# DECKERS OUTDOOR CORP (DECK) FY 2025 MD&A

Verbatim Item 7 Management's Discussion and Analysis from DECKERS OUTDOOR CORP's 10-K for fiscal year 2025.

SEC filing source: https://www.sec.gov/Archives/edgar/data/910521/000091052125000017/deck-20250331.htm
Accession: 0000910521-25-000017
Filing date: 2025-05-23
Report date: 2025-03-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/DECK/
All MD&A years: /company/DECK/mda/
Previous year: /company/DECK/mda/fy2024/ (FY 2024)
Next year: /company/DECK/mda/fy2026/ (FY 2026)

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 the years ended March 31, 2025, 2024, and 2023 and year-over-year comparisons between those periods.

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

Unless otherwise indicated, all figures herein are expressed in thousands, except for per share and share data.

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, AHNU, and Koolaburra. Our brands compete across the fashion and casual lifestyle, performance, running, and outdoor markets. We believe our products are distinctive and appeal to a broad demographic. Our brands sell our products through quality domestic and international retailers, international distributors, and directly to global consumers through our DTC channel, which is comprised of an e‑commerce and retail store presence. We seek to differentiate our brands and products by offering diverse lines that emphasize fashion, authenticity, functionality, quality, and comfort, and products tailored to a variety of activities, seasons, and demographic groups. Independent third-party contractors manufacture all of our products.

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FINANCIAL HIGHLIGHTS

Consolidated financial performance highlights for fiscal year 2025, compared to fiscal year 2024 (the prior period), were as follows:

•Net sales increased 16.3% to $4,985,612.

◦Brand

▪UGG brand net sales increased 13.1% to $2,531,351.

▪HOKA brand net sales increased 23.6% to $2,233,090.

▪Other brands net sales decreased 8.6% to $221,171.

◦Channel

▪Wholesale channel net sales increased 17.4% to $2,855,865.

▪DTC channel net sales increased 14.8% to $2,129,747.

◦Geography

▪Domestic net sales increased 11.3% to $3,186,709.

▪International net sales increased 26.3% to $1,798,903.

•Gross margin increased 230 basis points to 57.9%.

•SG&A expenses increased 17.1% to $1,706,571.

•Income from operations increased 27.1% to $1,179,092.

•Income from operations as a percentage of net sales (operating margin) increased 200 basis points to 23.6%.

•Diluted earnings per share increased 30.2% to $6.33 per share.

RECENT DEVELOPMENTS

Koolaburra Brand. During the third quarter of fiscal year 2025, we began taking steps to phase out our standalone operations for the Koolaburra brand in order to maintain focus on our most significant organic opportunities. We closed Koolaburra.com as of March 31, 2025, and plan to wind down the Koolaburra brand in the wholesale channel by the end of calendar year 2025. Refer to the section titled “The Company,” in Note 1, “General,” of our consolidated financial statements in Part IV within this Annual Report for further information.

Sanuk Brand Asset Sale. During the second quarter of fiscal year 2025, we completed the sale of the Sanuk brand and certain related assets. Refer to the section below titled “Reportable Operating Segment Overview” for further information on our results of operations. Refer to the section titled “The Company,” in Note 1, “General,” of our consolidated financial statements in Part IV within this Annual Report for further information on the sale of the Sanuk brand.

Forward Stock Split and Authorized Share Increase. On September 13, 2024, we effected a stock split and an authorized share increase. Our financial results included within this Annual Report have been retroactively adjusted to reflect the effectiveness of the stock split and the authorized share increase. Refer to the section titled “Basis of Presentation,” in Note 1, “General,” of our consolidated financial statements in Part IV within this Annual Report for further information.

TRENDS AND UNCERTAINTIES IMPACTING OUR BUSINESS AND INDUSTRY

We expect our business and industry will continue to be impacted by several important trends and uncertainties, including the following:

Macroeconomic and Geopolitical Factors

•We are exposed to risks resulting from evolving US trade policy that has introduced uncertainty and volatility in global trade relations, including higher tariffs and greater restrictions on goods imported from certain regions. While we pursue mitigation strategies, including through selective, staggered, and strategic price increases on our products sold in the US and by negotiating cost-sharing arrangements with our independent manufacturers, we may be unable to offset all resulting

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increases to our cost of goods sold. These risks may have a material adverse impact on demand for our products.

•Macroeconomic factors, including inflationary pressures, increased tariffs, geopolitical unrest, and escalating global conflicts, are creating a complex and challenging environment for our business and industry. While these factors did not materially impact our business or results of operations during fiscal year 2025, the full impact of these factors is difficult to quantify and could negatively impact us in future periods.

Brand and Omni-Channel Strategy

•We remain focused on increasing global consumer awareness and adoption of our brands, which has continued to positively impact our financial results. Our efforts to drive brand adoption are focused on building brand acceptance and heat through launches of innovative product offerings, coupled with marketing investments across multiple geographic markets and channels of distribution, including strategic expansion of the global marketplace.

•We continue to implement a marketplace inventory management strategy for our brands through segmentation and differentiation. During fiscal year 2025, we continued to experience alignment on product assortments that resulted in higher full-price sell-through, which benefited our gross margins across all channels of distribution. While gross margins continue to be an area of strategic focus, we may not experience these benefits to our gross margins in our fiscal year ending March 31, 2026 (next fiscal year) due to various factors, including impacts from macroeconomic and geopolitical factors, discussed above, as well as potential impacts from our pricing strategies.

•Our long-term strategy remains focused on building our DTC channel to represent an increased proportion of our total net sales, which includes differentiating the consumer experience from the wholesale channel to drive increases in acquisition and retention to sustain strong market positions and a high level of demand for our brands. We expect increased sales in the DTC channel will continue to positively impact our gross margins. However, as we expand doors with wholesale partners to drive brand awareness and market share in the near-term, our wholesale channel may represent a higher portion of our total net sales in certain periods, which could pressure our margins in those periods.

•We continue to implement our international growth strategies for the HOKA and UGG brands to represent an increased proportion of our total net sales. We continue to selectively expand our HOKA brand presence through additional locations with our wholesale partners and targeted retail store expansion within our DTC channel. We also continue to invest in certain regions that provide influential market presence to build HOKA brand awareness, and we expect to continue making these investments, including in our next fiscal year. We continue to emphasize elevating the customer experience for our brands through category expansion and collaborations.

Supply Chain

•To support our growing business, we continue to invest in our network of global warehouses, DCs, and 3PLs, which have fixed and variable costs, with variable costs changing relative to changes in net sales. We continue to diversify our third-party manufacturers and the regions in which they operate. We are currently negotiating the transition of one of our international 3PLs to a new partner with an upgraded warehouse management system during our next fiscal year. We expect to continue to invest in and build upon these infrastructure capabilities to continue meeting customer and consumer demand.

