Deckers Outdoor

Deckers' first-quarter fiscal 2027 sales rose 6% as Hoka (69% of total) and Ugg (27%) had increases of 8% and 5%, respectively. Gross margin rose 60 basis points to 56.4% from 55.8% on direct-to-consumer growth and fewer discounts, but operating margin fell to 15.2% from 17.1% on higher costs.

Why it matters: Deckers continues to release innovative products, invest in marketing, and expand distribution for both Hoka and Ugg. We think these efforts are growing the addressable markets for both brands while maintaining their high retail prices and margins. Sales growth met our 6% estimate, as Ugg's 5% growth outpaced our 3% forecast, while Hoka's 8% growth was marginally short of our 9% projection. More significantly, gross margin outperformed our 54.5% estimate by nearly 2 percentage points, driven by strong sell-through and pricing. Further, Deckers' operating margin beat our 14% estimate by 120 basis points, and its EPS was $0.07 better. We think Deckers is building both Hoka and Ugg so that both can maintain high (mid-30s) segment-level EBIT margins while lifting sales by annual rates of 5% or more.

The bottom line: We do not expect to make any material change to our $130 fair value estimate. We think shares are attractive as investors focus on short-term guidance rather than on the profitability and growing popularity of Deckers' two key brands, which is the source of our narrow moat rating. Second-quarter guidance for EPS of $1.73-$1.78 is shy of our $1.90 estimate due to timing of shipments. However, Deckers raised its full-year EPS range (now $7.35-$7.50) by $0.05, so we regard the shortfall as insignificant. Moreover, the firm consistently beats expectations.

Key stats: Deckers repurchased $338 million in shares, putting it on pace to eclipse fiscal 2026's $1.08 billion. We think buybacks generate shareholder value at current prices and maintain our Exemplary Capital Rating. Deckers closed the quarter with no debt and more than $11 per share in cash.

We maintain our per share fair value estimate on Deckers at $130 after its fiscal 2027 first-quarter earnings report.

In the period, Deckers' sales rose 6% (matching our estimate), with Hoka and Ugg up 8% and 5%, respectively. Gross margin rose 60 basis points to 56.4% from 55.8% on direct-to-consumer growth and fewer discounts, but operating margin fell to 15.2% from 17.1% on higher costs. Deckers' operating margin beat our 14% estimate by 120 basis points, and its EPS outperformed by $0.07.

For fiscal 2027, we forecast 7% sales growth (down from 8% previously), a 23% EBITDA margin (unchanged), and $7.52 in EPS (up from $7.48). Based on our expectations, our valuation implies a P/E of 17 times and EV/EBITDA of 11 times.

We estimate sales growth of 6% and 10% for Ugg and Hoka, respectively, in fiscal 2027. Over the next decade, we forecast compound average annual sales growth rates of 5% for Ugg and 8% for Hoka, leading to a 7% rate for Deckers as a whole. Ugg is a relatively mature brand and is limited by its association with sheepskin boots. Hoka, in contrast, is in an earlier stage of development and has expansion opportunities. Over the next decade, we anticipate awareness of the brand will increase both in the US and internationally, and it will expand beyond its association with running shoes.

The success of Hoka and Ugg has lifted Deckers’ gross margins to the high-50s. The firm’s gross margins were typically below 50% prior to fiscal 2019, but we think they have been elevated by better management of Ugg and Hoka’s success. We forecast Deckers’ gross margins will decline to about 54.5% in the long run as competition puts some pressure on pricing.

We project Deckers’ operating margins will average 21% over the next 10 years. At the segment level, we estimate 34%-35% operating margins for Ugg and Hoka. We anticipate Deckers will invest in advertising and research and development to support the growth of Hoka and its other brands. Over the last few years, the company has increased its yearly marketing spending as a percentage of sales to about 9% from 6%, and we anticipate that this percentage will remain around 8%-9% in the long term. Deckers also plans to open more Hoka stores, which will bring extra costs. We forecast the firm’s operating expenses will increase at roughly the same rate as its sales growth.

Deckers produced 41% of its fiscal 2026 sales through direct-to-consumer operations, up from the mid-30s in the prepandemic years. The company is opening Hoka shops, but it is also expanding the brand’s wholesale distribution through partners like narrow-moat Dick’s Sporting Goods and JD Sports. Deckers currently operates approximately 62 Hoka stores (up from 18 at the end of fiscal 2023) and plans to open about 20 per year. Meanwhile, we expect the number of Ugg stores (approximately 141) will be relatively stable.

Deckers generated 58% of fiscal 2026 revenue in the US, down from 69% four years prior. Hoka remains small in major sportswear markets like Western Europe and China, but consumer awareness and sales are expanding rapidly through both wholesale and direct-to-consumer efforts. Over the next decade, we forecast compound average annual growth rates of 7% and 6% for Deckers’ international and domestic sales, respectively.

We do not think Teva will generate significant sales or operating profit in the foreseeable future. The brand is mature and has not been growing.

We assign Deckers a narrow moat rating based on an intangible asset related to the brand value of Ugg and Hoka.

As evidence of its competitive edge, Deckers’ adjusted returns on invested capital, including goodwill, have averaged 59% over the past five years, far higher than our 10% cost of capital estimate. Moreover, we think the firm’s ROICs will remain very high over the next decade at an annual average of 65%. We are comfortable forecasting such strong returns as we think Ugg and Hoka can hold their pricing and margins while exploiting expansion opportunities.

