Are DECK Gains Justified?

June 2, 2023

In 2009, amidst the stunning backdrop of the French Alps, two innovators sparked an idea that would change the world of running forever.

Nicolas Mermoud and Jean-Luc Diard, both passionate adventurers, seasoned runners, and former Salomon employees, knew all too well the exhilarating thrill of pushing boundaries and the inevitable aches that followed.

They realized that running shoes had always required a compromise - cushioning versus weight, and support versus flexibility.

Most people believed that the key to speed was a lightweight shoe, even at the expense of cushioning.

However, Mermoud and Diard saw things differently. Looking out over the beautiful landscapes of Annecy, the ‘Venice of the Alps’, they found inspiration in oversized tires of trail bikes and powder skis, built to perform on rough terrain.

They wondered: is it possible to use a similar concept for running shoes?

Rejecting the running industry's love for minimalism, they embarked on a journey to create a shoe that delivered maximum cushioning without sacrificing comfort for less weight. This led to the creation of Hoka One One (pronounced “O-nay, O-nay”), a name derived from a Maori phrase meaning "fly over the earth."

Their prototype was like no other - a maximalist, yet surprisingly lightweight shoe. Its extra-thick soles provided shock absorption and encouraged natural running motion. This innovative and daring design stood in stark contrast to the thin-soled shoes that filled the market.

Initially, people dismissed the shoes as too different, too bold. But, as the old saying goes, 'fortune favors the bold.' Early users discovered that Hoka shoes lessened their fatigue, enabling them to run longer and recover faster. The news spread fast, and before long, professional athletes were endorsing the brand.

As Hoka shoes gained popularity, the brand widened its reach. It didn't just cater to trail runners anymore, but to road runners, hikers, and fitness enthusiasts too. Despite growing competition, Hoka One One remained committed to innovation and comfort, earning a loyal fan base. Today, what began as a daring dream in the French Alps stands as a major player in the global running shoe market.

Is Hoka brand power overhyped? $DECK

This story demonstrates that sometimes a brand breaks the mold.

It produces a product so appealing (in many cases from a comfort or performance perspective) that consumers are willing to overlooks…ehhh…cosmetic flaws.

The power for investors comes in spotting these brands on their way to the top…and understanding WHERE exactly the top is.

In the 4th quarter, Hoka revenue grew by +40% YoY, capping off FY23 with $1.41 billion in sales. But its leadership expects this to be a $2 billion brand “pretty soon.”

For Hoka parent, Deckers (DECK), we have two important questions:

Is recent hype justified by consumer data?

And can it continue to grow at its previous pace from here?

According to LikeFolio consumer insights, the answer to both questions is a resounding, ‘Yes!’

Consumer Happiness levels place Hoka in an elite group that LikeFolio members are very familiar with: On Running.

In addition, demand in 24Q1 is building on levels reached last quarter. You can see this in the light green pace bar on the far right of the chart below.

These new all-time high levels of demand suggest Hoka is well-positioned to be a continued growth driver for parent, DECK.

This brand isn’t out of gas just yet...

DECK won’t issue its next quarterly report until the end of August, but the early check on data is positive.

Pull-backs may present as ideal entry points for long-term investors.

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