2023-06-06 05:07:12 ET
Summary
- Deckers Outdoor Corporation has experienced significant share growth due to strong financial performance and initiatives such as collaborating with Google Marketing Platform and improving its supply chain.
- The company's focus on data-driven insights, solid brands, and customer-centric product offerings has contributed to its success, with promising outlooks for the 2024 fiscal year.
- Despite the positive outlook, investors should be aware of potential risks, such as economic downturns affecting demand for the company's products.
Investment Thesis
Deckers Outdoor Corp. ( DECK ) creates, markets, and sells shoes, clothes, and accessories for everyday casual use and high-performance activities. Over the last five years, the company's shares have been on an upward trajectory, gaining 305.22%. I attribute this solid share growth to the company's strong financial performance, which I believe has been driven by its initiatives to improve its performance, such as focusing on direct-to-consumer business .
Further, the company has focused and invested in improving its supply chain , something I believe has been instrumental to its success thus far. I am bullish on this stock with the company's focus on data-driven insights to boost reach and improve sales, solid brands, strong financial performance, and improved supply chain.
Driving Business Growth With Google: Long-term Competitive Advantage
Deckers Brands' marketing approach was historically channel-oriented , with departments operating independently to achieve specific goals. As a result, the marketing team at Deckers Brands had a disjointed approach and failed to appropriately engage with customers at key points in their journey. In response, they decided to refocus the efforts of its whole marketing department on satisfying customers' needs. It also needed to invest in a first-party data strategy to integrate customer data across channels. As a result of this, Deckers Brands collaborated with Jellyfish, a digital marketing agency, to implement Google Marketing Platform as its advertisements and analytics solution. Below are the specific approaches that the company adopted.
1. Using Google's Marketing Platform to identify customer trends
DECK has always taken great pride in its adaptability, but the global pandemic of 2020 presented a challenge unlike any it has faced before. The company was able to better respond to the ever-changing industry since it had centralized its advertising and analytics activities with Google Marketing Platform several years before.
Deckers employed multiple Google tools to better understand their first-party and customer data. It visualized client engagement with its websites using Google Analytics 360, part of Google Marketing Platform, and then ingested its customer data into BigQuery, part of Google Cloud, to better understand customer buying behavior. Finally, Data Import allowed the team to review those insights in Analytics 360. The company can immediately identify and respond to customer patterns.
When many countries worldwide started letting people work from home, the company noticed that people were buying UGG slippers under their work-from-home desks. Later, when more people left their homes, more HOKA running shoes were sold. And when people finally started going outside and discovering nature, they thought of Teva shoes first. All these trends were made possible through Google-powered analytics, which helped the marketing team make the best and most informed decisions.
2. Modeling consumer behavior with BigQuery
The DECK team wanted to make sure that its now-optimized ads for UGG goods were reaching the people who were most likely to buy something on its websites. Together with Jellyfish and DECK's account team at Google, they set out to make a "propensity model" that would use the company's first-party data and machine learning to predict who would buy for the first time .
The Jellyfish and Google teams utilized BigQuery Export to transfer UGG's Analytics 360 data to BigQuery, which included information about past purchases. The Google team then utilized this information to create a propensity model in BigQuery ML, which could forecast how likely a customer was to purchase after seeing the site for the first time.
Data Import again transferred propensity model insights from Big Query to Analytics 360. They were utilized to create Analytics 360 audiences, activated across media campaigns in Display & Video 360 and Google Ads. UGG's display advertising's propensity model viewers converted better than site visitors.
Bolstering Distribution Channels With Innovative Products
In order to keep up with new trends, the company is always improving its e-commerce portal to make more sales. Its focus on adding more brands and making its product lines more innovative is also positive. This firm is also impressive with its customer-centric product offerings and aggressive omnichannel expansion efforts .
The administration has put forth great efforts, investing heavily to fortify its online existence and enhance the buying experience for clients. DECK is developing initiatives like Retail Inventory Online, Infinite UGG, Buy Online, Return In Store, and Click and Collect while opening smaller concept omnichannel stores.
Management's efforts to increase supply, optimize distribution to meet customer demand, and expand capacity in tandem with brand expansion bode well for Deckers' ability to face unforeseen threats.
