Can Deckers Maintain Its Growth Trajectory Despite Margin Pressures?

Deckers Outdoor Corporation DECK started fiscal 2026 with a strong performance, though early signs of margin pressure emerged. Fiscal first-quarter revenues rose 17% year over year, led by record results from HOKA, which grew 19.8% to $653.1 million, and UGG, which advanced 18.9% to $265.1 million. This underscores the continued strength of the core brands in both domestic and international markets.

Profitability, however, showed strain. Gross margin declined 110 basis points to 55.8% as wholesale growth outpaced direct-to-consumer (“DTC”) sales, promotions increased and freight costs rose. These pressures outweighed the benefits from a favorable product mix and foreign exchange. Operating margin contracted despite SG&A leverage, which improved 230 basis points due to disciplined expense management and one-time currency gains.

Management acknowledged that the operating margin for fiscal 2026 will likely fall short of the record 23.6% delivered in fiscal 2025. Rising tariffs, elevated freight and higher promotional activity remain the key headwinds. While price increases and supplier cost-sharing are being implemented, the benefits will phase in gradually, leaving near-term profitability under pressure.

For the fiscal second quarter, gross margin is expected to land between 53.5% and 54%, down from the prior-year period. In addition, on its earnings call, management highlighted that tariff increases on Vietnam-sourced products could add as much as $185 million in costs this year, only partially mitigated by pricing actions and operational adjustments.

Even so, Deckers is taking proactive steps, including price increases, tighter expense controls and continued investment in brand strength. While margins will be pressured in the short term, Deckers’ strong brand equity, international growth and disciplined execution provide a foundation for long-term resilience.

DECK’s Margin Performance Compared With SHOO & URBN

Steven Madden, Ltd. SHOO and Urban Outfitters Inc. URBN are the key footwear companies competing with Deckers in operating margin.

In the second quarter of 2025, Steven Madden reported an adjusted operating income of $22.6 million, down 58.5% from $54.5 million in the prior-year period. As a rate of sales, the adjusted operating margin decreased 640 bps year over year to 4%. Steven Madden’s adjusted gross margin expanded 40 bps to 41.9%, while adjusted operating expenses rose 680 bps to 37.9% of revenues.

In the first quarter of fiscal 2026, Urban Outfitters recorded an operating income of $128.2 million, up 71.8% from $74.6 million in the first quarter of fiscal 2025. As a rate of sales, the operating margin increased 340 bps year over year to 9.6%. Urban Outfitters maintains a target of 10% operating margin for fiscal 2026.

DECK’s Price Performance, Valuation & Estimates

Shares of Deckers have lost 49.3% year to date compared with the industry’s decline of 13%.

From a valuation standpoint, DECK trades at a forward price-to-earnings ratio of 15.88X, down from the industry’s average of 17.54X. It has a Value Score of A.

The Zacks Consensus Estimate for DECK’s fiscal 2026 earnings implies a year-over-year decline of 0.6%, whereas the same for fiscal 2027 indicates an uptick of 8.3%. The estimates for fiscal 2026 and 2027 have been revised upward by 26 cents and 23 cents, respectively, in the past 30 days.

DECK currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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