REPORTABLE OPERATING SEGMENTS OVERVIEW

As of March 31, 2025, our three reportable operating segments include the worldwide operations of the UGG brand, HOKA brand, and Other brands. Information reported to the CODM, who is our Principal Executive Officer (PEO), is organized into these reportable operating segments and is consistent with how the CODM evaluates our performance and allocates resources.

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Change in Reportable Operating Segments. During the fourth quarter of fiscal year 2025, the financial information regularly used by the CODM to evaluate performance, make operating decisions, and allocate resources was revised. In connection with executive leadership alignment, and the recent divestiture and phase out of certain brands, the CODM shifted resource allocation decisions and performance assessment to a brand focus, rather than a distribution channel focus. This resulted in a change in our reportable operating segments. The change in reportable operating segments had an impact on segment income from operations, a measure of segment profitability, and we clarified unallocated overhead costs excluded from this measure as unallocated enterprise and shared brand expenses. Unallocated enterprise and shared brand expenses are costs that are managed centrally and not specific to any one brand. These costs are primarily comprised of certain payroll and related expenses, including stock-based compensation; global IT expenses; 3PL service fees; depreciation, rent, and occupancy for owned warehouses and offices; and other SG&A expenses, such as costs for contract services, materials, supplies, and travel. These costs span multiple functions including owned warehouses and 3PL service fees, along with enterprise costs which include centralized commercial operations, IT, finance, human resources, legal, supply chain, and corporate executives.

Previously, our six reportable operating segments included the worldwide wholesale operations of the UGG brand, HOKA brand, Teva brand, Sanuk brand, and Other brands (primarily the AHNU brand and Koolaburra brand), and DTC. Reportable operating segment results for all prior periods presented in this Annual Report have been recast to reflect the change in reportable operating segments.

As discussed under the section titled “Recent Developments” above, the sale of the Sanuk brand was completed during fiscal year 2025. The financial results for our reportable operating segments present the former Sanuk brand within the Other brands reportable operating segment through the Sanuk Brand Sale Date for the year ended March 31, 2025, and full financial results for the years ended March 31, 2024, and 2023.

Refer to Note 12, “Reportable Operating Segments,” of our consolidated financial statements in Part IV within this Annual Report for further information on reportable operating segments.

UGG Brand. The UGG brand is one of the most iconic and recognized footwear 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 consumer-focused line of premium footwear, apparel, and accessories with year-round product offerings that appeal to a growing global audience and a broad demographic.

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

•Successful acquisition of a diverse global consumer base, and in particular focusing on key markets, through strategic marketing activations and collaborations that resonate with a fashionable consumer.

•High consumer brand loyalty due to elevated brand experiences and consistent delivery of crafted; purposefully built and luxuriously comfortable footwear, apparel, and accessories.

•Diversification of our footwear product offerings, such as our spring and summer lines, as well as expanded category offerings for Men’s products such as the slip-on shoe and sneaker category, and more iconic fashion product for our Classics line, including reimagining existing iconic styles into new categories.

•Thoughtful expansion of our apparel and accessories businesses.

HOKA Brand. The HOKA brand is an authentic premium line of year-round performance footwear, which offers enhanced cushioning and inherent stability with minimal weight. Originally designed for ultra-runners, the brand now appeals to world champions, taste makers, and everyday athletes. Expanded marketing and strategic marketplace presence have fueled both domestic and international sales growth of the HOKA brand, which has quickly become a leading brand within run and outdoor specialty wholesale accounts and is growing across its global marketplace. The HOKA brand’s product line includes running, trail, hiking, fitness, and lifestyle footwear offerings, as well as select apparel and accessories.

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

•Leading performance product innovation, category extensions, and key franchise management, including higher frequency product drop rates and improving accessibility to all athletes.

•Increased global brand awareness and new consumer adoption through enhanced global marketing activations and online consumer acquisition, including building a more diverse outdoor community through digital and in-person event sponsorship.

•Thoughtful and strategic distribution choices, allowing the HOKA brand access and introduction to a broader, more diverse, consumer base.

•Category extensions in authentic performance footwear offerings such as lifestyle, trail, and fitness categories.

Other Brands. Other brands consist primarily of the Teva brand, AHNU brand, and Koolaburra brand. The Teva brand’s products are built for a range of outdoor pursuits and include a variety of footwear options, from classic sandals and shoes to boots. The AHNU brand’s footwear products fuse high-performance technology with timeless style crafted for everyday wear. The Koolaburra brand, for which we are phasing out standalone operations by the end of calendar year 2025, is a casual footwear brand that uses plush materials to target value-oriented consumers.

USE OF NON-GAAP FINANCIAL MEASURES

We disclose supplemental financial measures calculated and presented in accordance with generally accepted accounting principles in the United States (US GAAP); however, throughout this Annual Report we provide certain financial information on a non-GAAP basis (non-GAAP financial measures). We provide non-GAAP financial measures to provide information that may assist investors in understanding our results of operations and assessing our prospects for future performance, which consist of constant currency measures. 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. However, our non-GAAP financial measures are not intended to represent and should not be considered more meaningful measures than, or alternatives to, measures of financial or operating performance as determined in accordance with US GAAP.

We calculate our constant currency non-GAAP financial measures for current period financial information, such as total net sales using the foreign currency exchange rates that were in effect during the previous comparable period, excluding the effects of foreign currency exchange rate hedges and remeasurements in the consolidated financial statements. We also 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. The information presented on a constant currency basis, as we present such information, may not necessarily be comparable to similarly titled information presented by other companies, and may not be appropriate measures for comparing our performance relative to other companies. Constant currency measures should not be considered in isolation as an alternative to US dollar measures that reflect current period foreign currency exchange rates or to other financial or operating measures presented in accordance with US GAAP.

SEASONALITY

A significant part of the UGG brand’s business has historically been seasonal, with the highest percentage of net sales occurring in the third fiscal quarter, which has contributed to variation in results of operations from quarter to quarter. However, we have mitigated the impacts of seasonality by diversifying and expanding product offerings with additional year-round styles. In addition, as the HOKA brand’s net sales, which generally occur more evenly throughout the fiscal year, continue to increase as a percentage of our aggregate net sales, we expect to reduce the impacts of seasonality in future periods.

