Deckers runs through resistance as HOKA blows away high expectations
2min read Deckers Outdoor Corporation (DECK) delivered a robust Q2 FY2025 earnings report that surpassed Wall Street expectations, driven by the continued strength of its Hoka and Ugg brands. DECK reported an EPS of $1.59, well above the consensus estimate of $1.24, marking a significant 39% year-over-year increase. Revenue also came in strong at $1.31 billion, beating expectations of $1.2 billion and representing a 20% year-over-year growth. This impressive performance was primarily fueled by the Hoka brand's remarkable expansion and steady growth in the Ugg segment.
Hoka’s performance was a standout in Q2, with net sales soaring by nearly 35% to $570.9 million, well above the estimated $517.7 million. Hoka, recognized as one of the world’s fastest-growing footwear brands, continues to gain traction, particularly in its direct-to-consumer (DTC) channels, where sales grew by 30% year-over-year. This momentum in Hoka sales reinforces analysts' views that the brand could drive significant long-term growth for DECK, with UBS projecting a 21% five-year sales CAGR for Hoka, contributing to DECK's broader earnings growth outlook.
Ugg, Deckers’ well-established brand, also performed strongly, with net sales increasing 13% to $689.9 million, surpassing the $634.4 million forecast. Analysts note that Ugg's recent repositioning as a lifestyle brand with wider seasonal appeal is paying off, helping it gain popularity across different consumer segments. Teva, another DECK brand, saw modest growth with a 2.3% increase in net sales to $22 million, in line with expectations. However, Sanuk, another smaller brand within DECK’s portfolio, experienced a steep decline, with net sales dropping nearly 48%, a result the company did not highlight in its forward outlook.
In terms of profitability, Deckers’ gross margin expanded to 55.9%, up from 53.4% last year, indicating effective cost management and premium pricing strategies across its product lines. Management raised the company’s full-year guidance, projecting EPS between $5.15 and $5.25, up from the prior range of $4.86 per share. The company also increased its revenue guidance to $4.8 billion, marking an anticipated 12% year-over-year growth. DECK also raised its operating margin outlook to a range of 20% to 20.5%, reflecting confidence in sustaining profitability amid rising input costs.
Analysts have been generally optimistic about Deckers' ability to continue this growth trajectory, especially with the popularity of Hoka among consumers. However, some concerns linger in the market regarding the sustainability of the "max cushioning" footwear trend, which has driven much of Hoka's success. UBS analysts note that this trend may lose momentum, impacting future sales growth rates for Hoka. Nonetheless, analysts believe that DECK's strong market positioning and expanding consumer base will help mitigate such risks.
Investor sentiment was strongly positive, with DECK’s stock soaring 14% in pre-market trading following the earnings release. Despite a recent consolidation phase, DECK's stock has been up 37% year-to-date, significantly outperforming broader market indices. Analysts expect the stock to remain in favor with investors as long as DECK demonstrates its ability to sustain high growth rates and outperform peers like Nike and Lululemon, which have faced sales headwinds in recent quarters.
Looking ahead, DECK’s focus on brand expansion and continued investment in DTC channels positions the company for further growth. The holiday season will be crucial for DECK, particularly in light of higher comparisons from last year. As DECK heads into the latter half of its fiscal year, management's prudent guidance suggests awareness of potential promotional pressures, especially in a competitive retail landscape. This cautious approach has been viewed positively by analysts, adding confidence that DECK can meet or potentially exceed its conservative targets in the coming quarters.