Empirical Evidence That The Initiatives Are Paying Off
This section presents my empirical evidence that the company's measures to increase output are having the desired effect.
1. Strong Q4 Results
In the MRQ, DECK presented better-than-expected results , with the top and bottom lines growing from the previous year. Earnings per share for the quarter came in at $3.46, up from $2.51 a year ago. During the quarter, net sales went up 7.5% year over year to $791.6 million, and gross margin went up 130 basis points to 50%. The company's operating income was $105.9 million, which was 30.3% higher than the same quarter last year. Its operating margin went up by 240 basis points to 13.4%.
2. Growing EPS
Another indicator of the results of the initiatives adopted by this company is its growing EPS. If a company can sustainably increase its EPS, the market should reward it with a higher share price. This is the case since most successful long-term investors value EPS growth highly. Deckers has increased its earnings per share by a compound annual rate of 26% during the past three years. Investors should be ecstatic if this company can sustain that rate of growth.
Earnings before interest and taxes [EBIT] margin increase can provide insight into the sustainability of a company's expansion beyond simple sales growth. Despite maintaining a similar EBIT margin to the previous year, the company saw revenue increase by 15% to $3.6b. That's fantastic news for the firm, and I believe this further lends credence to my assertion that the company's growth initiatives are paying off.
2024 Outlook: More Success Lies Ahead
After what I may term a successful 2023 FY, the 2024 FY outlook is promising, leaving me bullish on this stock. For the whole fiscal year 2024, they anticipate top-line sales of around $3.95 billion, up around 9% from the preceding year, with HOKA as their primary growth engine increasing by somewhere in the range of 20% from the previous year. The gross margin is estimated to be roughly 52%, more than 150 basis points above the previous year, as they anticipate favorability from expanding the DTC mix and increasing the HOKA mix.
They anticipate earnings between $21.10 and $21.60 per share. The current projection is higher than the fiscal 2023 earnings per share of $19.37. When you look at these projections, it's apparent that this company has a lot of confidence in its performance, which I think is backed up by its good growth initiatives. I think these numbers are doable, and the company can even beat them owing to its solid fundamentals.
Are Shareholders Considered In This Growth?
Besides solid shares growth, investors in this company are beneficiaries of what I can term as management commitment to its shareholders. Investors are benefitting from growing earnings per share. Away from these direct benefits, the management is engaged in share buybacks which, in my view, is a good thing in the absence of dividend distribution. $102.5 million worth of the company's common stock was repurchased during the MRQ at a weighted average price of $421.53 per share.
The company repurchased about 928 thousand shares of common stock during the full fiscal year 2023 for a total of $297.4 million, with a weighted average price paid per share of $320.35. It had about $1.357 billion left under its stock repurchase authorization as of March 31, 2023.
With this commitment to repurchase shares, and the significant amount yet to be spent on the programme, I am left optimistic about the company's future EPS and, eventually, share price, given the recent share buyback’s impact on its EPS. The company stated that the repurchase of its MRQ shares contributed to the 38% rise in diluted earnings per share, from $2.51 to $3.46 YoY.
Steve Fasching ," These results, coupled with higher interest income and a lower share count as a result of our share repurchase program, drove a diluted earnings per share increase of $0.95 to $3.46, which compares to $2.51 in the prior year period, representing a 38% increase."
Investors should be pleased by these statistics, as the large budget still available for share repurchases will have a material impact on earnings per share growth and, eventually, share prices.
Risks
Although I have a positive outlook on this firm, investors should be aware of the potential downsides. The biggest threat is the economy. Demand for the company's products may fall during economic downturns and recessions because customers are reluctant to purchase. The company's bottom line may take a hit, as a result, making it more challenging to implement expansion strategies or return profits to investors.
Conclusion
In conclusion, DECK stock is a solid investment due to its dedicated leadership toward its stockholders. The results of the growth drivers the organization has implemented are now in a position to help the business. Due to the company's strong fundamentals, I rate this stock as a buy. Although I recommend this firm, investors should be aware of possible risks.
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Deckers Outdoor: Growth Initiatives Appear To Be Paying Off