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RESULTS OF OPERATIONS

Year Ended March 31, 2025, Compared to Year Ended March 31, 2024. Results of operations were as follows:

[[GREPCENT_TABLE]]
[["","Years Ended March 31,"],["","2025","","2024","","Change"],["","Amount","","%","","Amount","","%","","Amount","","%"],["Net sales","$","4,985,612","","","100.0","%","","$","4,287,763","","","100.0","%","","$","697,849","","","16.3","%"],["Cost of sales","2,099,949","","","42.1","","","1,902,275","","","44.4","","","(197,674)","","","(10.4)"],["Gross profit","2,885,663","","","57.9","","","2,385,488","","","55.6","","","500,175","","","21.0"],["Selling, general, and administrative expenses","1,706,571","","","34.3","","","1,457,974","","","34.0","","","(248,597)","","","(17.1)"],["Income from operations","1,179,092","","","23.6","","","927,514","","","21.6","","","251,578","","","27.1"],["Total other income, net","(64,207)","","","(1.3)","","","(51,427)","","","(1.2)","","","12,780","","","24.9"],["Income before income taxes","1,243,299","","","24.9","","","978,941","","","22.8","","","264,358","","","27.0"],["Income tax expense","277,208","","","5.5","","","219,378","","","5.1","","","(57,830)","","","(26.4)"],["Net income","966,091","","","19.4","","","759,563","","","17.7","","","206,528","","","27.2"],["Total other comprehensive income (loss), net of tax","1,079","","","\u2014","","","(11,698)","","","(0.3)","","","12,777","","","109.2"],["Comprehensive income","$","967,170","","","19.4","%","","$","747,865","","","17.4","%","","$","219,305","","","29.3","%"],["Net income per share"],["Basic","$","6.36","","","","","$","4.89","","","","","$","1.47","","","30.1","%"],["Diluted","$","6.33","","","","","$","4.86","","","","","$","1.47","","","30.2","%"]]
[[/GREPCENT_TABLE]]

Net Sales. Net sales by brand, channel, and geography were as follows:

[[GREPCENT_TABLE]]
[["","Years Ended March 31,"],["","2025","","2024","","Change"],["","Amount","","Amount","","Amount","","%"],["Net sales by brand"],["UGG brand"],["Wholesale","$","1,282,319","","","$","1,115,241","","","$","167,078","","","15.0","%"],["Direct-to-Consumer","1,249,032","","","1,123,891","","","125,141","","","11.1"],["Total","2,531,351","","","2,239,132","","","292,219","","","13.1"],["HOKA brand"],["Wholesale","1,397,776","","","1,126,126","","","271,650","","","24.1"],["Direct-to-Consumer","835,314","","","680,614","","","154,700","","","22.7"],["Total","2,233,090","","","1,806,740","","","426,350","","","23.6"],["Other brands (1) (2)"],["Wholesale","175,770","","","190,940","","","(15,170)","","","(7.9)"],["Direct-to-Consumer","45,401","","","50,951","","","(5,550)","","","(10.9)"],["Total","221,171","","","241,891","","","(20,720)","","","(8.6)"],["Total (1)","$","4,985,612","","","$","4,287,763","","","$","697,849","","","16.3","%"],["Net sales by channel"],["Total Wholesale","$","2,855,865","","","$","2,432,307","","","$","423,558","","","17.4","%"],["Total Direct-to-Consumer","2,129,747","","","1,855,456","","","274,291","","","14.8"],["Total (1)","$","4,985,612","","","$","4,287,763","","","$","697,849","","","16.3","%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","Years Ended March 31,"],["","2025","","2024","","Change"],["","Amount","","Amount","","Amount","","%"],["Net sales by geography"],["Domestic","$","3,186,709","","","$","2,863,674","","","$","323,035","","","11.3","%"],["International","1,798,903","","","1,424,089","","","374,814","","","26.3"],["Total (1)","$","4,985,612","","","$","4,287,763","","","$","697,849","","","16.3","%"]]
[[/GREPCENT_TABLE]]

(1) Includes Sanuk brand partial financial results through the Sanuk Brand Sale Date of August 15, 2024, for the year ended March 31, 2025, and full financial results for the prior period, which are presented in the Other brands reportable operating segment. Refer to the section titled “Recent Developments” above for further information on the sale of the Sanuk brand. Refer to the section titled “Reportable Operating Segments Overview,” above for further information on the recent change in our reportable operating segments.

(2) Includes Teva brand full financial results for the year ended March 31, 2025, and the prior period, which are presented in the Other brands reportable operating segment. Refer to the section titled “Reportable Operating Segments Overview” above for further information on the recent change in our reportable operating segments.

Total net sales increased primarily due to higher global net sales across all channels for the HOKA and UGG brands, partially offset by lower US net sales for Other brands across all channels. Drivers of significant changes in net sales, compared to the prior period, were as follows:

•Net sales of the HOKA brand increased due to higher global demand for an assortment of performance products across all channels. HOKA brand wholesale channel growth was driven primarily by global market share gains and benefits from new points of distribution with key partners. HOKA brand DTC channel growth was driven primarily by global gains in consumer acquisition and retention.

•Net sales of the UGG brand increased due to higher global demand across both channels, especially internationally. UGG brand wholesale channel growth was primarily driven by demand for year-round key product franchises and strong partnerships with brand-enhancing retailers. UGG brand DTC channel growth was primarily driven by global gains in consumer acquisition and retention.

•Net sales of the Other brands decreased primarily due to lower US net sales across all channels, including impacts from the sale of the Sanuk brand.

Supplemental Disclosure

•On a constant currency basis, net sales increased by 16.5%, compared to the prior period.

•Comparable DTC channel net sales for the 52 weeks ended March 30, 2025, increased by 13.4% compared to the prior period.

•We experienced an increase of 13.5% in the total volume of units sold to 74,100 from 65,300, compared to the prior period. Units sold include all categories such as footwear, apparel, accessories, home goods, and care kits.

Gross Profit. Gross margin increased to 57.9% from 55.6%, compared to the prior period, primarily due to favorable brand and product mix, with higher margin product driving a higher proportion of growth, and increased levels of full-price selling primarily for the UGG brand, including reduced closeouts to the wholesale channel, partially offset by unfavorable changes in freight costs.

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Selling, General, and Administrative Expenses. Drivers of significant net changes in SG&A expenses, compared to the prior period, were as follows:

•Increased advertising, marketing, and promotion expenses of approximately $83,300, primarily due to higher promotional marketing expenses for the HOKA and UGG brands to drive global brand awareness and market share gains, highlight new product categories, and provide localized marketing.

•Increased other SG&A expenses of approximately $79,800, primarily due to higher unallocated enterprise and shared brand expenses of approximately $46,400 for 3PL service fees, contract services, IT programming and software costs, and other operating expenses; higher HOKA brand expenses of approximately $22,700 for materials and supplies, sales commissions, travel costs, bad debt expenses, credit card fees, and other operating expenses; and higher UGG brand expenses of approximately $9,700 for sales commissions, bad debt expenses, and credit card fees.

