we believe we can make substantial impacts.


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The following is a brief overview of our current SDGs and related fiscal year 2020 achievements:

Materials. We sourced the vast majority of our leather supplies from Leather Working Group-certified tanneries, which promote sustainable and environmentally-friendly business practices within the leather industry. We continue to seek sustainable alternatives for key product materials, with a goal to source at least 90% of our materials from suppliers certified by third-party benchmarking organizations.

Waste. Our distribution center in Moreno Valley, California is implementing efforts to become a zero-waste facility. We are taking steps towards removing single-use plastic at our corporate headquarters, retail stores and distribution center. We are piloting tracking programs with certain manufacturing partners to monitor waste disposal methods.

Animal Welfare. We do not believe in the exploitation or killing of animals solely for the purpose of their fur. We only use hides which are the byproduct of the meat industry and, with our innovative UGGpure and UGGplush technologies, the wool used in our UGG brand footwear is almost entirely re-purposed from hides we are already using. We require our supply chain partners to annually certify compliance with our Ethical Sourcing and Animal Welfare Policy.
 
Water. We have reduced our water usage through manufacturing process improvements and have encouraged our manufacturing partners and suppliers to do the same by measuring their water output. Our SDG seeks to reduce water consumption and improve water quality throughout our operations and the communities in which we operate including a target that at least 90% of our core factory partners and suppliers apply industry best practices regarding water treatment and usage.

Chemicals. We seek to achieve environmentally sound management of chemicals and reduce the discharge of hazardous substances among our key business partners.

Climate and Clean Energy. We strive to increase our year-over-year solar power usage at our headquarters and distribution centers, as well as to integrate climate change measures into our policies and planning. We measure energy usage by certain of our partners to encourage reduced energy consumption.

Gender Equality and Quality Education. In addition to our own corporate diversity and inclusion efforts, we promote gender equality and quality education at our supply chain partners through our partnership with HERproject.

Human Rights. We have established robust criteria in our Ethical Supply Chain Supplier Code of Conduct based on International Labour Organization standards and audit our supply chain pursuant to such criteria on an ongoing basis. Audit results are included on performance scorecards for regular review by our executive management.

Our fiscal year 2020 Corporate Responsibility Report, which will be published under the “Responsibility” tab of our website located at www.deckers.com, will provide more information on our fiscal year 2020 ESG achievements. We believe that the progress of our corporate responsibility efforts is served by disclosing goals and relevant metrics and, to that end, we are working to align our Corporate Responsibility Report with the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (commonly referred to as TCFD), Global Reporting Initiative’s (commonly referred to as GRI) Core Standards, and Sustainability Accounting Standards Board’s (commonly referred to as SASB) Consumer Goods Standards. The content of our Corporate Responsibility Reports is not incorporated by reference into this Annual Report or in any other report or document we file with the SEC.

Charitable Giving and Volunteering. Our charitable contributions, product donations, and employee volunteer efforts are an essential part of our culture. Since 2006, we have donated over 1 million pairs of shoes to Soles4Souls and Good360, non-profit organizations that distribute shoes to those in need. During fiscal year 2020, we donated $1,700 to various non-profit organizations. Additionally, we have committed over $1,000 in funds and product donations to address the impacts of the COVID-19 pandemic on the communities in which we operate. Further, during fiscal year 2020, we dedicated our strategic giving and engagement efforts to categories related to our SDGs, our business, and our communities. Our community-engagement efforts focused on arts and culture, human services, education, international affairs, environment and animal welfare, and health and society. We encourage our employees to volunteer by compensating them for up to 24 hours of volunteer time each year.

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Reportable Operating Segments and Geographic Areas

Our six reportable operating segments include the five strategic business units responsible for the worldwide operations of the wholesale divisions of our brands (UGG, HOKA, Teva, Sanuk, and Other brands), plus our DTC business. Refer to Note 12, “Reportable Operating Segments,” for further discussion of our reportable operating segments and to Note 13, “Concentration of Business,” of our consolidated financial statements in Part IV within this Annual Report for financial information about geographic areas and concentration of related business risks.

Seasonality

Our business is seasonal, with the highest percentage of UGG and Koolaburra brand net sales occurring in the quarters ending September 30th and December 31st and the highest percentage of Teva and Sanuk brand net sales occurring in the quarters ending March 31st and June 30th. Net sales for the HOKA brand occur more evenly throughout the year reflecting the brand's year-round performance product offerings. Due to the magnitude of the UGG brand relative to our other brands, our aggregate net sales in the quarters ending September 30th and December 31st have significantly exceeded our aggregate net sales in the quarters ending March 31st and June 30th. As we continue to take steps to diversify and expand our product offerings by creating more year-round styles and growing the year-round net sales of the HOKA brand as a percentage of our aggregate net sales, we expect the seasonality trends that have resulted in significant variations in our aggregate net sales from quarter to quarter to decrease over time. However, it is unclear whether seasonal impacts will be minimized or exaggerated in future periods as a result of the disruptions and uncertainties caused by the COVID-19 pandemic.

For further discussion of the factors that may cause our actual results to differ materially from our expectations, as well as factors that may impact our future results of operations, refer to Part I, Item 1A, “Risk Factors,” and Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” within this Annual Report.

Competition

The markets in which we operate are highly competitive. Our competitors include athletic and footwear companies, branded apparel companies and retailers with their own private labels. Although the footwear industry is fragmented, many of our competitors are larger and have substantially greater resources, several of which compete directly with some of our products. In addition, access to offshore manufacturing and the growth of e-commerce has made it easier for new companies to enter the markets in which we compete, further increasing competition in the footwear, apparel, and accessories industry. In particular, and in part due to the popularity of our UGG brand and HOKA brand products, we face increasing competition from a significant number of domestic and international competitors selling products designed to compete directly or indirectly with our products. We believe that our ability to successfully compete depends on numerous factors, including our ability to assess and respond quickly to changing consumer tastes and preferences, produce appealing products that meet expectations for product quality and technical performance, maintain and enhance the image and strength of our brands, price our products competitively, and weather the impacts and disruptions caused by the COVID-19 pandemic, among others.

In addition, we believe that our key customers face intense competition from other department stores, sporting goods stores, retail specialty stores, and online retailers, among others, which could negatively impact the financial stability of their businesses and their ability to conduct business with us.

Refer to Part I, Item 1A, “Risk Factors,” within this Annual Report for further discussion of the potential impact of competition on our business and results of operations.

Patents and Trademarks

We utilize trademarks for virtually all of our products and believe that having distinctive marks that are readily identifiable is an important factor in creating a market for our products, promoting our brands, and distinguishing our products from the products of others. We currently hold trademark registrations for “UGG,” “Teva,” “Sanuk,” “HOKA One One,” “Koolaburra,” “UGGpure,” and other marks in the US, and for certain of the marks in many other countries, including Canada, China, the UK, various countries in the European Union, Japan, and Korea. As of March 31, 2020, we hold 185 designs and inventions with corresponding design or utility patent registrations, plus seventeen designs

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and inventions which are currently pending registration. These patents expire at various times. We regard our proprietary rights as valuable assets and vigorously protect such rights against infringement by third parties.
 
Government Regulation

Compliance with federal, state, and local environmental regulations has not had, and it is not expected to have, any material effect on our business, results of operations, financial condition, or competitive position based on information and circumstances known to us at this time.

Available Information

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and information statements (and any amendments or supplements to the foregoing) filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge on our website at www.deckers.com. Such documents and information are available as soon as reasonably practicable after they are filed with or furnished to the SEC. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements, information statements and other information regarding issuers that file with the SEC.

We also make the following corporate governance documents available through our website: Audit Committee Charter, Compensation Committee Charter, Corporate Governance Committee Charter, Corporate Disclosure Policy, Code of Ethics, Corporate Responsibility Report, Restricted Substance Policy, Ethical Supply Chain Supplier Code of Conduct, Accounting and Finance Code of Conduct, Corporate Governance Guidelines, and Conflict Minerals Policy.

The information contained on or accessed through our website does not constitute part of this Annual Report, and references to our website address within this Annual Report are inactive textual references only.

Item 1A. Risk Factors

Our short and long-term success is subject to numerous risks and uncertainties, many of which involve factors that are difficult to predict or beyond our control. As a result, investing in our common stock involves substantial risk. Before deciding to purchase, hold or sell our common stock, stockholders, and potential stockholders should carefully consider the risks and uncertainties described below, in addition to the other information contained in or incorporated by reference into this Annual Report, as well as the other information we file with the SEC. If any of these risks are realized, our business, financial condition, results of operations, and prospects could be materially and adversely affected. In that case, the value of our common stock could decline, and stockholders may lose all or part of their investment. Furthermore, additional risks and uncertainties of which we are currently unaware, or which we currently consider to be immaterial, could have a material adverse effect on our business.

Certain statements made in this section constitute “forward-looking statements,” which are subject to numerous risks and uncertainties including those described in this section. Refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements” within this Annual Report for additional information.

The COVID-19 global pandemic has had, and other public health crises or epidemics could in the future have, a material adverse impact on our business, operations, liquidity, financial condition, results of operations, the operations of our customers and business partners, and the markets and communities in which we and our customers and partners operate.

The COVID-19 pandemic has had, and other public health crises or epidemics in the future could have, repercussions across local, regional, and global economies and financial markets. The outbreak of COVID-19 has significantly adversely impacted global economic activity and contributed to volatility in and negative pressure on financial markets. In response to the COVID-19 pandemic, many federal, state, local, and foreign governments have put in place, and others in the future may put in place, travel restrictions, quarantines, shelter-in-place orders, and similar government orders and restrictions, in an attempt to control the spread and mitigate the impact of the disease. Such restrictions or orders, or the perception that such restrictions or orders could be implemented or extended, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, and cancellation or postponement of events, among other effects that could negatively impact our operations, as well as the operations of our partner retail stores, wholesale customers, suppliers, third-party distributors, and manufacturers. 


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The COVID-19 pandemic has resulted in a significant decrease in discretionary spending and retail activity, rapid rise in unemployment, and a sudden decrease in global economic activity, and many businesses, including our Company, have experienced, and anticipate that they will continue to experience, a significant negative impact on their financial condition, results of operations, and liquidity. For example, during portions of our fourth fiscal quarter ended March 31, 2020, and during the first part of our first fiscal quarter ending June 30, 2020, nearly all of our Company-operated stores, our partner retail stores, and the retail stores of our wholesale customers were closed as a result of government orders or restrictions, and may remain closed in certain geographies in future periods. In response to such store closures, as well as the social distancing measures and other restrictions resulting from the pandemic, we have temporarily furloughed certain retail store employees while stores are closed and transitioned nearly all of our other employees able to work remotely to a remote work environment. Although we have not experienced a material impact on productivity from shifting our employees to a remote work environment, there is no guarantee that our employees will be as effective while working remotely. In addition, despite the implementation of reasonable security measures by us and our third-party providers, our systems and information may be more susceptible to cyber-attacks or data security incidents with significantly more of our work force working remotely. Furthermore, in an effort to manage the financial uncertainty involved with the COVID-19 pandemic, we have delayed the hiring of certain non-essential employees, which may have the impact of delaying the completion of certain projects or other strategic objectives. 

In addition, the demand for our products, as well as our results of operations, have been and could continue to be adversely impacted due to a number of other factors, including the following:

reduced consumer demand for our products as consumers seek to reduce or delay spending in response to the impacts of COVID-19, including from the recent rise in unemployment rates, decreased discretionary spending, and diminished consumer confidence;
decreased store traffic as a result of retail store closures, social distancing restrictions or changes in consumer behavior;
a deterioration in our ability, or the ability of our wholesale customers, to operate in affected geographic regions;
reduced availability of our supply of raw materials;
the failure of key business partners to provide services, including the inability of our manufacturers or third-party distributors to timely fulfill their obligations to us;
bankruptcies or other financial difficulties facing our wholesale customers, which could cause them to be unable to make or delay making payments to us, or resulting in cancellation of or reducing their orders;
seasonality impacts on the demand for certain products, which could be further exacerbated by government restrictions and changes in consumer behavior;
the ability of our distribution center and 3PLs to timely and accurately process orders, especially during periods of heightened demand; and
incremental costs resulting from adoption of preventative measures, including social distancing requirements.

The full extent of the impact of the COVID-19 pandemic on our business and operations is highly uncertain and subject to change, and will depend on a number of factors beyond our control, including, without limitation, the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, the impact of the pandemic on the businesses of our wholesale customers, suppliers, third-party distributors, manufacturers, or retail partner stores, the extent and duration of any economic recessionary conditions, and the impact on the financial markets and our access to capital. We expect any further spread of the COVID-19 pandemic (including the potential for a second wave of the disease), or even the threat or perception that this could occur, or any protracted duration of decreased economic activity, could have a material adverse impact on our business, operations and financial results, or on the business, operations and financial results of our customers and business partners. In addition, to the extent the duration of the pandemic results in negative impacts to our business during our peak selling season for the UGG brand, it could result in a significantly greater adverse effect on our financial condition and results of operations than we have experienced thus far.


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Many of our products are inherently seasonal, and the sales of our products are highly sensitive to weather conditions, which makes it difficult to anticipate consumer demand for our products, manage our expenses, and forecast our financial results.

Due to the nature of many of our product offerings, sales of our products are inherently seasonal. Historically, the highest percentage of UGG brand net sales have occurred in the fall and winter months (our second and third fiscal quarters), and the highest percentage of Teva brand and Sanuk brand net sales have occurred in the spring and summer months (our first and fourth fiscal quarters). Due to the magnitude of the UGG brand relative to our other brands, this trend has resulted in our net sales for the second and third fiscal quarters significantly exceeding our net sales in the first and fourth fiscal quarters. While we have taken steps to diversify our product offerings, both by creating more year-round styles and expanding product offerings within our existing brands, and by acquiring and developing new brands, we expect this trend to continue for the foreseeable future. It is unclear whether seasonal impacts will be minimized or exaggerated in future periods as a result of the disruptions and uncertainties caused by the COVID-19 pandemic.

