Lights out quarter for Best Idea Long Decker’s Outdoor (DECK). The company crushed the consensus, putting up $2.51 vs the Street at $1.30 (we were at $1.75). Almost entirely a revenue beat, as Ugg put up 25% growth – which is massive for a company that people largely zero-out in their models as being a ‘no growth brand.’ HOKA put up a smoker as well, growing 60% vs last year, with a stunning DTC growth rate of 200%. The non-core brands (Sanuk and Teva) which arguably shouldn’t be part of the portfolio) were down, and are a worth next to nothing in our modeling work. The company noted that it is going to start selling HOKA in select Foot Locker doors starting this summer, which should accelerate wholesale growth. The brand is definitely not going in all 3,500 FL doors – and we’d be upset if it was. The core FL customer is not the core HOKA customer. Full stop. But there are certain doors – perhaps 300-500 – that are geared towards performance running where it makes all the sense in the world for HOKA to sell its kicks. We also think that the company is downplaying its penetration at Dick’s Sporting Goods, as it’s in less than 20% of doors today and says that it’s in ‘no rush’ to accelerate that growth anytime soon. We think Dick’s is taking at least 80% of its stores upscale as it relates to the performance footwear category, and is moving towards a premium full-price model that is a perfect match for HOKA. The punchline is the we think that the company guided too conservatively on the top line for the year ending March 23, and is downplaying the top line momentum of both brands – particularly HOKA – in the outer years. DECK guided to $17.40-$18.05 per share for the year – and we’re coming in at $20 even. What perplexes us is that the Street is looking for just $24 in EPS as far out as the Mar26 FY. That’s absolutely ridiculous (stock repo almost gets you to that level with zero growth in the business) – we’re at $35, or about 50% higher. In our sum-of-the-parts model, its worth noting that we’re assuming ZERO multiple expansion over time. Rather, we think you get paid here on earnings growth alone. While we don’t like ONON here – nothing wrong with the business, but the multiple is way too frothy – we like the fact that it exists as it relates to a halo for DECK given how comparable the brand is to HOKA. ONON trades at 35x EBITDA, and even if we give HOKA half that multiple we get to a $375 value in a year for HOKA alone – suggesting that you get better than 60% upside from current levels and STILL get the Ugg brand – one of the best cash cows in retail – scott free.
For a Video Replay of our Black Book on DECK (including math on DKS and FL): CLICK HERE
