Truist lowered its DTC revenue forecast for Hoka from 40 percent sales growth in the fourth quarter to 25 percent.
Shares for Deckers Brands are up Thursday, just one day after the company’s stock took a hit following an analyst downgrade.
On Wednesday, Truist Securities analyst Joseph Civello issued a note downgrading the Goleta, Calif.-based footwear company from “buy” to “hold” on concerns over a direct-to-consumer (DTC) sales slowdown at Decker’s star Hoka brand. The note caused Deckers’ stock to dip nearly 8 percent on Wednesday but it has since recovered.
In his note, Civello wrote that Hoka’s DTC growth decelerated in mid-February and remained softer through March. As a result, Truist lowered its DTC revenue forecast for Hoka to approximately $190 million in the fourth quarter, with 25 percent sales growth, down from approximately $210 million, with 40 percent year-over-year sales growth.
“We note that other companies who have significantly outperformed since the pandemic have recently identified some slowing demand trends, and we think Hoka is facing similar pressures as it laps extremely robust comparisons,” Civello wrote. “While we remain bullish on the brand’s longer-term opps, we think it may take more time to digest this growth, especially in a potentially softer discretionary spending environment.”
Despite this uncertainty from Truist, the analyst added that Hoka remains a favorite in the wholesale channel and its key franchises continue to top best-seller lists, especially Clifton and Bondi, Civello noted.
On the other hand, Civello added in the note that Ugg’s DTC business has “meaningfully outperformed expectations” in the same period, which may help to offset the slowdown at Hoka. As such, Truist estimates that DTC sales for Ugg will increase 35 percent to $247 million in the fourth quarter, up from its previous estimate of $198 million with an 8 percent growth.
“While Ugg products are resonating extremely well with consumers and we believe its brand heat remains underappreciated, we expect growth to moderate as the segment lap fiscal year 2024’s outstanding growth,” Civello wrote. “We previously expected outsized growth from Hoka to drive more beat and raise potential but are more cautious about that opportunity given the recent softness we have seen in Truist Card Data trends.”
Still, Truist and Civello are still confident in Deckers’ performance going forward. “We think Hoka and Ugg both have meaningful long-term growth opportunities and continue to view Deckers’ management team as top-tier,” the analyst wrote. “That said, Deckers is up approximately 75 percent since October 26, 2023, due to largely Ugg-driven beats in the second and third quarters versus the S&P 500’s approximately 25 percent gain over that period.”
This comes after Deckers Brands reported in February that net sales in the third quarter of 2024 increased 16 percent to $1.560 billion compared to $1.346 billion the same time last year.
By brand, Hoka saw the largest increase in sales in the third quarter, reporting a 21.9 percent rise to $429.3 million compared to $352.1 million in Q3 2023. Ugg also continued its winning streak in the period, posting net sales of $1.072 billion, a 15.2 percent increase from $930.4 million last year.
