Rising Tariffs And Supply Bottlenecks Will Squeeze Future Margins

Key Takeaways

• Rising costs, shifting consumer preferences, and supply chain disruptions are likely to compress margins and challenge Deckers' long-term revenue growth.
  
• Increased spending on direct-to-consumer channels, sustainability, and compliance may further pressure profitability amid strong competition and higher regulatory expectations.
  
• Secular trends, international expansion, innovation, and DTC investments are driving premium pricing, margin expansion, and sustained earnings growth for Deckers' key brands.

Catalysts

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

• Escalating global tariffs on footwear, coupled with rising freight and input costs, are expected to materially erode Deckers' gross margins over the next several years. Leadership confirmed that selective price increases will not fully offset these pressures, making margin compression likely as cost of goods sold increases faster than pricing can be pushed through.
  
• Persistent supply chain volatility and ongoing geopolitical risks, including disruptions in logistics and manufacturing regions like Vietnam, threaten to drive up costs, complicate inventory management, and reduce Deckers' ability to maintain efficient inventory turnover; this raises the risk of further margin contraction and lower overall profitability.
  
• The growing consumer preference for experiences over discretionary goods-especially in mature markets like the U.S.-signals potential structural headwinds for long-term revenue growth at Deckers, as consumer spending gradually shifts away from footwear and apparel categories toward travel, dining, and digital services.
  
• The company's heavy investment in expanding direct-to-consumer (DTC) operations and global marketing initiatives require sustained high levels of SG&A spending, but any slowdown in DTC channel growth or greater competition from established and digitally native brands could result in deteriorating net margins and return on invested capital.
  
• Heightened regulatory and consumer scrutiny on sustainability and ethical sourcing is likely to increase compliance and manufacturing costs across Deckers' supply chain, placing additional pressure on net profits while risking reputational harm if expectations cannot be consistently met.

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 6.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 19.3% today to 17.7% in 3 years time.
• The bearish analysts expect earnings to reach $1.1 billion (and earnings per share of $7.65) by about July 2028, up from $989.7 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 15.5x on those 2028 earnings, down from 16.6x today. This future PE is lower than the current PE for the US Luxury industry at 16.8x.
• Analysts expect the number of shares outstanding to decline by 2.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.88%, as per the Simply Wall St company report.

Deckers Outdoor Future Earnings Per Share Growth

Risks

• Deckers' core brands HOKA and UGG continue to benefit from long-term secular trends favoring casualization and athleisure worldwide, resulting in broad-based demand growth that supports the company's top line revenue and market share gains, despite near-term macroeconomic uncertainties.
  
• International expansion for both HOKA and UGG is delivering especially strong results, with international revenues growing 50% and robust wholesale and DTC growth in Europe and Asia-Pacific, which both diversifies revenue streams and reduces geographic concentration risk, thereby enhancing the company's long-term earnings potential.
  
• Deckers is investing heavily in innovation and new product pipelines, shown by successful launches and strong early bookings for upgraded and new HOKA models, which not only protects but expands pricing power and supports net margins through premium offerings.
  
• Significant direct-to-consumer (DTC) investment-including expansion of physical retail globally and improved digital experiences-continues to drive higher gross margins and improve customer data analytics, underlying Deckers' ability to grow earnings and capture greater share of consumer spending in the long term.
  
• Secular health and wellness trends, along with premiumization in footwear, benefit Deckers' HOKA brand as global adoption of comfort and performance products expands, supporting premium pricing and revenue growth while strengthening Deckers' earnings outlook over a multi-year horizon.

Valuation

• The assumed bearish price target for Deckers Outdoor is $97.0, which represents the lowest price target estimate amongst analysts. 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 $158.0, and the most bearish reporting a price target of just $97.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $6.2 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 15.5x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of $110.6, the bearish analyst price target of $97.0 is 14.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.