One of the top players in the footwear space, Deckers Outdoor Corporation (DECK), is known for its diversified product offerings. Over the past nine months the stock rallied 67.4%, to close Friday’s trading session at $328.26 after hitting its all-time high of $340.58 on February 22. This performance has been mainly driven by increased sales in its HOKA ONE ONE and UGG brands.

The company’s net sales for its  fiscal 2021 third quarter, ended December 31, increased 14.8% year-over-year to $1.08 billion, and its EPS increased 25.9% year-over-year to $8.99.

However, sales from its other brands, primarily composed of Koolaburra, decreased 5.5% year-over-year during the quarter. Also, because  COVID-19  pandemic related restrictions remain in place, the company is expected to have to continue to operate at limited capacity. So, it may well take some time before DECK can generate better  performance.

Here’s what I think could shape DECK’s performance in the near term:

Impressive Historical Growth

Over the years, DECK has grown both organically and inorganically. Its  revenue has increased at a CAGR of 8% over the past three years and its EPS has increased at a CAGR of 74.4% over the same period. This impressive growth has helped the stock gain 469% over the past five years and 150.4% over the past year.

HOKA ONE ONE Brand is Primarily Driving Sales

DECK’s acquisition of HOKA ONE ONE was quite profitable. The  brand’s net sales for fiscal 2021 third quarter (ended December 31, 2020) increased more than 52% year-over-year to $141.60 million. HOKA ONE ONE  also launched its Carbon X 2, a lightweight and propulsive shoe, on January 1, 2021.

Also, last  October, HOKA ONE ONE launched its  TenNine Hike GTX, which is a groundbreaking premium hiking boot designed to make hiking feel smoother and easier. The  brand announced a multi-year agreement with the running team Northern Arizona (NAZ) Elite in September 2020.

Covid-19 Uncertainties

While DECK did  reopen some of its physical retail stores during the third quarter, they continue to operate at limited capacity due to pandemic health and safety protocols. Also, , the company expects some of its retail stores to remain closed during the fourth quarter. DECK also failed to provide guidance for the fiscal 2021.

DECK’s  distribution centers—such as its facility in Moreno Valley, California—may continue to operate at limited capacity in the coming months. As a result, even if demand increases, the company may not be able to capitalize on it due to its capacity constraints.

Consensus Price Target Indicates Downside

Wall Street analysts expect the stock to hit $304 in the near term, which indicates a potential decline of 6.7%.

POWR Ratings Don’t Indicate Enough Upside

DECK has an overall rating of C, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.

Our proprietary rating system also evaluates each stock based on eight different categories. DECK has a grade of C for Growth also, which is consistent with analysts’ estimates that revenue will increase 14.9% for the current quarter, ending March 31, 2021, but its EPS will decline 217.9% for the quarter ending June 30, 2021.

The stock also has a grade of C for Value, which is in sync with its higher-than-industry forward enterprise value/sales of 3.45x.

Click here to see the additional POWR Ratings for DECK (Momentum, Stability, Sentiment and Quality).

Out of 67 stocks in the B-rated Fashion & Luxury industry, DECK is ranked #30.

Better than DECK: Click here to access twenty-one top-rated stocks in the same industry.

Bottom Line

DECK has gained significantly over the past years by leveraging its diverse portfolio of products and continuous product development. However, given the pandemic situation, the company expects some of its retail stores to remain closed in the coming months. Consequently, we think it is better to wait until the company is operating at its full capacity and can meet the market demand for its products before picking up its stock.

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DECK shares were trading at $333.75 per share on Monday morning, up $5.49 (+1.67%). Year-to-date, DECK has gained 16.38%, versus a 5.33% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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