Deckers' Hoka Division: Can Growth Outpace Tariffs and Competition?

Deckers Brands (DECK) has emerged as a rare success story in the footwear industry, driven by its high-performance HOKA division. Yet recent quarters have revealed cracks in what once seemed like an unstoppable growth narrative. With margin pressures mounting and tariff uncertainties clouding the horizon, investors must weigh whether the stock still offers a compelling risk-reward opportunity.

The HOKA Paradox: Strength and Vulnerability

HOKA's rise has been nothing short of remarkable. In fiscal 2025, its revenue surged 24% to $2.2 billion, accounting for 66% of Deckers' total sales. Its innovative products—like the Bondi 9 and Clifton 10—have fueled a 50% brand awareness rate in the U.S., up from 25% in 2024. The brand's international expansion, particularly in China and Europe, has also been a bright spot, with sales growing 39% year-over-year.

Yet this momentum faces mounting headwinds. Fourth-quarter 2025 revenue growth slowed to 10%, down sharply from 34% in the same period a year earlier. The culprit? A mix of macroeconomic uncertainty, tariff-related cost pressures, and softer-than-expected performance in the U.S. direct-to-consumer (DTC) channel.

The Tariff Conundrum

The most immediate threat is the $150 million tariff-related cost increase Deckers expects in fiscal 2026. Though only 5% of footwear production comes from China (mostly for non-U.S. markets), the broader issue lies in rising tariffs on Vietnamese imports—the primary production hub. While the company plans to offset costs via selective price hikes and supplier negotiations, CFO Steve Fasching acknowledges some tariff impacts will be absorbed, compressing margins.

The gross margin, which hit a record 57.9% in fiscal 2025, is now projected to decline. This pressure is compounded by higher freight costs, promotional activity on older models, and the use of pricier materials for premium products.

Competitive and Consumer Risks

HOKA's success has not gone unnoticed. Competitors like On Holding (ON) and Brooks Running (BRKS) are aggressively targeting the performance footwear segment. On's 40% Q1 sales growth underscores the intensity of this race. Meanwhile, U.S. consumers are growing cautious: Deckers' Q4 DTC sales dipped as buyers prioritized in-store exploration over online purchases, and promotional discounts on older styles eroded margins.

Valuation and Investment Considerations

Deckers' stock trades at a forward P/E of 16.45x, below the broader industry average of 17.40x. This discount reflects concerns over margin erosion and the lack of full-year 2026 guidance. Analysts have trimmed FY2026 EPS estimates by 4.4%, with consensus now at $4.98—a 9.1% rebound is anticipated in 2027.

Investors must decide whether the near-term pain is worth enduring for HOKA's long-term potential. The brand's 50% U.S. awareness rate and 34% international revenue share suggest untapped opportunities in markets like EMEA and Asia. Strategic moves, such as flagship stores in Shanghai and expanded wholesale partnerships, could stabilize margins over time.

Risk-Reward Balance

The key variables are:
1. Tariff Mitigation: Can Deckers successfully pass costs to consumers without sacrificing demand?
2. DTC Recovery: Will U.S. consumers rebound from their “buying down” phase, or will HOKA face sustained pressure?
3. Competitive Edge: Can HOKA maintain its innovation lead against rivals like On and Brooks?

For bulls, the stock's pullback to a 52-week low of $55.43 (as of July 2025) presents a buying opportunity at a 30% discount to its 2024 peak. For bears, the lack of guidance and margin headwinds justify caution.

Final Analysis: A Wait-and-See Stance

While HOKA's fundamentals remain robust—driven by brand strength and global expansion—the near-term risks are too substantial to ignore. Investors would be prudent to await clearer visibility on tariff impacts, DTC recovery, and competitive dynamics. A potential entry point could emerge if the stock dips below $50, provided valuation multiples compress further.

In the meantime, Deckers' decision to withhold full-year guidance underscores the uncertainty. Until macroeconomic clouds lift and margin pressures ease, HOKA's story remains a tale of two paths: one of sustained growth, the other of a premium brand navigating a stormy landscape.

Investment Recommendation: Hold for now. Monitor the stock's reaction to Q1 2026 earnings and any tariff policy updates. Consider a gradual build if valuations drop below $50/share.

This analysis balances HOKA's undeniable strengths with the very real challenges it faces. For long-term investors, the question is whether the brand's global potential outweighs the near-term turbulence—a decision best made with patience and a watchful eye on execution.