In particular, sales of our products are highly sensitive to weather conditions, which are difficult to predict and beyond our control. For example, extended periods of unseasonably warm weather during the fall or winter months may significantly reduce demand for our UGG brand products. Unfavorable or unexpected weather patterns may have a material, negative impact on our business, financial condition, results of operations and prospects. In addition, the unpredictability of weather conditions makes it more difficult for us to accurately forecast our financial results and to meet the expectations of analysts and investors.

As a result of the relative concentration of our sales in certain months of the year, factors which specifically impact consumer spending patterns in those months, such as unexpected weather patterns, declines in consumer confidence, changing consumer preferences, or uncertain economic conditions, will have a disproportionate impact on our business and could result in our failure to achieve financial performance that is in line with our expectations or the expectations of market participants. In addition, significant fluctuations in our financial performance from period to period as a result of these or other factors could increase the volatility of our stock price, which could cause our stock price to decline.
 
The footwear, apparel, and accessories industry is subject to rapid changes in consumer preferences, and if we do not accurately anticipate and promptly respond to consumer demand, including consumer spending patterns, we could lose sales, our relationships with customers could be harmed, and our brand loyalty could be diminished.

The footwear, apparel, and accessories industry is subject to rapid changes in consumer preferences and tastes, which make it difficult to anticipate demand for our products and forecast our financial results. We believe there are many factors that may affect the demand for our products, including:
 
seasonality, including the impact of anticipated and unanticipated weather conditions;
consumer acceptance of our existing products and acceptance of our new products, including our ability to develop new products that address the needs and preferences of new consumers;
consumer demand for products of our competitors;
the implementation of our segmentation approach to the distribution of certain of our products;
consumer perceptions of and preferences for our products and brands, including as a result of evolving ethical or social standards;
the extent to which consumers view certain of our products as substitutes for other products we manufacture;
publicity, including social media, related to us, our products, our brands, our marketing campaigns and our celebrity endorsers;
the life cycle of our products and consumer replenishment behavior;
evolving fashion and lifestyle trends, and the extent to which our products reflect these trends;
brand loyalty;
changes in consumer confidence and buying patterns, and other factors that impact discretionary income and spending;
legislation restricting our ability to use certain materials in our products;
changes in general economic, political, and market conditions; and
pandemics or other outbreaks of illness or disease, such as the COVID-19 pandemic.


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Consumer demand for our products depends in part on the continued strength of our brands, which in turn depends on our ability to anticipate, understand and promptly respond to the rapidly changing preferences and fashion tastes for footwear, apparel, and accessories, as well as consumer spending patterns. As our brands and product offerings continue to evolve, it is necessary for our products to appeal to an even broader range of consumers whose preferences cannot be predicted with certainty. For example, many UGG brand products include a fashion element and could go out of style at any time. Furthermore, we are dependent on consumer receptivity to our new products and to the marketing strategies we employ to promote those products. Consumers may not purchase new models and styles of footwear, apparel, and accessories in the quantities projected or at all. Further, consumer spending may be adversely impacted by economic conditions, including consumer confidence in the economy, employment, salary and wage levels, the availability of consumer credit, and general costs of living. For example, we are experiencing, and could continue to experience, decreased demand for our products arising out of the impacts of the COVID-19 pandemic. If we fail to predict or react appropriately to changes in consumer preferences and fashion trends or fail to adapt to shifting spending patterns or demand, consumers may consider our brands and products to be outdated or unattainable or associate our brands and products with styles that are no longer popular, which may adversely affect our overall financial performance.

Our success is driven to some extent by brand loyalty, and there can be no assurance that consumers will continue to prefer our brands. The value of our brands is largely based on evolving consumer perceptions, and concerns with respect to factors such as product quality, product design, technical performance, product components or materials, or customer service, could result in negative perceptions and a corresponding loss of brand loyalty and value. In addition, negative claims or publicity regarding us, our products, our brands, our marketing campaigns, or our celebrity endorsers, could adversely affect our reputation and sales regardless of whether such claims are accurate. Social media, which accelerates the dissemination of information, can increase the challenges of containing any such negative claims. If consumers begin to have negative perceptions of our brands, whether or not warranted, our brand image would become tarnished and our products would become less desirable, which could have a material adverse effect on our business.

If we are unable to sustain the cost reductions and profitability improvements achieved from the implementation of our restructuring and operating profit improvement plans, we may not achieve results of operations in line with our expectations, which could cause our stock price to decline.

As of March 31, 2019, we completed implementing a restructuring plan designed to reduce overhead costs and create operating efficiencies while improving collaboration across our brands, and also completed the implementation of an operating profit improvement plan designed to improve profitability by enhancing product development cycle times, optimizing material yields, consolidating our factory base, and relocating product manufacturing and distribution facilities. However, we may not be able to sustain the cost reductions, profitability improvements, or other expected benefits of these plans in future periods. General economic and market conditions, including the impacts and disruptions caused by the COVID-19 pandemic, could impact our revenue and increase our costs and operating expenses. If we fail to sustain or expand operating profit improvements in line with our expectations, or with the expectations of research analysts or other market participants, it could have a material adverse impact on our financial performance, which could cause our stock price to decline. Further, our attempts to sustain or expand operating profit improvements may require additional investments and divert management’s time and resources, which may impede our ability to achieve our other strategic objectives.

We face intense competition from both established companies and newer entrants into the market, and our failure to compete effectively could cause our market share to decline, which could harm our reputation and have a material adverse impact on our financial condition and results of operations.

The footwear, apparel, and accessories industry is highly competitive, and subject to changing consumer preferences and tastes, we expect to continue to face intense competitive pressures. We believe we compete on the basis of a number of factors, including our ability to:

predict and respond to changing consumer preferences and tastes in a timely manner;
continue to market current products, and develop new products, that appeal to consumers;
produce products that meet our requirements and consumer expectations for quality and technical performance;
accurately predict and forecast consumer demand;
ensure product availability;
manage the impact of seasonality, including unexpected changes in weather conditions;

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maintain and enhance brand loyalty;
price our products in a competitive manner;
ensure availability of raw materials and production capacity;
implement our omni-channel strategy, including providing a unique customer service experience;
respond to new or proposed legislation impacting our products; and
manage the impact of the rapidly changing retail environment, including with respect to rising competition within the e-commerce business, especially from online retailers such as Amazon.com.

Our inability to compete effectively with respect to one or more of these factors could cause our market share to decline, which could harm our reputation and have a material adverse impact on our financial condition and results of operations. Furthermore, the disruptions and impacts caused by the COVID-19 pandemic may ultimately require us to reduce, potentially by a significant margin, our opportunities in certain markets, which could negatively impact our prospects for long-term growth.

Our competitors include athletic and footwear companies, branded apparel and accessories companies, home goods and sporting goods companies, and specialty retailers with their own private labels. In addition, these competitors include both established companies, as well as newer entrants into the market. In particular, we believe that, as a result of the growth of the UGG brand, certain competitors have entered the marketplace specifically in response to the success of our brands, and that other competitors may do so in the future. A number of our larger competitors have significantly greater financial, technological, engineering, manufacturing, marketing, and distribution resources than we do, as well as greater brand awareness in the footwear, apparel, and accessories markets among consumers and other market participants. Our competitors’ greater resources and capabilities in these areas may enable them to more effectively compete on the basis of price and production, develop new products more quickly, develop products with superior technical capabilities, market their products and brands more successfully, identify or influence consumer preferences, withstand the impacts of seasonality, and manage periodic downturns in the footwear, apparel, and accessories industry or in economic conditions generally. With respect to newer entrants into the market, we believe that factors such as access to offshore manufacturing and changes in technology will make it easier and more cost effective for these companies to compete with us.

As a result of the competitive environment in which we operate, we have faced, and expect to continue to face, intense pricing pressure. For example, efforts by our competitors to dispose of their excess inventories may significantly reduce prices of competitive products, which may put pressure on us to reduce the pricing of our products in order to compete, or cause consumers to shift their purchasing decisions away from our products entirely. We have also faced, and expect to continue to face, intense pressure with respect to competition for key customer accounts and distribution channels. Further, we believe that our key customers face intense competition from other department stores, sporting goods stores, retail specialty stores, and online retailers, among others, which could negatively impact the financial stability of their businesses and their ability to conduct business with us.

If we fail to compete effectively in the future, our sales could decline, and our margins could be impacted, either of which could have a negative impact on our financial condition and results of operations.

We use sheepskin to manufacture a significant portion of our products, and if we are unable to obtain a sufficient quantity of sheepskin at acceptable prices that meets our quality expectations, or if there are legal or social impediments to our ability to use sheepskin, it could have a material adverse impact on our business.

For the manufacturing of our products, we purchase certain raw materials that are affected by commodity prices, the most significant of which is sheepskin. The supply of sheepskin, which is used to manufacture a significant portion of our UGG brand products, is in high demand and there are a limited number of suppliers that are able to meet our expectations for the quantity and quality of sheepskin that we require. In addition, our unique product design and animal welfare standards require sheepskin that may only be found in limited geographic locations. We presently rely on only two tanneries to provide the majority of our sheepskin. If the sheepskin provided by these tanneries and the resulting products we deliver to consumers do not conform to our quality specifications or fail to meet consumer expectations, we could experience reduced consumer demand for our products, a higher rate of customer returns and negative impacts to the image of our brands, any of which could have a material adverse impact on our business. Furthermore, the significant disruptions caused by the COVID-19 global pandemic, especially in certain countries in Asia, could have a prolonged negative impact on our ability to source sufficient sheepskin from our tanneries to meet demand, which could damage our brand image and adversely impact our sales.


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Similarly, if the tanneries we rely upon are not able to deliver sheepskin in the quantities required, this would limit our ability to meet customer demand for our products and lead to inventory shortages, which would result in a loss of sales, strain our relationships with our customers and harm our reputation. In addition, any factors that negatively impact the business of these tanneries, or the businesses of the suppliers that warehouse their inventories, such as loss of customers, financial instability or bankruptcy, loss or destruction of equipment or facilities, work stoppages, political instability, acts of terrorism or other catastrophic events, could prevent the tanneries from delivering sheepskin to us in the quantities expected and result in shortages in our supply of sheepskin.

While we have experienced fairly stable pricing in recent years, historically there have been significant fluctuations in the price of sheepskin as the demand for this commodity from our consumers and our competitors has changed. We believe the significant factors affecting the price of sheepskin include weather patterns, harvesting decisions, incidence of disease, the price of other commodities, such as wool and leather, the demand for our products and the products of our competitors, and global economic conditions. Most of these factors are not considered predictable or within our control. Any factors that increase the demand for, or decrease the supply of, sheepskin could cause significant increases in the price of sheepskin, which would increase our manufacturing costs and reduce our gross margins. In an effort to partially reduce our dependency on sheepskin, we are using UGGpure, which is a wool woven into a durable backing, in some of our UGG brand products. In addition, we use purchasing contracts and other pricing arrangements to attempt to reduce the potential impact of fluctuations in sheepskin prices on our results of operations. However, in the event of a prolonged increase in sheepskin prices such as what we have experienced in the past, these strategies may not be sufficient to offset the negative impact on our results of operations. In that event, it is unlikely we would be able to adjust our product prices sufficiently to eliminate the impact on our gross margins and our financial results may suffer.

Further, our industry is characterized by rapidly changing fashion trends and consumer preferences. We believe there is a growing trend within the fashion industry towards eliminating the use of certain animal products, most notably fur. For example, legislation has been passed in the US banning the sale of fur in certain cities, and similar legislation is being considered in other geographic locations, including New York City. While the use of leather goods and sheepskin has typically not been subject to this type of legislation, it is possible that future legislation could have the impact of restricting or eliminating our ability to use sheepskin in the products we sell in certain geographic locations. In addition, notwithstanding whether specific legislation is passed, it is possible that consumer preferences and tastes may change based on evolving ethical or social standards, such that our products may potentially become less desirable to certain consumers. Because sheepskin is currently used to manufacture a significant portion of our UGG brand products, any legal or social impediments to the sale of products that include sheepskin, especially within our large target markets, could have a material adverse impact on our business, financial condition, and results of operations.

If we are unsuccessful at improving our operational systems and our efforts do not result in the anticipated benefits to us or result in unanticipated disruption to our business, our financial condition and results of operations could be adversely affected, and our business may become less competitive.
We continually strive to improve, automate and streamline our operational systems, processes and infrastructure as part of our ongoing effort to improve the overall efficiency and competitiveness of our business. While these efforts have resulted in some improvements to our operational systems, we expect to continue to incur expenses to implement additional improvements and upgrades to our systems. Many of these expenditures have been, and may continue to be, incurred in advance of the realization of any direct benefits to our business. We cannot guarantee that we will be successful at improving our operational systems, or that our efforts will result in the anticipated benefits to us. If our operational system upgrades and improvements are not successful, our financial condition and results of operations could be adversely affected, and our business may become less competitive.

In addition, our operational system upgrades have the potential to be disruptive to our existing business operations as our managers and employees attempt to learn new software programs and control systems, and adapt to new operating requirements, while continuing to manage and operate our business. These difficulties could be exacerbated by the impacts of the COVID-19 pandemic as our employees are faced with challenges of adapting to new processes and systems while working remotely. If we are unable to successfully manage any disruption to our business caused by our operational systems upgrades, we could incur unanticipated expenses, loss of customers, and harm to our reputation, any of which would harm our business.


