Just two days before its planned earnings release tomorrow afternoon, Deckers Brands received a brush-back pitch from analysts at BTIG, who downgraded the company’s DECK shares from “Buy” to “Neutral.”
Analyst Janine Stichter and her team cited concerns over slowing growth trends in the company’s Hoka and Ugg businesses.
With holiday season trends looking softer and competition in the running shoe market increasing, BTIG said in a Tuesday, October 23 note that it sees limited upside for the stock at its current valuation.
“We now see [the] risk/reward as more balanced,” BTIG wrote, adding that early indicators suggest “a slower start to Holiday for Ugg,” with any potential upside likely driven by wholesale sales rather than direct-to-consumer (DTC) channels.
The firm also cited concerns that “wholesale-driven upside is not well-received by investors at current valuation levels.”
BTIG noted multiple data points showing slowing trend lines for both brands. For Ugg, credit card data indicated a decline in DTC sales, particularly in September, with web traffic to UGG.com down 3 percent year-over-year.
The October 22 report on Hoka noted signs that the running footwear brand’s multi-year growth is moderating. The firm also noted that Hoka’s search interest has flattened. Lastly, BTIG said that while the brand’s DTC sales remained in double-digit growth territory, the pace had decelerated significantly from earlier in the year.
BTIG noted that competitors are playing catch-up, with some signs of Hoka’s market share loss in the specialty running segment over the past month.
While Deckers continues to execute well, “some rare product execution missteps” have opened a window for competition to accelerate innovation, the analysts concluded.
The negative BTIG report comes a week after a positive pre-earnings report from Williams Trading Analyst Sam Poser, who started his note with, “Buy DECK.”
“We expect a revenue and margin beat,“ Poser continued. “Hoka and Ugg sales remain strong, and FY25 guidance was conservative. The increased FY25 guidance provided in July was very conservative, as it was the FY24 initial guidance.”
Poser did acknowledge that Hoka will need to advance its innovation as ultra-cushioned shoes from competitors such as Brooks come to market.
“We continue to believe that the largest upside opportunity in FY25 is for Ugg, where guidance calls for an MSD increase despite the fact that there was no inventory available post-Thanksgiving through XMAS last year, and demand was exceptional and remains that way today,“ the Williams team wrote.
Citi also viewed the earnings call expectations positively, suggesting that second-quarter EPS will come in at $1.26 per share versus the consensus $1.21. That was said to be driven by stronger Hoka sales and gross margins.
“We anticipate mgmt will flow through the 2Q beat to full-year guidance and raise GM guidance to reflect lower Ugg promos than initially planned,“ the Citi team wrote. “With Ugg facing very tough comparisons in 2Q, we are cautious on near term upside to Ugg sales even though we believe underlying brand momentum is still strong.”
The firm’s analyst team, led by Paul Lejuez, believes that Hoka continues to perform well in wholesale and DTC. Management was very conservative with its GM guidance this year, suggesting this should drive earnings upside.
“While we are positive on shares into the 2Q print as results likely show a path to further earnings upside this year, we are more cautious on shares longer-term as NKE gaining back share in performance running could become a bigger part of the conversation (potentially pressuring the business and multiple),“ Citi said.
Image courtesy Ugg/Deckers Brands
