Deckers (DECK) to Benefit From Brand Strength Amid Headwinds
Deckers Outdoor Corporation DECK currently boasts solid prospects, driven by the steady demand for its products, focus on product innovations, store expansion and strengthening e-commerce capabilities. However, the company has been struggling with high operating costs and expenses, supply chain issues and inflationary headwinds for some time.
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This Zacks Rank #3 (Hold) company has a market capitalization of $13.3 billion. In the past three months, it has gained 15.3% against the industry’s decline of 6.7%.
Let’s delve deeper.
Factors Favoring Deckers Outdoor
Deckers has been benefiting from strength across its HOKA and Teva brands, fueled by impressive demand for its products and effective pricing actions. For instance, in the fourth quarter of fiscal 2023, HOKA generated record revenues of $397.7 million as the brand nearly doubled its direct-to-consumer (DTC) business. HOKA’s growth was backed by share gains in the wholesale channel. The brand’s global revenues were $397.7 million, reflecting growth of 40.3% year over year. Also, Teva brand net sales increased 14.6% to $62.8 million.
Deckers is looking to capitalize on profitable and underpenetrated markets and remains focused on product innovations, store expansion and enhancing e-commerce capabilities. Greater acceptance of the UGG brand's product line, along with progress in Europe and Asia Pacific, bode well. The company is expected to open additional retail stores for the HOKA brand and to continue exploring opportunities to strategically expand HOKA’s retail store fleet.
For fiscal 2024, Deckers envisions net sales of about $3.950 billion, indicating an increase of 9% on a year-over-year basis. It expects the HOKA brand to grow 20%, implying more than $280 million of incremental revenues compared with the previous year. Management forecasts sturdy demand from its Direct-to-Consumer (DTC) channel. Management also anticipates UGG revenues to increase in low single digits, supported by international expansion and a flat U.S. marketplace.
DECK’s solid liquidity position also adds to its strength. Exiting fiscal 2023, its cash and cash equivalents were $981.8 million, with no outstanding borrowings. Also, in the fiscal fourth quarter, the company repurchased shares worth $102.5 million. As of Mar 31, 2023, it had $1.357 billion remaining under its share repurchase authorization.
Factors Affecting the Company
Deckers has been subject to escalating costs and expenses and inflationary pressures for a while now. In the fiscal fourth quarter, its selling, general and administrative expenses climbed 4.6% year over year to $290.2 million. This followed an increase of 6.7% in the same metric in the preceding quarter. Escalating costs and expenses, if not controlled, might weigh on the company’s margins and profitability in the quarters ahead.
Given the UGG brand’s significant presence across global markets, it is expected to witness significant headwinds from foreign currency exchange rates. Notably, currency headwinds had a negative impact of $100 million on revenues in fiscal 2023.
Key Picks
Some better-ranked stocks are Skechers U.S.A., Inc. SKX, Alto Ingredients, Inc. ALTO and Adtalem Global Education, Inc. ATGE. While SKX sports a Zacks Rank #1 (Strong Buy), ALTO and ATGE carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
Skechers specializes in producing footwear for men, women and children. The Zacks Consensus Estimate for SKX’s current financial-year sales suggests 7.7% growth, while earnings per share are expected to rise by 31.5% from the corresponding year-ago reported figures. Skechers’ has a trailing four-quarter earnings surprise of 18.8%, on average.
Alto Ingredients is a producer of specialty alcohols and essential ingredients in the United States. The Zacks Consensus Estimate for ALTO’s current financial-year sales suggests a decline of 6.6%, while earnings per share is likely to grow 78.3% from the corresponding year-ago reported figures. Alto Ingredients’ earnings surprise in the last reported quarter was 10.5%.
Adtalem Global Education is a provider of workforce solutions worldwide. ATGE’s has a trailing four-quarter earnings surprise of 20.1%, on average. The Zacks Consensus Estimate for Adtalem Global Education’s current financial year sales suggests a decline of 0.2%, while earnings are likely to grow 27.2% from the prior-year reported numbers.
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