Story Stocks^®

Deckers (DECK +4.5%) wrapped up FY23 on a strong note with a huge EPS and revenue beat for Q4 (Mar). However, the stock initially traded lower after the report, most likely because we got our first look at FY24 guidance and it was not bad, but not great either. The outlook for revenue was in-line but EPS guidance was below analyst expectations.

• The knock on DECK over the years has been that it has been a one trick pony, with just the Ugg brand. However, Hoka (running shoes) has been emerging as that long-awaited second star in DECK's arsenal and helps smoothe out DECK's seasonality. It is now DECK's second largest brand and its fastest grower with FY23 sales up 58% yr/yr to $1.4 bln. Growth at its other brands has been more modest: Teva (sandals, boots), Sanuk (sandals) and Koolaburra (sheepskin footwear).
• It is pretty remarkable that FY23 marked the fourth consecutive year HOKA has grown revenue by more than 50%. UGG posted higher sales at $1.9 bln, but that was down 3% (up slightly in constant currency). As you can see, HOKA is the big sales driver and the main reason the stock has been a huge mover, up nearly 80% over the past year.
• A couple of things on the guidance. We think investors were a bit let down by the FY24 HOKA brand guidance of +20%. It appears the 50+% streak will end in FY24, but that is not surprising. As a brand gets really big, the percentage growth naturally slows. However, we think the size of the drop maybe surprised people. Part of this appears to stem from DECK's decision to focus more efforts on channel repositioning to push online sales for HOKA.
• In terms of the EPS shortfall, that appears to be related to DECK saying on the call that it plans to boost hiring in areas that had been delayed previously. DECK will invest so that its supply chain footprint can match the growing scale of its business. Also, DECK plans to boost marketing spend to grow awareness of the HOKA brand in international markets.

Overall, this was another great quarter for DECK. HOKA has been a huge winner for the company. The stock had been pulling back in recent weeks, perhaps on concern about the quarter and the FY24 guidance. While the EPS guidance was disappointing, we think it's the right decision in the long run to invest in the business and build brand awareness.