Deckers Gets Marked Down (Again)

I first wrote up Deckers Brands (NYSE: DECK) on October 30, 2025, when it was \~$84/share. The stock ran to \~$120/share by late February 2026, then gave most of that gain back and now trades at \~$91/share. ([see the original Reddit post](https://www.reddit.com/r/ValueInvesting/comments/1ol5l7i/thoughts_on_deckers_down_58_ytd/)). This was basically the thesis at the time: “You can buy $1.2B in annual EBIT, $1.4B cash, $900M FCF, zero debt—with international revenue growing 38%—all for 13x earnings.” The balance sheet is stronger now, at $1.6B of cash and $1.1B of FCF, still with zero debt. At \~$91/share the stock trades at \~12x forward earnings, just under the 13x back then because earnings kept growing. On the other hand, international only grew 8.4% last quarter, and HOKA and UGG growth both roughly halved, from about 20% and 19% a year ago to 7.7% and 4.9%. That deceleration, and a new question about HOKA, is why it’s worth a quick revisit. # What Deckers Sells Two brands drive almost everything, plus a couple being wound down: * **HOKA**: Performance running and trail shoes built on oversized “maximalist” foam midsoles and a rocker sole, originally made for ultramarathoners. Now the bigger and faster-growing brand, at $703.5M in the June quarter (+7.7% y/y). * **UGG**: The sheepskin boot brand, pushing past winter into year-round sneakers, sandals, slippers, and apparel. $278.0M in the quarter (+4.9% y/y). * **Teva and other**: Sandals and wind-down brands, down 18.1% to $37.9M. Barely moves the total, and shrinking by design. The June-quarter mix is lopsided toward HOKA, but that’s seasonal. UGG is a fall/winter brand and does most of its business later in the year, so on a full-year basis the two are closer in size. Deckers sells two ways: 1. **Wholesale** means selling to retailers like Dick’s, REI, and Nordstrom. 2. **DTC** means its own stores and sites, which carry higher margin and give it pricing control and first-party data. The June split was \~65/35 wholesale to DTC ($666.7M vs. $352.8M), and DTC is growing far faster (+13.0% vs. +2.2%). # Why the Stock Fell Deckers went from 25x earnings in early 2025 to 12x today, cut roughly in half, while EPS kept rising. Three bear narratives drove that, and they’ve aged poorly: 1. **UGG has peaked**: It grew 8.2% in FY26 and is still growing. 2. **Nike will crush HOKA**: Nike is deep in its own turnaround and hasn’t crushed anyone. 3. **Maximalist cushioning is a fad that’s fading**: ASICS, Adidas, and On are all growing in exactly that category. The business keeps gaining share at a 20%+ operating margin and guides conservatively, yet the stock is priced like it’s done growing. # Beat That Masks Falling Profit Q1 FY2027 (ended June 30, 2026) reported July 23, 2026. EPS beat consensus. Operating income and net income both fell. The good: * **Revenue**: $1,019.5M, +5.7% y/y. First June quarter above $1B. * **Gross margin**: 56.4%, up 60bp y/y. * **Diluted EPS**: $0.94, +1.1% y/y, \~8% above the $0.87 consensus. * **DTC**: $352.8M, +13.0% (comparable DTC +6.8%, HOKA DTC +17%). * **International**: $502.1M, +8.4% (tho it grew +49.7% a year ago). The not-so-good: * **SG&A**: $419.9M, +12.7% y/y, more than double the revenue growth rate. * **Operating income**: $155.3M, down 6.0% y/y. * **Operating margin**: 15.2%, down 190bp y/y. * **Net income**: $130.0M, down 6.6% y/y. Revenue grew, gross margin improved, and operating income still fell, because SG&A grew more than twice as fast as sales. The seasonally soft June quarter always runs the lowest operating margin of the year, so a low 15.2% is expected. The 190bp decline from last year’s 17.1% matters more, because comparing June to June isolates the SG&A deleverage from seasonality. And the EPS “growth” is manufactured. Net income fell 6.6%, but diluted EPS rose 1.1% because buybacks shrank the share count enough to flip a down number positive. The business earned less and reported more per share. The segment numbers explain the operating-income drop: * HOKA grew sales 7.7% but its segment operating income was basically flat ($255.5M vs. $253.5M), as segment operating margin fell from 38.8% to 36.3%. HOKA added \~$50M of sales and almost no incremental profit. * UGG actually improved gross margin (54.9% vs. 52.6%) but its operating margin still slipped (19.4% vs. 20.4%) on