Shoppers Want Uggs and Hokas. The Brands Are Boosting Growth for Their Owner.

Deckers bought the Hoka sneakers brand in 2012. It now contributes about 40% of Deckers’ annual revenue.
Deckers bought the Hoka sneakers brand in 2012. It now contributes about 40% of Deckers’ annual revenue.

Summary

Footwear and apparel company Deckers Outdoor is investing to stay on top of what consumers covet, its finance chief says.

Footwear and apparel maker Deckers Outdoor has finished three straight years with double-digit revenue growth by riding the popularity of two brands: Ugg and Hoka.

While trends can change, and quickly, the company’s finance chief is sure the brands have room for more growth, even as Deckers takes steps to be ready to pivot along with consumer tastes.

Ugg’s footwear is hot again after going in and out of fashion over the past few decades, and Hokas have emerged as the sneaker of choice for many runners while also attracting more sedentary style seekers. The two brands now account for more than 90% of Deckers’ revenue. Ugg is the top seller, while Hoka has become a strong second engine of sales for the company.

But can the twin crazes last? Chief Financial Officer Steve Fasching said the company is focusing on how to continue growth that is in part driven by a fad. Fasching concedes that gauging consumer preferences can be tricky. “People will say, ‘Well, is this just a trend?’" he said of the brands’ success.

The company is ramping up investments in new products to stay on top of shoppers’ wants, the CFO said. Goleta, Calif.-based Deckers is also paying close attention to sales figures and other measures of consumers’ taste, such as surveys, to know when it is time to shift. “We continue to invest in new products. As that continues, the brands will grow," Fasching said.

Demand for offerings from the Ugg brand, which has been around since the 1970s, has picked up in recent years—especially among millennials and Gen Z—with new products, like open-toed sandals and a slip-on. And the Ultra Mini Platform, a take on the original shearling-lined boots with a tiny shaft and chunky base that retails for $160, has created a retail frenzy, which is also sparking demand in secondary markets and viral moments on TikTok.

Ugg sales of $1.07 billion were up 15% for the three-month period ended Dec. 31 compared with a year earlier, Deckers said this month. They increased 28% year over year in the previous quarter. “Ugg has been growing double digits when most investors a few years ago thought this was a flat or declining brand," said Jonathan Komp, a senior research analyst at Robert W. Baird & Co.

Even as shoppers ardently buy Ugg products, the brand’s share of Deckers’ revenue has been coming down as Hoka has seen explosive growth. Hoka has benefited from pandemic-driven shifts like hybrid work and more casual office dress, and as shoppers realized the shoes work for more than exercise.

Deckers bought the colorful chunky sneakers brand in 2012, when sales were around $3 million for the year. A little over a decade later, sales for fiscal year 2023 were $1.41 billion, up nearly 59% from the previous 12-month period. Hoka is expected by analysts to bring in close to $1.8 billion this fiscal year, which ends March 31. What amounted to less than 10% of Deckers’ revenue roughly six years ago now comes to around 40%.

Companies operating in the retail space are accustomed to products going in and out of fashion, sometimes unexpectedly, analysts say. Executives in these businesses know to be nimble and pivot when tastes shift. Deckers is no exception.

But analysts don’t see the company’s significant reliance on two somewhat trend-driven brands as a problem. “Some investors worry that they’re going to wake up one day and find out the consumer has just changed their mind about a brand," said Jay Sole, a retail analyst at UBS. More likely, if a brand loses appeal it is because companies are, for instance, pulling back on marketing investment or aren’t rolling out new, desirable products, he said. “Once people start to like something…that tends to stay in their mind," he said.

In fact, analysts see the two brands’ concentration as a positive. “It’s kind of rare to have two brands that are scaled as big as they are and that are growing as strongly" within one company, said Janine Stichter, an analyst covering consumer retail and lifestyle brands at financial services firm BTIG. Both Ugg and Hoka rely somewhat on what is trending, she said, but less so than the overall footwear market and the two brands have also been fairly predictable boosts for the company’s revenue. “The biggest question is, can they sustain the same level of growth that they are seeing right now?" Stichter said.

Deckers plans to continue investing in new products, and that will keep interest and bring in new consumers, said Fasching. The company’s selling, general and administrative expenses in the most recent quarter were $429 million, the company said, up 23% from a year ago. The increase was primarily to spend more on marketing and workers as Deckers’ brands grow.

For Ugg, investment means coming up with new products beyond the classic boot and adapting some items, for instance by putting more-rugged soles on a slipper-style shoe so that it can be worn outdoors. Hoka too is benefiting from broadening appeal. It is still popular among runners, but as awareness of the brand has grown, it is now seen as footwear to go for a walk in or to wear to work, Fasching said.

Deckers is also managing inventory to keep some level of scarcity, Fasching said. “We know the demand is stronger than what we’re supplying, which is keeping the brands hot and healthy," he said. This keeps the appeal and enables Deckers to sell without having to cut prices or rely heavily on promotions.

That fervor around Ugg and Hoka doesn’t mean the company isn’t looking closely at its roster of brands, which include Teva, Koolaburra and Sanuk.

It is looking to sell Sanuk and there are also plans to unveil a new brand. Details on the new brand are limited so far, but analysts expect an announcement in coming months. Analysts anticipate it will include a higher-end sneaker that would start with a price tag of about $200. Production will initially be small to test the appetite, according to Fasching.

Asked whether the launch is meant to expand the number of brands boosting Deckers’ revenue, the CFO said it is “too early to say."

Write to Jennifer Williams at jennifer.williams@wsj.com

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