Ugg and Hoka parent is in a more lopsided battle with the footwear industry than Kendrick vs. Drake

By Ciara Linnane

Wedbush analysts weigh in on a strong quarter with some colorful comments

Deckers Outdoor Corp.'s latest quarter has created a more lopsided battle against the broader footwear industry than Kendrick vs. Drake, Wedbush analysts said Friday.

Analysts Tom Nikic and Matt Quigley were referencing the recent spat between the two rappers, who have been feuding since the early 2010s. The fight escalated in recent months when both artists released dueling diss tracks, which included allegations of abuse. Lamar is a Pulitzer Prize winner, among his other achievements.

The parent of the Ugg and Hoka brands delivered another strong performance for its fiscal first quarter, beating sales and profit expectations by wide margins and raising its per-share earnings for fiscal 2025, the analysts wrote in a Friday note to clients.

"All in all, we remain buyers of the name, given still conservative FY25 guidance (conservative sales and margin assumptions could lead to more beats-and-raises), best-in-class momentum at Hoka, and continued strength at UGG," the analysts wrote. They reiterated their outperform rating on the stock - the equivalent of buy - and stock price target of $1,030, which is 22% above its current price.

The stock (DECK) soared 8% as investors cheered the numbers and the company's assertion that consumers are happily paying full price for its iconic footwear in the global marketplace.

Hoka's 30% sales growth and 33% increase in direct-to-consumer sales were above consensus and DTC was a "significant" acceleration from the 22% growth seen in the fourth quarter, said the analysts.

Both core styles - Clifton and Bondi - and new products- Cielo, Skyward X - are resonating well. "They are seeing strong international growth, aided by the DTC buildout in Asia. Wholesale grew 28%, which was a more "normalized" level after Q4's extraordinary 42% growth," said the note.

Ugg sales rose 14% to beat the consensus for 13% growth, aided by wholesale sales, which rose 18%. DTC sales rose 8%.

"Core styles such as the Tasman continued to do well, but what is perhaps most notable is that the brand saw strength in new categories like sandals ("The Golden Collection" had 4 silhouettes within the Top 10 best selling products in the quarter)," said the analysts.

"All in all, UGG appears to be taking share in the sandal market."

Stifel analysts noted it was an end to the Dave Powers era, as the chief executive, who first joined the company in 2012 and took on the leadership role in 2016, is retiring effective Aug. 1.

Powers will be replaced by Stefano Caroti, who is currently chief commercial officer.

With the shares reflecting a 30 times price/earnings multiple on the high end of fiscal 2025 EPS guidance, (Caroti) "inherits lofty expectations," wrote Stifel analysts led by Jim Duffy.

"Hoka growth rates hold the key to the multiple given the premiumassigned to performance brands," the analysts wrote. "Hoka is approaching a $2 billion run rate and we believe the multiple underwrites expectations for 25% plus growth (an incremental $500mn plus annually)."

However, given the slowing consumer backdrop and increasingly competitive performance running category, "this is a high hurdle to sustain," they wrote.

Stifel has a hold rating on Deckers' stock, but raised its stock price target to $887 from $825.

Raymond James agreed that Hoka is benefiting from "brand heat," product diversification and growing awareness and distribution, "which is driving scale."

And Ugg is progressing too with innovation helping while an intentional strategy of product scarcity is also keeping demand high, said analysts Rick Patel and Josh Reiss.

Raymond James has an outperform rating on the stock and $1,100 stock price target.

Deckers' stock has gained 36% in the year to date, outperforming the S&P 500's SPX 14% gain.

-Ciara Linnane

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07-26-24 1034ET

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