Whitney Tilson

Taking a closer look at Deckers Outdoor

Picking up where I left off on Friday...

Today, let's take a closer look at footwear maker Deckers Outdoor (DECK). As a reminder, the stock has been a monster over the past decade... but recently crashed more than 40% after the company reported disappointing earnings at the end of January.

As always, I start with the historical financials...

As I showed on Friday, Deckers' revenue and net income has grown enormously – driven by the popularity of the company's Ugg sheepskin boots and Hoka running shoes. Here's that chart of revenue and net income by fiscal year:

I always like to see whether free cash flow ("FCF") matches up with reported profits. And in this case with Deckers, it definitely does – the company is an FCF machine. Take a look at this chart of Deckers' operating cash flow, capital expenditures ("capex"), and FCF:

And Deckers' balance sheet is pristine, with consistent and rising net cash:

Other than build up cash, what has Deckers done with its robust FCF?

As you can see in this next chart Deckers has mostly ramped up share repurchases – as it has never paid a dividend and the acquisition standout is the $120 million acquisition of Sanuk, a casual footwear brand that the company has since sold:

As a result, diluted shares outstanding have fallen by 35% since 2011 and 26% since 2015 when sustained share repurchases began – about 3% annually. This has been a significant boost to earnings – and the stock. This next chart shows Deckers' declining share count:

In summary, Deckers' historical financials are among the best I've ever seen outside of the tech world – an A+.

So finally, let's turn to valuation...

The stock closed Friday at $126.72, which is a 52-week low on a closing basis (be still, my racing bargain-hunting heart!) – giving the company a market cap of around $19.2 billion. Netting out roughly $2 billion of net cash, that's an enterprise value of $17.2 billion.

With trailing 12-month revenue of $4.9 billion, earnings before interest, taxes, depreciation, and amortization ("EBITDA") of $1.2 billion, and net income of $942 million, the stock is trading at 3.5 times revenue, 12.7 times EDITDA, and 20.6 times earnings.

But investors (correctly) don't value companies based on past performance – they do so on future performance.

Deckers' earnings will be down year over year in the current quarter (the fourth quarter of the company's 2025 fiscal year). Is this a one-quarter hiccup or a sign of further declines to come?

I'll address this question in tomorrow's e-mail, so stay tuned! (And as always, I want to hear from you – if you have insights into Deckers and the footwear market, send me an e-mail by clicking here!)

Best regards,

Whitney

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