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Deckers Didn’t Offer Great Black Friday Deals. That’s Good News for the Stock.


Bryan Bedder/Getty Images for Hoka

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Consumers found plenty of good deals this Black Friday on everything from toys to T-shirts—except Hoka sneakers. That might be bad news for runners, but good news for owner Decker Outdoors.

While shopping was the unofficial national pastime during the pandemic, when few other options were available, retailers have had a rougher 2022. With the world reopening, stores have to compete with experiences like travel and restaurants for Americans’ entertainment budgets—and those are smaller overall thanks to record inflation.

The upshot is stores began running holiday promotions in October, hoping to capture shoppers’ discretionary dollars before they ran out entirely. That trend continued over the long holiday weekend: Shoppers turned out in force to take advantage of generous discounts.

However those steep sales often hurt retailers’ margins, and in turn their bottom lines. Aggressive markdowns this summer in the face of overstocked inventory and falling demand led to a broad selloff in retail, as many companies slashed their profit outlooks.

That’s what makes
Deckers
‘ (ticker: DECK) lack of discounting stand out, particularly a time when nearly all of its peers were running sales that were as or more generous than last year.

Jefferies analysts Randal Konik and his team found that nearly three-quarters of the 54 retailers they follow offered steeper discounts than 2021, while the rest at least matched last year. Moreover, he writes that the “activewear retailers—
Lululemon Athletica
(LULU),
Nike
(NKE),
Under Armour
(UAA)—stood out as being more promotional.”

In fact, the Black Friday sales event was marked by a “big escalation of promotional activity,” writes Wedbush analyst Tom Nikic, so much so that the question remains whether or not this signals “a race to the bottom between now and January.”

Yet he calls Deckers the one “shining star,” from the last week. Given that Ugg tends to generate about half its annual revenue from the holiday season, it’s encouraging to hear that everything appears to be falling into place.

It was one of the only brands Nikic tracks that was less promotional over the last week than they were in 2021 at both its full-line and outlet stores, and discounts were also low at partner stores such as
Nordstrom
(JWN) and
Macy’s
(M). Likewise online search activity remains robust, as does social media buzz around its high-demand styles.

That’s a trend that Piper Sandler’s Abbie Zvejnieks highlighted as well: “Ugg promotions were limited on core classics, and we think momentum behind styles such as Platform, where Ugg may be unable to chase the current demand, is increasing demand for other classics.”

She also notes that when it comes to the “broadly higher promotions across both apparel and footwear,” online, Hoka and fellow ultra-cushioned sneaker maker On Holdings’ (ONON) On Running “did not participate.”

That tracks with what Barron’s argued when we recommended Deckers stock in October. We noted that Uggs had become a more stable source of earnings at the same time that Hoka was making impressive inroads with both runners and fashionistas. The shares are up nearly 14% since.

If its two main brands do pull off another robust holiday season without resorting to the discounting that’s plagued the sector, Deckers could add to those gains. Higher earnings would in turn make the stock’s valuation, which isn’t as compelling as it was when our article was published last month, more appealing.

For their parts, Nikic and Zvejnieks think the stock will be able to keep running. Nikic has an Outperform rating and $410 price target on the shares while Zvejnieks has a Buy rating and $440 price target.

NFJ Investment Group Chief Investment Officer John Mowrey, who owns Deckers and praised it in October, tells Barron’s he still bullish on the stock, as he thinks it will benefit from structural tailwinds that will extend beyond the holiday season. “The consistency of Deckers’ earnings and margin profile are a major advantage relative to many other competitors.”

We agree, and even if the stock—much like its shoes—is no longer on sale, it should still be on investors’ radars.

Write to Teresa Rivas at teresa.rivas@barrons.com

Credit: marketwatch.com

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