•Increased payroll and related costs of approximately $67,800, primarily due to higher headcount from investments in talent for the HOKA brand, enterprise functions, and the UGG brand, along with higher variable payroll costs to support higher sales.

•Increased depreciation and other related costs of approximately $10,800, primarily due to higher unallocated enterprise and shared brand expenses for infrastructure investments and related depreciation, partially offset by lower impairments.

•Increased rent and occupancy of approximately $8,800, primarily due to higher rent expenses resulting from retail store footprint expansion for the HOKA brand.

•Increased net foreign currency-related remeasurement gains of approximately $2,000, primarily due to favorable changes in Asian exchange rates against the US dollar.

Income from Operations. Income (loss) from operations by reportable operating segment was as follows:

[[GREPCENT_TABLE]]
[["","Years Ended March 31,"],["","2025","","2024","","Change"],["","Amount","","Amount","","Amount","","%"],["Income (loss) from operations"],["UGG brand","$","1,002,873","","","$","804,827","","","$","198,046","","","24.6","%"],["HOKA brand","848,505","","","719,047","","","129,458","","","18.0"],["Other brands (1) (2)","34,578","","","23,721","","","10,857","","","45.8"],["Unallocated enterprise and shared brand expenses (3)","(706,864)","","","(620,081)","","","(86,783)","","","(14.0)"],["Total","$","1,179,092","","","$","927,514","","","$","251,578","","","27.1","%"]]
[[/GREPCENT_TABLE]]

(1) Includes Sanuk brand partial financial results through the Sanuk Brand Sale Date of August 15, 2024, for the year ended March 31, 2025, and full financial results for the prior period, which are presented in the Other brands reportable operating segment. Refer to the section titled “Recent Developments” above for further information on the sale of the Sanuk brand. Refer to the section titled “Reportable Operating Segments Overview,” above for further information on the recent change in our reportable operating segments.

(2) Includes Teva brand full financial results for the year ended March 31, 2025, and the prior period, which are presented in the Other brands reportable operating segment. Refer to the section titled “Reportable Operating Segments Overview” above for further information on the recent change in our reportable operating segments.

(3) To the extent that consolidated SG&A expenses exceed reportable operating segment SG&A expenses, the costs are recorded in unallocated enterprise and shared brand expenses, which are costs that are managed centrally and not specific to any one brand. The change in reportable operating segments had an impact on segment income from operations, a measure of segment profitability, and a clarification was made that certain prior unallocated overhead costs are defined as unallocated enterprise and shared brand expenses and are excluded from the measure of segment profitability.

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The increase in total income from operations, compared to the prior period, was primarily due to higher net sales at higher gross margins, partially offset by higher SG&A expenses as a percentage of net sales.

Drivers of significant net changes in total income from operations, compared to the prior period, were as follows:

•The increase in income from operations of the UGG brand was due to higher net sales at higher gross margins, as well as relatively flat SG&A expenses as a percentage of net sales.

•The increase in income from operations of the HOKA brand was due to higher net sales at slightly lower gross margins, partially offset by higher SG&A expenses as a percentage of net sales, primarily reflecting increased marketing and headcount to support brand growth initiatives.

•The increase in income from operations of the Other brands was due to higher gross margins on lower net sales, as well as the benefit to SG&A expenses from lower impairments compared to the prior period for the Sanuk brand definite-lived intangible assets.

•The increase in unallocated enterprise and shared brand expenses was due to higher other SG&A expenses for 3PL service fees, contract services, and IT programming and software costs; higher payroll and related costs for higher variable payroll costs along with higher headcount for enterprise functions; and higher depreciation and other related costs for infrastructure investments.

Total Other Income, Net. The increase in total other income, net, compared to the prior period, was primarily due to higher interest income from higher invested cash balances.

Income Tax Expense. Income tax expense and our effective income tax rate were as follows:

[[GREPCENT_TABLE]]
[["","Years Ended March 31,"],["","2025","","2024"],["Income tax expense","$","277,208","","$","219,378"],["Effective income tax rate","22.3","%","","22.4","%"]]
[[/GREPCENT_TABLE]]

The net decrease in our effective income tax rate, compared to the prior period, was primarily due to benefits related to US tax on foreign earnings (including global intangible low-tax income and foreign derived intangible income), partially offset by higher income tax expense from changes in jurisdictional mix of worldwide income before income taxes and a lower benefit from net discrete items, including from return-to-provision adjustments and a valuation allowance on tax attributes.

Net Income. The increase in net income, compared to the prior period, was due to higher net sales and higher operating margins. Net income per share increased, compared to the prior period, due to higher net income and lower weighted-average common shares outstanding driven by stock repurchases.

Total Other Comprehensive Income (Loss), Net of Tax. The increase in total other comprehensive income, net of tax, compared to the prior period, was primarily due to higher foreign currency translation gains relating to changes in the net asset position against Asian foreign currency exchange rates.

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Year Ended March 31, 2024, Compared to Year Ended March 31, 2023. Results of operations were as follows:

[[GREPCENT_TABLE]]
[["","Years Ended March 31,"],["","2024","","2023","","Change"],["","Amount","","%","","Amount","","%","","Amount","","%"],["Net sales","$","4,287,763","","","100.0","%","","$","3,627,286","","","100.0","%","","$","660,477","","","18.2","%"],["Cost of sales","1,902,275","","","44.4","","","1,801,916","","","49.7","","","(100,359)","","","(5.6)"],["Gross profit","2,385,488","","","55.6","","","1,825,370","","","50.3","","","560,118","","","30.7"],["Selling, general, and administrative expenses","1,457,974","","","34.0","","","1,172,619","","","32.3","","","(285,355)","","","(24.3)"],["Income from operations","927,514","","","21.6","","","652,751","","","18.0","","","274,763","","","42.1"],["Total other income, net","(51,427)","","","(1.2)","","","(13,331)","","","(0.4)","","","38,096","","","285.8"],["Income before income taxes","978,941","","","22.8","","","666,082","","","18.4","","","312,859","","","47.0"],["Income tax expense","219,378","","","5.1","","","149,260","","","4.1","","","(70,118)","","","(47.0)"],["Net income","759,563","","","17.7","","","516,822","","","14.3","","","242,741","","","47.0"],["Total other comprehensive loss, net of tax","(11,698)","","","(0.3)","","","(14,080)","","","(0.4)","","","2,382","","","16.9"],["Comprehensive income","$","747,865","","","17.4","%","","$","502,742","","","13.9","%","","$","245,123","","","48.8","%"],["Net income per share"],["Basic","$","4.89","","","","","$","3.25","","","","","$","1.64","","","50.6","%"],["Diluted","$","4.86","","","","","$","3.23","","","","","$","1.63","","","50.5","%"]]
[[/GREPCENT_TABLE]]