heavier marketing. Management raised full-year EPS guidance to $7.35-7.50 anyway, on cost discipline for the back half. The stock fell 8% regardless, on a soft Q2 guide (revenue up \~5%, EPS $1.73-1.78) and a higher tariff assumption. # Growth Is Slowing In last year’s June quarter, HOKA grew about 20% and UGG about 19%. This quarter: 7.7% and 4.9%. Both roughly halved. FY26 revenue grew 9.8%, the first sub-10% year after five straight double-digit years. The five years through FY25 delivered a 19% revenue CAGR and a 32% EPS CAGR. The double-digit era is over, and the FY27 guide of $5.86-5.91B is high-single-digit. Management still guides HOKA to low-double-digit and UGG to mid-single-digit growth for the year, with both accelerating in the second half. The bull explanation is a timing shift in European wholesale that held back Q1 and reverses in H2, plus a long international runway (20-25 new HOKA stores/year abroad). The bear explanation is simpler. You may be watching a great brand mature, and the guide leans on a back-half recovery that has to show up. HOKA’s DTC channel grew 17% and full-price selling held. Direct demand is holding, and the slowdown is mostly in wholesale. # Margins, Tariffs, and an Unbooked Refund Gross margin isn’t the problem. As the quarter showed, it’s rising, and the FY27 guide keeps it above 56.5%. The pressure is below it, in SG&A and tariffs. Deckers sources heavily from Asia and raised its go-forward tariff assumption to 12.5%, up from 10%. That, plus the SG&A growth, is why FY27 operating margin is guided to 21.5%, down from 23.1% in FY26. Still great for footwear (Nike’s is lower and falling, most peers sit in the low-to-mid teens), but a clear step down. Some of the SG&A pressure is deliberate. Deckers extended the lease on its Moreno Valley distribution center and kept building stores, adding $120.1M of operating lease assets in the quarter. That expands capacity for more volume, and the added occupancy runs through SG&A. # Unbooked Refund There’s also an upside item the guidance leaves out. In February 2026 the Supreme Court struck down the IEEPA tariffs, and a federal court ordered refunds of what had already been collected. The administration replaced them with tariffs under other authority, so Deckers still pays going forward, which is why the 12.5% assumption stands. But Deckers had paid \~$120M in the old IEEPA tariffs and began filing to claw it back after quarter-end. None of it’s recognized yet, and the net will land below $120M after cost-sharing with manufacturers and taxes. It’s a cash refund that sits outside the numbers and the guidance, against a company earning \~$1B/year. # Buybacks Ramping Deckers doesn’t issue dividends. Cash goes back entirely through repurchases, and the pace has noticeably ramped: * FY24: $415M * FY25: $567M * FY26: $1,075M * Q1 FY27 alone: $338M (\~$1.35B annualized) The board added $3.5B to the authorization in May 2026, leaving $4.7B available as of June 30, \~38% of the \~$12.5B market cap. The buyback comes with two caveats: 1. **It masks the operating decline**: A chunk of the EPS growth comes from a smaller share count, not a bigger business. 2. **The timing has been poor**: Q1’s repurchases averaged $103.79 and July’s ran $103.35, both above today’s price. The remaining $4.7B now buys shares at a lower price. Regardless, buying \~80% of FCF (the guide’s assumption) shrinks the share count by \~7%/year at these prices, and gets more accretive the lower the stock goes. # Is HOKA Losing the Runners? HOKA charges $150-200 a pair, and that premium leans on its credibility as a performance running brand. The question is whether it holds as HOKA turns into an everyday shoe for walkers and commuters. On running forums, HOKA owners have flagged foam going dead early, outsoles wearing fast, and uppers not holding up for years, alongside a longer-running view that build quality slipped as the brand scaled. But this appears to be an enthusiast-core complaint, and HOKA now sells to a much broader buyer. It’s an everyday shoe for nurses, travelers, and walkers, not just runners. The bull case is that this wider demand swamps any enthusiast defection, and the 17% DTC growth with full-price selling intact says it’s working so far. The bear case is that losing the enthusiast core is an early warning, not a present problem. After all, performance