Deckers (NYSE:DECK) Surprises With Q3 Sales, Stock Soars

Footwear and apparel conglomerate Deckers (NYSE:DECK) reported Q3 CY2024 results beating Wall Street’s revenue expectations , with sales up 20.1% year on year to $1.31 billion. The company expects the full year’s revenue to be around $4.8 billion, close to analysts’ estimates. Its GAAP profit of $1.59 per share was also 28.2% above analysts’ consensus estimates.

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• Revenue: $1.31 billion vs analyst estimates of $1.20 billion (9% beat)

• EPS: $1.59 vs analyst estimates of $1.24 (28.2% beat)

• The company lifted its revenue guidance for the full year to $4.8 billion at the midpoint from $4.7 billion, a 2.1% increase

• The company also lifted its EPS guidance for the full year (accounting for the stock split)

• Gross Margin (GAAP): 55.9%, up from 53.4% in the same quarter last year

• Operating Margin: 23.3%, up from 20.6% in the same quarter last year

• Constant Currency Revenue rose 20.4% year on year(compared to 24.2% in the same quarter last year)

• Market Capitalization: $23.02 billion

“HOKA and UGG produced outstanding second quarter results driven by strong consumer demand for our innovative and unique products,” said Stefano Caroti, President and Chief Executive Officer.

Established in 1973, Deckers (NYSE:DECK) is a footwear and apparel conglomerate with a portfolio of lifestyle and performance brands.

Before the advent of the internet, styles changed, but consumers mainly bought shoes by visiting local brick-and-mortar shoe, department, and specialty stores. Today, not only do styles change more frequently as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some footwear companies have made concerted efforts to adapt while those who are slower to move may fall behind.

A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Deckers’s sales grew at a decent 17.4% compounded annual growth rate over the last five years. This shows it was successful in expanding, a useful starting point for our analysis.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Deckers’s annualized revenue growth of 16.8% over the last two years aligns with its five-year trend, suggesting its demand was stable.

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Deckers also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 17.8% year-on-year growth. Because this number aligns with its normal revenue growth, we can see Deckers’s foreign exchange rates have been steady.

This quarter, Deckers reported robust year-on-year revenue growth of 20.1%, and its $1.31 billion of revenue topped Wall Street estimates by 9%.

Looking ahead, sell-side analysts expect revenue to grow 8.6% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates the market thinks its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

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Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Deckers has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the consumer discretionary sector, averaging 24.2% over the last two years.

The company’s cash burn increased from $30.44 million of lost cash in the same quarter last year . These numbers deviate from its longer-term margin, and we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings.

We were impressed by how significantly Deckers blew past analysts’ constant currency revenue expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates. The company also raised its full year guidance for revenue and EPS, capping off a great quarter. The stock traded up 9.1% to $165.96 immediately after reporting.

Deckers may have had a good quarter, but does that mean you should invest right now?When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.