Deckers Outdoor (NYSE: DECK)
, which designs, markets, and distributes footwear apparel and accessories, is scheduled to report its earnings next week. Deckers’ results last quarter indicated that the pandemic was having a mixed impact on business.
Deckers Q4 2020 Earnings
Deckers fiscal year ends on March 31; its last earnings report was for Q4 2020 and focused on its April 1, 2019 to March 31, 2020 results.
Revenue in Q4 was down 5% yoy to $375 million, with sales coming in around $25 million lower due to COVID-19. Deckers was seeing 20% yoy growth in Europe for the first two months of Q2, but a March slowdown led to a final growth rate of 6% yoy for the full quarter. In the US, growth was tracking at an increase of 3% yoy through March 15 but ended at a decrease of 8% yoy for Q4.
As of mid-May, about 20% of North America stores, half of EMEA stores, 20% of Japan stores, and all China stores are open.
Sounds bleak so far, but there is reason for optimism:
Deckers is seeing triple-digit e-commerce growth, led by strong growth in its UGG and HOKA brands. Google Trends in the two months ending in mid-May showed a 73% yoy increase in UGG searches and a 65% yoy increase in HOKA searches.
According to CEO Dave Powers, “customers entering our online database have a higher lifetime value and purchase frequency than those purchasing in stores.”
On the Q4 2020 earnings call, Deckers offered some color on its Q1 2021 quarter-to-date performance, which at the time included April 1 through May 15. First, it’s important to note that this month-and-a-half period usually only accounts for around 5% of the company’s annual sales volume (an average 1.5-month period would account for 12.5%).
That said, here are a few salient indicators for this period:
- Wholesale is down in the mid-30% range
- Direct-to-consumer is up in the high-40% range
- This time is the off-season for UGG and Koolaburra
- HOKA is spread more evenly throughout the year
The wholesale numbers look concerning, but Deckers believed they would pick up later in the quarter.
Now let’s take a step back and focus on the long-term trends in Deckers’ business.
The weak Q4 provided a slight drag on full-year results, but revenue still grew 6% yoy to $2.133 billion and EPS increased 9% yoy to $9.62. This represented Deckers third straight year of mid-single-digit revenue growth.
Operating margins are on a long-term upswing, having increased by over 600 basis points (on a non-GAAP basis) compared to the 2017 fiscal year.
The balance sheet is strong with $649 million in cash, up from $590 million in cash a year ago. On top of that, Deckers has access to $469 million in existing lines of credit. Deckers should continue to be cash-flow positive, but if business takes an unexpected turn for the worse, the company should have no problem surviving a few lean quarters.
DECK trades at around 24.5x projected 2021 earnings and a little over 19x projected 2022 earnings (April 1, 2021 to March 31, 2022).
This is a reasonable valuation for Deckers. A flat 2021 fiscal year, give or take a few percentage points, is a realistic expectation with what we know. It remains to be seen if brands like UGG and HOKA can accelerate long-term growth into double-digits as we move into the mid-2020s.
Deckers shares plummeted from $185.09 to $78.70 in the first couple weeks of March. But the stock quickly recovered and a set new all-time high of $218.18 in early June.
Over the last five weeks, DECK has been basing between around $185 and $205 a share. The price action has been tight, and volume has been light, two good signs that the stock has the technical foundation for another leg-up. The 50-day moving average crossed over the 200-day moving average about a month ago, another bullish indicator.
Shares tried to start moving up yesterday but stalled around $207 and closed at just under $202.
There are two potential entry points on DECK:
- A strong breakout above $207 – this would not set a new all-time high, but there is very little price resistance above $207.
- Alternatively, you could wait for shares to break above $219 and set all-time highs.
Personally, I would look to buy on a strong breakout above $207. It would be nice to have zero price resistance, but there is stronger resistance at $200-$207. If shares have a powerful breakout above that range, they should have the juice to run above $219.
Final Word on Deckers Stock
If DECK breaks out before earnings, it will warrant serious consideration. But in the goldilocks scenario, shares would go sideways over the next week, the company would report strong earnings, and shares would jump without getting too extended. This may or may not come to fruition, but if it does, Deckers shares would be a great buy. Stay tuned next week.
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