Stock Story -
Footwear and apparel conglomerate Deckers (NYSE:DECK) beat analysts' expectations in Q1 CY2024, with revenue up 21.2% year on year to $959.8 million. The company expects the full year's revenue to be around $4.7 billion, in line with analysts' estimates. It made a GAAP profit of $4.95 per share, improving from its profit of $3.46 per share in the same quarter last year.
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Deckers (DECK) Q1 CY2024 Highlights:
- Revenue: $959.8 million vs analyst estimates of $888.8 million (8% beat)
- EPS: $4.95 vs analyst estimates of $3.00 (65% beat)
- Management's revenue guidance for the upcoming financial year 2025 is $4.7 billion at the midpoint, in line with analyst expectations and implying 9.6% growth (vs 18% in FY2024)
- Gross Margin (GAAP): 56.2%, up from 50% in the same quarter last year
- Market Capitalization: $22.92 billion
Established in 1973, Deckers (NYSE:DECK) is a footwear and apparel conglomerate with a portfolio of lifestyle and performance brands.
FootwearBefore 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.
Sales GrowthA company’s long-term performance can give signals about its business quality. Any business can put up a good quarter or two, but many enduring ones muster years of growth. Deckers's annualized revenue growth rate of 16.2% over the last five years was decent for a consumer discretionary business. Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Deckers's annualized revenue growth of 16.7% over the last two years aligns with its five-year revenue growth, suggesting the company's demand has been stable.
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 18.4% year-on-year growth. Because this number is higher than its revenue growth during the same period, we can see that foreign exchange rates have been a headwind for Deckers.
This quarter, Deckers reported remarkable year-on-year revenue growth of 21.2%, and its $959.8 million of revenue topped Wall Street estimates by 8%. Looking ahead, Wall Street expects sales to grow 9.7% over the next 12 months, a deceleration from this quarter.
Operating MarginOperating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Deckers has been a well-managed company over the last eight quarters. It's demonstrated it can be one of the more profitable businesses in the consumer discretionary sector, boasting an average operating margin of 19.9%. In Q1, Deckers generated an operating profit margin of 15%, up 1.9 percentage points year on year.
Over the next 12 months, Wall Street expects Deckers to become less profitable. Analysts are expecting the company’s LTM operating margin of 21.6% to decline to 20.4%.Key Takeaways from Deckers's Q1 Results We were impressed by how significantly Deckers blew past analysts' constant currency revenue and EPS expectations this quarter, driven by huge outperformance at its Hoka ($533 million of revenue vs estimates of $496 million) and UGG ($361 million of revenue vs estimates of $318 million) brands. On the other hand, its full-year EPS forecast was underwhelming. Still, this quarter's print was strong enough to mask the slightly weaker earnings outlook (especially considering its full-year revenue guidance was in line). Overall, we think this was a really good quarter that should please shareholders. The stock is up 2.5% after reporting and currently trades at $927.2 per share.
