In This Article:
We came across a bullish thesis on Deckers Outdoor Corporation (DECK) on Substack by Quality Stocks. In this article, we will summarize the bulls’ thesis on DECK. Deckers Outdoor Corporation (DECK)'s share was trading at $103.02 as of April 16th. DECK’s trailing and forward P/E were 16.72 and 16.05 respectively according to Yahoo Finance.
A sportsperson running with style and grace, embodying the company's performance footwear.
Deckers Outdoor is currently facing investor concerns largely due to its heavy reliance on international manufacturing, which exposes it to tariff risks and geopolitical tensions. The company’s performance is anchored in two core brands: UGG, which contributes 53% of total sales, and HOKA, which accounts for 39%. The remaining 8% comes from other brands like Teva and Sanuk, which are currently experiencing negative growth. Direct-to-Consumer now represents 40% of sales and is a strategic focus for both growth and margin expansion. Deckers continues to execute an aggressive share buyback strategy, with more than $1 billion still authorized for repurchases.
In its latest earnings report, Deckers delivered strong third-quarter results for fiscal year 2025. Net sales increased 17.1% year-over-year, outperforming analyst expectations by 5%. Earnings per share came in at $3.00, a 19% increase from the prior year, and exceeded consensus estimates by 15%. However, despite the strong quarter, the company guided to a slowdown in growth. Fourth-quarter revenue is expected to grow around 5%, bringing the full-year FY25 growth to approximately 16%. For FY26, Deckers projects revenue growth of about 11%, indicating a deceleration. Before the recent stock price drop, Deckers was trading at a price-to-earnings ratio of 38x, which proved difficult to justify even with 17% growth as markets often normalize elevated valuations, especially when growth begins to slow.
Tariffs are expected to be a major market concern and could result in short-term challenges. The first buying zone might not hold, making it likely more prudent to wait for the second zone. Tariffs will test the company's pricing power, and significant sales erosion would undermine the investment thesis. This is an important consideration for long-term shareholders. The structural dependence on HOKA and UGG is also a risk, as the current success of the brands could be vulnerable to shifts in consumer trends, given that brand-driven momentum is not the strongest moat.
Despite these risks, the recent stock decline has brought the valuation down to a more reasonable level, now trading at around 19x earnings. At this price, buybacks are more impactful and increase shareholder value. Deckers also has excellent capital efficiency. Strategically, however, diversification through acquisitions could prove more beneficial than continued repurchases. Following a period of bullish excess, the market often swings too far in the opposite direction, especially in the current risk-off environment. For long-term investors, this pullback offers a potentially compelling entry point, though any position should be built gradually, with close attention to both technical and fundamental support levels.