Deckers Brands 1Q26 Immediate Call Postmortem
Oh snap. We have a company that trades at 17x FY1 earnings that is growing sales at 17% and continues to blow out EPS estimates by 20%+ every single quarter, has an EBIT margin north of 20%, and is buying back a ton of stock (with a ton of cash on balance sheet). Looking backwards, it really didn’t make much sense that the bottom was going to just drop out of this one, did it? I bet some people are going to reconsider how much they hate Lululemon tomorrow.
Big emphasis on consumer preference to shop in physical stores and less so through e-commerce for both UGG and HOKA. Hurts Deckers more than others given they over-index on e-commerce. They always are careful with adding doors but sounds like the runway opportunity there remains as strong as ever.
Lot of negativity on the street heading into this towards HOKA sell through of Clifton and Bondi but that didn’t seem to be anywhere near as bad as feared. The transition issues were similar to last quarter and it feels like we are largely past the worst of that now. Still working through the Arahi 7 but so far that hasn’t seemed to impact the Arahi 8 launched earlier this month. Low point in HOKA was April and its sequentially improved since. The big takeaway here is they have learned to space out future launches of major franchises, which has been a constant criticism of not only Deckers but also On Holding.
All those “peak UGG” bears just got taken to the woodshed. I have always had a hard time reconciling how people can be so bullish Birkenstock (trades 30x FY1) and yet at same time think UGG has no room for further growth. Have these analysts even looked at the product? I had some time before the call to put this comparison together.
Clearly their earlier stage of international growth relative to peers helped to offset the domestic consumer environment weakness we hear from most other brands. International up 50%, domestic up 3%. Yet they expect domestic to get better from here beginning in 2Q.
Revenue came in $55 million above expectations. $25 million of earlier HOKA shipments for international. $15 million of HOKA sales from sell-through. $15 million earlier UGG shipments from Q2 into Q1. And yet even with the earlier shipments they expect HOKA up 10% and UGG up MSD in 2Q. Wasn’t sub double digit growth in HOKA the cornerstone of most bear theses? Certainly a much less tenable position today than before.
The expected improvement in DTC for HOKA in Q2 vs. Q1 is a proof point that the reduced levels of growth were exactly in-line with what management said about the transition.
They aren’t going to start giving comp store sales anytime soon given how small their store base is. But that didn’t stop both Patel and Poser from going after them on this topic in Q&A. Seeing a reacceleration of the DTC business (particularly for HOKA) in 2Q but there is a limitation to how much they are pushing that channel as they are cognizant of the expanded wholesale distribution. End of the day, they just want more physical distribution points as the consumer is increasingly shifting in that direction.
Reorders continue to outpace revenue growth in wholesale. Opening more wholesale doors but product is performing and getting record reorders in Europe. China business is super strong. Very healthy order books for 2H. Positive retailer response to spring/summer 26 offering of HOKA.
One of the rare consumer companies that thinks it’s prudent to not give guidance as still have no visibility into the elasticity of consumer shopping habits in 2H. That said, haven’t seen any material decline in performance for products they have raised price on. Have not seen any material changers to order book from these increases.
Expect gross margin to be pressured in 2H26 given the timing difference of how tariffs flow through COGS and the staggered plan for price increases.
Komp wins the question of the day contest (tough competition though) by asking about share repurchases on a depressed stock level. They feel they are underappreciated for what they are delivering. Feel they are putting up exceptional results, its not reflected in stock price, and will take advantage of those opportunities.
*These are my unabridged quick thoughts and notes from the call. I get them out as soon as possible after the call ends. Management has given some topics to dig deeper into and will circle back in several days with a more comprehensive work up as well as detailed scenario analysis of how consensus numbers shook out.
FIN
Originally posted on X and Substack.