Deckers Outdoor Corporation DECK has witnessed a meteoric rise in its stock price over the past year, soaring by an impressive 53%. This surge far outstrips the Zacks Retail-Apparel and Shoes industry’s modest 11.7% growth, showcasing Deckers’ exceptional performance in a challenging market environment.
Deckers’ success can be attributed to its astute focus on expanding its brand presence and bolstering direct-to-consumer (DTC) channels. By prioritizing innovation in product development and aggressively pursuing international market expansion, the company has not only outperformed the broader Retail-Wholesale sector but also surpassed the S&P 500 index’s growth by a significant margin.
Technical analysis offers further confirmation of Deckers’ robust performance, with the stock trading above both its 100-day and 200-day moving averages. This significant upward momentum underscores the market’s confidence in Deckers’ financial strength and future prospects. The stock’s current Value Score of A reinforces its attractiveness to investors.
Image Source: Zacks Investment Research
Unveiling the Driving Forces
Deckers’ strategic emphasis on lucrative markets, product innovation, and expansive store presence, coupled with the enhancement of e-commerce capabilities, has been instrumental in its success. By expanding brand assortments, unveiling innovative products, and optimizing distribution channels, the company has significantly boosted the popularity of its UGG and HOKA brands, both domestically and globally.
The growth trajectory of Deckers’ DTC business and omnichannel expansion strategy has been notably strong, with DTC net sales skyrocketing by 24% in the first quarter of fiscal 2025. Aligning product development, marketing efforts, and distribution around consumer preferences has been a key driver of this growth, while strategic initiatives like new store launches and targeted market expansions are enhancing brand accessibility and enriching consumer experiences.
Central to Deckers’ success is its commitment to product innovation, exemplified by the successful introduction of new styles and collections. Engaging consumers through brand initiatives, collaborations, and social listening strategies has fostered strong brand loyalty. Products such as the Cielo X1 and Skyward X exemplify Deckers’ dedication to performance and technological advancement.
The company’s wholesale channel continues to play a vital role, with a substantial 21% year-over-year revenue increase in the first quarter, particularly strong in the U.S. and Europe. Deckers’ effective international expansion has seen international sales surge by 20.8% year over year, driven by robust DTC growth and strategic wholesale partnerships, especially in China and EMEA, solidifying its position as a global powerhouse in the footwear market.
Shareholder-Friendly Initiatives Boost Confidence
Deckers’ robust liquidity position, supported by a solid cash reserve, stands as a testament to its financial strength. As of Jun 30, 2024, the company held $1.44 billion in cash and cash equivalents, providing a solid financial foundation. Notably, Deckers had no outstanding debts during this period, underscoring a healthy balance sheet. The net cash flow from operating activities stood at $112.7 million as of Jun 30, 2024.
In a display of confidence in its financial standing, Deckers repurchased around 177,000 shares totaling $152 million in the first quarter, reflecting management’s dedication to enhancing shareholder value and belief in the company’s trajectory. As of Jun 30, 2024, Deckers still had $789.7 million remaining under its share repurchase authorization.
Future Growth Trajectory
Deckers is poised for continued growth, with expectations of a 10% increase in net sales for fiscal 2025, reaching $4.7 billion. HOKA is forecasted to drive a 20% growth, fueled by consumer traction in the DTC segment, strategic expansions with partners, and international market growth. UGG is anticipated to show mid-single digit growth, benefitting from international reach and a robust U.S. market. Earnings for fiscal 2025 are projected to be in the range of $29.75-$30.65 per share compared to $29.16 the previous year.
Positive Estimate Revisions Spell Favor for Investors
The Zacks Consensus Estimate for earnings per share has witnessed upward revisions, portraying positive market sentiment toward Deckers. Analysts have raised estimates for the current and next fiscal year by 3% to $31.52 and 2.4% to $35.18 per share, respectively. This signifies year-over-year growth rates of 8.1% and 11.6%, offering further confidence to investors.
In Conclusion
While Deckers anticipates margin pressure due to rising freight costs and a return to a more competitive promotional environment, the company’s sound financial health and liquidity position, underscored by a robust cash reserve and absence of debt, make it a compelling investment opportunity. The company’s impressive performance in both DTC and wholesale channels, coupled with a buoyant market sentiment and optimistic earnings revisions, signal a promising path ahead. Deckers currently holds a Zacks Rank #2 (Buy).
Other Noteworthy Choices
Within the retail space, some standout stocks include The Gap, Inc. GPS, Abercrombie & Fitch Co. ANF, and Urban Outfitters Inc. URBN.
Gap is a leading international specialty retailer offering a wide array of apparel, accessories, and personal care products. With a Zacks Rank #1 (Strong Buy), Gap’s fiscal 2024 earnings and sales estimates indicate growth of 24.5% and 0.2%, respectively, over the previous fiscal year, with an impressive average earnings surprise of 202.7%.
Abercrombie is a premium casual apparel retailer, currently holding a Zacks Rank of 1. The company delivered a remarkable 28.9% earnings surprise in its last reported quarter, while estimates project a growth of 48.9% in earnings and 11.1% in sales for fiscal 2024 over fiscal 2023, with an outstanding average earnings surprise of 210.3%.
Urban Outfitters, a lifestyle specialty retailer offering apparel, accessories, footwear, and home products, presently has a Zacks Rank of 2. Fiscal 2024 estimates predict a growth of 9.9% in earnings and 5.8% in sales over the previous year’s figures, backed by a solid average earnings surprise of 16.9%.