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If we are unsuccessful at managing product manufacturing decisions, which are required to be made months in advance of the purchase of our products, we may be unable to accurately forecast our inventory and working capital requirements, which may have a material adverse impact on our financial condition and results of operations.

Like other companies in the footwear, apparel and accessories industry, we have an extended design and manufacturing process, which involves the initial design of our products, the purchase of raw materials, the accumulation of inventories, the subsequent sale of the inventories, and the collection of the resulting accounts receivable. This production cycle requires us to incur significant expenses relating to the design, manufacturing and marketing of our products, including product development costs for new products, in advance of the realization of any revenue from the sale of our products, and results in significant liquidity requirements and working capital fluctuations throughout our fiscal year. Because the production cycle typically involves long lead times, which requires us to make manufacturing decisions several months in advance of an anticipated purchasing decision by the consumer, it is challenging for us to estimate and manage our inventory and working capital requirements.

Once manufacturing decisions are made, it is difficult for our management to predict and timely adjust expenses in reaction to various factors, including the following:

unfavorable weather patterns and their potential impacts on consumer spending patterns and the demand for our products;
changes in consumer preferences and tastes, discretionary spending, as well as prevailing fashion trends;
market acceptance of our current products and new products, as well as market acceptance of competitive products;
future sales demand from our wholesale customers;
the competitive environment, including pricing pressure resulting from reduced pricing of competitive products, which may cause consumers to shift their purchasing decisions away from our products;
delays in resource or product availability due to impacts from widespread illness or disease, including the COVID-19 pandemic; and
uncertain macroeconomic and political conditions.

The evolution and expansion of our brands and product offerings has made our inventory management activities more challenging. For example, if we overestimate demand for any products or styles, we may be forced to incur significant markdowns or sell excess inventories at reduced prices, which would result in lower revenues and reduced gross margins. On the other hand, if we underestimate demand, or if our independent manufacturing facilities are unable to supply products in sufficient quantities, we may experience inventory shortages that may prevent us from fulfilling customer orders or result in us delaying shipments to customers. If that occurred, we could lose sales, our relationships with customers could be harmed, and our brand loyalty could be diminished. In either event, these factors could have a material adverse impact on our financial condition and results of operations.

It may be difficult to identify new retail store locations that meet our requirements, and any new retail stores may not realize returns on our investments.

While we expect to identify additional retail stores for closure as part of our ongoing retail store fleet optimization efforts, we may simultaneously identify opportunities to open new retail stores in the future. Global store openings involve substantial investments, including those relating to leasehold improvements, furniture and fixtures, equipment, information systems, inventory, and personnel. In addition, since a certain amount of our retail store costs are fixed, if we have insufficient sales at a new store location, we may be unable to reduce expenses in order to avoid losses or negative cash flows. As we have experienced in the past, due to the high fixed cost structure associated with the retail business, the closure of a retail store can result in a significant negative financial impact, including lost sales, write-offs of retail store assets and inventory, lease termination costs, and severance costs. In light of the significant costs and impairments that can be incurred upon the closure of a retail location, we expect to conduct a thorough diligence process and apply stringent financial parameters when assessing whether to open a new retail store location. However, there can be no assurance that any new retail location that we may identify will ultimately generate a positive return on our investment or that our investment in a retail store will increase our sales. We will continue to evaluate our retail store fleet strategy in response to changes in consumer demand and retail store traffic patterns.


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Furthermore, we license the right to operate retail stores for our brands to third parties through our partner retail program. We expect to increase both the number of third parties we engage within our partner retail program and the number of stores that they operate, but these efforts may be delayed in light of retail store closures, work stoppages, and other disruptions due to the COVID-19 pandemic. We currently plan for most of the partner retail stores to be operated in international markets, with the largest increase anticipated to be in China. We provide training to support these stores and set and monitor operational standards. However, the quality of these store operations may decline due to the failure of these third parties to operate the stores in a manner consistent with our standards or our failure to adequately monitor these third parties, which could result in reduced sales and cause our overall brand image to suffer.

Our financial success is influenced by the success of our customers, and the loss of a key customer could have a material adverse effect on our financial condition and results of operations.

Much of our financial success is directly related to the ability of our retailer and distributor partners to successfully market and sell our brands directly to consumers. If a retailer or distributor partner fails to satisfy contractual obligations or to otherwise meet our expectations, or experiences complete or partial closure or other operational issues resulting from government restrictions, reduced consumer demand or other factors, it may be difficult to locate an acceptable substitute partner. If we determine that it is necessary to make a change, we may experience increased costs, loss of customers, or increased credit or inventory risk. In addition, there is no guarantee that any replacement retailer or distributor partner will generate results that are more favorable than the terminated party.

We currently do not have long-term contracts with any of our retailers. We do have contracts with our distributors with terms ranging up to five years, however, while these contracts may have annual purchase minimums which must be met in order to retain the distribution rights, the distributors are not otherwise obligated to purchase our products. Sales to our retailers and distributors are generally on an order-by-order basis and are subject to rights of cancellation and rescheduling by our wholesale customers. We use the timing of delivery dates for our wholesale customer orders as a key factor in forecasting our sales and earnings for future periods. If any of our major customers experience a significant downturn in business or fail to remain committed to our products or brands, these customers could postpone, reduce, or discontinue purchases from us, which could result in us failing to meet our forecasted results. These risks have been exacerbated recently as our key retail customers are operating within a retail industry that continues to undergo significant structural changes fueled by technology and the internet, changes in consumer purchasing behavior, and a shrinking retail footprint. These trends have been further impacted by the COVID-19 pandemic. We may lose key retail and wholesale customers if they fail to manage the impact of the rapidly changing retail environment. Any loss of one of these key customers, the financial collapse or bankruptcy of one of these customers, or a significant reduction in purchases from one of these customers could result in a significant decline in sales, write-downs of excess inventory, or increased discounts to our customers, any of which could have a material adverse effect on our financial condition or results of operations.

As a result of marketplace uncertainty and competitive environment, a key customer may dispose of their excess inventories to consumers or unauthorized sellers at significantly reduced prices, which may put pressure on us to reduce the pricing of our products in order to compete, or cause consumers to shift their purchasing decisions away from our authorized sellers entirely.

Failure to adequately protect our intellectual property rights, to prevent counterfeiting of our products, or to defend claims against us related to our intellectual property rights, could reduce sales and adversely affect the value of our brands.

Our business could be significantly harmed if we are not able to protect our intellectual property rights. We believe our competitive position is largely attributable to the value of our trademarks, patents, trade dress, trade names, trade secrets, copyrights, and other intellectual property rights. Although we are aggressive in legal and other actions in pursuing those who infringe on our intellectual property rights, we cannot guarantee that the actions we have taken will be adequate to protect our brands in the future, especially because some countries’ laws do not protect intellectual property rights to the same extent as US laws. If we fail to adequately protect our intellectual property rights, it would allow our competitors to sell products that are similar to and directly competitive with our products, which could reduce sales of our products. In addition, any intellectual property lawsuits in which we are involved could cost a significant amount of time and money and distract management’s attention from operating our business, which may negatively impact our business and results of operations.


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The success of our brands has also made us the target of counterfeiting and product imitation strategies. We continue to be vulnerable to such infringements despite our dedication of significant resources to the registration and protection of our intellectual property and to anti-counterfeiting efforts worldwide. If we fail to prevent counterfeiting or imitation of our products, we could lose opportunities to sell our products to consumers who may instead purchase a counterfeit or imitation product. In addition, if our products are associated with inferior products due to infringement by others of our intellectual property, it could adversely affect the value of our brands.

In addition to fighting intellectual property infringement, we may need to defend claims against us related to our intellectual property rights. For example, we have faced claims that the word “ugg” is a generic term. Such a claim was successful in Australia, but similar claims have been rejected by courts in the US, China, Turkey, and the Netherlands. Any court decision or settlement that prevents trademark protection of our brands, that allows a third-party to continue to sell products similar to our products, or that allows a manufacturer or distributer to continue to sell counterfeit products, could lead to intensified competition and a material reduction in our sales.

We may not succeed in implementing our growth strategies, in which case we may not be able to take advantage of certain market opportunities and may become less competitive.

As part of our overall growth strategy, we are continually seeking out opportunities to enhance the positioning of our brands, diversify our product offerings, extend our brands into complementary product categories and markets, expand geographically, optimize our retail presence both in stores and online, and improve our financial performance and operational efficiency. For example, we are considering expanding our partner retail program in certain markets based on our analysis of the market opportunity and business efficiencies. In addition, as part of our international growth strategy, we may continue to transition from a third-party distribution model to a direct distribution model for certain brands. However, we may shift from a direct distribution model to a third-party distribution model for certain brands. Further, we are exploring relationships with third parties for the expansion of the UGG brand into different product categories, including licensee and sourcing agent arrangements. Such efforts may be mitigated or suspended as we navigate the impacts of the COVID-19 pandemic and implement prudent cost-saving measures. We anticipate that substantial further expansion will be required to realize our growth potential and take advantage of new market opportunities. Failure to effectively implement our growth strategy could negatively impact our revenues and rate of growth and result in our business becoming less competitive. In addition, taking steps to implement our growth initiatives could have a number of negative effects, including increasing our working capital needs, causing us to incur costs without any corresponding benefits, and diverting management time and resources away from our existing business.

We depend on qualified personnel and, if we are unable to retain or hire executive officers, key employees and skilled personnel, we may not be able to achieve our strategic objectives and our results of operations may suffer.

To execute our growth plan, we must continue to attract and retain highly qualified personnel, including executive officers and key employees. Further, in order to continue to develop new products and successfully operate and grow our key business processes, it is important for us to continue hiring highly skilled footwear, apparel and accessories designers and information technology specialists.

Competition for executive officers, key employees and skilled personnel is intense within our industry and there continues to be upward pressure on the compensation paid to these professionals. Many of the companies with which we compete for experienced personnel have greater name recognition and financial resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that we or these employees have breached their legal obligations, resulting in a diversion of our time and resources. In addition, prospective and existing employees often consider the value of the stock-based compensation they receive in connection with their employment when deciding whether to take a job. If the perceived value of our stock-based compensation declines, or if the price of our stock experiences significant volatility, it may adversely affect our ability to recruit, retain and motivate qualified personnel. Further, our headquarters are located in Goleta, California, which is not generally recognized as a prominent commercial center, and it is difficult to attract qualified professionals due to our geographic location. If we are unable to attract and retain the personnel necessary to execute our growth plan, we may be unable to achieve our strategic objectives, our results of operations may suffer, and we may be unable to compete in the market. In addition, in an effort to manage the financial uncertainty involved with the COVID-19 pandemic, we have delayed the hiring of certain non-essential employees, which could have the impact of delaying completion of certain projects or other strategic objectives.


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The continued service of our executive officers and key employees is particularly important, and the hiring or departure of such personnel from time to time may disrupt our business or result in the depletion of significant institutional knowledge. Our executive officers and other key employees are generally employed on an at-will basis, which means that such personnel could terminate their employment with us at any time. The loss of one or more of our executive officers or other key employees or significant turnover in our senior management, and the often-extensive process of identifying and hiring other personnel who will work effectively with our employees to fill those key positions, could have a material adverse effect on our business.

Additionally, our European headquarters is currently based in the UK. There is significant uncertainty regarding the potential future impact of Brexit on the legal and commercial relationships between the UK and countries within the European Union (EU). In particular, we could face difficulties attracting and retaining key employees in the UK, which could have a material adverse impact on our European operations.

Lastly, in an effort to protect the health and safety of our employees during the COVID-19 pandemic, we have transitioned most employees (except for retail store and distribution center employees) to a remote work environment. Although we have not experienced a material impact from shifting our employees to a remote work environment, there is no guarantee that our employees will be as effective while working remotely due to a number of factors, including the inability of team members to communicate as effectively in a remote environment, the reality that employees may have additional personal needs to attend to (such as looking after children as a result of school closures or family members who become sick), and employees may become sick themselves and unable to work. If the COVID-19 pandemic requires remote working conditions for a prolonged period of time, it could have an adverse impact on the productivity of our employees, which would harm our business and impede our ability to achieve our strategic plan.

We rely upon a number of warehouse and distribution facilities to operate our business, and any damage to one of these facilities, or any disruptions caused by incorporating new facilities into our operations, could have a material adverse impact on our business.

We rely upon a broad network of warehouse and distribution facilities in order to store, sort, package and distribute our products both domestically and internationally. In the US, we distribute products primarily through a self-managed distribution center in Moreno Valley, California. During fiscal year 2020, we completed the move of all of our Camarillo, California distribution operations to our Moreno Valley location and closed our Camarillo distribution center. This distribution center features a complex warehouse management system that enables us to efficiently pack products for direct shipment to customers. However, we could face a significant disruption in our domestic distribution center operations if our warehouse management system does not perform as anticipated or ceases to function for an extended period of time, which could occur as a result of damage to the facility, failure of software or equipment, cyber-security incidents, power outages or similar problems, or as a result of mandatory or elective closure in response to government restrictions or orders addressing the COVID-19 pandemic. If our domestic distribution center operations are impeded for any reason, it could result in shipment delays or the inability to deliver product at all, which would result in lost sales, strain our relationships with customers, and cause harm to our reputation, any of which could have a material adverse impact on our business.

Internationally, we distribute our products through a number of distribution centers managed by 3PLs in Canada, China, Japan, the Netherlands, and the UK. We also distribute our products through a domestic 3PL, located in Pennsylvania. We depend on these 3PLs to manage the operation of their distribution centers as necessary to meet our business needs. If the 3PLs fail to manage these responsibilities, our international distribution operations could face significant disruptions. For example, we could face disruptions in these operations as a result of ongoing uncertainty around Brexit or the COVID-19 pandemic. The loss of or disruption to the operations of any one or more of these facilities could materially adversely impact our sales, business performance, and results of operations. Although we believe we possess adequate insurance to cover the potential impact of a disruption to the operations of these facilities, such insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all.

