Deckers Outdoor Corp: Form 10-Q for the period ended Dec 31, 2024

The following discussion of our financial condition and results of operations should be read together with our condensed consolidated financial statements and the related notes, included in Part I, Item 1, “Financial Statements,” within this Quarterly Report, and the audited consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data,” of our 2024 Annual Report, filed with the SEC on May 24, 2024, which is available free of charge on the SEC’s website at www.sec.gov (http://www.sec.gov) and our website at ir.deckers.com.

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 II, Item 1A, “Risk Factors,” within this Quarterly Report.

OVERVIEW

We are a global leader in designing, marketing, and distributing innovative footwear, apparel, and accessories developed for both everyday casual lifestyle use and high-performance activities. We market our products primarily under five proprietary brands: UGG, HOKA, Teva, Koolaburra, and AHNU. We believe our products are distinctive and appeal to a broad demographic. We sell our products through quality domestic and international retailers, international distributors, and directly to our global consumers through our DTC business, which is comprised of our Company-owned e-commerce websites and retail stores. We seek to differentiate our brands and products by offering diverse lines that emphasize fashion, performance, 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.

FINANCIAL HIGHLIGHTS

Consolidated financial performance highlights for the nine months ended December 31, 2024, compared to the prior period, were as follows:

• Net sales increased 19.1% to $3,963,832.
• Channel
• Wholesale channel net sales increased 18.9% to $2,244,263.
• DTC channel net sales increased 19.4% to $1,719,569.
• Geography
• Domestic net sales increased 14.6% to $2,539,057.
• International net sales increased 28.1% to $1,424,775.
• Gross margin increased 270 basis points to 58.2%.
• Income from operations increased 28.3% to $1,005,167.
• Diluted earnings per share increased 32.3% to $5.33 per share.

RECENT DEVELOPMENTS

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

Sanuk Brand Asset Sale. During the three months ended September 30, 2024 (prior quarter), we entered into an agreement pursuant to which the buyer agreed to purchase the Sanuk brand and certain related assets which was completed on the Sanuk Brand Sale Date of August 15, 2024.

Financial results for our reportable operating segments present the former Sanuk brand through the Sanuk Brand Sale Date for the current period and full financial results for the three and nine months ended December 31, 2023. Refer to the section titled “Reportable Operating Segments,” in Note 1, “General,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report for further information.

Koolaburra Brand. During the three months ended December 31, 2024, 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. Refer to the section titled “Reportable Operating Segments” under subsection “Koolaburra Brand” in Note 1, “General,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly 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, which have not materially changed from those included in our 2024 Annual Report. Refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2024 Annual Report for further discussion. Refer to Part I, Item 1A, “Risk Factors,” of our 2024 Annual Report for detailed information on the risks and uncertainties that may cause our actual results to differ materially from our expectations.

REPORTABLE OPERATING SEGMENT OVERVIEW

As of December 31, 2024, our five reportable operating segments include the worldwide wholesale operations of the UGG brand, HOKA brand, Teva brand, and Other brands, as well as DTC. Information reported to the CODM, who is our CEO, President, and PEO, is organized into these reportable operating segments and is consistent with how the CODM evaluates our performance and allocates resources.

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

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 ecosystem of access points. The HOKA brand’s product line includes running, trail, hiking, fitness, and lifestyle footwear offerings, as well as select apparel and accessories.

Teva Brand. The Teva brand, born in the depths of the Grand Canyon, has long been a favored brand among outdoor adventurers across the globe. Today, building on its foundation as a leader in sport sandals and its authentic outdoor heritage, the Teva brand’s thoughtfully designed and accessible products are built for a range of outdoor pursuits, connecting with a vibrant, diverse audience passionate about exploration. The Teva brand’s collection includes a variety of footwear options, from classic sandals and shoes to boots, all crafted for the demands of the outdoors.

Other Brands. Other brands consist primarily of the Koolaburra brand, as well as the recently launched AHNU brand. The Koolaburra brand is a casual footwear fashion line that uses plush materials and is intended to target the value-oriented consumer in order to complement the UGG brand offering. The AHNU brand’s footwear products fuse high-performance technology with timeless style crafted for everyday wear.

As of December 31, 2024, we reclassified financial results of the former Sanuk brand wholesale reportable operating segment into the Other brands wholesale reportable operating segment for all periods presented. Refer to the section entitled “Recent Developments” above for further information regarding the sale of the Sanuk brand completed during the prior quarter.

