HOKA Launches And Pull Model Will Boost Market Appeal

Key Takeaways

• Transitioning to a pull model and phasing out Koolaburra could streamline operations and improve margins while promoting healthier full-price sales.
  
• International expansion, new product launches, and strategic marketing campaigns are set to drive revenue growth and enhance long-term market presence.
  
• Deckers Outdoor faces challenges including phasing out Koolaburra, UGG sales timing issues, potential markdowns, currency fluctuations, and supply chain pressures impacting margins.

Catalysts

Designs, markets, and distributes footwear, apparel, and accessories for casual lifestyle use and high-performance activities in the United States and internationally.

• The deliberate transition to a pull model in demand management is expected to foster healthier full-price selling, impacting revenue growth favorably.
  
• Significant expansion in international markets, which saw a revenue increase of 28%, is likely to contribute to sustained growth, thereby positively affecting overall revenue figures.
  
• The decision to phase out the Koolaburra brand to concentrate on more promising areas could streamline operations and potentially improve net margins by optimizing resource allocation.
  
• New product launches, such as the Bondi 9 and the upcoming Clifton 10 and Arahi 8 models from HOKA, are geared toward leveraging consumer interest in innovative products and could boost revenue growth prospects.
  
• Strategic SKU management and high-impact marketing campaigns, like those associated with UGG Men's and international collaborations, are anticipated to maintain strong brand appeal and market penetration, enhancing long-term earnings potential.

Deckers Outdoor Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Deckers Outdoor compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Deckers Outdoor's revenue will grow by 9.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 19.1% today to 17.0% in 3 years time.
• The bearish analysts expect earnings to reach $1.1 billion (and earnings per share of $7.98) by about April 2028, up from $942.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 21.0x on those 2028 earnings, up from 17.9x today. This future PE is greater than the current PE for the US Luxury industry at 14.8x.
• Analysts expect the number of shares outstanding to decline by 0.58% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.54%, as per the Simply Wall St company report.

Deckers Outdoor Future Earnings Per Share Growth

Risks

• The planned phasing out of the Koolaburra brand might signal weaknesses in managing certain segments, potentially impacting future revenues and contributing to uncertainty in the overall brand strategy.
  
• The company anticipates an adverse impact on UGG sales in the current quarter due to timing differences in product availability compared to the prior year, which could affect overall revenue recognition.
  
• Expectations of increased markdowns and promotional activities in the fourth quarter may negatively impact gross margins, posing a risk to maintaining current levels of profitability.
  
• Foreign currency exchange rate fluctuations have been flagged as a potential headwind, which might negatively impact revenue and operating margins in future reporting periods.
  
• Supply chain pressures, including higher freight costs anticipated for the upcoming quarter, are expected to strain margins and profitability, adding to the financial challenges Deckers could face.

Valuation

• The assumed bearish price target for Deckers Outdoor is $124.69, which represents one standard deviation below the consensus price target of $173.09. This valuation is based on what can be assumed as the expectations of Deckers Outdoor's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $246.0, and the most bearish reporting a price target of just $100.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $6.5 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 21.0x, assuming you use a discount rate of 7.5%.
• Given the current share price of $110.83, the bearish analyst price target of $124.69 is 11.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.