We rely on independent manufacturers for most of our production needs, and the failure of these manufacturers to manage these responsibilities would prevent us filling customer orders, which would result in loss of sales and harm our relationships with customers.

We rely on independent manufacturers and their respective material suppliers for most of our production needs, although we do not have direct control over the manufacturers or their suppliers. We depend on these independent manufacturers for a number of functions that are critical to our operations, including financing the production of goods

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ordered, maintaining manufacturing capacity, complying with our restricted substances policy, and storing finished goods in a safe location pending shipment. If the independent manufacturers fail to manage these responsibilities, or if they were to experience significant disruption to their business, we may be unable to ensure timely delivery of products, products may not be delivered in sufficient quantities, and products may fail to meet our quality standards. If any of these events were to occur, we may not be able to fill customer orders or product may be inadvertently delivered that does not meet our quality standards, which would result in lost sales and harm to our relationships with customers.

We do not currently have long-term contracts with these independent manufacturers, and so are not assured of a long-term, uninterrupted supply of products from them. While we do have long-standing relationships with most of these independent manufacturers, any of them may unilaterally terminate their relationship with us at any time, seek to increase the prices they charge, or extract other concessions from us. In the event of a termination of an existing relationship with a manufacturer, we may not be able to substitute alternative manufacturers that are capable of providing products of a comparable quality, in a sufficient quantity, at an acceptable price, or on a timely basis. If we are required to find alternative manufacturers, we could experience a delay in the manufacturing of our products, increased manufacturing costs, as well as substantial disruption to our business, any of which could negatively impact our results of operations.

Interruptions in the supply of our products can also result from adverse events that impair the operations of our manufacturers. For example, we keep proprietary materials that are required for the production of our products, such as shoe molds and raw materials, under the custody of our independent manufacturers. If these independent manufacturers were to experience loss or damage to these proprietary materials, whether as a result of natural disasters, outbreak of hostilities, or other adverse events, we cannot be assured that the manufacturers would have adequate insurance to cover such loss or damage, and, in any event, the replacement of such materials would likely result in significant delays in the production of our products, which could result in a loss of sales and earnings.

Most of our independent manufacturers are located outside of the US, where we are subject to the risks associated with international commerce.

Most of our independent manufacturers are located in Asia. Foreign manufacturing is subject to numerous risks and uncertainties, including the following:

tariffs, import and export controls, and other non-tariff barriers such as quotas and local content rules on raw materials and finished products;
increasing transportation costs, delays and interruptions, and a limited supply of international shipping capacity;
delays during shipping, at the port of entry or at the port of departure;
increasing labor costs and labor disruptions;
poor infrastructure and shortages of equipment, which can disrupt transportation and utilities;
restrictions on the transfer of funds from foreign jurisdictions;
changing economic and market conditions;
changes in governmental policies and regulations, including with respect to intellectual property, labor, safety, and environmental regulations;
refusal to adopt or comply with our Ethical Supply Chain Supplier Code of Conduct, Conflict Minerals Policy, and Restricted Substances Policy;
customary business traditions in certain countries such as local holidays, which are traditionally accompanied by high levels of turnover in the factories;
decreased scrutiny by custom officials for counterfeit products;
practices involving corruption, extortion, bribery, pay-offs, theft, and other fraudulent activity;
social unrest and political instability, including acts of war and other external factors;
heightened terrorism security concerns, which could subject imported or exported products to more frequent or more lengthy inspections;
use of unauthorized or prohibited materials or reclassification of materials;
disease epidemics, including the COVID-19 pandemic, or other health-related concerns that could result in a reduced workforce or scarcity of raw materials;
disruptions caused by natural or other disasters; and
adverse changes in consumer perception of goods sourced from certain countries.


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These risks and uncertainties, or others of which we are currently unaware, could interfere with the manufacture or shipment of our products by our independent manufacturers. This could make it more difficult to obtain adequate supplies of quality products when we need them, which could negatively impact our sales and earnings.

While we require that our independent manufacturers adhere to environmental, labor, ethical, health, safety, and other standard business practices and applicable local laws, and while we periodically visit and audit their operations, we do not control their business practices. If we discover non-compliant manufacturers or suppliers that cannot or will not become compliant, we would cease conducting business with them, which could increase our costs and cause us to suffer an interruption in our product supply chain. In addition, the manufacturers’ violations of applicable laws and business standards could result in negative publicity, which could damage our reputation and the value of our brands.

Our sales in international markets are subject to a variety of legal, regulatory, political, cultural and economic risks that may adversely impact our results of operations in certain regions.

Our ability to capitalize on growth in new international markets and to maintain the current level of operation in our existing international markets is subject to risks associated with international operations that could adversely affect our sales and results of operations. These risks include:

foreign currency exchange rates fluctuations, which impact the prices at which products are sold to international consumers;
limitations on our ability to move currency out of international markets;
burdens of complying with a variety of foreign laws and regulations, which may change unexpectedly, and the interpretation and application of such laws and regulations;
legal costs and penalties related to defending allegations of non-compliance with foreign government policies, laws and regulations;
inability to import products into a foreign country;
changes in US and foreign tax laws;
complications due to lack of familiarity with local customs;
difficulties associated with promoting and marketing products in unfamiliar cultures;
political or economic uncertainty or instability, including as a result of ongoing negotiations around Brexit or any similar referendums that may be held;
changes in unemployment rates and consumer spending due to the COVID-19 pandemic or other factors that are outside of our control;
anti-American sentiment in international markets in which we operate;
changes in diplomatic and trade relationships between the US and other countries; and
general economic fluctuations in specific countries or markets.

We conduct business outside the US, which exposes us to foreign currency exchange rate risk, and could have a negative impact on our financial results.

We operate on a global basis, with 34.3% of our net sales for the year ended March 31, 2020 from operations outside the US. As we continue to increase our international operations, our sales and expenditures in foreign currencies are expected to become more material and subject to greater foreign currency exchange rate fluctuations. A significant portion of our international operating expenses are paid in local currencies. Also, our foreign distributors typically sell our products in local currency, which impacts the price to foreign consumers. Many of our subsidiaries operate with their local currency as their functional currency. Future foreign currency exchange rate fluctuations and global credit markets may cause changes in the US dollar value of our purchases or sales and materially affect our sales, profit margins, and results of operations, when converted to US dollars. Changes in the value of the US dollar relative to other currencies could result in material foreign currency exchange rate fluctuations and, as a result, our net earnings could be materially adversely affected.

We routinely utilize foreign currency exchange rate forward contracts or other derivative instruments for the amounts we expect to purchase and sell in foreign currencies to mitigate exposure to foreign currency exchange rate fluctuations. As we continue to expand international operations and increase purchases and sales in foreign currencies, we may utilize additional derivative instruments, as needed, to hedge our foreign currency exchange rate risk. Our hedging strategies depend on our forecasts of sales, expenses, and cash flows, which are inherently subject to inaccuracies. Foreign currency exchange rate hedges, transactions, re-measurements, or translations could materially impact our consolidated financial statements.


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Our corporate culture has contributed to our success and, if we cannot maintain this culture as we grow, we could lose the passion, creativity, teamwork, focus and innovation fostered by our culture.

We believe that our culture has been and will continue to be a key contributor to our success. If we do not continue to develop our corporate culture or maintain our culture and core values over time, we may be unable to foster the passion, creativity, teamwork, focus, and innovation that we believe have contributed to the growth and success of our business. Any failure to preserve our culture could negatively affect our ability to recruit and retain personnel and to effectively focus on and pursue our strategic objectives. As we continue to pursue our goals and implement new strategies, we may find it difficult to maintain our corporate culture. This difficulty may be exacerbated by the COVID-19 pandemic, which has resulted in travel restrictions, quarantines, shelter-in-place orders, and similar government restrictions that collectively may make it more difficult for employees to interact, communicate and innovate.

Labor disruptions could negatively impact our results of operations and financial position.

Our business depends on our ability to source and distribute products in a timely manner. Labor disputes, shortages, and stoppages that affect the operations of our independent manufacturers, tanneries, transportation carriers, retail stores, or distribution centers create significant risks for our business, particularly if these disputes result in work slowdowns, lockouts, strikes, or similar disruptions. For example, in recent years, labor disputes at US shipping ports have impacted the delivery of our products. In addition, there is the potential for labor disruptions in the UK as a result of ongoing uncertainty around Brexit. Furthermore, we have experienced challenges attracting and retaining employees to staff our distribution center operations as we increasingly compete with companies with e-commerce businesses. Any such challenges or disruptions may have a material adverse effect on our business by potentially resulting in cancelled orders by customers, unanticipated inventory accumulation, and increased transportation and labor costs, each of which may negatively impact our results of operations and financial position.

International trade and import regulations may impose unexpected duty costs, the revision of current trade agreements may require us to alter current practices, changes in trade relations may result in tariffs, and transportation challenges and security procedures may cause significant delays and additional costs.

Products manufactured overseas and imported into the US and other countries are subject to import duties. While we have implemented internal measures to comply with applicable customs regulations and to properly calculate the import duties applicable to imported products, customs authorities may disagree with our claimed tariff treatment for certain products, resulting in unexpected costs that may not have been factored into the sales price of such products and our forecasted gross margins.

In addition, we cannot predict whether future domestic and foreign laws, regulations, or specific or broad trade remedy actions, or international agreements may impose additional duties or other restrictions on the importation of products from one or more of our sourcing venues.

In the US and globally, international trade policy is undergoing review and revision, introducing significant uncertainty with respect to future trade regulations and existing international trade agreements. These major revisions include the renegotiation and implementation of the North America Free Trade Agreement, now entitled the US-Mexico-Canada Trade Agreement (commonly referred to as USMCA), which has been ratified by all three countries. Following Brexit in Europe, the UK is undergoing a lengthy negotiation with the EU to determine the terms of the UK’s future relationship with the EU. Changes in tax policy, such as the Tax Cuts and Jobs Act (Tax Reform Act), or trade regulations could cause us to encounter new customs duties, which in turn may require us to implement new supply chains, withdraw from certain restricted markets or change our business methods, could make it difficult to obtain products of our customary quality at a competitive price and could lead to an increase in the cost of our products.

The continued negotiation of bilateral and multilateral free trade agreements with countries other than our principal sourcing venues may stimulate competition for manufacturers. Manufacturers in these locations may seek to export footwear, apparel, and accessories to our target markets at preferred rates of duty which may negatively impact our sales and operations.


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Trade relations between our sourcing venues (particularly China) and the US have created uncertainty for all US businesses that source or market in China. Since March 2018, the US has imposed import duties ranging from 5% to 25% on imports from China, which has caused China to retaliate with additional tariffs on US exports. In August 2019, the US government announced a 15% import duty on approximately $300 billion of imports from China, including footwear, apparel, and accessories that we import from China. The 15% import duty became effective on September 1, 2019, for a portion of the covered products. Import duties for the remaining covered products were scheduled to become effective on December 15, 2019 but were suspended indefinitely as part of the Phase One trade agreement between the US and China that was signed on January 15, 2020. In addition, as of February 14, 2020, the 15% tariff that was implemented on September 1, 2019 was reduced to 7.5%. Due to the current status of trade relations between the US and China, the potential for further import duties or other restrictions on imports from China remains. Any additional tariff could increase the cost of sourcing in China, our own margins, and possibly the price of our products to consumers. Previously, we had begun transitioning our sourcing of footwear from China to Vietnam as part of our supplier optimization strategy. If we are unable to source our products from the countries where we wish to purchase them, either because of such regulatory changes or for any other reason, or if the cost of doing so increases, it could have a material adverse effect on our business, financial condition, and results of operations.

Transportation and distribution costs may be adversely impacted by a number of factors, including new regulations, increased demand, increased fuel and labor costs, political and economic instability. As a result of the COVID-19 pandemic, reductions in the number of ocean carrier voyages and capacity may cause some delay in arrivals of imports. Ongoing ocean carrier consolidation and reduced capacity, congestion at major international gateways and other economic factors are challenging ocean transportation generally. For example, new mandates to reduce the use of “low sulfur” fuel in certain container vessels will increase the cost of ocean transport globally, with surcharges already announced by the carriers. In addition, in the US, trucking costs have risen dramatically due to driver shortages and increased labor costs, as well as new federal and state safety, environmental and labor regulations. These changes, as well as COVID-19 related state and local restrictions on domestic trucking and the operation of distribution centers, may disrupt our supply chain, which may result in a delay in the shipment of our products and cause us to incur significant additional costs.

Additionally, the increased threat of terrorist activity, and law enforcement responses to this threat, have required greater levels of inspection of imported goods and have caused delays in bringing imported goods to market. Any tightening of security procedures, for example, in the aftermath of a terrorist incident, could worsen these delays and increase our costs.

We face risks associated with pursuing strategic acquisitions, and our failure to successfully integrate any acquired business or products could have a material adverse effect on our results of operations and financial position.

As part of our overall strategy, we may periodically consider strategic acquisitions in order to expand our brands into complementary product categories and markets, or to acquire new brands, technologies, intellectual property, or other assets. Our ability to do so depends on our ability to identify and successfully pursue suitable acquisition opportunities. Acquisitions of businesses and assets involve numerous risks, challenges and uncertainties, including the potential to:

expose us to risks inherent in entering into a new market or geographic region;
lose significant customers or key personnel of the acquired business;
encounter difficulties managing and implementing acquired assets, including new brands, products, technologies, and intellectual property assets;
encounter difficulties marketing to new consumers or managing geographically-remote operations;
divert management’s time and attention away from other aspects of our business operations; and
incur costs relating to a potential acquisition that we fail to consummate, which we may not be able to recover.

