Deckers 2Q26 Immediate Call Postmortem
U.S. Retail/Consumer - DECK
As much as people want to penalize the company on domestic sales being down, the trend got sequentially better (just like management said would happen) and international continues to grow at an exceptionally impressive rate despite having the best result in years last quarter. More importantly the massive gross margin outperformance relative to consensus shows that they didn’t “buy” this growth (keep in mind that this includes a huge mix shift to lower margin wholesale channel).
The company seems to feel comfortable enough to go back to full year guidance, which is certainly a positive as tariff related issues are now largely derisked (management said as much). Am sure the kneejerk reaction is to be upset that the full year range of $6.30-$6.39 is only slightly better than current consensus rather than the usual massively better but considering everything they just ate that’s impressive. Have always thought $7.00 was the number this year and still feel that’s in the range of reasonable outcomes, despite eating all these new pressures.
Not a big fan of how they gave HOKA market share up two points on a TTM basis but then go on to talk about Europe strong growth only in first half of CY2025 (lots of sell in there but at least they talk highly positively about reorders). Wholesale sell through increasing double digits.
Top performing styles in UGG remain aligned with their 365 focus. Will this be the first winter heritage brand to really crack the barrier of year-round appeal? Still, the sales growth relates to wholesale sell-in, so now let’s see what happens to sell out (sounds good so far). As an aside we see the brand everywhere these days in prime store display space (yet they very deliberately said they continue to control access to brand). DTC down 10% which is UGGly and investors are unlikely to take comfort in the idea that this is because of wholesale (sell-in…). The DTC/wholesale issues going to continue, but at least we know that’s in guidance.
Tariff pressure expected to be $150 million while offsets should be $75-$95 million. Implied margins in 2H26 are largely just about the tariffs. Have an element of promotion also assumed but mainly tariffs. Don’t have same levers to offset tariffs going forward like they did in 2Q26. Didn’t see much pushback on their pricing increases.
Expect to again have record years for both UGG and HOKA. I don’t know why people want to hate this name so much given how it still hasn’t cracked in a year of intense bear pressure and the results themselves tell you it likely won’t.
Laurent had great question on guidance. Back half guidance of low teens growth is maybe a little bit below how they originally thought but now it fully includes the impact of tariffs broadly on consumers. Not a big fan of how they back end loaded growth towards Q4 vs. Q3 but to be fair they are more of a winter-oriented company.
Spring order book healthy (up). Back to number one in specialty. Gaining share. Sell through is stronger than sell in. I know the environment in US kinda sucks right now but what more does anybody want? This management team must be an extra kind of stupid to not use the tariff excuse like everybody else did if their business really was hurting.
Should see DTC improvement in Q3 and even more into Q4. Apparently (need to check this but think it’s right) they always said wholesale was going to be the big driver in 1H and would always put pressure on DTC. Should see lower numbers in wholesale in back half because they have less sell in.
Sam Poser asks an amazing question. Asks about their confidence in guidance given what they have seen so far. But TBH it’s the question you ask if you try to defend the stock (what good sell-side analysts are supposed to do – Sole did the same thing). Consumers are already beginning to see higher prices and inflation is impacting them more in the US so there is some of that embedded in their guidance. Don’t want to chase sales. Taking some caution in there as don’t know how consumer will show up but if they do will perform accordingly.
Will see a higher rate of lower profile product for HOKA going forward (specifically mentioned Spring).
I kind of liked Jay Sole’s hypothetic question about guidance at beginning of year if they had tariffs (follow up to Laurent). Pre tariff UGG was mid-teens. Now its low teens. Very encouraged by that as even in tariff-imposed world consumer still showing up for their brands probably better than they would have thought.
*These are our unabridged quick thoughts and notes from the call. We get them out as soon as possible after the call ends. Management has given some topics to dig deeper into and will circle back afterwards with much more in depth work on what was mentioned. You can find that work (and more on Deckers and other retail/consumer research) at the website here: M Squared Capital