Should You Consider Buying Deckers Outdoor Corp Stock?

Deckers Outdoor Corporation (DECK), a designer, marketer and distributor of premium footwear, apparel and accessories, reported its fiscal 2024 results on May 23. The company’s revenue increased 18% year-over-year and EPS growth was 51%.

During the quarter, the Company’s HOKA® brand net sales increased 34% to $533 million, compared to $397.70 million in the prior-year quarter, and UGG® brand net sales increased 14.9% from the prior-year value to $361.30 million.

Recently, the company expanded its product portfolio with the launch of Aventrail, the first-of-its-kind trail running sandal designed for an unfettered running experience by TEVA, and with the launch of Skyward X, the latest addition to its maximalist air-cushioned running shoes, by HOKA.

Company Chairman and CEO Dave Powers said, “Deckers delivered record results in fiscal 2024, with revenue growth of 18% and earnings per share growth of 51%, reflecting a continued commitment to maintaining exceptional levels of profitability as our brands grow.”

He added: “HOKA and UGG remain two of the most admired and best-positioned brands in the market, each with a strong portfolio of innovative products designed to appeal to consumers around the world. Our talented teams are highly motivated to continue to capitalize on the long-term opportunities of these iconic brands.”

During the fiscal fourth quarter, DECK repurchased approximately 119,000 shares of its common stock for a total of $104.3 million at a weighted average price paid per share of $875.01. As of March 31, 2024, the Company had approximately $941.7 million remaining under its share repurchase authorization.

Shares of DECK have gained 39.1% over the past six months and 78.1% over the past year to close its most recent trading session at $937.38. However, over the past month, the stock has plunged 13.3%.

Let’s look at the factors that could influence DECK’s performance in the coming months.

Recent positive developments

On June 26, TEVA, a division of DECK, launched the first trail running sandal of its kind, designed for an unfettered running experience. Aventrail was created to fill a void in the trail running market between minimally supportive running sandals and modern running shoes with underfoot innovations and cushioning.

Aventrail offers customers a whole new sense of freedom when running and adventuring outdoors.

On April 29, HOKA, the division of DECK, also unveiled the all-new Skyward X, the latest addition to its line of maximalist cushioned running shoes. Celebrating new advancements in shoe technology that deliver HOKA’s signature cushioning, the Skyward X promises runners an entirely new and unmistakable HOKA experience.

Strong finances

During the fourth quarter ended March 31, 2024, DECK’s net sales increased 21.2% year over year to $959.76 million. Its gross profit increased 36.2% year over year to $539.48 million. The Company’s operating income was $144.26 million, up 36.2% from the prior year quarter.

In addition, the company’s net income was $127.55 million, or $4.95 per share, reflecting increases of 39% and 43.1% year-over-year, respectively. Its cash and cash equivalents were $1.50 billion as of March 31, 2024, compared to $981.80 million as of March 31, 2023.

Solid historical growth

DECK’s revenue and EBITDA have grown at compound annual growth rates of 19% and 20.9% over the past three years, while its EBIT has improved at a compound annual growth rate of 21.5% over the same period. The company’s net income and EPS have grown at compound annual growth rates of 25.7% and 29.4%, respectively, over the past three years.

Additionally, the company’s total assets and leveraged free cash flow grew at CAGRs of 13.1% and 16.3% respectively over the same period.

Favorable analysts’ estimates

Analysts expect DECK’s revenue for the first quarter (ending June 2024) to be $802.99 million, indicating an increase of 18.8% from the prior year. The consensus EPS estimate of $3.33 for the same period reflects an improvement of 38.3% from the prior year. Additionally, the company has surpassed consensus revenue and EPS estimates in each of the last four quarters.

For the fiscal year (ending March 2025), the company’s revenue and EPS are expected to grow 11.8% and 6.2% year over year to $4.79 billion and $30.98 billion, respectively. Additionally, the Street expects its fiscal 2026 revenue and EPS to grow 10.8% and 14.9% year over year to $5.31 billion and $35.61 billion, respectively.

Mixed profitability

DECK’s trailing 12-month gross profit margin of 55.63% is 50.5% higher than the industry average of 36.95%. Its trailing 12-month EBIT margin of 21.85% is 178.6% higher than the industry average of 7.84%. And the stock’s trailing 12-month net profit margin of 17.71% is significantly higher than the industry average of 4.76%.

Furthermore, the stock’s ROCE, ROTC and ROTA of 39.22%, 26.69% and 24.22% compare favorably to the industry average of 11.75%, 6.27% and 4.25%, respectively.

High valuation

In terms of non-GAAP forward P/E, DECK is currently trading at 32.31x, which is 131.4% higher than the industry average of 13.96x. Additionally, the stock’s forward EV/Sales and P/S ratios of 4.76x and 5.02x are significantly higher than the industry average of 1.16x and 0.86x, respectively.

Additionally, the stock’s forward EV/EBITDA and price/cash flow ratios of 22.11x and 27.79x are 135.9% and 204.4% higher than the industry averages of 9.37x and 9.13x, respectively.

POWR Ratings reflect uncertainty

DECK’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which is a Neutral rating in our proprietary system. POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. DECK earned an A for Quality, reflecting its superior profitability relative to the industry. It earned a B for Growth, consistent with its strong performance over the past quarter. DECK earned a D for Value, reflecting its high valuation.

DECK is ranked 26th out of 59 stocks in the Fashion & Luxury sector, rated A.

Beyond what I’ve stated above, we’ve also given DECK scores for stability, sentiment, and dynamics. Access all of DECK’s scores here.

Conclusion

DECK beat analyst estimates for both revenue and net income in the most recent quarter. The company’s strong fourth-quarter and fiscal 2024 results, along with the expansion of its innovative product portfolio through EVA and HOKA, demonstrate the strength of Deckers’ agile operating model.

The footwear and apparel giant’s long-term outlook looks bright, thanks to its innovative and diversified product lineup designed to meet the needs of global consumers. However, DECK stock is currently trading at a premium to its peers. Given its high valuation and increased volatility, it seems wise to wait for a better entry point for this stock.

Actions to Consider Instead of Deckers Outdoor Corporation (DECK)

Given its uncertain short-term outlook, the chances of DECK outperforming in the coming weeks and months are compromised. However, many industry peers have much more impressive POWR Ratings. So consider these A (Strong Buy) or B (Buy) stocks in the Fashion & Luxury sector instead:

Weyco Group, Inc. (WEYS)

Hugo Boss SA (BOSSY)

PVH Corp. (PVH)

To see more A and B rated software stocks, click here.

What to do next?

Steve Reitmeister, a 43-year investment veteran, has just released his 2024 market outlook, along with his trading plan and 11 top picks for the year ahead.

Stock market outlook 2024 >

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As of Tuesday afternoon, DECK shares were trading at $938.16 per share, down $8.14 (-0.86%). Year-to-date, DECK has gained 40.35%, compared to a 15.93% gain for the benchmark S&P 500 index over the same period.

About the author: Rjkumari Saxena

Rajkumari started her career as a writer but gradually shifted to financial journalism, drawing on her business background. Fascinated by the interplay between business and economic changes in the stock markets, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to provide investors with insights that lead to profitable decisions. More…

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