credibility is what lets a running brand charge $150-200 and resist discounts. Trade that credibility for ubiquity and the premium erodes, and pricing power with it. That’s arguably part of what happened to Nike. The segment numbers fit the bear case. HOKA grew sales 7.7% but generated almost no incremental operating profit, and UGG needed heavier marketing to hold its growth. That can be read innocently, as mix and investment spend, or as an early sign it costs more to move the same volume. Neither reading is entirely proven yet. The metric to watch is whether HOKA holds full-price DTC growth as the newness wears off. If the complaints start showing up as heavier promotions or slowing DTC, the margin and the multiple compress together. # The Setup At $91.00/share, Deckers trades at 12.9x trailing earnings ($7.03 TTM EPS) and 12.3x the FY27 guide midpoint of $7.42. It’s \~8x EBITDA on enterprise value and \~2.3x sales on market cap, with a \~9% FCF yield and \~40% ROE. Against its own history, this is a business that compounded EPS at a 32% five-year CAGR and still guides to low-to-mid double-digit EPS growth, trading at a low-teens multiple after historically fetching 20-25x. Against peers, Nike (NKE) trades near 30x depressed turnaround earnings and On (ONON) carries a multiple several times Deckers’, while Deckers out-earns both on margin and return. Here’s a simple but practical valuation analysis: * **Bear, $81-89**: Growth stalls, HOKA fatigue shows up in the numbers, and the multiple holds at 11-12x on flat \~$7.40 EPS ($7.40 × 11-12x). The top end of that range sits just below today’s price, so the stock already embeds a stall. * **Base, $107-115**: High-single-digit revenue plus buybacks carry EPS to $8.20 (FY28 consensus) at 13-14x ($8.20 × 13-14x). \~18-26% upside. * **Bull, $136-153**: The second-half reacceleration proves out, EPS reaches $8.50+, and the multiple re-rates to 16-18x ($8.50 × 16-18x). \~49-68% upside. Wall Street’s average target is $123, \~35% above the stock, and even the most bearish target ($85, Wells Fargo at Underweight) sits only \~7% below today’s price. Most analysts trimmed targets after the soft Q2 guide, but the average stayed well above the price. Consensus is still a Buy. # Downside Protection That upside may not excite you, but the balance sheet limits the downside. Deckers holds \~$1.6B of cash and no debt, \~$11.70/share in net cash. FCF runs \~$1.1B/year, or \~$8.00/share. Strip out the net cash and the market is already paying just 10x FCF for the operating business, the low end of branded footwear. A washout at 7x FCF plus the cash still gets you \~$68/share ($8.00 × 7x + $11.70), \~26% below today. So at $91/share you’re paying a low-end multiple for a business that is still growing and still earning great margins. That floor moves with FCF, and it drops if margins keep compressing. # Where This Leaves Deckers Deckers (DECK) at $91/share is a two-brand, share-gaining business with a 20%+ operating margin, \~40% ROE, \~$1.6B of net cash, no debt, \~$1.1B of FCF, and a buyback worth \~38% of the company, at \~12x earnings. The bull case holds up on almost every number. The bear case rests on two main factors: 1. Growth has slowed by more than half, and the guide leans on an H2 reacceleration that has to materialize. 2. HOKA is now growing sales without growing profit, either because it’s spending more to drive that growth or because it’s starting to lose pricing power. The financials say cheap compounder. The falling operating margin and the HOKA question ask whether the compounding lasts. At 12x, the market is siding with the bears, and it hands you a balance-sheet floor while you wait to find out who’s right. What I’d watch isn’t the headline growth rate. It’s HOKA’s full-price DTC trend, the promotional cadence, and the operating margin line: * Hold full-price DTC and stabilize operating margins through the back half, and the re-rating case gets easy. * Let full-price DTC slip into markdowns and SG&A keep outrunning sales, and 12x becomes 10x quickly. At $91/share (actually now $88.9/share), the market is already pricing a stall. The upside is the business proving it’s still compounding. \--- Here's the [same write-up](https://newsletter.stablebread.com/p/deckers-gets-marked-down) with charts and citations included. Would be interested to hear your thoughts!