Additionally, we may not be able to successfully integrate the assets or operations of any acquired businesses into our operations, or to achieve the expected benefits of any acquisitions. Following an acquisition, we may also face cannibalization of existing product sales by our newly-acquired products, unless we adequately integrate new products with our existing products, aggressively target different consumers for our newly-acquired products and increase our overall market share. The failure to successfully integrate any acquired business or products in the future could have a material adverse effect on our results of operations and financial position.


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Further, we may be required to issue equity securities to finance an acquisition, which would be dilutive to our stockholders, and the equity securities may have rights or preferences senior to those of our existing stockholders. If we incur indebtedness to finance an acquisition, it would result in debt service costs, and we may be subject to covenants restricting our operations or liens encumbering our assets.

A security breach or other disruption to our information technology systems could result in the loss, theft, misuse, unauthorized disclosure, or unauthorized access of customer, supplier, or sensitive company information or could disrupt our operations, which could damage our relationships with customers, suppliers or employees, expose us to litigation or regulatory proceedings, or harm our reputation, any of which could materially adversely affect our business, financial condition, or results of operations.
Our business involves the storage and transmission of a significant amount of personal, confidential, or sensitive information, including the personal information of our customers, credit card information, the personal information of our employees, information relating to customer preferences, and our proprietary financial, operational, and strategic information. The protection of this information is vitally important to us as the loss, theft, misuse, unauthorized disclosure, or unauthorized access of such information could lead to significant reputation or competitive harm, result in litigation involving us or our business partners, expose us to regulatory proceedings, and cause us to incur substantial liabilities, fines, penalties, or expenses. As a result, we believe our future success and growth depends, in part, on the ability of our key business processes and systems, including our information technology and global communication systems, to prevent the theft, loss, misuse, unauthorized disclosure, or unauthorized access of this personal, confidential, and sensitive information, and to respond quickly and effectively if data security incidents do occur. As with many businesses, we are subject to numerous data privacy and security risks, which may prevent us from maintaining the privacy of this information, result in the disruption of our business, and require us to expend significant resources attempting to secure and protect such information and respond to incidents, any of which could materially adversely affect our business, financial condition, or results of operations.
The frequency, intensity, and sophistication of cyber-attacks, ransom-ware attacks, and other data security incidents has significantly increased in recent years. As with many other businesses, we have experienced, and are continually at risk of being subject to, attacks and incidents. Due to the increased risk of these types of attacks and incidents, we expend significant resources on information technology and data security tools, measures, and processes designed to protect our information technology systems, as well as the personal, confidential, or sensitive information stored on or transmitted through those systems, and to ensure an effective response to any cyber-attack or data security incident. Whether or not these measures are ultimately successful, these expenditures could have an adverse impact on our financial condition and results of operations and divert management’s attention from pursuing our strategic objectives.
In addition, although we take the security of our information technology systems seriously, there can be no assurance that the security measures we employ will effectively prevent unauthorized persons from obtaining access to our systems and information. Despite the implementation of reasonable security measures by us and our third-party providers, our systems and information may be susceptible to cyber-attacks or data security incidents. These risks may be exacerbated in the remote work environment. In addition, because the techniques used to obtain unauthorized access to information technology systems are constantly evolving and becoming more sophisticated, we may be unable to anticipate these techniques or implement adequate preventive measures in response. Cyber-attacks or data incidents could remain undetected for some period, which could potentially result in significant harm to our systems, as well as unauthorized access to the information stored on and transmitted by our systems. Further, despite our security efforts and training, our employees may purposefully or inadvertently cause security breaches that could harm our systems or result in the unauthorized disclosure of or access to information. Any measures we do take to prevent security breaches, whether caused by employees or third parties, have the potential to limit our ability to complete sales or ship products to our customers, harm relationships with our suppliers, or restrict our ability to meet our customers' expectations with respect to their online or retail shopping experience.
A cyber-attack or other data security incident could result in the significant and protracted disruption of our business such that:
critical business systems become inoperable or require a significant amount of time or cost to restore;
key personnel are unable to perform their duties, communicate with employees, customers, or third-party partners;
it results in the loss, theft, misuse, unauthorized disclosure, or unauthorized access of customer, supplier, or company information;

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we are prevented from accessing information necessary to conduct our business;
we are required to make unanticipated investments in equipment, technology or security measures;
key wholesale and distributor customers cannot place or receive orders, and we are unable to ship orders on a timely basis or at all;
customers cannot access our e-commerce websites, and customer orders may not be received or fulfilled; or
we become subject to other unanticipated liabilities, costs, or claims.

If any of these events were to occur, it could have a material adverse effect on our financial condition and results of operations and result in harm to our reputation.
In addition, if a cyber-attack or other data incident results in the loss, theft, misuse, unauthorized disclosure, or unauthorized access of personal, confidential, or sensitive information belonging to our customers, suppliers, or employees, it could put us at a competitive disadvantage, result in the deterioration of our customers’ confidence in our brands, cause our suppliers to reconsider their relationship with our company or impose more onerous contractual provisions, and subject us to potential litigation, liability, fines, and penalties. For example, we could be subject to regulatory or other actions pursuant to domestic and international privacy laws, including newer regulations such as the California Consumer Privacy Act (CCPA), the Action on the Protection of Personal Information in Japan, and the General Data Protection Regulation (GDPR) in the EU. This could result in costly investigations and litigation, civil or criminal penalties, operational changes, and negative publicity that could adversely affect our reputation, as well as our results of operations and financial condition.
We are also subject to payment card association rules and obligations under our contracts with payment card processors. Under these rules and obligations, if payment card information is stolen or otherwise compromised, we could be liable to payment card issuers for associated expenses and penalties. In addition, if we fail to follow payment card industry security standards, even if customer information is never compromised, we could incur significant fines or experience a significant increase in payment card transaction costs.
While we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of the losses and costs associated with cyber-attacks and data incidents, such insurance coverage may be insufficient to cover all losses and would not, in any event, remedy damage to our reputation. In addition, we may face difficulties in recovering any losses from our provider and any losses we recover may be lower than we initially expect.
If we are found to have violated laws concerning the privacy and security of consumers’ or other individuals’ personal information, we could be subject to civil or criminal penalties, which could increase our liabilities and harm our reputation or our business.
There are a number of domestic and international laws protecting the privacy and security of personal information. These laws include US state laws such as the CCPA, which took effect on January 1, 2020, as well as GDPR, EU member state directives, or similar applicable laws. These laws place limits on how we may collect, use, share and store personal information, and they impose obligations to protect that information against unauthorized access, use, loss, and disclosure.
If we, or any of our service providers who have access to the personal data for which we are responsible, are found to be in violation of the privacy or security requirements of applicable data protection laws, we could be subject to civil or criminal penalties, which could increase our liabilities, harm our reputation, and have a material adverse effect on our business, financial condition, and results of operations. Although we utilize a variety of measures to secure the data that we control, even compliant entities can experience security breaches or have inadvertent failures despite employing reasonable practices and safeguards.
We may also face new risks relating to data privacy and security as the US, individual US states, EU member states, and other international jurisdictions adopt or implement new data privacy and security laws and regulations as we continue to commercialize our products worldwide. Our business may need to adapt to the extent any such new laws place new or additional obligations on us.

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Key business processes, including our information technology and global communications systems, could be interrupted and such interruption could adversely affect our business and result in lost sales and harm to our business reputation.
Our future success and growth depend in part on the continued operation of our key business processes, including our information technology and global communications systems. Our key processes and systems could be interrupted by failures due to weather, natural disasters, power loss, software or equipment, telecommunication systems, information technology infrastructure, sabotage, terrorism, computer viruses, cyber-security attacks, or similar events. Any interruptions to key business processes and systems could have a material adverse effect on our business and operations and result in lost sales and harm to our business reputation.
Furthermore, we rely on certain information technology management systems to prepare sales forecasts, track our financial position and results of operations, and otherwise manage and operate our business. As our business grows and we expand our brands and products into additional distribution channels and geographic regions, these systems may require expansion. We may experience difficulties expanding these systems, or transitioning to new or upgraded systems, which may result in loss of data, decreases in productivity, and increased costs associated with the implementation of the new or upgraded systems. If we are unable to modify our systems to respond to changes in our business needs, or if we experience a failure or interruption in these systems, our ability to accurately forecast sales, report our financial position and results of operations, or otherwise manage and operate our business could be adversely affected.
Our revolving credit facility agreements expose us to certain risks.

From time to time, we have financed our liquidity needs in part from borrowings made under our revolving credit facilities. Our ability to borrow under our revolving credit facilities may be limited if the lenders believe there has been a material adverse change to our business. In addition, our revolving credit facility agreements contain a number of customary financial covenants and restrictions, which may limit our ability to engage in transactions that would otherwise be in our best interests, or otherwise respond to changing business and economic conditions, and may therefore have a material impact on our business. Failure to comply with any of the covenants, including as a result of the impacts caused by the COVID-19 pandemic, could result in a default. A default under any of our revolving credit facility agreements could allow our lenders to accelerate the timing of payments, which could have a material adverse effect on our business, operations, financial condition, and liquidity. In addition, in some cases, a default under one revolving credit facility could result in a cross-default under other revolving credit facilities.

In addition, certain of our revolving credit facility agreements bear interest at a rate that varies depending on the London Interbank Offered Rate (LIBOR). Any increases in the interest rates applicable to borrowings under our credit facilities would increase our cost of borrowing, which would result in a decline in our net income and liquidity. Further, the UK’s Financial Conduct Authority, which regulates LIBOR, has announced its intention to phase out LIBOR by the end of 2021. It is unclear if LIBOR will cease to exist at that time or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. If LIBOR ceases to exist, we may need to renegotiate certain of our revolving credit facility agreements, which could have an adverse effect on our financing costs.

The tax laws applicable to our business are very complex and changes in tax laws could increase our worldwide tax rate and materially affect our financial position and results of operations.

We are subject to changes in tax laws, regulations and treaties in and between the jurisdictions in which we operate. Our tax expense is based on our interpretation of the tax laws in effect in various countries at the time that the expense was incurred. A change in these tax laws, treaties or regulations, or in their interpretation, could result in a materially higher tax expense or a higher effective tax rate on our worldwide earnings. In addition, the enactment of the Tax Reform Act resulted in changes to the existing US tax laws that have and will continue to affect us. Additional changes in tax laws or proposed regulations, clarifications, interpretations and other changes to the Tax Reform Act may ultimately be enacted in a future period, which could increase our income tax liability or adversely affect our net income and long-term effective tax rates.


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Certain additional provisions of the Tax Reform Act, such as the tax on global intangible low-taxed income, will continue to apply to us and, as a result, could impact our effective tax rate. Taxes due over a period of time as a result of the Tax Reform Act, including the one-time, mandatory deemed repatriation tax on certain foreign earnings, could be accelerated upon various triggering events, including failure to pay such taxes when due. The Tax Reform Act made broad and complex changes to the US tax code and we expect to see future regulatory, administrative, or legislative guidance periodically issued. If we determine the guidance differs from our preliminary interpretation of the law, it could have a material effect on our financial position and results of operations.

In addition, many countries in the EU and around the globe have adopted or proposed changes to current tax laws. Further, organizations such as the Organization for Economic Cooperation and Development have published action plans that, if adopted by countries where we do business, could increase our tax obligations in these countries. Due to the large scale of our US and international business activities, many of these enacted and proposed changes could increase our worldwide effective tax rate and harm our financial position and results of operations.

We may be subject to additional tax liabilities as a result of audits by various taxing authorities.

We conduct our operations through subsidiaries in several countries and foreign territories, including the US, the UK, Japan, China, Hong Kong, Macau, the Netherlands, France, Germany, Canada, Austria, Belgium, and Switzerland. As a result, we are subject to tax laws and regulations in each of those jurisdictions, and to tax treaties between these countries. These tax laws are highly complex, and significant judgment and specialized expertise is required in evaluating and estimating our worldwide provision for income taxes.

We are subject to tax audits in each of the various jurisdictions where we conduct business, and any of these jurisdictions may assess additional taxes against us as a result of these audits. Although we believe our tax estimates are reasonable, and we undertake to prepare our tax filings in accordance with all applicable tax laws, the final determination with respect to any tax audits, and any related litigation, could be materially different from our estimates or from our historical tax provisions and accruals. The results of a tax audit or other tax proceeding could have a material adverse effect on our results of operations or cash flows in the periods for which that determination is made and may require a restatement of prior financial reports. In addition, future period earnings may be adversely impacted by litigation costs, settlement payments, or interest or penalty assessments.

We may incur disruption, expense, and potential liability associated with existing and future litigation.

We are involved in various claims, litigation and other legal and regulatory proceedings and governmental investigations that arise from time to time in the ordinary course of our business. Due to the inherent uncertainties of litigation and other such proceedings and investigations, we cannot predict with accuracy the ultimate outcome of any such matters. An unfavorable outcome could have a material adverse impact on our business, financial position, and results of operations. The amount of insurance coverage we maintain to address such matters may be inadequate to cover these or other claims. In addition, any significant litigation, investigation, or proceeding, regardless of its merits, could divert financial and management resources that would otherwise be used to benefit our operations or could negatively impact our reputation in the marketplace.

Our common stock price has been volatile, which could result in substantial losses for stockholders.

