On Monday, Seaport Global Securities adjusted its rating for Deckers Outdoor Corporation (NYSE: NYSE:DECK) shares, shifting from "Buy" to "Neutral". The downgrade reflects concerns about diminishing momentum for the company's HOKA and UGG brands, which are anticipated to have less upside potential.
Deckers Outdoor did not provide guidance for the second quarter of fiscal year 2025, which is noted to be a particularly challenging comparison period. The previous year's second quarter, Q2 2024, saw significant growth due to a robust back-to-school season, with HOKA and UGG emerging as leading brands. However, current trends indicate these brands have not maintained the same level of momentum in the United States for this year's back-to-school period.
The analyst pointed out that while HOKA has become the top brand in the run specialty market, competitors such as Asics and Brooks are regaining market share. There are also emerging concerns about HOKA's growth potential in the U.S. big box retail segment. Nevertheless, last year's strong performance is expected to contribute to growth in key lifestyle accounts for the current fiscal year.
For UGG, Deckers Outdoor's forecasts do not project significant growth for the remainder of FY25. Recent growth for UGG was driven by specific product lines, but demand for these seems to have declined. Despite this, Deckers Outdoor's wholesale results have been buoyed by better sell-in, attributed to strong sell-through from the previous year.
The analyst concluded that while the guidance for FY25 is not overly ambitious, reflecting modest sales growth and margin contraction, the previous optimism that supported a "Buy" rating is no longer present. The potential for UGG demand to increase as the holiday season approaches was acknowledged, but stronger current momentum would be needed for a more positive outlook.
In other recent news, Deckers Outdoor Corporation has shown significant growth with a 22% increase in Q1 FY2025 revenues, largely attributed to a 30% surge in revenue from the HOKA brand and a 14% rise from the UGG brand. This strong performance prompted an upward revision of Deckers' annual profit forecast. The company also underwent a 6-for-1 stock split, which analysts from Williams Trading and TD Cowen endorsed by adjusting their price targets to reflect the new valuation.
UBS, maintaining a price target of $225.00, reiterated its Buy rating on Deckers, citing HOKA's rapid growth as a significant contributor to future sales and earnings. BofA Securities maintained a neutral stance on Deckers' shares, keeping the price target at $170.00, and highlighted the growth potential for HOKA.
Investment firms Baird, Truist Securities, and TD Cowen raised their price targets for Deckers, signaling a positive outlook. Furthermore, Evercore ISI revised its price target for Deckers to $183.00 following the stock split but maintained an Outperform rating, indicating confidence in the company's future performance.
In a strategic shift, Deckers is set to expand its presence in big box retailers, including Dick's Sporting Goods (NYSE:DKS), Foot Locker (NYSE:FL), and JD (NASDAQ:JD) Sports. Amidst these developments, Stefano Caroti is slated to take over as the new CEO of Deckers Outdoor Corporation.
InvestingPro Insights
Despite the downgrade from Seaport Global Securities, InvestingPro data reveals some positive aspects of Deckers Outdoor Corporation's financial performance. The company's revenue growth stands at 20.3% for the last twelve months, with a notable 22.13% quarterly growth in Q1 2025. This robust growth aligns with the strong performance mentioned in the article, particularly for the HOKA and UGG brands.
An InvestingPro Tip highlights that Deckers is trading at a low P/E ratio relative to its near-term earnings growth, with a PEG ratio of 0.56. This suggests that despite concerns about slowing momentum, the stock may still be undervalued considering its growth prospects.
Another relevant InvestingPro Tip indicates that Deckers holds more cash than debt on its balance sheet, which could provide financial flexibility as the company navigates the challenging comparison period mentioned in the article.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for Deckers Outdoor Corporation, providing a deeper understanding of the company's financial health and market position.
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