Net Sales. Net sales by brand, channel, and geography were as follows:

[[GREPCENT_TABLE]]
[["","Years Ended March 31,"],["","2024","","2023","","Change"],["","Amount","","Amount","","Amount","","%"],["Net sales by brand"],["UGG brand"],["Wholesale","$","1,115,241","","","$","1,004,356","","","$","110,885","","","11.0","%"],["Direct-to-Consumer","1,123,891","","","924,855","","","199,036","","","21.5"],["Total","2,239,132","","","1,929,211","","","309,921","","","16.1"],["HOKA brand"],["Wholesale","1,126,126","","","925,877","","","200,249","","","21.6"],["Direct-to-Consumer","680,614","","","487,039","","","193,575","","","39.7"],["Total","1,806,740","","","1,412,916","","","393,824","","","27.9"],["Other brands (1)"],["Wholesale","190,940","","","230,442","","","(39,502)","","","(17.1)"],["Direct-to-Consumer","50,951","","","54,717","","","(3,766)","","","(6.9)"],["Total","$","241,891","","","285,159","","","(43,268)","","","(15.2)"],["Total (1)","$","4,287,763","","","$","3,627,286","","","$","660,477","","","18.2","%"],["Net sales by channel"],["Total Wholesale","$","2,432,307","","","$","2,160,675","","","$","271,632","","","12.6","%"],["Total Direct-to-Consumer","1,855,456","","","1,466,611","","","388,845","","","26.5"],["Total (1)","$","4,287,763","","","$","3,627,286","","","$","660,477","","","18.2","%"],["Net sales by geography"],["Domestic","$","2,863,674","","","$","2,451,497","","","$","412,177","","","16.8","%"],["International","1,424,089","","","1,175,789","","","248,300","","","21.1"],["Total (1)","$","4,287,763","","","$","3,627,286","","","$","660,477","","","18.2","%"]]
[[/GREPCENT_TABLE]]

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(1) Includes Teva and Sanuk brand’s full financial results for the years ended March 31, 2024, and 2023, which are presented in the Other brands reportable operating segment. Refer to the section titled “Reportable Operating Segments Overview,” above for further information on the recent change in our reportable operating segments.

Total net sales increased primarily due to higher global net sales across all channels for the HOKA and UGG brands, partially offset by lower net sales for Other brands across all channels. Drivers of significant changes in net sales, compared to the year ended March 31, 2023, were as follows:

•Net sales of the HOKA brand increased due to higher demand for an assortment of performance products across all channels. HOKA brand wholesale channel growth was driven primarily by market share gains in the US and Asia, partially offset by lower net sales in Europe, primarily related to the timing of certain distributor shipments. HOKA brand DTC channel growth was driven primarily by global gains in consumer acquisition and retention online.

•Net sales of the UGG brand increased due to strong global adoption of key product franchises, as well as benefits from a higher level of full price selling and selective price increases on popular styles, across all channels.

•Net sales of the Other brands decreased primarily due to lower demand in the wholesale channel globally for the Teva brand related to pressures on the value-oriented consumer in the sandal category and shipping timing differences, as well as in the US for the Sanuk brand due to lower consumer demand and elevated marketplace inventory levels.

Supplemental Disclosure

•On a constant currency basis, net sales increased by 17.9%, compared to the year ended March 31, 2023.

•Comparable DTC channel net sales for the 52 weeks ended March 31, 2024, increased by 25.4% compared to the year ended March 31, 2023.

•We experienced an increase of 2.8% in the total volume of units sold to 65,300 from 63,500, compared to the year ended March 31, 2023. Units sold include all categories such as footwear, apparel, accessories, home goods, and care kits.

Gross Profit. Gross margin increased to 55.6% from 50.3%, compared to the year ended March 31, 2023, primarily due to favorable full-price selling for the UGG brand, favorable changes in freight costs, favorable HOKA brand mix and UGG brand product mix shifts, including benefits from selective price increases, and favorable mix of sales in the DTC channel.

Selling, General, and Administrative Expenses. Drivers of significant net changes in SG&A expenses, compared to the year ended March 31, 2023, were as follows:

•Increased payroll and related costs of approximately $107,500, primarily due to higher headcount from investments in talent, including for the UGG and HOKA brands as well as enterprise functions, along with higher variable payroll costs to support higher sales, including performance-based compensation.

•Increased advertising, marketing, and promotion expenses of approximately $77,700, primarily due to higher promotional marketing expenses for the HOKA and UGG brands to drive global brand awareness and market share gains, highlight new product categories, and provide localized marketing.

•Increased other SG&A expenses of approximately $65,500, primarily due to higher unallocated enterprise and shared brand expenses of approximately $46,700 for IT expenses for programming and software costs, 3PL service fees, legal fees, contract services, travel costs, and other operating expenses, and higher HOKA brand expenses of approximately $14,400 for credit card fees and travel costs.

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•Increased rent and occupancy of approximately $21,400, primarily due to higher rent expenses resulting from retail store footprint expansion for the HOKA brand, as well as from UGG brand retail stores and enterprise offices.

•Increased depreciation and other related costs of approximately $16,100, primarily due to higher unallocated enterprise and shared brand expenses for infrastructure investments and related depreciation, as well as an impairment for Sanuk brand definite-lived intangible assets.

•Decreased net foreign currency-related remeasurement losses of approximately $2,900, primarily due to favorable changes in Canadian and Asian exchange rates against the US dollar.

Income from Operations. Income (loss) from operations by reportable operating segment was as follows:

[[GREPCENT_TABLE]]
[["","Years Ended March 31,"],["","2024","","2023","","Change"],["","Amount","","Amount","","Amount","","%"],["Income (loss) from operations"],["UGG brand","$","804,827","","","$","572,469","","","$","232,358","","","40.6","%"],["HOKA brand","719,047","","","528,458","","","190,589","","","36.1"],["Other brands (1)","23,721","","","49,502","","","(25,781)","","","(52.1)"],["Unallocated enterprise and shared brand expenses (2)","(620,081)","","","(497,678)","","","(122,403)","","","(24.6)"],["Total","$","927,514","","","$","652,751","","","$","274,763","","","42.1","%"]]
[[/GREPCENT_TABLE]]

(1) Includes Teva and Sanuk brand’s full financial results for the years ended March 31, 2024, and 2023, which are presented in the Other brands reportable operating segment. Refer to the section titled “Reportable Operating Segments Overview,” above for further information on the recent change in our reportable operating segments.

