Deckers Outdoor Is Overvalued, but Offers Exceptional Growth, High ROIC

Company Overview - Deckers Outdoor Corp is a global leader in innovative footwear, apparel, and accessories, operating six proprietary brands: UGG, HOKA, Teva, Sanuk, Koolaburra, and AHNU, focusing on fashion, lifestyle, performance, and outdoor markets [1] - The company outsources manufacturing to third-party manufacturers, maintaining an asset-light balance sheet and concentrating on design, advertising, and distribution [1] Financial Performance - For fiscal year 2024, Deckers reported a revenue of nearly $4.30 billion, an 18% increase year over year, with a gross margin of 55.60% and an operating margin of 21.60% [14] - UGG generated global revenue of $2.20 billion, a 16% increase year over year, primarily driven by direct-to-consumer (DTC) and international business [2] - HOKA achieved global revenue of $1.80 billion, a 28% increase year over year, with U.S. brand awareness reaching approximately 40% and international awareness just over 20% [6] Strategic Focus - The company emphasizes a direct-to-consumer sales strategy, which enhances margins and fosters stronger consumer connections, contributing to 43% of total revenue, up from 40% in the prior fiscal year [3][22] - DTC revenue surged by 27%, contributing nearly $400 million in incremental business, with HOKA and UGG's DTC revenues increasing by 40% and 22%, respectively [22] Operating Performance - Deckers has shown significant growth in operating performance, with revenue increasing from $2 billion in 2019 to $4.29 billion in 2024, and operating income growing from $327 million to $927.50 million [16] - The company's return on invested capital (ROIC) improved from 42.65% in 2019 to 68.71% in 2024, indicating strong operational efficiency [17] Balance Sheet Strength - Deckers maintains a debt-free balance sheet, with total shareholders' equity of $2.10 billion and a cash balance of $1.50 billion, incurring only operating lease liabilities of $266.90 million [23] Future Outlook - Management estimates a potential revenue growth of 10% for fiscal 2025, projecting revenue to reach $4.70 billion, with an operating margin of 19.50% [19]