Refer to the section titled “Reportable Operating Segment Overview,” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2024 Annual Report for further discussion of our outlook on consumer demand drivers for our products.

Direct-to-Consumer. Our DTC business encompasses all of our brands and is comprised of our e-commerce websites and retail stores, which are intertwined and interdependent in an omni-channel marketplace. Net sales from our e-commerce websites and retail stores are recorded in our DTC reportable operating segment, except for net sales from our partner retail stores, which are recorded in our brands’ respective wholesale reportable operating segments.

As of December 31, 2024, we have a total of 179 global retail stores (including 139 UGG brand retail stores and 40 HOKA brand retail stores), which includes 93 concept stores and 86 outlet stores.

Refer to the section titled “Reportable Operating Segment Overview” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2024 Annual Report for further details on our DTC reportable operating segment, including retail store definitions, as well as our former Sanuk brand. Refer to the section titled “Recent Developments” in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” within this Quarterly Report, for discussion on the sale of the Sanuk brand.

USE OF NON-GAAP FINANCIAL MEASURES

We disclose financial measures calculated and presented in accordance with US GAAP; however, throughout this Quarterly 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 condensed 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

Refer to Note 1, “General,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report and to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2024 Annual Report for detailed information on the seasonality of our business.

RESULTS OF OPERATIONS

Three Months Ended December 31, 2024, Compared to Three Months Ended December 31, 2023. Results of operations were as follows:

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

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(1) Includes full financial results to date for the three months ended December 31, 2023 for the former Sanuk brand. Refer to the section titled “Reportable Operating Segments,” in Note 1, “General,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report for further information on the sale of the Sanuk brand completed in the prior quarter and the reclassification of financial results of the former Sanuk brand wholesale reportable operating segment into the Other brands wholesale reportable operating segment for all periods presented.

Total net sales increased primarily due to higher global net sales across all channels for the UGG and HOKA brands. On a constant currency basis, net sales increased by 16.6%, compared to the prior period. Further, we experienced an increase of 14.2% in the total volume of units sold to 24,900 from 21,800, compared to the prior period. Units sold represents all units related to the total net sales presented, inclusive of all categories such as footwear, apparel, accessories, home goods, and care kits. The prior period total volume of units sold for only footwear has been modified to conform to the current period presentation.

Drivers of significant changes in net sales, compared to the prior period, were as follows:

• DTC net sales increased primarily due to higher global sales for the UGG and HOKA brands, driven primarily by consumer acquisition and retention online as we continued to experience increased demand for both brands. Comparable DTC channel net sales for the 13 weeks ended December 29, 2024, increased by 18.3%, compared to the prior period.
• Wholesale net sales of the UGG brand increased primarily due to higher global net sales, particularly from international regions, as a result of increased demand for year-round key product franchises, strong partnerships with brand enhancing retailers, as well as benefits from increased inventory availability of key styles through peak season, compared to the prior period.
• Wholesale net sales of the HOKA brand increased globally, primarily driven by outsized increases from international distributor markets as we prepare the marketplace for key franchise upgrades, continued market share gains, and benefits from select new points of distribution with key partners.
• International net sales, which are included in the reportable operating segment net sales presented above, increased by 28.5% and represented 36.0% and 32.8% of total net sales for the three months ended December 31, 2024, and 2023, respectively. These changes were primarily driven by higher global net sales across all channels for the UGG and HOKA brands.

Gross Profit. Gross margin increased to 60.3% from 58.7%, compared to the prior period, primarily due to favorable product mix with higher margin UGG brand products driving a higher proportion of growth, fewer closeouts to the wholesale channel, higher levels of full price selling for the UGG brand, and a small benefit from favorable foreign currency exchange rates. These benefits were partially offset by higher freight costs and increased promotions for the HOKA brand as we prepare the marketplace for key franchise updates.

Selling, General, and Administrative Expenses. The net increase in SG&A expenses, compared to the prior period, was primarily the result of the following:

• Increased variable advertising and promotion expenses of approximately $33,200, 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 net foreign currency-related losses of approximately $28,100, primarily driven by unfavorable changes in European, Asian, and Canadian exchange rates against the US dollar, compared to a favorable impact in the prior year.
• Increased other variable net selling expenses of approximately $16,200, primarily due to higher corporate warehouse expenses, as well as higher sales commissions and related fees for the UGG and HOKA brands, and rent and occupancy costs related to HOKA brand growth.
• Increased other operating expenses of approximately $15,000, primarily due to higher contract expenses and other operating expenses, as well as higher impairments in IT.
• Increased payroll and related costs of approximately $14,200, primarily due to investments in talent for key functions for corporate, HOKA brand, and UGG brand roles driving higher employee headcount and full-year costs for prior comparable period hiring, partially offset by lower performance-based compensation.

