Can Deckers Maintain Its Growth Trajectory Despite Margin Pressures?

Core Insights - Deckers Outdoor Corporation (DECK) reported a strong start to fiscal 2026 with a 17% year-over-year revenue increase, driven by record sales from HOKA and UGG [1][10] - However, profitability faced challenges as gross margin declined by 110 basis points to 55.8% due to increased wholesale growth, promotions, and freight costs [2][10] - Management anticipates that the operating margin for fiscal 2026 will be below the previous year's record of 23.6% due to rising tariffs and elevated costs [3][10] Revenue Performance - Fiscal first-quarter revenues increased by 17%, with HOKA achieving $653.1 million (up 19.8%) and UGG reaching $265.1 million (up 18.9%) [1][10] - The strong performance of core brands in both domestic and international markets highlights their continued strength [1] Profitability Analysis - Gross margin decreased to 55.8%, impacted by wholesale growth outpacing direct-to-consumer sales, increased promotions, and rising freight costs [2][10] - Operating margin contracted despite improved SG&A leverage, which increased by 230 basis points due to disciplined expense management and one-time currency gains [2] Future Outlook - For the fiscal second quarter, gross margin is projected to be between 53.5% and 54%, lower than the previous year [4] - Management indicated that tariff increases on products sourced from Vietnam could add approximately $185 million in costs this year, which will only be partially offset by pricing actions and operational adjustments [4] Strategic Initiatives - Deckers is implementing proactive measures such as price increases, tighter expense controls, and continued investment in brand strength to navigate short-term margin pressures [5] - The company’s strong brand equity and international growth are expected to provide a foundation for long-term resilience [5] Competitive Landscape - In comparison, Steven Madden reported a significant decline in adjusted operating income, while Urban Outfitters saw a substantial increase in operating income and margin [6][7][8] Valuation Metrics - Deckers shares have declined by 49.3% year-to-date, contrasting with the industry’s decline of 13% [9] - The company trades at a forward price-to-earnings ratio of 15.88X, below the industry average of 17.54X, and holds a Value Score of A [11] Earnings Estimates - The Zacks Consensus Estimate for DECK's fiscal 2026 earnings suggests a slight year-over-year decline of 0.6%, while fiscal 2027 estimates indicate an 8.3% increase [12]