Can Deckers Offset Tariff Costs Through Pricing & Sourcing Shifts?

Deckers Outdoor Corporation DECK highlighted that recent changes in U.S. trade policies, particularly the introduction of higher tariffs, are expected to significantly impact its business. The company anticipates an increase of up to $150 million in its cost of goods sold for fiscal 2026 as a direct result of these tariffs.

Although less than 5% of Deckers’ footwear production comes from China, with some not routed to the United States, the financial impacts are considerable. Most of its production is based in Southeast Asia, primarily Vietnam, which reduces but does not eliminate exposure.

To manage this challenge, Deckers plans selective and staggered price increases in the United States and is negotiating cost-sharing agreements with manufacturing partners. However, these steps will only partially offset the added costs, meaning a portion of the tariff burden will be absorbed. Additionally, there is concern that higher prices, coupled with softness in consumer spending, may reduce demand, particularly in the U.S. market.

Consequently, the company expects its gross margin, which reached a record 57.9% in the previous year, to decline in fiscal 2026. This pressure stems not only from tariffs but also from increased promotional activity, higher material costs from product upgrades, and rising freight charges.

Despite these challenges, Deckers remains focused on its long-term growth strategy. Backed by a strong balance sheet with $1.9 billion in cash and no debt, the company intends to continue investing in brand growth, international expansion and operational efficiency while navigating the tariff-related challenges with financial discipline and resilience.

Tariff Pressures on DECK: How SHOO & URBN are Responding

Steven Madden, Ltd. SHOO and Urban Outfitters Inc. URBN are the key footwear companies competing with Deckers, facing tariff headwinds.

Steven Madden faces major tariff headwinds, with 71% of U.S. imports from China in 2024. Its gross margin dropped 20 basis points in first-quarter fiscal 2025, with bigger impacts expected ahead. Steven Madden’s rapid shift from China is driving costs and lowering margins due to more expensive, less efficient sourcing alternatives.

Urban Outfitters faces significant tariff risks, modeling a 10% global and 30% China tariff on U.S.-bound goods. Although China represents under 5% of production, Urban Outfitters expects up to a 20-basis-point gross margin drag in the second half of fiscal 2026. Ongoing mitigation efforts may not fully offset long-term profitability pressure.

DECK’s Price Performance, Valuation & Estimates

Shares of Deckers have lost 48.7% year to date compared with the industry’s decline of 14.8%.

From a valuation standpoint, DECK trades at a forward price-to-earnings ratio of 16.83X, slightly down from the industry’s average of 17.60X. It has a Value Score of D.

The Zacks Consensus Estimate for DECK’s fiscal 2026 earnings implies a year-over-year decline of 4.4%, whereas the same for fiscal 2027 indicates an uptick of 9.1%. Estimates for fiscal 2026 and 2027 have been southbound in the past 30 days.

DECK currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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

Zacks Investment Research