We saw and heard everything from this DECK print that we needed in order to keep this name as a Best Idea Long with a view that it is a TAIL double. Impressive headline beat of $1.66 vs our estimate of $1.55 and the Street at $1.21. As we expected, the beat was entirely top-line driven, with total sales up 22% -- slightly better than our above-consensus model -- as HOKA put up a blistering top line growth rate of 55% -- on top of 100% growth in last year’s first quarter. Based on next year’s numbers, we get to a value of HOKA alone of $370 per share, compared to today’s price for the entire entity (including Ugg, Sanuk and Teva) of $300. Importantly, this is the first time that HOKA accounted for greater than 50% of the portfolio – notable given that HOKA deserves 2x the multiple as compared to Ugg. The offset is that Ugg was down 2% for the quarter, which was 1,000bp better than our model, keeping in mind that 1Q accounts for only 10% of Ugg’s annual sales and it went up against a 70% comp in last year’s first quarter. For what it’s worth, we could literally zero-out Ugg growth in our model in perpetuity, and still get to a double in this stock over a TAIL duration – though we think that Ugg is good for msd growth for the remainder of this year. Mind you, this is a brand that the market has been waiting to die for the better part of 10-years, and yet the company continues to gain market share by entering new categories and classifications. The company took inventory early (up 83% vs ly – when it was very much under-inventoried in Ugg) for both Ugg and HOKA to avoid air-freight charges, and gain share at wholesale – but was convincing on the call in that it will remain tight with discounting throughout its FY as the market’s promotional cadence returns to more normalized levels – something we fully expect to happen in the back half of this calendar year headed into 2023. Bears will latch on to the inventory increase and the fact that the company increased the year by only a dime on a $0.45ps beat. But we’re still coming in at $19.50 for the year vs the guide (and the Street) of about $18. We build to $30ps in 3-years for a company that has a bullet-proof balance sheet, and has authorization to buy $1.5bn worth of its stock (it repo’d $100mm in the quarter at ~$260). In the 28 years I (McGough) have been analyzing stocks and having looked at over a thousand companies, I’d put the DECK management team in the top 1% (behind only Nike in the footwear space) as it relates to having a defined and proven process to stratify its product across consumer classifications (age, gender and use), channels, price-points and geographies. That’s why the traditional Ugg boot, which was once 90% of sales, is now only 10% and yet the brand has doubled in size. We think that the company will take the same playbook and apply it to HOKA, leaving far more growth in the model than a $300 stock suggests.