Our common stock is traded on the NYSE under the symbol DECK. The trading price of our common stock has been and may continue to be volatile. The trading price of our common stock could be affected by a number of factors, including, but not limited to the following:

changes in expectations of our future financial performance and results of operations, whether realized or perceived;
changes in estimates of our performance by securities analysts and other market participants, or our failure to meet such estimates;
changes in our stockholder base or public actions taken by investors;
market research and opinions published by securities analysts and other market participants, and the response to such publications;
quarterly fluctuations in our sales, margins, expenses, financial position, and results of operations;
the financial stability of our customers, manufacturers, and suppliers;
legal proceedings, regulatory actions, and legislative changes;

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announcements regarding the potential repurchase of our common stock, and our actual stock repurchase activity;
the declaration of stock or cash dividends;
consumer confidence and discretionary spending levels;
broad market fluctuations in volume and price;
general market, political, and economic conditions, including recessionary conditions resulting from the COVID-19 pandemic; and
a variety of risk factors, including the ones described elsewhere within this Annual Report and in our other filings with the SEC.

In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of individual companies. Accordingly, the price of our common stock is volatile and any investment in our stock is subject to risk of loss. These broad market and industry factors and other general macroeconomic conditions unrelated to our financial performance may also affect our common stock price.

Changes in economic conditions may adversely affect our financial condition and results of operations.

Volatile economic conditions and general changes in the market have affected, and will likely continue to affect, consumer spending generally and the buying habits and preferences of consumers. A significant portion of the products we sell, especially those sold under the UGG brand, are considered to be luxury retail products. The purchase of these products by consumers is largely discretionary and is therefore highly dependent upon the level of consumer confidence and discretionary spending, particularly among affluent consumers. Sales of these products may be adversely affected by factors such as uncertain or worsening economic conditions, increases in consumer debt levels, increases in unemployment rates, or outbreaks of illness or disease, including the COVID-19 pandemic. During an actual or perceived economic downturn, fewer consumers may shop for our products, and those who do shop may limit the amount of their purchases or substitute less costly products for our products. As a result, we could be required to reduce the price we can charge for our products or increase our marketing and promotional expenses to generate additional demand for our products. In either case, these changes could reduce our sales and gross margins, which could have a material adverse effect on our financial condition and results of operations.

We sell a large portion of our products through higher-end specialty and department store retailers. The businesses of these retailer customers may be impacted by factors such as changes in economic conditions, reduced customer demand for luxury products, decreases in available credit, and increased competition. If these or other factors result in financial difficulties or insolvency for our retail customers, such pressures would have an adverse impact on our estimated allowances and reserves, and potentially result in us losing key customers.

Furthermore, economic factors such as fuel or transportation costs, inflation, deflation, labor costs, tariffs, and insurance and healthcare costs may impact our results of operations.

Anti-takeover provisions contained in our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws contain provisions that could have the effect of rendering more difficult hostile takeovers, change-in-control transactions, or changes in our Board of Directors or management. Among other things, these provisions:

authorize the issuance of preferred stock with powers, preferences and rights that may be senior to our common stock, which can be created and issued by our Board of Directors without prior stockholder approval;
provide that the number of directors will be fixed by the affirmative vote of a majority of the whole Board of Directors;
provide that board vacancies can only be filled by directors;
prohibit stockholders from acting by written consent without holding a meeting of stockholders;
require the vote of holders of not less than 66 2/3% of the voting stock then outstanding to approve amendments to our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws; and
require advance written notice of stockholder proposals and director nominations.


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As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which may delay, deter, or prevent a change-in-control transaction. Section 203 imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our common stock.

Any provision of Delaware law, our Amended and Restated Certificate of Incorporation, or our Amended and Restated Bylaws, that has the effect of rendering more difficult, delaying, deterring, or preventing a change-in-control transaction could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

Our business could be negatively affected as a result of the actions of activist stockholders.

Responding to the actions of activist stockholders can be costly and time-consuming, disruptive to our operations, and result in the diversion of the attention of management and our employees. For example, we were previously involved in a proxy contest with a hedge fund, which required us to incur significant legal fees and proxy solicitation expenses and required significant time and attention by management and our Board of Directors. Any perceived uncertainties as to the impact of the activities of activist stockholders, or of our future strategic direction, could also affect the market price and volatility of our common stock.

We do not expect to declare any dividends in the foreseeable future.

We have never declared or paid any cash dividends on our existing common stock. We do not anticipate declaring or paying any cash dividends to holders of our common stock in the foreseeable future and intend to retain all future earnings for the growth of our business. Consequently, investors may need to rely on sales of our common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors should not purchase our common stock with the expectation of receiving cash dividends.

Our reported financial results may be adversely affected by changes in US GAAP.

Accounting principles generally accepted in the United States (US GAAP) are subject to interpretation by the Financial Accounting Standards Board, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant impact on our reported financial results and could affect the reporting of transactions completed before the announcement of a change.


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Item 2. Properties

Our corporate headquarters is located in Goleta, California. The construction of our 14-acre corporate headquarters in Goleta, California was substantially completed in January 2014.

We have one primary US distribution center, which is located in Moreno Valley, California. We began operating this warehouse and distribution center in the fourth quarter of fiscal year 2015 and, since June 2017, have expanded our operations at this location. Further, during fiscal year 2020 we completed the move of all of our Camarillo, California distribution operations to our Moreno Valley location and closed our Camarillo distribution center.

We also have offices in China, Hong Kong, Vietnam, Japan, France, Germany, the Netherlands, and the UK to oversee the quality and manufacturing standards of our products, and for regional sales, operations and administration, as well as offices in Macau and Hong Kong to coordinate logistics.

As of March 31, 2020, we had 52 retail stores in the US ranging from approximately 1,000 to 13,000 square feet. Internationally, we had 93 retail stores in Austria, Belgium, Canada, China, France, Germany, Japan, the Netherlands, Switzerland, and the UK.

Other than our corporate headquarters, we lease our facilities, retail stores and other office spaces from unrelated parties. With the exception of our DTC business facilities, our facilities are attributable to multiple reportable operating segments and are not allocated to our reportable operating segments.

We believe our space is adequate for our current needs and that suitable additional or substitute space will be available to accommodate the foreseeable expansion of our business and operations.

The following table provides details regarding our significant physical properties as of March 31, 2020:
Facility Location
 
Description
 
Lease or Own
 
Facility Size (Square Footage)
Moreno Valley, California
 
Warehouse and Distribution Center
 
Lease
 
1,530,944

Goleta, California
 
Corporate Headquarters
 
Own
 
185,094



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Item 3. Legal Proceedings

As part of our global policing program to protect our intellectual property rights, from time to time, we file lawsuits in various jurisdictions asserting claims for alleged acts of trademark counterfeiting, trademark infringement, patent infringement, trade dress infringement, and trademark dilution. We generally have multiple actions such as these pending at any given point in time. These actions may result in seizure of counterfeit merchandise, out of court settlements with defendants, or other outcomes. In addition, from time to time, we are subject to claims in which opposing parties will raise, either as affirmative defenses or as counterclaims, the invalidity or unenforceability of certain of our intellectual property rights, including allegations that the UGG brand trademark registrations and design patents are invalid or unenforceable. Furthermore, we are aware of many instances throughout the world in which a third-party is using our UGG trademarks within its internet domain name, and we have discovered and are investigating several manufacturers and distributors of counterfeit UGG brand products.

On March 28, 2016, we filed a lawsuit alleging trademark infringement, patent infringement, unfair competition and violation of deceptive trade practices in the US District Court for the Northern District of Illinois Eastern Division against Australian Leather. In response, Australian Leather raised a number of affirmative defenses and counterclaims, including seeking declaratory judgment that the UGG brand trademark is invalid and unenforceable in the US, cancellation of certain of our US UGG brand trademark registrations, false designation of origin and declaratory judgment that certain of our US design patents are invalid and unenforceable. While we believe there is no legal basis for liability, a judgment invalidating the UGG brand trademark would have a material adverse effect on our business. On May 10, 2019, a jury ruled in our favor in our lawsuit against Australian Leather. On December 19, 2019, the court denied Australian Leather’s affirmative defenses. Although final judgment was entered February 6, 2020, the court's rulings are subject to appeal.

Although we are subject to legal proceedings and other disputes from time to time in the ordinary course of business, including employment, intellectual property, and product liability claims, we believe the outcome of all pending legal proceedings and other disputes in the aggregate will not have a material adverse effect on our business, results of operations, financial condition, or cash flows. However, regardless of the outcome, resolving legal proceedings and other disputes can have an adverse impact on us because of legal costs, diversion of management's time and resources, and other factors.


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PART II

References within this Annual Report to “Deckers,” “we,” “our,” “us,” or the “Company” refer to Deckers Outdoor Corporation, together with its consolidated subsidiaries. UGG® (UGG), HOKA One One® (HOKA), Teva® (Teva), Sanuk® (Sanuk), Koolaburra® (Koolaburra), and UGGpure® (UGGpure) are some of our trademarks. Other trademarks or trade names appearing elsewhere in this Annual Report are the property of their respective owners. Solely for convenience, the trademarks and trade names within this Annual Report are referred to without the ® and™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

Certain reclassifications were made for all prior periods presented including the fiscal years ended March 31, 2019, 2018, 2017, and 2016, to conform to the current period presentation.

Unless otherwise specifically indicated, all dollar amounts in Items 5, 6, 7, and 7A herein are expressed in thousands, except for per share data. The defined periods for the fiscal years ended March 31, 2020, 2019, and 2018 are stated herein as “year ended” or “years ended.”

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock has traded under the symbol DECK on the NYSE since May 2014 and was previously traded on the NASDAQ Global Select Market.

As of May 14, 2020, we had 39 stockholders of record based on the records of our transfer agent, which does not include beneficial owners of our common stock whose shares are held in the names of various securities brokers, dealers and registered clearing agencies.

We did not sell any equity securities during the year ended March 31, 2020 that were not registered under the Securities Act.

Stock Performance Graph

Below is a graph comparing the percentage change in the cumulative total return on our common stock against the cumulative total return of the S&P 500 Apparel, Accessories & Luxury Goods Index and the NYSE Composite Index for the five fiscal-year periods commencing April 1, 2015 and ending March 31, 2020. Total return assumes reinvestment of dividends, though we have not declared or paid any cash dividends on our common stock since our inception. The data represented in the graph below assumes one hundred dollars invested in our common stock, the S&P 500 Apparel, Accessories & Luxury Goods Index and the NYSE Composite Index on April 1, 2015.
 
April 1,
 
Years Ended March 31,
 
2015
 
2016
 
2017
 
2018
 
2019
 
2020
Deckers Outdoor Corporation
$
100.0

 
$
82.2

 
$
82.0

 
$
123.6

 
$
201.7

 
$
183.9

S&P 500 Apparel, Accessories & Luxury Goods Index
100.0

 
88.8

 
70.5

 
90.5

 
87.6

 
43.6

The NYSE Composite Index
100.0

 
96.2

 
111.3

 
123.7

 
129.7

 
108.1


The stock performance graph and related information shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report into any filing under the Securities Act, or under the Exchange Act, except to the extent that we specifically incorporate this information by reference and shall not otherwise be deemed filed under the Securities Act or the Exchange Act.


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404185600_chart-0df6fd61d97e546da4a.jpg
Dividend Policy

We have not declared or paid any cash dividends on our common stock since our inception. We currently do not anticipate declaring or paying any cash dividends in the foreseeable future. Our current revolving credit agreements allow us to declare and pay cash dividends, as long as we do not exceed certain leverage ratios and no event of default has occurred.

Stock Repurchase Programs

In January 2019, our Board of Directors approved a stock repurchase program which, together with stock repurchase programs approved in 2017 and 2015, authorized us to repurchase a total of up to $796,000 of our common stock in the open market or in privately negotiated transactions, subject to market conditions, applicable legal requirements, and other factors (collectively, our Stock Repurchase Programs). The full amounts originally authorized under the 2017 and 2015 stock repurchase programs have been repurchased and these programs have been completed.

As of March 31, 2020, the aggregate remaining approved amount under our Stock Repurchase Programs was $159,807. During the fourth quarter of the year ended March 31, 2020, we did not repurchase any shares of our common stock. We are temporarily pausing repurchases under our Stock Repurchase Programs due to the disruption and uncertainty caused by the COVID-19 pandemic and our focus on liquidity and cash management, although we retain the discretion to commence repurchases in future periods.

Refer to Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Liquidity and Capital Resources” and Note 10, “Stockholders' Equity,” of our consolidated financial statements and accompanying notes thereto (referred to herein as the consolidated financial statements) in Part IV within this Annual Report for further information on repurchases of our common stock.


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Item 6. Selected Financial Data

The following tables present our selected consolidated financial data and should be read in conjunction with Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and Part IV, Item 15, “Exhibits and Financial Statement Schedule,” within this Annual Report.
 
