This DECK quarter played out exactly as we highlighted earlier this week. The company is executing exceptionally well in growing its portfolio and came in $0.90 ahead of the consensus, and while it raised the Full Year it implied a guide down in 4Q. Q3 revenues came in at $1.35bn, up 13% YY and 7% ahead of consensus. Revenue growth decelerated from Q2, which was up 21%. The company guided Q4 to be down 6% to down 10%, which we think is a sandbag. HOKA continues to put up impressive growth of high 40’s to low 50’s. UGG wholesale is expected to be down 20% to 30% in Q4, which is where we think the company is being overly conservative, particularly given its inventory position. Inventories ended the quarter up 31%. While most of that is in HOKA, we think that UGG will come in closer to flattish for the upcoming quarter (with better margins yy). The success of revamped classics, like the platform taz slippers and platform ultra minis, had higher success than expected, and management said some sales were lost but is working toward restocking and increasing production on those items. Gross margins for the quarter improved 70bps YY, a sequential improvement from Q2, although the year is expected to end approximately 50bps below 2022. Again, we think it comes in better. It’s got a freight tailwind, though that’s tempered by FX. On the call management reiterated its diciplined approach to HOKA wholesale distribution, not intending to significantly increase doors anytime soon (like we’re seeing from ONON, which we think is overdistributing the brand). The focus is on improving sell-through and expanding categories. In the end, there were no fireworks this quarter. Just DECK doing what it does. Executing on an exceptionally well thought-through plan, and broadening category, SKU assortment, while very selectively selling in new points of distribution. Next to Nike, DECK is the best managed company in the footwear space – full stop. The stock has rallied 80% off the bottom and it’s definitely not as cheap as it used to be. But we still think that on next year’s numbers, you’re paying for HOKA and getting Ugg for free. Over a TAIL duration, we think this name is a double from $420. Best Idea Long, and one that the company just set up to beat numbers again in another 13 weeks. We remain well above consensus for the upcoming quarter, next year, and over a TAIL duration ($33 in EPS vs the Street at $29). We like this name across durations.
