DECK Financial Analysis

Analysis Date: 1/31/2025

Business Model

Deckers Brands generates revenue through the design, marketing, and distribution of innovative footwear, apparel, and accessories. Their portfolio includes brands like UGG, HOKA, Teva, Koolaburra, and AHNU.

Revenue Sources

• Direct-to-Consumer (DTC) sales through company-owned retail stores and online stores.
• Wholesale sales through select department and specialty stores.

Revenue Distribution by Channel

• Direct-to-Consumer (DTC) net sales increased 17.9% to $1.011 billion compared to $858.1 million in Q3 FY24.
• Wholesale net sales increased 16.2% to $815.8 million compared to $702.2 million in Q3 FY24.

Income Statement Analysis

• Net sales increased significantly by 17.1% year-over-year, indicating strong demand for Deckers' brands.
• Gross profit increased by 20.3%, outpacing revenue growth, suggesting improved profitability and potentially better product mix or pricing.
• SG&A expenses increased by 24.89%, higher than revenue growth, which could be a concern if this trend continues. Management mentioned increased marketing spend and headcount as drivers in the earnings call transcript.
• Income from operations increased by 16.27%, slightly less than revenue growth due to higher SG&A expenses.
• Net income increased by 17.13%, consistent with revenue growth, indicating overall healthy profitability.

Balance Sheet Analysis

• Cash and cash equivalents significantly increased by 49.2%, indicating strong cash generation or financing activities.
• Inventories increased by 21.6%, which is less than the revenue growth of 17.1% for the nine months ended December 31, 2024 (Net sales YTD growth is (3963832-3328005)/3328005 = 19.1%). Inventory management seems reasonable given sales growth.
• Trade accounts payable increased by 55%, suggesting potentially longer payment terms with suppliers or increased purchasing volume to support sales growth.
• Total stockholders' equity increased by 24.84%, driven by net income and potentially share repurchases, enhancing the financial strength of the company.

Capital Allocation

During Q3 FY25, Deckers repurchased approximately 275 thousand shares of its common stock for a total of $44.7 million. As of December 31, 2024, approximately $640.7 million remained under the stock repurchase authorization. The company has no outstanding borrowings. Management is focused on reinvesting in the business, particularly in brand development and DTC expansion, as indicated by increased SG&A expenses. Dividends are not mentioned, suggesting the company currently prioritizes share repurchases and reinvestment over dividends.

Management Commentary

Deckers posted exceptional results in the third quarter, delivering record quarterly revenue, gross margin, and earnings.

UGG continued to experience incredible global momentum, with the brand’s iconic franchises capturing strong full price consumer demand across all regions.

HOKA delivered impressive results consistent with our strategy, remaining focused on scaling through innovative performance products.

Our increased full-year revenue outlook calls for 15% growth, which would be our fifth consecutive year growing mid-teens or higher.

We are limited in the Q4 by available inventory left to sell for UGG brand.

Expect to face an FX headwind in the upcoming quarter.

Overall Sentiment: Positive and optimistic. Management is confident about the performance of UGG and HOKA brands and has raised full-year guidance. However, there are some cautions about inventory constraints for UGG in Q4 and FX headwinds.

Recommendation

Rating: Buy

Reason for Rating: Based on strong Q3 FY2025 results, raised full-year guidance, and positive brand momentum for UGG and HOKA, a Buy recommendation is warranted.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 1/31/2025, 12:39:01 PM