Years Ended March 31,
 
2020
 
2019
 
2018
 
2017
 
2016
Statements of Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
 
Net sales
 
 
 
 
 
 
 
 
 
UGG brand wholesale
$
892,990

 
$
888,347

 
$
841,893

 
$
826,355

 
$
918,102

HOKA brand wholesale
277,097

 
185,057

 
132,688

 
93,064

 
74,937

Teva brand wholesale
119,108

 
119,390

 
117,478

 
103,694

 
143,280

Sanuk brand wholesale
39,463

 
69,791

 
78,283

 
77,552

 
90,719

Other brands wholesale
67,175

 
42,818

 
17,273

 
23,142

 
3,842

Direct-to-Consumer
736,856

 
715,034

 
715,724

 
666,340

 
644,317

Total net sales
2,132,689

 
2,020,437

 
1,903,339

 
1,790,147

 
1,875,197

Cost of sales
1,029,016

 
980,187

 
971,697

 
954,912

 
1,028,529

Gross profit
1,103,673

 
1,040,250

 
931,642

 
835,235

 
846,668

Selling, general and administrative expenses
765,538

 
712,930

 
709,058

 
837,154

 
684,541

Income (loss) from operations
338,135

 
327,320

 
222,584

 
(1,919
)
 
162,127

Other (income) expense, net
(2,731
)
 
(1,614
)
 
1,888

 
5,067

 
5,242

Income (loss) before income taxes
340,866

 
328,934

 
220,696

 
(6,986
)
 
156,885

Income tax expense (benefit)
64,724

 
64,626

 
106,302

 
(12,696
)
 
34,620

Net income
276,142

 
264,308

 
114,394

 
5,710

 
122,265

Total other comprehensive (loss) income
(2,905
)
 
(9,671
)
 
13,468

 
(5,894
)
 
(89
)
Comprehensive income (loss)
$
273,237

 
$
254,637

 
$
127,862

 
$
(184
)
 
$
122,176

 
 
 
 
 
 
 
 
 
 
Net income per share
 
 
 
 
 
 
 
 
 
Basic
$
9.73

 
$
8.92

 
$
3.60

 
$
0.18

 
$
3.76

Diluted
$
9.62

 
$
8.84

 
$
3.58

 
$
0.18

 
$
3.70

Weighted-average common shares outstanding
 
 
 
 
 
 
 
 
 
Basic
28,385

 
29,641

 
31,758

 
32,000

 
32,556

Diluted
28,694

 
29,903

 
31,996

 
32,355

 
33,039

 
As of March 31,
 
2020
 
2019
 
2018
 
2017
 
2016
Balance Sheets
Cash and cash equivalents
$
649,436

 
$
589,692

 
$
429,970

 
$
291,764

 
$
245,956

Working capital
893,165

 
844,881

 
721,524

 
661,770

 
547,267

Total assets
1,765,118

 
1,427,206

 
1,264,379

 
1,191,780

 
1,278,068

Long-term liabilities
324,052

 
131,552

 
134,434

 
78,474

 
72,099

Stockholders' equity
1,140,120

 
1,045,130

 
940,779

 
954,255

 
967,471


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements in Part IV within this Annual Report. This discussion includes an analysis of our financial condition and results of operations for fiscal year 2020 and fiscal year 2019 and year-over-year comparisons between those periods. For year-over-year comparisons between fiscal year 2019 and fiscal year 2018, refer to Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2019 filed with the SEC on May 30, 2019.


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Overview

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

Trends and Uncertainties Impacting Our Business

During early calendar year 2020, the COVID-19 pandemic (referred to herein as COVID-19 or the COVID-19 pandemic) spread globally, including throughout the geographic regions in which we operate our business, and where our wholesale customers, retail stores, manufacturers, and suppliers are located.

In response to the pandemic, many federal, state, local, and foreign governments have put in place, and others in the future may put in place, travel restrictions, “shelter-in-place” orders, and similar government orders and restrictions in an attempt to control the spread and mitigate the impact of the disease. Such restrictions or orders have resulted in the mandatory closure of “non-essential” businesses (including retail stores), increased unemployment rates, “social distancing” restrictions, reduced tourist activity, work-from-home policies, and other changes that have led to significant disruptions to businesses and global financial markets. The overall impact of the pandemic on our business and future results of operations is highly uncertain and subject to change, and we are not able to accurately predict the magnitude or scope of such impacts at this time.
Our business and the industry in which we operate continue to be impacted by several important trends and uncertainties, including as a result of the COVID-19 pandemic. We have experienced a number of material impacts, and identified a number of material trends, within our business as follows:
Retail Environment

In connection with the “shelter-in-place” orders discussed above, all of our Company-owned and operated stores, and nearly all of the retail stores of our wholesale customers and retail partners, were closed for a portion of our fourth fiscal quarter ended March 31, 2020 (fourth fiscal quarter), and largely remain closed during the first part of our first fiscal quarter ending June 30, 2020. The closure of these retail stores had a negative impact on our results of operations during the fourth fiscal quarter as we experienced delays in shipment and acceptance of scheduled order shipments, which we attribute to the retail store closures and other uncertainties caused by the COVID-19 pandemic.

The retail stores that we and our partners operate have begun to reopen at a measured pace. We will continue to reopen our retail stores as we determine appropriate and in line with guidance provided by health officials, expert agencies and local authorities. Our decision regarding the appropriate timing to reopen our retail stores will depend on a number of factors, including the safety of our customers and employees, our ability to comply with government orders and restrictions, and our ability to deliver products to our customers. We expect the scope of allowable retail activities, as well as retail consumer traffic patterns, to vary by geographic region, including ongoing restrictions imposed by local governmental authorities, the demand for our products within the region, and the actual and expected impact of the COVID-19 pandemic on the region.

E-Commerce Business

Even prior to mandatory retail store closures resulting from the COVID-19 pandemic, we observed a meaningful shift in the way consumers shop for products and make purchasing decisions, evidenced by significant and prolonged decreases in consumer retail activity as customers continue to migrate to online shopping. These trends have been positively impacting the performance of our e-commerce

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business, while creating challenges and headwinds for our traditional retail business, as well as the retail businesses of our wholesale customers and retail partners.

We operate our e-commerce business through various websites and platforms, which have remained operational throughout the COVID-19 pandemic, and we expect they will continue to remain operational.

During our fourth fiscal quarter, as well as our first fiscal quarter ending June 30, 2020, we observed strong demand across our brands within our e-commerce business, especially for the UGG and HOKA brands. We expect our wholesale customers that have an established e-commerce presence will experience similar strong demand trends as those we have experienced, although the trends may vary from customer to customer. We continue to see demand for our products, especially within the UGG and HOKA brands, from a number of these wholesale customers, which we believe reflects strong sell-through of our products within our partners’ e-commerce platforms. We expect our wholesale customers that have a greater reliance on their retail store presence may experience more significant adverse impacts from the COVID-19 pandemic.

We expect our e-commerce business will continue to be a driver of long-term growth, although the growth rate will be unpredictable and may not be in line with our historical experience. We believe the key factors impacting the growth rate will include consumer demand for our products, our ability to fulfill orders through our limited distribution center operations, the scope and duration of the COVID-19 pandemic, and the impact of the COVID-19 pandemic on consumer confidence and discretionary spending. However, we do not expect the increased demand within our e-commerce businesses to fully offset the negative pressure we are experiencing within our wholesale and retail businesses due to the current retail environment, especially as we move into the second and third fiscal quarters.

Brand Strategy
 
We are exercising discipline by focusing on key products that have achieved sustained success with consumers, reducing the number and types of products offered, delaying product launches and consolidating seasonal collections.

Our ongoing and strategic efforts to reduce the impact of seasonality on our results of operations have had a meaningful positive impact on the year-round performance of the HOKA and UGG brands. While we expect to continue to focus on reducing the impact of seasonality through innovation and the expansion of our product offerings over the long-term, given the magnitude of the UGG brand relative to our other brands, the effect of seasonality on our aggregate net sales and results of operations may continue to be significant. However, it is unclear whether seasonal impacts will be minimized or exaggerated in future periods as a result of the disruptions and uncertainties caused by the COVID-19 pandemic. This uncertainty makes it more difficult for us to predict future demand for our products and manage our manufacturing and inventory, especially as we approach the typical high-selling season for the UGG brand.

Within the UGG brand, we have experienced strong sell-through of certain product lines, including the slipper category in general, as we believe consumers are seeking out luxurious comfort in the current work-from-home environment. In addition, the UGG brand continues to experience success through the introduction of year-round products, improving the UGG brand’s overall year-round performance. However, we are experiencing softness within the UGG wholesale channel, especially within geographies impacted by extensive retail store closures.

Within the HOKA brand, we continue to see strong demand across our product offerings, which we believe is being fueled in part by an even greater emphasis on running and outdoor exercise as consumers seek to find healthy outlets in response to the COVID-19 pandemic. The significant growth of the HOKA brand’s year-round performance product offerings as a percentage of our aggregate net sales has had a meaningful positive impact on our seasonality trends, as well as our overall financial results. However, despite the recent growth and success of the HOKA brand, the impacts of the pandemic may cause the growth rate of HOKA brand sales to decline.


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The Sanuk and Teva brands are experiencing a disproportionate negative impact from the pandemic as the highest percentage of net sales for these brands typically occur during our fourth fiscal quarter and first fiscal quarter. We are actively monitoring the cost structures associated with these brands.

Supply Chain

We experienced certain disruptions to sourcing with our third-party manufacturers during the fourth fiscal quarter. While these disruptions have since been mitigated, it is possible there will be disruptions in the future.

Our Moreno Valley, California, distribution center, as well as our global third-party logistics providers (3PLs), remain open and are operating at reduced capacity and with limited and modified operations. In order to promote the health and safety of our distribution center employees, we have implemented enhanced safety measures and protocols at our distribution center, including strict social distancing requirements and heightened cleaning of the facility in accordance with Center for Disease Control and Prevention guidelines. Due to the social distancing requirements we have implemented, we are limiting the number of employees on-site relative to our typical personnel capacity. We are experiencing, and our 3PLs are experiencing, certain operational and logistical challenges as a result of limited and modified operations, including some delays in the shipments of our products. We are working to mitigate the impact of limited and modified operations on our peak selling periods, but we may not be successful in these efforts.

We are encountering challenges attracting and retaining quality candidates to staff our distribution center operations as we increasingly compete with other companies with growing e-commerce operations. For example, during the past two fiscal years, we have significantly increased certain distribution center employee wages in an effort to attract and retain talent. Although growing unemployment rates resulting from the COVID-19 pandemic may result in a larger short-term candidate pool, we may face ongoing challenges with recruiting employees as our competitors grow their e-commerce channels and require additional warehouse and distribution center staff.

Omni-Channel Strategy

We have implemented a product segmentation strategy, as well as an allocation strategy for the UGG brand’s core Classics franchise in the US wholesale marketplace. These strategies are designed to assist us in controlling product inventory, reducing the impact of discounts and close-outs on our sales and gross margins, and increasing full-priced selling across our product offerings. Similarly, we are implementing a multi-year marketplace reset strategy in Europe and Asia to drive UGG brand heat. We expect the COVID-19 pandemic will delay or mitigate the benefits we may receive from these strategies.

As a result of changes in consumer purchasing behavior, we continue to focus on the enhancement of our omni-channel strategy to enable us to better engage existing and prospective consumers and expose them to our brands. Our strategy is transforming the way we approach marketing, including through a sustained focus on our targeted digital marketing efforts, as well as marketing activations and product seeding to drive global brand heat. For example, we have begun applying these transformation efforts in Europe to drive UGG brand heat as we work to differentiate consumer experiences across various consumer touch points as part of our marketplace reset strategy. We have also started to apply this marketing strategy shift in Asia.

In response to the COVID-19 pandemic, we have enhanced our focus on digital marketing as we seek to target consumers within the work-from-home environment and promote products that are desirable based on current consumer preferences, working conditions and lifestyle choices.

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Liquidity

We believe we are in a strong financial position to respond to the disruptions and uncertainties caused by the COVID-19 pandemic. As of March 31, 2020, our cash and cash equivalents balance was $649,436. In addition, we had available borrowings of $469,473 under our existing revolving credit facilities, providing a liquidity position of over $1,000,000 as of March 31, 2020. For additional information, see the sections entitled “Liquidity” and “Capital Resources” below.

We are temporarily pausing repurchases under our Stock Repurchase Programs due to the disruption and uncertainty caused by the COVID-19 pandemic and our focus on liquidity and cash management.

We are working closely with our wholesale customers, as well as our manufacturers and suppliers, to manage accounts receivable and accounts payable to maximize the availability of working capital.

Operating Expenses

To mitigate the adverse impact the COVID-19 pandemic may have on our business and operations, we have implemented a number of temporary measures to reduce operating expenses, including:

restricting employee travel;
canceling or postponing certain events, trainings, and conferences;
converting meetings with current and prospective customers to a virtual platform;
suspending hiring of certain non-essential employees and annual salary increases;
eliminating or deferring discretionary expenditures;
seeking payment accommodations or deferrals; and
furloughing certain retail employees while stores are closed.

We also believe the significant changes we implemented in connection with our previously completed restructuring and operating profit improvement plans will help mitigate any potential negative impacts on our gross margins resulting from the COVID-19 pandemic.

Completed Restructuring Plan

During February 2016, we announced the implementation of a multi-year restructuring plan designed to realign our brands across our Fashion Lifestyle and Performance Lifestyle groups, optimize our worldwide owned retail store fleet, and consolidate our management and operations that was designed to reduce overhead costs and create operating efficiencies while improving collaboration across brands. As of March 31, 2019, we completed our restructuring plan and incurred cumulative restructuring charges of $55,619 against selling, general, and administrative (SG&A) expense. In addition, the cumulative annualized SG&A savings realized as of March 31, 2019 by reportable operating segment were, approximately, as follows:
 
Amount
UGG brand wholesale
$
1,000

Sanuk brand wholesale
1,000

Other brands wholesale
1,000

Direct-to-Consumer
43,000

Unallocated overhead costs
17,000

Total
$
63,000


We currently do not anticipate incurring additional restructuring charges in connection with this restructuring plan.

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Completed Operating Profit Improvement Plan

During February 2017, we announced that we would implement an operating profit improvement plan to execute various business transformation initiatives to further reduce expenses and improve gross margins. As of March 31, 2019, we successfully completed our plan and achieved in excess of $100,000 of combined net annualized operating profit improvement under our restructuring and operating profit improvement plans. We will continue to apply the lessons learned in our completed plans by pursuing opportunities to further optimize profitability and seeking to enhance results of operations throughout our business.

