Deckers owns and operates a portfolio of footwear brands including:
UGG, HOKA, Teva, Sanuk, and Koolaburra.
I am mainly concerned with their two biggest brands, HOKA and UGG.
UGG is a business we’re probably all familiar with. At this stage in its lifecycle it can be considered a slow growth, optimized for profitability, sometimes called a ‘cash cow’ business.
Given the stable/ low growth nature of the business I will be sure to assign it a reasonable multiple.
HOKA on the other hand, is a very high growth brand with a lot more room to expand and so it deserves a higher multiple in comparison.
The HOKA Brand is only in less than 20% of DICK’s Sporting Goods locations so far, they are just starting to get into Footlockers now, and are opening more stores globally, particularly in china.
One of the most exciting things about HOKA is their popularity among 18-34 year olds. This is a very valuable segment of the population, as younger customers are expected to have a longer lifetime value.
I believe that management’s long term goal is to build out their DTC channel to represent an increasing portion of total net sales. This will be margin accretive, as their DTC business has better margins than the wholesale business.
Unfortunately, DECK doesn’t break out HOKA DTC EBIT margins, so I will have to estimate them.
The HOKA wholesale business pulled in $628 million in LTM revenue. The HOKA wholesale business has 24.6% EBIT margins. This means that HOKA Wholesale, on $628 in revenue LTM, brought in $155 million in EBIT.
What DECK does tell us about the HOKA DTC business is that 53% of DTC total company sales come from HOKA. Total company DTC sales were $1,213 billion, so HOKA’s part of that is $642 million in sales.
As I mentioned above, HOKA’s DTC business brings in higher margins than wholesale. So if HOKA wholesale does 25% margins, I think it’s fair to assume that HOKA DTC does at least 30% margins.
If HOKA DTC sales were $642m and we’re assuming 30% EBIT margins, then HOKA DTC EBIT was $192.6 in the last twelve months.
Therefore, the two pieces together brought in $347.6 m for HOKA.
HOKA delivered an increase in sales of 55% versus last year, with the higher margin DTC business growing at an even quicker pace. In addition, the management team guided to a 40% increase in sales for the full year of 2023. A business growing this quickly deserves a relatively high multiple, and I think about 15-17x EBIT is fair.
If we look two years out , management guided HOKA to produce $1,248 billion in revenue for the year 2023. If we assume sales substantially slow in 2024 to just 20% or $1,497 in sales, and then attribute 50% of rev to wholesale and 50% to DTC….
We come out with $187m for Wholesale and $224m for DTC or $411m in total for HOKA.
If we apply a 15x’s multiple to those HOKA earnings, we come out with $6.6 billionfor the whole HOKA brand.
To be conservative, we’ll assume that the UGGs brand doesn't grow their $489 million LTM in EBIT at all and is worth about a 10x’s multiple or about $4.9 billion.
In addition, by the year 2024, DECK will produce about $1 billion in cash on its balance sheet.
So in conclusion, the two brands together plus the cash build in two years would be worth about $12.5 billion.
Or about 40% above the current market price in two years.
*If interested in more ideas like this let me know! I have a blog but don't want to run risk of posting a link to it here*
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