Expanding HOKA And UGG Brands Will Enhance Global Presence

Key Takeaways

• Focus on brand innovation and premium products boosts top-line growth and expands into higher price categories, enhancing brand perception and improving margins.
  
• International and DTC strategies aim to drive revenue growth by expanding market presence, balancing U.S. and global sales, and enhancing consumer engagement.
  
• Macroeconomic risks, promotional pressures, and dependence on key brands could impact Deckers' revenue and earnings, while regulatory changes may introduce unexpected cost pressures.

Catalysts

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

• Deckers Outdoor's focus on brand innovation and premium product offerings, such as new high-priced styles like the Skyflow and Cielo X1, is expected to boost top-line growth and improve gross margins by elevating the brand perception and expanding into higher price categories.
  
• The company's international growth strategy, particularly for the HOKA brand, indicates a strong potential for driving substantial revenue increases by entering underpenetrated global markets and expanding distribution, aiming for a more balanced revenue share between U.S. and international sales.
  
• Strategically controlled expansion of distribution channels, especially in the U.S. and internationally, is anticipated to sustain the demand for HOKA and UGG, supporting ongoing revenue and earnings growth by maintaining brand exclusivity and premium pricing.
  
• Deckers' increased focus on direct-to-consumer (DTC) sales and personalized consumer experience, as well as enhancements in retail presence, are expected to further strengthen gross margins and contribute to a higher overall revenue capture.
  
• The allocation of increased investment in demand creation, particularly for marketing and localized content, is projected to enhance brand visibility and consumer engagement globally, thus supporting long-term revenue growth and potentially improving net margins through higher sales volumes at full price.

Deckers Outdoor Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Deckers Outdoor's revenue will grow by 11.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 18.8% today to 17.5% in 3 years time.
• Analysts expect earnings to reach $1.1 billion (and earnings per share of $7.82) by about December 2027, up from $875.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $949.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.8x on those 2027 earnings, down from 36.5x today. This future PE is greater than the current PE for the US Luxury industry at 18.8x.
• Analysts expect the number of shares outstanding to decline by 2.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.14%, as per the Simply Wall St company report.

Deckers Outdoor Future Earnings Per Share Growth

Risks

• Deckers Brands faces potential macroeconomic risks, including fluctuations in foreign currency exchange rates and geopolitical tensions, which may negatively affect their revenue and earnings.
  
• The company anticipates a more promotional environment in the second half of the fiscal year, which could pressure margins and reduce net earnings compared to previous periods with less promotional activity.
  
• Dependence on the successful performance and growth of key brands, such as HOKA and UGG, places pressure on maintaining consumer demand, and any decline could impact revenue and earnings growth targets.
  
• Earlier wholesale shipments were noted, possibly pulling sales forward, which could result in weaker-than-expected growth in upcoming quarters, affecting the company's revenue outlook.
  
• Potential changes in U.S. tariffs and other regulatory developments could introduce unexpected cost pressures that might not be accounted for in current earnings guidance.

Valuation

• The analysts have a consensus price target of $196.25 for Deckers Outdoor based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $232.0, and the most bearish reporting a price target of just $115.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $6.4 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 30.8x, assuming you use a discount rate of 7.1%.
• Given the current share price of $210.37, the analyst's price target of $196.25 is 7.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.