(2) To the extent that consolidated SG&A expenses exceed reportable operating segment SG&A expenses, the costs are recorded in unallocated enterprise and shared brand expenses, which are costs that are managed centrally and not specific to any one brand. The change in reportable operating segments had an impact on segment income from operations, a measure of segment profitability, and a clarification was made that certain prior unallocated overhead costs are defined as unallocated enterprise and shared brand expenses and are excluded from the measure of segment profitability.

The increase in total income from operations, compared to the year ended March 31, 2023, was primarily due to higher net sales at higher gross margins, partially offset by higher SG&A expenses as a percentage of net sales.

Drivers of significant net changes in total income from operations, compared to the year ended March 31, 2023, were as follows:

•The increase in income from operations of the UGG brand was due to higher net sales at higher gross margins, partially offset by slightly higher SG&A expenses as a percentage of net sales.

•The increase in income from operations of the HOKA brand was due to higher net sales at higher gross margins, partially offset by higher SG&A expenses as a percentage of net sales.

•The decrease in income from operations of the Other brands was primarily due to lower net sales at higher gross margins, as well as higher SG&A expenses as a percentage of net sales, primarily due to the Sanuk brand definite-lived intangible asset impairment.

•The increase in unallocated enterprise and shared brand expenses was primarily due to higher payroll and related costs for higher headcount for enterprise functions along with higher variable payroll costs to support higher sales, including performance-based compensation; higher other SG&A expenses for IT programming and software costs, 3PL service fees, legal fees, contract services, and travel costs; higher depreciation and other related costs for infrastructure investments; and higher rent and occupancy for enterprise offices.

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Total Other Income, Net. The increase in total other income, net, compared to the year ended March 31, 2023, was due to higher interest income from higher invested cash balances and average interest rates.

Income Tax Expense. Income tax expense and our effective income tax rate were as follows:

[[GREPCENT_TABLE]]
[["","Years Ended March 31,"],["","2024","","2023"],["Income tax expense","$","219,378","","$","149,260"],["Effective income tax rate","22.4","%","","22.4","%"]]
[[/GREPCENT_TABLE]]

Our effective income tax rate was flat compared to the year ended March 31, 2023. The current year income tax rate is primarily driven by US domestic taxes resulting from an increase in US domestic pre-tax income, offset by the foreign rate differential. The rate for the year ended March 31, 2023, was primarily driven by the impact on the foreign rate differential of nonrecurring income tax benefits related to foreign tax-exempt income, offset by an increase in income tax expense for lower unrealized tax benefits related to foreign tax authority assessments.

Net Income. The increase in net income, compared to the year ended March 31, 2023, was primarily due to higher net sales, operating margins, and interest income. Net income per share increased, compared to the year ended March 31, 2023, due to higher net income and lower weighted-average common shares outstanding driven by stock repurchases.

Total Other Comprehensive Loss, Net of Tax. The decrease in total other comprehensive loss, net of tax, compared to the year ended March 31, 2023, was primarily due to lower foreign currency translation losses relating to changes in the net asset position against European foreign currency exchange rates.

LIQUIDITY

Our liquidity may be impacted by a number of factors, including our results of operations, the strength of our brands and market acceptance of our products, impacts of seasonality and weather conditions, our ability to respond to changes in consumer preferences and tastes, the timing of capital expenditures and lease payments, our ability to collect our trade accounts receivable in a timely manner and effectively manage our inventories, our ability to manage supply chain constraints, our ability to respond to macroeconomic, geopolitical and international trade developments, and various other risks and uncertainties described in the section titled “Trends and Uncertainties Impacting our Business and Industry” above and in Part I, Item 1A, “Risk Factors,” within this Annual Report. Furthermore, we may require additional cash resources due to changes in business conditions, strategic initiatives, or capital allocation strategy, a national or global economic recession, or other future developments, including any investments or acquisitions we may decide to pursue.

If there are unexpected material impacts on our business in future periods, we may need to raise additional cash to fund our operations or pursue our business strategy, in which case we may seek to borrow under our revolving credit facilities, seek new or modified borrowing arrangements, or sell additional debt or equity securities. The sale of convertible debt or equity securities could result in additional dilution to our stockholders, and equity securities may have rights or preferences that are superior to those of our existing stockholders. The incurrence of additional indebtedness would result in additional debt service obligations, as well as covenants that would restrict our operations and further encumber our assets. In addition, there can be no assurance that any additional financing will be available on acceptable terms, if at all. Although we believe we have adequate sources of liquidity over the long term, factors such as changes in consumer preferences or tastes, prolonged or severe economic recession or inflationary pressure could adversely affect our business and liquidity.

Sources of Liquidity. We finance our working capital and operating requirements using a combination of cash and cash equivalents balances, including cash from our repatriation strategy, and cash provided from ongoing operating activities. We also have available borrowing capacity under our revolving credit facilities. Refer to the section titled “Cash Flows” below for further discussion on cash flows from ongoing operating activities.

Cash and Cash Equivalents. As of March 31, 2025, our cash and cash equivalents balance is $1,889,188, the majority of which is held in highly rated money market funds and interest-bearing bank deposit accounts with established national and global financial institutions. We believe our cash and cash equivalents balances, cash provided by operating activities, and available borrowing capacity under our revolving credit facilities, will provide

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sufficient liquidity to enable us to meet our working capital requirements and contractual obligations for at least the next 12 months and will be sufficient to allow us to pursue our business strategies and plans. However, there can be no assurance that sufficient capital will continue to be available or that it will be available on terms acceptable to us.

Repatriation of Cash. Our cash repatriation strategy, and by extension, our liquidity, may be impacted by several additional considerations, which include future changes to or interpretations of global tax law and regulations, and our actual earnings in future periods. During the year ended March 31, 2025, no cash and cash equivalents were repatriated from a foreign subsidiary that were subject to income taxes, compared to $250,000 of cash and cash equivalents repatriated during the year ended March 31, 2024. As of March 31, 2025, and 2024, we have $481,836 and $263,820, respectively, of cash and cash equivalents held by foreign subsidiaries, a portion of which may be subject to additional foreign withholding taxes if it were to be repatriated. We continue to evaluate our cash repatriation strategy and currently anticipate repatriating current and future unremitted earnings of non-US subsidiaries to the extent they have been subject to US income tax, if such cash is not required to fund ongoing foreign operations. Refer to Note 5, “Income Taxes,” of our consolidated financial statements in Part IV within this Annual Report for further information regarding our cash repatriation strategy.

For the years ended March 31, 2025, 2024, and 2023, we did not generate significant pre-tax earnings from any countries which do not impose a corporate income tax. A small portion of our unremitted accumulated earnings of non-US subsidiaries, for which no US federal or state income tax have been paid, are currently expected to be reinvested outside of the US indefinitely. Such earnings would become taxable upon the sale or liquidation of these subsidiaries.

