DECK Earnings Preview: Watching Ugg and HOKA sales
2min read Deckers Brands (DECK) is set to report its Q3 earnings on October 24, after the market closes. The consensus among analysts is an EPS of $1.24 and revenue of $1.20 billion. Investors will be keen to see whether the company continues its trend of outperforming both earnings and revenue expectations, as it has in previous quarters. Recent earnings have demonstrated strong revenue growth, with the most recent Q2 posting a 24.7% YoY increase in revenue, and EPS beats have been consistent.
Key metrics to watch include performance from DECK's core brands, particularly HOKA and UGG. HOKA has been the fastest-growing segment for DECK, and it will be interesting to see if it can maintain its momentum amidst increasing competition in the running shoe category. Analysts from BTIG and Piper have both raised concerns about HOKA's ability to sustain its growth in the face of new entrants, with BTIG citing "share loss within the run specialty" as a potential headwind. Conversely, UGG will need to show that it can continue its year-round appeal, particularly given that Q3 represents 48% of UGG’s annual sales.
Another key area of focus will be gross margins DECK’s margins have been strong, with Q2 showing a notable improvement to 56.9%, driven by favorable product mix and less promotional activity. TD Cowen noted that DECK has been benefiting from higher average selling prices (ASPs) for HOKA, and this will be an important factor in maintaining margin expansion. There is speculation from Piper that gross margin upside could contribute to another EPS beat, following the company’s history of 40% average EPS outperformance over the last four quarters.
Price action has been mixed leading up to the earnings release. DECK shares have pulled back recently, with investor concerns centered around whether UGG can lap its toughest comparison from last year, particularly in the Direct-to-Consumer (DTC) segment. BTIG downgraded the stock to Neutral, noting that investors may not reward the stock at current valuation levels if upside comes predominantly from wholesale rather than DTC channels. Additionally, analysts have become more cautious on HOKA's growth, with reports of potential share loss to competitors.
On the positive side, TD Cowen remains bullish, expecting strong momentum in HOKA and viewing DECK’s FY25 gross margin guidance as conservative. The firm has raised its price target to $178, reflecting confidence in continued performance. Truist analysts also expressed optimism about UGG and HOKA, citing strong data from credit card trends, Amazon best-seller lists, and TikTok activity.
Looking ahead, analysts at Seaport downgraded DECK, pointing to less momentum for HOKA and UGG during the back-to-school season compared to last year. This will be a challenging quarter for DECK to maintain its momentum, given the tough comparisons from last year when both brands were at the peak of their popularity. However, analysts continue to see long-term growth potential in DECK’s ability to innovate and expand its omni-channel strategy.
The Company filed a 6-for-1 stock split in early September. This amendment became effective on September 13, 2024. As a result, every one share of common stock held as of September 6, 2024, was split into six shares. The additional shares were distributed after market close on September 16, 2024, with trading on a post-split adjusted basis starting on September 17, 2024.
Deckers Brands reported impressive Q2 earnings, with EPS significantly surpassing expectations and revenue growing by 22.1% year-over-year to $825.3 million. The strong performance was highlighted by HOKA, the running shoe brand, which saw sales jump 30% year-over-year to a record $545 million, driven by demand for top styles like the Clifton and Bondi. UGG, another key brand, also performed well, with sales increasing by 14% to $223 million, benefiting from year-round excitement and strong demand for its Tasman franchise. The company's gross margin improved notably to 56.9%, up from 51.3% a year ago, aided by favorable product mix, higher full-price selling, and lower freight costs.
Despite concerns stemming from Nike's recent struggles, DECK's results showed it is not facing the same challenges, particularly due to the strength of the HOKA brand and solid growth in UGG outside of its traditional winter season. Investors are optimistic, and the recent announcement of a 6-for-1 stock split adds further positive sentiment. With the transition of leadership to Chief Commercial Officer Stefano Caroti following Dave Powers' retirement, no major strategic changes are expected. Overall, DECK's robust Q2 performance has alleviated market concerns and positioned the company well for future growth.
