Deckers Stock Up 53% in the Past Year: How to Play Ahead?

Deckers Outdoor Corporation DECK has experienced a remarkable jump in its stock price over the past year. The stock has rallied 53%, comfortably outpacing the Zacks Retail-Apparel and Shoes industry's modest rise of 11.7%. The company has shown robust growth through its strategic focus on expanding its brand presence and strengthening direct-to-consumer (DTC) channels.

This approach, along with its commitment to innovation in product development and a keen focus on international market expansion, has also helped it outperform the broader Retail-Wholesale sector and the S&P 500 index's respective growth of 9.2% and 18.6% in the same period.

Technical indicators are supportive of Deckers' strong performance. The stock is trading above both its 100-day and 200-day moving averages, indicating robust upward momentum and price stability. This technical strength reflects positive market perception and confidence in Deckers' financial health and prospects. The stock currently has a Value Score of A, further validating its appeal.

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Decoding the Tailwinds

Deckers has excelled by focusing on profitable markets, product innovation and store expansion, and enhancing e-commerce capabilities. The company has expanded brand assortments, introduced innovative products and optimized distribution channels, thereby boosting the popularity of UGG and HOKA brands and its international presence. DECK aims to make HOKA a multibillion-dollar player, establish UGG as a global lifestyle brand and strengthen its DTC business.

Deckers' DTC business and omnichannel expansion strategy have been strong, with DTC net sales increasing 24% in the first quarter of fiscal 2025. The company's alignment of product creation, marketing and distribution around consumer needs has driven significant growth. Strategic initiatives like new store openings and targeted market expansions are enhancing brand accessibility and consumer experiences.

Product innovation is key for Deckers, reflected in the successful launch of new styles and collections. The company engages consumers through brand activations, collaborations and social listening initiatives, thereby building brand loyalty. The introduction of products like the Cielo X1 and Skyward X showcases Deckers' commitment to performance and technological advancement.

The wholesale channel remains crucial, with a 21% year-over-year increase in first-quarter revenues, which was particularly strong in the United States and Europe. Deckers' international expansion has also been effective, with international sales surging 20.8% year over year, driven by strong DTC growth and strategic wholesale partnerships, particularly in China and EMEA. This strategy has solidified Deckers' position as a global footwear market leader.

Shareholder-Friendly Moves Bode Well

Deckers showcases strong liquidity, backed by a solid cash position. As of Jun 30, 2024, the company held $1.44 billion in cash and cash equivalents, enhancing its financial flexibility. Importantly, Deckers had no outstanding borrowings during this period, reflecting a healthy balance sheet. The net cash flow provided by operating activities was $112.7 million as of Jun 30, 2024.

Additionally, in the first quarter, DECK demonstrated confidence in its financial strength by repurchasing approximately 177,000 shares, amounting to $152 million. This highlights management's commitment to enhancing shareholder value and signifies confidence in the company's prospects. As of Jun 30, 2024, DECK had $789.7 million remaining under its share repurchase authorization.

Growth Prospects Ahead

Deckers expects fiscal 2025 net sales to increase 10% and reach $4.7 billion. HOKA is projected to grow 20%, driven by consumer gains in the DTC channel, strategic partner expansion and international market growth. UGG is expected to increase in the mid-single digits, driven by international expansion and a healthy U.S. market. Fiscal 2025 earnings are predicted to be in the range of $29.75-$30.65 per share compared with$29.16 last year.

Estimate Revision Favoring the Stock

The Zacks Consensus Estimate for earnings per share has seen upward revisions, reflecting positive sentiments around Deckers. Over the past 30 days, analysts have increased their estimates for the current and next fiscal year by 3% to $31.52 and 2.4% to $35.18 per share, respectively, indicating year-over-year growth rates of 8.1% and 11.6%.

Wrapping Up

Despite the positive outlook, the company anticipates gross margin pressure due to increased freight costs and a return to a more typical promotional environment. Nevertheless, investors should consider Deckers as an investment opportunity because of its strong financial health and liquidity, marked by a solid cash position and no outstanding debt.

The company's achievements in both DTC and wholesale channels underscore its robust operational performance and extensive market reach. Furthermore, positive market sentiment and upward earnings revisions indicate confidence in Deckers' ongoing success and growth potential. Deckers currently carries a Zacks Rank #2 (Buy).

Other Key Picks

Some better-ranked stocks in the retail space are The Gap, Inc. GPS, Abercrombie & Fitch Co. ANF and Urban Outfitters Inc. URBN.

Gap is a premier international specialty retailer that offers a diverse range of clothing, accessories and personal care products. It currently sports a Zacks Rank #1 (Strong Buy).

The Zacks Consensus Estimate for Gap's fiscal 2024 earnings and sales indicates growth of 24.5% and 0.2%, respectively, from fiscal 2023 reported figures. GPS has a trailing four-quarter average earnings surprise of 202.7%.

Abercrombie is a specialty retailer of premium, high-quality casual apparel. It sports a Zacks Rank of 1 at present. ANF delivered a 28.9% earnings surprise in the last reported quarter.

The consensus estimate for Abercrombie's fiscal 2024 earnings and sales indicates growth of 48.9% and 11.1%, respectively, from the fiscal 2023 reported levels. ANF has a trailing four-quarter average earnings surprise of 210.3%.

Urban Outfitters is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gift products. It currently has a Zacks Rank of 2.

The Zacks Consensus Estimate for Urban Outfitters' fiscal 2024 earnings and sales indicates growth of 9.9% and 5.8%, respectively, from the year-ago actuals. URBN has a trailing four-quarter average earnings surprise of 16.9%.

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