In 2023, the footwear industry experiences stock declines for popular brands like Deckers and Birkenstock, despite significant sales growth and strong profit margins.
In 2023, the footwear sector experienced a notable shift, particularly for brands known for their unconventional designs, such as Deckers Brands, which produces Hoka sneakers, Ugg boots, and Teva sandals. Despite a successful run characterized by significant popularity in ‘ugly’ shoe fashion, several companies are now facing challenges that have impacted their stock prices significantly.
Deckers Brands has seen a dramatic decline in share value, dropping 32 percent this year. The company’s financial downturn comes despite strong sales performance; recent reports indicate that Deckers raised its full-year sales and earnings guidance after a 17 percent rise in sales and net earnings for its fiscal third quarter. Notably, their popular brands Ugg and Hoka displayed substantial growth, with sales increasing by 16 percent and 24 percent, respectively. However, it appears that high investor expectations may have contributed to the stock’s decline, as shares have fallen from previous record highs.
Birkenstock is similarly experiencing fluctuations in its stock value, losing around 14 percent. Although the company recorded a 19 percent increase in revenue for the fiscal first quarter, this growth did not align with investor expectations. In light of these developments, Birkenstock chose to maintain its full-year outlook unchanged, leading to a decline in share prices despite exceeding analyst estimates.
The broader context includes economic factors that have introduced uncertainty into the footwear market. With over a third of footwear sold in the United States coming from China, rising concerns regarding the impacts of trade tensions, alongside increased freight costs and a strong dollar, have raised caution among investors.
Nonetheless, brands like Deckers and Birkenstock maintain robust profit margins, with gross profit margins of 60.3 percent, surpassing competitors like Nike at 44 percent. These strong margins are supported by a loyal customer base, allowing the companies to sell products at full price even amid a crowded holiday shopping season.
Despite the recent setbacks, experts suggest that the enduring popularity of comfort-driven designs may provide opportunities for recovery in the shares of these companies. Deckers and Birkenstock are trading at lower multiples compared to their historical averages and are considered to be at a discount relative to other footwear brands such as Nike and On Holding.
Analysts note that the continued reliance on comfort over traditional aesthetics, particularly for products like Hoka’s running shoes and Birkenstock’s sandals, may support sustained demand and growth into 2024.
Source: Noah Wire Services