Revolving Credit Facilities. Information about our revolving credit facilities available as of March 31, 2025, is as follows:

•Primary Credit Facility. We have a five-year unsecured revolving credit facility, which provides for borrowings up to $400,000 (Primary Credit Facility) and contains a $25,000 sublimit for the issuance of letters of credit. Under the Primary Credit Facility, there is no outstanding balance, $399,045 of available borrowings, and $955 of outstanding letters of credit.

•China Credit Facility. We have an uncommitted revolving line of credit of up to CNY300,000, or $41,338, with an overdraft facility sublimit of CNY100,000, or $13,779 (China Credit Facility). There is no outstanding balance, outstanding bank guarantees of $455, and available borrowings of $40,883 under the China Credit Facility.

•Debt Covenants. We are in compliance with all financial covenants under our Primary Credit Facility and China Credit Facility.

Refer to Note 6, “Revolving Credit Facilities,” of our consolidated financial statements in Part IV within this Annual Report for further information on the terms of our revolving credit facilities.

Material Cash Requirements. Our material cash requirements include working capital, payments to fulfill contractual obligations, capital expenditures, and stock repurchases. Our working capital requirements begin when we purchase raw and other materials and inventories and continue until we ultimately collect the resulting trade accounts receivable. Given the historical seasonality of the UGG brand, our working capital requirements fluctuate significantly throughout our fiscal year, and we utilize available cash to build inventory levels during certain quarters to support higher selling seasons. While the impact of seasonality has been mitigated to some extent, we expect our working capital requirements will continue to fluctuate from period to period.

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Contractual Obligations. The following table summarizes our significant contractual obligations as of March 31, 2025, in future periods:

[[GREPCENT_TABLE]]
[["","Payments Due by Period"],["","Total","","Less than 1 Year","","1-3 Years","","3-5 Years","","More than 5 Years"],["Operating lease obligations (1)","$","317,823","","","$","62,445","","","$","123,491","","","$","71,557","","","$","60,330"],["Purchase obligations for product (2)","956,911","","","956,911","","","\u2014","","","\u2014","","","\u2014"],["Purchase obligations for commodities (3)","231,323","","","7,412","","","223,911","","","\u2014","","","\u2014"],["Other purchase obligations (4)","200,744","","","118,336","","","70,274","","","12,134","","","\u2014"],["Net unrecognized tax benefits (5)","4,904","","","1,955","","","2,949","","","\u2014","","","\u2014"],["Total","$","1,711,705","","","$","1,147,059","","","$","420,625","","","$","83,691","","","$","60,330"]]
[[/GREPCENT_TABLE]]

(1) Our operating lease obligations consist primarily of building leases for our retail locations, warehouses and DCs, and regional offices, and include the undiscounted cash lease payments owed under the terms of the lease agreements. In addition to the above operating lease obligations recorded on a discounted basis in our consolidated financial statements as of March 31, 2025, there is an aggregate of $10,096 of undiscounted minimum lease payments due pursuant to leases signed, but not yet commenced, primarily for new HOKA brand retail stores and a regional office, for which the leases are expected to commence in the first quarter of our next fiscal year.

(2) Our purchase obligations for product consist mostly of open purchase orders that we expect to fulfill in the ordinary course of business. Outstanding purchase orders are primarily issued to our independent manufacturers and are typically expected to be paid in less than one fiscal year. We can cancel a significant portion of the purchase obligations under certain circumstances; however, the occurrence of such circumstances is generally limited. As a result, the reported amount does not necessarily reflect the dollar amount of our binding commitments or minimum purchase obligations and instead reflects an estimate of our future payment commitments based on information currently available.

(3) Our purchase obligations for commodities represent remaining commitments under existing supply agreements, which are subject to minimum volume commitments (collectively, commodity contracts). We typically enter into commodity contracts for sheepskin and sugarcane-derived EVA. We expect purchases under commodity contracts in the ordinary course of business will eventually exceed the minimum commitment levels. The reported amount generally reflects remaining minimum commitments we expect will be consumed in future periods in the ordinary course of business, and any remaining deposits expected to become fully refundable or to be reflected as a credit against future purchases which are recorded in other assets in the consolidated balance sheets. There are no deposits included in the amount above that have not been fully consumed as of March 31, 2025.

(4) Our other purchase obligations consist of non-cancellable minimum commitments for IT services, 3PL service fees and other supply chain services, promotional expenses, and other commitments under service contracts. These amounts exclude capital expenditures expected to be made in the next fiscal year, which are further discussed below.

(5) Net unrecognized tax benefits are gross unrecognized tax benefits, less federal benefit for state income taxes, related to uncertain tax positions taken in our income tax return that would impact our effective tax rate, if recognized. As of March 31, 2025, the timing of future cash outflows is highly uncertain related to expirations of statute of limitations of $15,288 and, since we are unable to make a reasonable estimate of the period of cash settlement, it is excluded from the table above. Refer to Note 5, “Income Taxes,” of our consolidated financial statements in Part IV within this Annual Report for further information on our uncertain tax positions.

Refer to Note 7, “Commitments and Contingencies,” of our consolidated financial statements in Part IV within this Annual Report for further information on our operating leases, purchase obligations, and other contractual obligations and commitments.

Capital Expenditures. We estimate capital expenditures that will be made before the end of our next fiscal year will range from approximately $120,000 to $130,000. We anticipate these expenditures will primarily relate to expanding our HOKA brand retail store fleet, refreshes to our existing retail store fleet, IT infrastructure and system improvements, as well as upgrading our existing warehouses and DCs, and office facilities. However, the actual amount of our future capital expenditures may differ significantly from this estimate depending on numerous factors, including the timing of facility and retail store openings, as well as unforeseen needs to replace or refresh existing assets.

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Stock Repurchase Program. We continue to evaluate our capital allocation strategy and consider further opportunities to utilize our global cash resources in a way that will profitably grow our business, meet our strategic objectives, and drive stockholder value, including by potentially repurchasing additional shares of our common stock. As of March 31, 2025, the aggregate remaining approved amount under our stock repurchase program is $374,701. Our stock repurchase program does not obligate us to acquire any amount of common stock and may be suspended at any time at our discretion.

On May 21, 2025, our Board approved an additional authorization of $2,250,000 to repurchase shares of our common stock under the same conditions as the prior stock repurchase program.

Refer to Note 10, “Stockholders’ Equity,” of our consolidated financial statements in Part IV within this Annual Report for further information regarding our stock repurchase program and capital allocation strategy.