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

(1) Includes full financial results to date for the three months ended December 31, 2023 for the former Sanuk brand. Refer to the section titled “Reportable Operating Segments,” in Note 1, “General,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report for further information on the sale of the Sanuk brand completed in the prior quarter and the reclassification of financial results of the former Sanuk brand wholesale reportable operating segment into the Other brands wholesale reportable operating segment for all periods presented.

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 DTC channel was due to higher global net sales for the UGG and HOKA brands, a higher UGG brand gross margin, partially offset by higher SG&A expenses as a percentage of net sales, mainly driven by the HOKA brand.
• The increase in income from operations of UGG brand wholesale was due to higher global net sales at higher gross margins, partially offset by higher SG&A expenses as a percentage of net sales.
• The change in income from operations of HOKA brand wholesale was relatively flat to last year, despite higher global net sales, due to lower gross margins primarily related to preparing the marketplace for key franchise updates, and higher SG&A expenses as a percentage of net sales, primarily related to certain advertising and promotion expenses.
• The increase in unallocated overhead costs was higher as a percentage of net sales, primarily due to higher net foreign currency-related losses, as well as higher other operating expenses, including impairments in IT, and higher corporate warehouse expenses.

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:

The net decrease in our effective income tax rate, compared to the prior period, was primarily due to higher income tax expense from changes in jurisdictional mix of worldwide income before income taxes, partially offset by a lower benefit from net discrete items, including from return-to-provision adjustments and tax benefits for stock-based compensation.

Net Income. The increase in net income, compared to the prior period, was due to higher net sales at higher gross margins, partially offset by higher SG&A expenses as a percentage of net sales. 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 (Loss) Income, Net of Tax. The increase in total other comprehensive loss, net of tax, compared to the prior period, was primarily due to higher foreign currency translation losses relating to changes in the net asset position against Asian and European foreign currency exchange rates, partially offset by higher unrealized gains on derivative contracts.

Nine Months Ended December 31, 2024, Compared to Nine Months Ended December 31, 2023. Results of operations were as follows:

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

(1) Includes current period partial financial results through the Sanuk Brand Sale Date and full financial results to date for the nine months ended December 31, 2023. Refer to the section titled “Reportable Operating Segments,” in Note 1, “General,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report for further information on the sale of the Sanuk brand completed in the prior quarter and the reclassification of financial results of the former Sanuk brand wholesale reportable operating segment into the Other brands wholesale reportable operating segment for all periods presented.

Total net sales increased primarily due to higher global net sales across all channels for the HOKA and UGG brands. On a constant currency basis, net sales increased by 19.2%, compared to the prior period. Further, we experienced an increase of 15.9% in the total volume of units sold to 58,900 from 50,800, compared to the prior period. Units sold represents all units related to the total net sales presented, inclusive of all categories such as footwear, apparel, accessories, home goods, and care kits. The prior period total volume of units sold for only footwear has been modified to conform to the current period presentation.

Drivers of significant changes in net sales, compared to the prior period, were as follows:

• DTC net sales increased primarily due to higher global sales for the HOKA and UGG brands, driven primarily by consumer acquisition and retention online as we continued to experience increased demand for both brands. Comparable DTC channel net sales for the 39 weeks ended December 29, 2024, increased by 18.6%, compared to the prior period.
• Wholesale net sales of the HOKA brand increased primarily due to higher global sales across the brand’s product assortment, driven by market share gains, refilling channel inventory, and benefits from select new points of distribution with key partners, as well as the timing of certain distributor shipments.
• Wholesale net sales of the UGG brand increased primarily due to higher global sales, especially internationally, as a result of increased demand for year-round key product franchises, strong partnerships with brand enhancing retailers, as well as benefits from increased availability of products in the channel through the peak season, compared to the prior period.
• International net sales, which are included in the reportable operating segment net sales presented above, increased by 28.1% and represented 35.9% and 33.4% of total net sales for the nine months ended December 31, 2024, and 2023, respectively. These changes were primarily driven by higher global net sales for both channels for the HOKA and UGG brands.