In fiscal 2026, Deckers recorded a gross margin and an operating margin of 58% and 23%, respectively, on a 10% increase in sales. The firm’s margins are among the highest for any firm in the athletic footwear market under our coverage. Although we expect sales growth and margins will moderate from current levels, we expect them to remain strong, forecasting a 21% average operating margin and an 7% compound average annual sales growth over the next decade. As such, we expect the firm to grow faster than the global sportswear market (4.6% growth through 2030, per Euromonitor).

We think Ugg contributes to Deckers’ narrow moat after a successful turnaround. Ugg is Deckers’ largest brand at 50% of its fiscal 2026 sales. Known for women’s cold weather boots made of sheepskin, Ugg had about $17 million in annual sales when acquired by Deckers for $14.6 million in 1995. It was a niche brand until it caught on with Oprah Winfrey and other celebrities in the early 2000s. In response, Deckers increased production, opened stores, and ramped up wholesale distribution. Eventually, though, Ugg boots became so widely distributed that they were often discounted, and the value of the brand and Deckers’ margins declined. In 2016, the company implemented a restructuring plan that included a reduction in Uggs’ distribution and store closures. This plan improved the brand’s health and profitability.

Ugg is a high-margin brand that contributes to a moat based on a brand intangible asset for Deckers. Although there are many lower-price knockoffs, Ugg’s core boot styles typically sell at retail for $170-$200 or more per pair. The brand has held strong margins (38% in fiscal 2026) even as it has returned to solid sales growth, having increased its sales to $2.7 billion in fiscal 2026 from $1.5 billion in fiscal 2019.

We do not think Deckers will make the same mistakes in managing Ugg that it made more than a decade ago. The firm is doing a much better job of segmenting Ugg by channel now, thereby preserving its status as an upscale brand. Thus, we project slower sales growth and slightly reduced profitability but expect both to remain high. Specifically, we forecast Ugg’s sales growth and operating margins at 5% and 34%-35%, respectively, in the long term.

In our view, Hoka also contributes to Deckers’ narrow moat as it has been one of the hottest footwear brands in the US over the last few years. Hoka is known for unusual running shoes with extremely thick soles, often characterized as “maximalist.” The original Hoka shoes were created by two trail runners in the French Alps in 2009. Deckers invested in their fledgling company in 2011 and then acquired the rest of it in 2012 for a reported $1.1 million. In retrospect, this was one of the most successful acquisitions in the apparel and footwear space ever.

Until a few years ago, Hoka was little-known outside of specialty running stores and the ultra-marathon niche. Now, it has become popular with runners of all types and has broken out as an everyday casual shoe due to its styling and comfortable cushioning. We estimate the brand’s sales have risen to $2.6 billion from $115 million over the past nine fiscal years, a compound average annual growth rate of nearly 50%. In the US sports footwear market, Hoka’s share has increased to 3.6% from 1.9% in just the last five years (Euromonitor).

Hoka achieves high pricing on many products, supporting our view of its brand power. Its core running shoes sell for more than $150 per pair. As its shoes are typically sold at full price, Hoka’s margins (35% in fiscal 2026) have expanded along with its sales. Apparel only accounts for about 1% of Hoka’s sales and represents a growth opportunity. We forecast 8% compound average annual sales growth and 34%-35% operating margins on average for the brand over the next 10 years.

Deckers supporting Hoka with higher marketing spending. The firm’s annual ad spending has increased to about $500 million from about $100 million before the pandemic. Advertising has also grown as a percentage of sales, rising to about 9% now from 6% historically. We regard these investments as prudent given that they support the brand value of Hoka.

The success of its two large brands is driving greater direct-to-consumer sales and profitability for Deckers. Between fiscal years 2020 and 2026, the share of the firm’s sales from direct-to-consumer operations rose to 41% from 35%, and segment operating margins (excluding corporate overhead) jumped to the mid-30s from 25%. Hoka led the way, as its direct sales skyrocketed to about $936 million from $76 million over that span. Deckers’ direct-to-consumer growth has come even as it currently operates a relatively small number of stores; as of March 2026, the company had 62 Hoka stores and 141 Ugg stores worldwide. Although the number of Ugg stores is likely to be stable, there is room for many more Hoka stores.

We do not believe Deckers has a moat based on any other factors besides a brand intangible asset. Deckers outsources its production to third-party factories in Asia, so we do not think it has any cost advantage over competitors, which source from similar supply chains. Moreover, we do not think Deckers has a moat based on efficient scale, as its distribution system is like that of competitors. Further, there is no network effect and no switching costs.

Hoka has experienced tremendous growth over the past few years. The popularity of the brand allows for high full-price sell-through and profit margins. Deckers’ profitability and returns on investment have increased greatly since Hoka became popular.

A successful restructuring effort has brought improving sales and profitability for Ugg. We think it will hold its position as a premium brand with strong margins.

Both Hoka and Ugg have opportunities for greater distribution, geographic expansion, and extensions into new categories.

Hoka and Ugg are known for specific styles of footwear that could fall out of favor with consumers or be adversely affected by knockoffs given the limited barriers to entry in the space.

Teva generates immaterial sales and profit for Deckers. The effort and expense put into the brand could hurt financial results and distract management.

As a company that relies heavily on imports to the US, Deckers is subject to higher tariffs that could reduce margins and sales. Higher oil prices may also raise costs and reduce demand.