While its focus has been singular for the past half century – footwear – Deckers Outdoor (DECK) evolved its business over time as different brands and models / designs were better fit to the needs of modern consumers.
The company started in 1973 in Santa Barbara, California, when two college buddies started selling flip flops - originally known as “Driftwood Dans”, but the name was later changed to “deckas”, a slang phrase that referred to the stacked appearance of their sandals. A decade later, in 1985, the company licensed a sport sandal called Teva that had been created by a Colorado river rafter. Those two products carried the company to a 1993 IPO, and would eventually lead the way to two transformative acquisitions in the company’s history: the 1995 deal for UGG, which makes sheepskin boots, and the 2012 deal for HOKA, which makes maximalist running shoes. (HOKA co-founder Jean-Luc Diard: “The Deckers partnership brought two things for HOKA. First, it was a group in the footwear business, so they could bring [benefits with suppliers and production]. Second, it didn’t have a running brand in the portfolio… It was a four-year plan, with stages of additional capital investment so everyone could use that experience in learning how to work together.”)
As you can see below, those two brands account for the vast majority of Deckers revenue base. Notably, the HOKA brand, which has reported ~5x revenue growth since FY21, is on track to rival UGG’s size for the first time.
The rise of brands like HOKA and On, which has coincided with a lesser position for incumbents like Nike, has been a well-covered theme at TSOH Investment Research. It’s a story we’ve also watched from the angle of retailers like Dick’s Sporting Goods and Academy Sports + Outdoors.
What makes today’s DECK initiation timely is the carnage in the space.
Each of those companies has seen its stock price decline meaningfully from its all-time highs, with significant underperformance versus the S&P 500 over the past year; they also trade at wide discounts to their historic valuations.
Some see what has happened in recent years and argue the space is uninvestable (too much fad / fashion risk). I think that’s a broad brush which may close people’s eyes to compelling opportunities – with Deckers itself a great example over the past 10-20 years: DECK has been nearly a 30-bagger over the past two decades (~18.5% CAGR), leaving the S&P 500 in the dust.
As noted above, Deckers growth over the past decade was led by HOKA. The brand was founded in 2009 by two former executives of French sports equipment company Salomon. The idea, as one running blogger put it in the early 2010s, was a shoe with an oversized midsole and a wide body, utilizing maximalist design already applied to other sports equipment like powder skis, golf clubs (drivers), mountain bike tires, and tennis rackets. (“‘HOKA ONE ONE’ originates from the Maori language, meaning ‘to fly over the earth’.”)