CASH FLOWS

The following table summarizes the major components of our consolidated statements of cash flows for the periods presented:

[[GREPCENT_TABLE]]
[["","Years Ended March 31,"],["","2025","","2024","","Change"],["","Amount","","Amount","","Amount","","%"],["Net cash provided by operating activities","$","1,044,523","","","$","1,033,184","","","$","11,339","","","1.1","%"],["Net cash used in investing activities","(75,003)","","","(89,331)","","","14,328","","","16.0"],["Net cash used in financing activities","(581,334)","","","(417,675)","","","(163,659)","","","(39.2)"],["Effect of foreign currency exchange rates on cash and cash equivalents","(1,049)","","","(5,922)","","","4,873","","","82.3"],["Net change in cash and cash equivalents","$","387,137","","","$","520,256","","","$","(133,119)","","","(25.6)","%"]]
[[/GREPCENT_TABLE]]

Operating Activities. Our primary source of liquidity is net cash provided by operating activities, which is driven by our net income after non-cash adjustments and changes in operating assets and liabilities.

The increase in net cash provided by operating activities during the year ended March 31, 2025, compared to the prior period, was due to $217,349 of favorable net income after non-cash adjustments, partially offset by $206,010 of unfavorable changes in operating assets and liabilities. Changes in operating assets and liabilities were primarily due to (1) the impact on net trade accounts payable from timing of receipts of goods and services and respective disbursements, (2) higher purchases of inventory to support higher demand for our brands, (3) higher net trade accounts receivable on higher net sales, (4) timing of tax payments and receipts, and (5) favorable changes due to timing of derivative cash settlements.

Investing Activities. The decrease in net cash used in investing activities during the year ended March 31, 2025, compared to the prior period, was primarily due to an increase in cash proceeds from the sale of assets.

Financing Activities. The increase in net cash used in financing activities during the year ended March 31, 2025, compared to the prior period, was primarily due to a higher dollar value of stock repurchases, inclusive of excise taxes.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Preparation of our consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the amounts reported. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements, and other factors that it believes to be reasonable. In addition, management has considered the potential impact of macroeconomic factors, including changes in tariff rates, inflation, foreign currency exchange rate volatility, changes in interest rates, changes in commodity pricing, changes in consumer discretionary spending, and recessionary concerns, on our business and operations. Although the full impact of these factors is unknown, management believes it has made appropriate accounting estimates and assumptions based on the facts and circumstances available as of the reporting date. However, actual results could differ materially from these estimates and assumptions, which may result in material effects on our financial condition, results of operations and liquidity.

We believe the following critical accounting estimates involve a significant level of estimation uncertainty and the balances have had or are reasonably likely to have a material impact on our financial condition or results of operations. Refer to Note 1, “General,” of our consolidated financial statements in Part IV within this Annual Report for further discussion of our significant accounting policies and use of estimates, as well as the impact of recent accounting pronouncements.

Sales Returns and Chargebacks. Revenue is recognized net of estimates for sales returns, chargebacks, and sales discounts in the period in which the related sale is recorded. Estimates for sales returns and chargebacks are based on various factors as follows:

Sales Return Liability. The amounts of these reserves are determined based on several factors, including known and actual returns, historical returns, and any recent events that could result in a change from historical return rates. For our wholesale channel, we base our estimate of sales returns on any approved customer requests for returns, historical returns experience, and any recent events that could result in a change from historical returns rates, among other factors. For our DTC channel, we estimate sales returns using a lag compared to the same prior period and consider historical returns experience and any recent events that could result in a change from historical returns, among other factors.

Allowance for Chargebacks. We record an allowance based primarily on known circumstances as well as unknown circumstances based on historical trends related to the timing and amount of chargebacks taken against customer invoices.

The determination of these sales liabilities and allowances is considered a critical accounting estimate because significant judgment is required to estimate adjustments to historical return rates and trends. Actual allowances may differ from estimates due to changes in customer, consumer, or product-specific circumstances.

Refer to Note 2, “Revenue Recognition,” of our consolidated financial statements in Part IV within this Annual Report for further information regarding the sales return liability, allowances for chargebacks, and allowances for sales discounts. Refer to Schedule II, “Total Valuation and Qualifying Accounts,” in Part IV within this Annual Report for an analysis of the activity in our allowances for chargebacks and sales discounts.

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Allowance for Doubtful Accounts. We provide an allowance against trade accounts receivable for estimated losses that may result from customers’ inability to pay. We determine the amount of the allowance by analyzing known uncollectible accounts, aged trade accounts receivable, economic conditions and forecasts, historical experience, and the customers’ creditworthiness. Changes in the characteristics of our trade accounts receivable and the aforementioned factors, among others, are reviewed quarterly and may lead to adjustments in our allowance for doubtful accounts. The calculation of the required allowance involves judgment by our management as to the impact of these and other factors on the ultimate realization of our trade accounts receivable. Because we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates. If the financial condition of our customers were to deteriorate, resulting in their inability to make payments, a larger reserve might be required in the future.

Refer to Schedule II, “Total Valuation and Qualifying Accounts,” in Part IV within this Annual Report for an analysis of the activity in our allowances for doubtful accounts.

Inventories. Inventories, which are primarily comprised of finished goods on hand and in transit, are stated at the lower of cost (weighted moving average) or net realizable value at each financial statement date. We review inventory on a regular basis for excess, obsolete, and impaired inventory to evaluate write-downs to the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs to sell. While we believe that adequate write-downs for inventory obsolescence have been provided in the consolidated financial statements, consumer tastes and preferences may change, and we could experience additional inventory write-downs in the future.

Income Taxes. Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that will be in effect for the years in which those tax assets and liabilities are expected to be realized or settled.

We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. We believe it is more likely than not that forecasted income, together with future reversals of existing taxable temporary differences, will be sufficient to recover our deferred tax assets. If we determine all, or part of our net deferred tax assets are not realizable in the future, we will record an adjustment to the valuation allowance and a corresponding charge to earnings in the period such determination is made.

We make estimates to determine income tax expense, deferred tax assets and liabilities, and uncertain tax positions. Our estimates, relative to income tax expense, consider current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. Changes in, or our interpretation of, tax laws and the resolution of current and future tax audits could significantly affect the amounts provided for income tax expense in our results of operations.

Our estimates related to tax benefits from uncertain tax positions consider whether a tax position is more likely than not to be sustained on examination by the taxing authorities, based on the technical merits of the position and the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Resolution of these uncertainties may result in the recognition of a tax benefit or an additional tax charge in the period our assessment changes.

We determine on a regular basis the amount of undistributed earnings that will be indefinitely reinvested in our non-US operations. This assessment is based on the cash flow projections and operational and fiscal objectives of each of our US and foreign subsidiaries. We have not changed our indefinite reinvestment assertion of foreign earnings other than previously taxed earnings and profits.

Refer to Note 5, “Income Taxes,” of our consolidated financial statements in Part IV within this Annual Report for further information on our income taxes and tax strategy.

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