Bernstein: Iconic brand is losing momentum with Deckers "underperforming the market" rating

Deckers Outdoor (DECK.US), the parent company of two brands Uggs and Hoka, seems to be losing momentum in sales, ultimately putting pressure on the company's profit margins. In light of this, Bernstein has given Deckers an "underperform" rating with a target price of $100. Analyst Aneesha Sherman from Bernstein stated that Hoka has reached saturation in the US running shoe market, and is coming out of a several years long popular cycle. Sherman said, "We expect the growth rate in the coming years to slow significantly to high single-digit percentage, mainly driven by international markets." Furthermore, Deckers' profit margins are at a high level in the industry, but may face pressure from slowing growth and changes in product structure. Despite the current profitability of both brands with a gross profit margin close to 60%, as growth slows, revenue structure shifts towards wholesale and lower-priced new product categories, and significant investment from management in marketing, profit margins are expected to gradually decline. Sherman predicts a 190 basis point decline in gross profit margins from the 2026 fiscal year to the 2030 fiscal year. In terms of the challenges faced by each brand, Hoka's superior cushioning technology has been imitated by competitors, while retailers are also showing fatigue towards this trend. The strong comeback of NIKE, Inc. Class B (NKE.US) in the running shoe sector poses a threat, with a more diverse product line, and ON Running (ONON.US) continues to expand market share. As for Uggs, the brand has seen significant growth in the global casual shoe market, while this category is gradually shrinking as consumers are shifting towards athletic shoes. Sherman expects this trend to continue, with the casual shoe market remaining stable until 2029. He predicts Uggs' growth rate to be around 4%, compared to double-digit growth rates in the past few years. As of Thursday's US stock market close, Deckers fell by 2.74% to $115.43. The stock has dropped by 43% year-to-date.