For several years DECK was a story of an Ugg Stub with a powerful underlying growth story in HOKA. We were onboard long side for over a year and a half (from 250 to 650) of that as Hoka took large chunks of share in the running category. Now, the big ramp in valuation suggests that this is now a HOKA AND an Ugg growth story. The only way we can get to upside from here is if HOKA continues its growth path with no hiccups and Ugg suddenly inflects to a teens+ grower over multiple years. Valuation is irrelevant while the P&L is accelerating, but we think 2024 will mark a notable deceleration in sales and the emergence of margin degradation for DECK. That's when a 22x EBITDA multiple and eye-popping 4.9x EV/Sales number needs to be flagged. HOKA is probably carrying about a 25x-30x EBITDA multiple now, with Ugg closer to 15x-20x. We think as the competitive environment in running materially intensifies, ONON blows up (a valuation proxy for HOKA), and Ugg faces an impossible year to comp against next year – with just as great a chance it puts up a -5% top line as +5% – this name gets materially re-rated lower. If our numbers are right out-year EPS expectations are likely 30% too high. This CEO is no dummy. He's leaving at a young age and is gifting his successor a precarious position with a tough P&L trajectory to manage.
Call Details:
Wednesday February 7th at 10am ET
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