We're nearly at the midway point of the year, and the S&P 500 is essentially flat through June 17, up just 1.7%.
The broad market index nearly entered a bear market in April, following the announcement of the "Liberation Day' tariffs, but has rallied back since then to recoup those losses.
However, not every stock on the index has been a winner. In fact, one popular footwear stock is down nearly 50% for the year through June 17.
That's Deckers Outdoor (DECK -1.66%), the maker of Hoka running shoes and Ugg boots, which is down 49.5% year-to-date. Over a long time frame, Deckers is one of the best-performing stocks on the market -- it had returned more than 10,000% at one point.
After delivering strong growth in recent years, Deckers stock hit a wall in January when its guidance was worse than expected. When the company provided its following update in May, its growth was clearly slowing, and it faced a new challenge with President Donald Trump's tariffs putting pressure on the apparel and footwear industries.
Image source: Getty Images.
Deckers' current challenges
In its fiscal fourth quarter, ended March 31, Deckers' revenue rose just 6.5%, which compared to nearly 20% growth in the first three quarters of the year.
Growth at Hoka slowed from nearly 30% in the first three quarters of the year to just 10% in the fourth quarter, potentially a sign that a resurgent Nike is grabbing back market share in running. Ugg, which remains Deckers' largest brand, grew just 3.6% in the quarter compared to 13% for the full year.
What really threw investors off was the company's guidance, as management did not give full-year guidance due to macroeconomic uncertainty related to tariffs. For the first quarter, the company expects revenue of $890 million to $910 million, representing 9% growth at the midpoint. However, it expects earnings per share to fall from $0.75 to between $0.62 and $0.67.
It sees its gross margin falling 250 basis points due to higher freight costs from tariffs, increased promotional activity, and channel mix headwinds with wholesale outgrowing DTC, and it faces difficult comparisons with a year ago.
For its two core brands, Deckers expects Hoka to grow by at least low double digits while Ugg sales should increase by at least mid-single digits.
Why this could be a great buying opportunity for Deckers
A 50% sell-off in less than six months often indicates a broken business, but that isn't the case with Deckers. The company seems to face a mostly temporary setback due to pressure related to tariffs and a cooling off in the growth rate at Hoka.
With its share price cut in half, Deckers now trades at an attractive price-to-earnings valuation of just 16, meaning it trades at a substantial discount to the S&P 500. Management is also taking advantage of that by buying back stock, increasing its share repurchase authorization to $2.5 billion, which represents 16% of its market cap.
In fiscal 2025, the company repurchased $567 million worth of its stock, and bought back $85 million in the first quarter through May 9.
Deckers is well-positioned to buy back its stock as it has no debt, $1.9 billion in cash, and a reasonable assets-to-liabilities ratio of 3.5.
Over the long term, Deckers looks well-positioned to recover as its two core brands, Hoka and Ugg, have differentiated themselves, and have long track records of growth. Ugg also overcame an earlier slowdown amid concerns that its brand was a fad.
At the current valuation, even modest profit growth will be enough to make the stock a winner. The tariff-related headwinds will eventually fade, and Deckers' growth should return at that point.