Gross Profit. Gross margin increased to 58.2% from 55.5%, 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, including reduced closeouts to the wholesale channel; partially offset by unfavorable changes in freight costs.

Selling, General, and Administrative Expenses. The net increase in SG&A expenses, compared to the prior period, was primarily the result of the following:

• Increased variable advertising and promotion expenses of approximately $81,000, 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 payroll and related costs of approximately $59,400, primarily due to investments in talent for key functions for corporate, HOKA brand, and UGG brand roles driving higher employee headcount and full-year costs for prior comparable period hiring.
• Increased other operating expenses of approximately $48,200, primarily due to higher contract expenses and other operating expenses, as well as higher depreciation, travel expenses, and IT expenses for software costs.
• Increased other variable net selling expenses of approximately $36,300, primarily due to higher rent and occupancy costs related to HOKA brand growth, higher corporate warehouse expenses, as well as higher sales commissions and related fees for the UGG and HOKA brands, and credit card fees.
• Increased net foreign currency-related losses of approximately $13,000, primarily driven by unfavorable changes in European, Canadian, and Asian exchange rates against the US dollar, compared to a favorable impact in the prior year.

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

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(1) Includes current period partial financial results through the Sanuk Brand Sale Date and full financial results to date for the nine months ended December 31, 2023. Refer to the section titled “Reportable Operating Segments,” in Note 1, “General,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report for further information on the sale of the Sanuk brand completed in the prior quarter and the reclassification of financial results of the former Sanuk brand wholesale reportable operating segment into the Other brands wholesale reportable operating segment for all periods presented.

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 DTC channel was due to higher global net sales for the HOKA and UGG brands at higher gross margins, partially offset by higher SG&A expenses as a percentage of net sales, driven by the HOKA brand.
• The increase in income from operations of UGG brand wholesale was due to higher global net sales at higher gross margins, partially offset by higher SG&A expenses as a percentage of net sales.
• The increase in income from operations of HOKA brand wholesale was due to higher global net sales at higher gross margins, partially offset by higher SG&A expenses as a percentage of net sales.
• The increase in unallocated overhead costs was higher as a percentage of net sales, primarily due to higher payroll costs for key corporate roles to support growth of our brands, higher depreciation and other operating expenses, higher net foreign currency-related losses, and higher corporate warehouse expenses.

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:

The net increase in our effective income tax rate, compared to the prior period, was primarily due to a lower benefit from net discrete items, including from return-to-provision adjustments, a valuation allowance on tax attributes, and tax benefits for stock-based compensation, partially offset by higher income tax expense from changes in jurisdictional mix of worldwide income before income taxes.

Net Income. The increase in net income, compared to the prior period, was due to higher net sales at higher gross margins, 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 Loss, Net of Tax. The increase in total other comprehensive loss, net of tax, compared to the prior period, was primarily due to higher foreign currency translation losses relating to changes in the net asset position against European foreign currency exchange rates, partially offset by higher unrealized gains on derivative contracts.

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity may be impacted by a number of factors, risks and uncertainties described in the section titled “Liquidity” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in Part I, Item 1A, “Risk Factors,” of our 2024 Annual Report.

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, cash provided from ongoing operating activities and, to a lesser extent, available borrowing capacity under our revolving credit facilities. Refer to the “Cash Flows” section below for further discussion on cash flows from ongoing operating activities.

Cash and Cash Equivalents. As of December 31, 2024, our cash and cash equivalents are $2,240,923, 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 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 meet the long-term requirements of 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 laws and regulations, and our actual earnings in future periods. During the nine months ended December 31, 2024, and 2023, no cash and cash equivalents were repatriated. As of December 31, 2024, and March 31, 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 of our 2024 Annual Report for further information regarding our cash repatriation strategy.

Revolving Credit Facilities. Information about the revolving credit facilities available as of December 31, 2024, is as follows:

• Primary Credit Facility. During the nine months ended December 31, 2024, we made no borrowings or repayments and there were no material changes to the terms, to the outstanding letters of credit, or to the borrowing availability under our unsecured revolving credit facility disclosed in our 2024 Annual Report.
• China Credit Facility. During the nine months ended December 31, 2024, we made no borrowings or repayments and there were no material changes to the terms or to the outstanding bank guarantees under our credit facility in China disclosed in our 2024 Annual Report.
• Debt Covenants. As of December 31, 2024, we are in compliance with all financial covenants under our revolving credit facilities.