Reportable Operating Segment Overview

Our six reportable operating segments include the worldwide wholesale operations of the UGG brand, HOKA brand, Teva brand, Sanuk brand, and Other brands, as well as DTC. Information reported to the Chief Operating Decision Maker (CODM), who is our Principal Executive Officer, is organized into these reportable operating segments and is consistent with how the CODM evaluates our performance and allocates resources.

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

We believe demand for UGG brand products will continue to be driven by the following:

High consumer brand loyalty due to the consistent delivery of quality and luxuriously comfortable footwear, apparel, and accessories.
Diversification of our footwear product offerings, such as women's spring and summer lines, as well as expanded category offerings for men's, apparel, and accessories.

HOKA Brand. The HOKA brand is an authentic premium line of year-round performance footwear and apparel that offers enhanced cushioning and inherent stability with minimal weight. Originally designed for ultra-runners, the brand now appeals to athletes around the world, regardless of activity. The HOKA brand is quickly becoming a leading brand within run specialty wholesale accounts, with strong marketing fueling both domestic and international sales growth. We continue to build product extensions in trail and fitness.

We believe demand for HOKA brand products will continue to be driven by the following:

Leading product innovation and key franchise management.
Increased brand awareness through enhanced marketing activations.
Category extensions in authentic performance footwear offerings.

Teva Brand. The Teva brand, which pioneered the sport sandal category, is born from the outdoors and rooted in adventure. The Teva brand is a global leader within the sport sandal and modern outdoor lifestyle categories by fueling the expression of freedom. The Teva brand’s product offerings include sandals, shoes, and boots.

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

Other Brands. Other brands currently consist of the Koolaburra by UGG brand and a discontinued brand during the prior period presented. The Koolaburra brand is a casual footwear fashion line using sheepskin and other plush materials and is intended to target the value-oriented consumer in order to complement the UGG brand offering.

Direct-to-Consumer. Our DTC business for all our brands is comprised of our retail stores and e-commerce websites which, in an omni-channel marketplace, are intertwined and interdependent. We believe many of our consumers interact with both our retail stores and websites before making purchasing decisions.


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Retail Business. Our retail stores are predominantly UGG brand concept stores and UGG brand outlet stores. Through our outlet stores, we sell some of our discontinued styles from prior seasons, full price in-line products, as well as products made specifically for the outlet stores.

As of March 31, 2020, we had a total of 145 global retail stores, which includes 76 concept stores and 69 outlet stores. Generally, we open retail store locations during the second or third quarters of each fiscal year and consider closures of retail stores during the third or fourth quarters of each fiscal year. We evaluate retail store closures based on store performance and timing of lease expirations and options. While we expect to identify additional stores for closure, we may simultaneously identify opportunities to open new stores in the future to further enhance our overall DTC business. We currently do not anticipate incurring material incremental retail store closure costs, primarily because any store closures we may pursue are expected to occur as retail store leases expire to avoid incurring potentially significant lease termination costs, as well as through conversions to partner retail stores, further discussed below. We will continue to evaluate our retail store fleet strategy in response to changes in consumer demand and retail store traffic patterns.

Flagship Stores. Included in the total count of global concept stores are nine UGG brand flagship stores, which are lead concept stores in certain key markets and prominent locations designed to showcase the UGG brand products. Primarily located in major tourist locations, these stores are typically larger with broader product offerings and greater traffic than our general concept stores. The net sales for these stores are recorded in our DTC reportable operating segment.

Shop-in-Shop Stores. Included in the total count of global concept stores are 21 shop-in-shop (SIS) stores, defined as concept stores for which we own the inventory and that are operated by us or non-employees within a department store, which we lease from the store owner by paying a percentage of SIS store sales. The net sales for these stores are recorded in our DTC reportable operating segment.

Partner Retail Stores. We rely on partner retail stores for the UGG brand and Sanuk brand in certain markets. Partner retail stores are branded stores that are wholly-owned and operated by third-parties and not included in the total count of global retail stores. When a partner retail store is opened, or a store is converted into a partner retail store, the related net sales are recorded in either the UGG brand or Sanuk brand wholesale reportable operating segments, as applicable.

E-Commerce Business. Our e-commerce business provides us with an opportunity to communicate a consistent brand message to consumers that is in line with our brands’ promises, drives awareness of key brand initiatives, offers targeted information to specific consumer demographics, and drives consumers to our retail stores. As of March 31, 2020, we operated our e-commerce business through an aggregate of 28 Company-owned websites and mobile platforms in ten different countries.

Use of Non-GAAP Financial Measures

In order to provide a framework for assessing how our underlying businesses performed during the relevant periods, excluding the effect of foreign currency exchange rate fluctuations, throughout this Annual Report we provide certain financial information on a constant currency basis, which we disclose in addition to the financial measures calculated and presented in accordance with accounting principles generally accepted in the United States (US GAAP). For example, in order to calculate our constant currency information, we calculate the current period financial information using the foreign currency exchange rates that were in effect during the previous comparable period, excluding the effects of foreign currency exchange rate hedges and remeasurements. Further, we report comparable DTC sales on a constant currency basis for DTC operations that were open throughout the current and prior reporting periods, and we may adjust prior reporting periods to conform to current year accounting policies. As a result, information included in this Annual Report regarding these financial measures, as we calculate them, may not be directly comparable to similar data of other companies, and may not be appropriate measures for comparing the performance of other companies relative to us.

Constant currency measures should not be considered in isolation as an alternative to United States (US) dollar measures that reflect current period foreign currency exchange rates or to other financial measures presented in accordance with US GAAP. We believe evaluating certain financial and operating measures on a constant currency basis is important as it excludes the impact of foreign currency exchange rate fluctuations that are not indicative of our core results of operations and are largely outside of our control.


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Seasonality

Our business is seasonal, with the highest percentage of UGG and Koolaburra brand net sales occurring in the quarters ending September 30th and December 31st and the highest percentage of Teva and Sanuk brand net sales occurring in the quarters ending March 31st and June 30th. Net sales for the HOKA brand occur more evenly throughout the year reflecting the brand's year-round performance product offerings. Due to the magnitude of the UGG brand relative to our other brands, our aggregate net sales in the quarters ending September 30th and December 31st have significantly exceeded our aggregate net sales in the quarters ending March 31st and June 30th. As we continue to take steps to diversify and expand our product offerings by creating more year-round styles and growing the year-round net sales of the HOKA brand as a percentage of our aggregate net sales, we expect the seasonality trends that have resulted in significant variations in our aggregate net sales from quarter to quarter to decrease over time. However, it is unclear whether seasonal impacts will be minimized or exaggerated in future periods as a result of the disruptions and uncertainties caused by the COVID-19 pandemic.

Refer to Note 14, “Quarterly Summary of Information (Unaudited),” of our consolidated financial statements in Part IV within this Annual Report for further information on our results of operations by quarterly period.

Result of Operations

Year Ended March 31, 2020 Compared to Year Ended March 31, 2019. The following table summarizes our results of operations:
 
Years Ended March 31,
 
2020
 
2019
 
Change
 
Amount
 
%
 
Amount
 
%
 
Amount
 
%
Net sales
$
2,132,689

 
100.0
 %
 
$
2,020,437

 
100.0
 %
 
$
112,252

 
5.6
 %
Cost of sales
1,029,016

 
48.2

 
980,187

 
48.5

 
(48,829
)
 
(5.0
)
Gross profit
1,103,673

 
51.8

 
1,040,250

 
51.5

 
63,423

 
6.1

Selling, general and administrative expenses
765,538

 
35.9

 
712,930

 
35.3

 
(52,608
)
 
(7.4
)
Income from operations
338,135

 
15.9

 
327,320

 
16.2

 
10,815

 
3.3

Other income, net
(2,731
)
 
(0.1
)
 
(1,614
)
 
(0.1
)
 
1,117

 
69.2

Income before income taxes
340,866

 
16.0

 
328,934

 
16.3

 
11,932

 
3.6

Income tax expense
64,724

 
3.1

 
64,626

 
3.2

 
(98
)
 
(0.2
)
Net income
276,142

 
12.9

 
264,308

 
13.1

 
11,834

 
4.5

Total other comprehensive loss, net of tax
(2,905
)
 
(0.1
)
 
(9,671
)
 
(0.5
)
 
6,766

 
(70.0
)
Comprehensive income
$
273,237

 
12.8
 %
 
$
254,637

 
12.6
 %
 
$
18,600

 
7.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
Net income per share
 
 
 
 
 
 
 
 
 
 
 
Basic
$
9.73

 
 
 
$
8.92

 
 
 
$
0.81

 
 
Diluted
$
9.62

 
 
 
$
8.84

 
 
 
$
0.78

 
 

Net Sales. The following table summarizes our net sales by location, and by brand and channel:
 
Years Ended March 31,
 
2020
 
2019
 
Change
 
Amount
 
Amount
 
Amount
 
%
Net sales by location
 
 
 
 
 
 
 
US
$
1,401,692

 
$
1,278,358

 
$
123,334

 
9.6
 %
International
730,997

 
742,079

 
(11,082
)
 
(1.5
)
Total
$
2,132,689

 
$
2,020,437

 
$
112,252

 
5.6
 %
 
 
 
 
 
 
 
 

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Years Ended March 31,
 
2020
 
2019
 
Change
 
Amount
 
Amount
 
Amount
 
%
Net sales by brand and channel
 
 
 
 
 

 
 

UGG brand
 
 
 
 
 

 
 

Wholesale
$
892,990

 
$
888,347

 
$
4,643

 
0.5
 %
Direct-to-Consumer
627,817

 
644,520

 
(16,703
)
 
(2.6
)
Total
1,520,807

 
1,532,867

 
(12,060
)
 
(0.8
)
HOKA brand
 
 
 
 
 
 
 
Wholesale
277,097

 
185,057

 
92,040

 
49.7

Direct-to-Consumer
75,527

 
38,092

 
37,435

 
98.3

Total
352,624

 
223,149

 
129,475

 
58.0

Teva brand
 
 
 
 
 

 
 

Wholesale
119,108

 
119,390

 
(282
)
 
(0.2
)
Direct-to-Consumer
18,897

 
18,022

 
875

 
4.9

Total
138,005

 
137,412

 
593

 
0.4

Sanuk brand
 
 
 
 
 

 
 

Wholesale
39,463

 
69,791

 
(30,328
)
 
(43.5
)
Direct-to-Consumer
11,696

 
12,822

 
(1,126
)
 
(8.8
)
Total
51,159

 
82,613

 
(31,454
)
 
(38.1
)
Other brands
 
 
 
 
 

 
 

Wholesale
67,175

 
42,818

 
24,357

 
56.9

Direct-to-Consumer
2,919

 
1,578

 
1,341

 
85.0

Total
70,094

 
44,396

 
25,698

 
57.9

Total
$
2,132,689

 
$
2,020,437

 
$
112,252

 
5.6
 %
 
 
 
 
 
 
 
 
Total Wholesale
$
1,395,833

 
$
1,305,403

 
$
90,430

 
6.9
 %
Total Direct-to-Consumer
736,856

 
715,034

 
21,822

 
3.1

Total
$
2,132,689

 
$
2,020,437

 
$
112,252

 
5.6
 %

Despite the negative impact of the COVID-19 pandemic on net sales during our fourth fiscal quarter, total net sales for the full fiscal year increased primarily due to higher HOKA and Other brands wholesale sales, as well as higher DTC sales, partially offset by lower Sanuk brand wholesale sales. Further, we experienced an increase of 2.8% in total volume of pairs sold to 36,800 from 35,800 compared to the prior period. On a constant currency basis, net sales increased by 6.5%, compared to the prior period. Drivers of significant changes in net sales are as follows:

Wholesale net sales of the HOKA brand increased due to continued global growth through new customer acquisitions, as well as higher sales driven by key franchise updates and new product launches.

Wholesale net sales of the Other brands increased primarily due to continued customer penetration in US family value wholesale accounts for the Koolaburra brand.

Wholesale net sales of the UGG brand increased due to higher domestic net sales driven by the slipper collection and the sell-in of fall and winter products, primarily for men's and kid's product lines, partially offset by lower international sales driven by a multi-year marketplace reset in Europe and European macroeconomic factors, as well as COVID-19 related sales losses in the fourth fiscal quarter. On a constant currency basis, wholesale net sales of the UGG brand increased by 2.1%, compared to the prior period.

Wholesale net sales of the Sanuk brand decreased due to the strategic decision to exit the warehouse channel, lower performance within US surf specialty wholesale accounts, as well as COVID-19 related sales losses in the fourth fiscal quarter during the Sanuk brands’ peak selling season.

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Comparable DTC net sales for the 52 weeks ended March 29, 2020 increased by 5.0%, compared to the same prior period, primarily due to growth in the e-commerce business globally for the HOKA brand and domestically for the UGG brand. DTC net sales were negatively impacted by the retail store closures during the fourth fiscal quarter compared to the prior period due to COVID-19.

International net sales, which are included in the reportable operating segment net sales presented above, decreased by 1.5%, compared to the prior period. International net sales represented 34.3% and 36.7% of total net sales for the years ended March 31, 2020 and 2019, respectively. The decrease was primarily due to lower net sales for the UGG brand in Europe and Asia and the COVID-19 related sales losses in the fourth fiscal quarter, partially offset by higher net sales for the HOKA brand in our international markets and higher sales for the Teva brand in Asia.
Gross Profit. Gross profit as a percentage of net sales, or gross margin, increased to 51.8% from 51.5%, compared to the prior period, primarily due to favorable brand mix and rate expansion for the HOKA brand and fewer closeout sales, partially offset by unfavorable changes in foreign currency exchange rates and higher promotions in Europe and Asia.

Selling, General and Administrative Expenses.