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Deckers Outdoor Corp(DECK-N)
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Bring Comfort to Your Portfolio With This Shoemaker's Stock

Motley Fool - Thu May 26, 10:00AM CDT

Investors looking to slip into a profitable stock that is growing both revenue and earnings -- and at the same time trading at a reasonable valuation -- might find Deckers Outdoor(NYSE: DECK) a good fit.

While readers might not be familiar with the Deckers name, it is the parent company of one brand that most will certainly know: Ugg, the maker of unmistakable fuzzy boots and slippers. Love them or hate them, Uggs have become inescapable in this day and age. There's a good chance someone you never expected to see wearing Uggs is wearing a pair of their slippers or sandals around the house right now.

I too recently became an owner of Uggs slippers for the first time. Even Tom Brady is a fan, so I guess I am in good company. Beyond Ugg, Deckers has several other brands in its portfolio, including Teva, primarily known for sandals; Sanuk, best-known for slip-on sneakers and loafers; and Hoka, which makes high-performance running shoes, hiking shoes, and sandals (for aching feet). The company also owns Koolaburra, a family-oriented brand under the Ugg umbrella.

Fuzzy UGG boots on a carpet

Image source: Getty Images.

Ugg is the mainstay, Hoka is the crown jewel

Deckers recently reported results from an impressive fourth quarter in which it increased revenue by 31.2% year over year to $736 million. It also increased full-year revenue by 24% from 2021, crossing over the $3 billion mark for the first time -- and that's after hitting $2 billion for the first time just three years ago.

The company's staple brand, Ugg, grew sales nearly 25% year over year to $374.6 million. Teva and Sanuk, two smaller parts of the company, saw sales decline by 8.8% (to $54.8 million) and 1.7% (to $11.9 million), respectively.

Ugg is a growth story years after it burst into the public consciousness, because it continues to expand and diversify its product offerings. For example, the company has done a great job of expanding its reach with men, and products outside of the women's classics now make up 65% of Ugg's sales. The company also keeps revamping its classics, including updates to the Tasman and the Ultra Mini.

The big story here is Hoka. The maker of running footwear increased sales by an eye-popping 59.7% year over year to $283.5 million this year. It also increased direct-to-consumer (DTC) sales by 58%, and at the same time it is expanding its efforts to partner with retailers. For example, Hoka will now partner with Foot Locker (NYSE: FL), which Deckers CEO Dave Powers thinks will increase Hoka's brand awareness with younger consumers.

Hoka has been opening up pop-up stores in cities like New York, Chicago, and Los Angeles, which have been well-received, and Powers says the company aims to open its first physical retail location in New York City by the end of fiscal 2023. While growth has been fantastic so far, there is plenty of room for Hoka to keep growing as it expands into new channels, develops more of a physical presence, and furthers itself as a lifestyle brand -- spreading out from just hard-core runners.

Powers says he wants to build Hoka "into a multibillion-dollar major player in the performance athletic space." While that is a long way off, the signs so far are encouraging, and it means we could still be in the early innings of the Hoka story.

Valuation and returns to shareholders

Despite this solid operating performance, shares of Deckers still look attractive from a valuation perspective -- trading at a modest 13 times forward earnings. Looking at its price/earnings-to-growth (PEG) ratio, which was popularized by renowned investor Peter Lynch, Deckers also appears attractive at a PEG ratio of just under 1, which the investment community generally considers to be undervalued.

While Deckers does not pay a dividend, it is returning a significant amount of capital to shareholders by using share buybacks. The company repurchased $90 million worth of shares in the fourth quarter and $357 million worth over the course of the year. Deckers is allowed to buy back another $454 million in shares under its current stock repurchase authorization.

Is Deckers Outdoor a buy?

Deckers Outdoor is quietly humming along with its Ugg brand firing on all cylinders and its Hoka brand becoming the red-hot growth story within the portfolio. The company is growing revenue and earnings and repurchasing shares. On top of this, shares trade at a modest valuation, so Deckers Outdoor indeed looks like a good fit for investors.

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Michael Byrne has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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