Refer to Note 6, “Revolving Credit Facilities,” of our consolidated financial statements in Part IV of our 2024 Annual Report for further information on the terms of our revolving credit facilities.

Material Cash Requirements. Our material cash requirements include uses for working capital, and 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 our business, our working capital requirements fluctuate significantly throughout our fiscal year, and we utilize available cash to build inventory levels during certain quarters in our fiscal year 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.

There were no material changes outside the ordinary course of business to the contractual obligations or capital expenditures as disclosed in the sections titled “Contractual Obligations” and “Capital Expenditures” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2024 Annual Report.

Stock Repurchase Program. As of December 31, 2024, the aggregate remaining approved amount under our stock repurchase program is $640,692. 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.

Refer to Note 8, “Stockholders’ Equity,” of our condensed consolidated financial statements in Part I, Item 1 and to Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds,” within this Quarterly Report for further information regarding our stock repurchase program and capital allocation strategy.

CASH FLOWS

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

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 nine months ended December 31, 2024, compared to the prior period, was due to $204,346 of favorable net income after non-cash adjustments, partially offset by $148,689 of unfavorable changes in operating assets and liabilities. Changes in operating assets and liabilities were primarily due to higher purchases of inventory to support higher demand for our brands, unfavorable change from timing of tax payments, and lower net trade accounts payable related to timing of receipts of goods and services and respective disbursements.

Investing Activities. The decrease in net cash used in investing activities during the nine months ended December 31, 2024, compared to the prior period, was primarily due to an increase from cash proceeds from the sale of certain assets.

Financing Activities. The increase in net cash used in financing activities during the nine months ended December 31, 2024, compared to the prior period, was primarily due to an increase of cash paid for shares withheld for taxes, partially offset by a lower dollar value of stock repurchases, inclusive of excise taxes.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Preparation of our condensed consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the amounts reported. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements, and other factors that we believe to be reasonable, but actual results could differ materially from these estimates. In addition, management has considered the potential impact of macroeconomic factors, including 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. Refer to the sections titled “Use of Estimates” and “Recent Accounting Pronouncements” within Note 1, “General,” of our condensed consolidated financial statements in Part I, Item 1 within this Quarterly Report, for additional information regarding applicable key estimates and assumptions, as well as the impact of recent accounting pronouncements.

There have been no material changes to the critical accounting policies and key estimates and assumptions disclosed in the section titled “Critical Accounting Policies and Estimates” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” within our 2024 Annual Report.

In the normal course of business, our financial position and results of operations are subject to a variety of risks, including risks associated with commodity pricing, foreign currency exchange rates and, to a lesser extent, interest rates. We regularly assess these risks and have established policies and business practices designed to mitigate their effects. There have been no material changes in the quantitative and qualitative disclosures about market risk disclosed in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” within our 2024 Annual Report.

DISCLOSURE CONTROLS AND PROCEDURES

We maintain a system of disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, which are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. In designing and evaluating our disclosure controls and procedures, our management recognized that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours is designed to do, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Under the supervision and with the participation of management, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2024. Based on that evaluation, our PEO and Principal Financial and Accounting Officer (PFAO) concluded that our disclosure controls and procedures are effective at a reasonable assurance level as of December 31, 2024.

INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rule 13a-15(d) of the Exchange Act during the three months ended December 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER CERTIFICATIONS

The certifications of our PEO and PFAO required by Rule 13a-14(a) of the Exchange Act are filed as Exhibit 31.1 and Exhibit 31.2, and furnished as Exhibit 32, to this Quarterly Report. This Part I, Item 4, should be read in conjunction with such certifications for a more complete understanding of the topics presented.

An investment in our common stock involves risks. Before making an investment decision, you should carefully consider all the information within Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in our condensed consolidated financial statements and the related notes contained in Part I, Item 1 within this Quarterly Report. In addition, you should carefully consider the risks and uncertainties described in Part I, Item 1A, “Risk Factors,” of our 2024 Annual Report, as well as in our other public filings with the SEC. If any of the identified risks are realized, our business, results of operations, financial condition, liquidity, and prospects could be materially and adversely affected. In that case, the trading price of our common stock may decline, and you could lose all or part of your investment. In addition, other risks of which we are currently unaware, or which we do not currently view to be material, could have a material adverse effect on our business, results of operations, financial condition, liquidity, and prospects.

During the three months ended December 31, 2024, there were no material changes to the risks and uncertainties described in Part I, Item 1A, “Risk Factors,” of our 2024 Annual Report.