Deckers cuts sales outlook; tariff refunds carry its higher profit guide

Deckers sells shoes under three brands, HOKA, UGG and Teva, and reports them as three segments, with Teva the main piece of the third.¹ Independent factories make all of its products. UGG's biggest weeks run from late November through December.²

Last fiscal year, sales rose 9.8% to $5.472 billion and operating profit was $1.263 billion.¹ HOKA grew 15.9% to $2.587 billion and UGG grew 8.2% to $2.739 billion. The finance chief said the company generated over one billion dollars of free cash flow, which Deckers defines as operating cash flow minus capital spending.² At $77.50 a share and the 135.3 million diluted shares it counted on average in the September quarter, the company is worth about $10.5 billion.³

In July, Deckers kept its sales outlook of $5.86 billion to $5.91 billion, kept HOKA at low-double-digit growth and UGG at mid-single-digit growth, and set earnings guidance at $7.35 to $7.50 a share.¹ That outlook assumed no refunds of tariffs already paid.² A longer framework set in May calls for sales growth in the high single digits each year after this one, an operating margin in the low 20+ percent range, and low-double-digit growth in earnings per share when combined with continued buybacks.³

The refunds come from a court ruling. In February 2026 the Supreme Court struck down tariffs imposed under an emergency-powers law known as IEEPA, and Deckers had paid about $120 million of them.¹ Its 10-Q warned that any net benefit would be smaller than the gross amount, because of cost-sharing deals with its factories and taxes on the refunds.²

Investors have seen a cut like this before. The Wall Street Journal reported on Oct. 24, 2025 that Deckers had lowered its second-half guidance after seeing tariff effects on American shoppers, and that its shares sank 15% to a two-year low.

The balance sheet going into the report was clean. In late August Deckers raised its unsecured revolving credit line, a standing loan it can draw as needed, to $500 million and pushed its maturity to August 27, 2031.¹ Its 10-Q said it was in compliance with all financial covenants.²

The new sales range takes about $172.5 million off the July midpoint, roughly 3%. It still means growth of about 4.2% to 4.6% over last year's $5.472 billion.¹ First-half sales rose 4.4% to $2.50 billion. Against last year's second half of $3.08 billion, the old range needed second-half growth of about 9.2% to 10.8%, while the new range needs about 4.0% to 4.8%, close to the pace the company is already running at.²

Management said September-quarter revenue came in slightly below its own expectations.¹ About $22 million of shipments slipped because of problems at its European logistics provider. Only part of that will move into the December quarter, and some is at risk of cancellation.² In America, discounting rose through the quarter, especially in athletic shoes, and weighed on online sales. Management also pointed to a lot of excess product in athletic footwear.³

UGG's own stores and websites saw sales fall 8% to $146 million, as stretched shoppers waited to buy closer to need.¹ For HOKA, management said some 2026 product updates did not land as well, and that it may be losing share below $120 a pair while still gaining share above that price.² Overall, domestic sales slipped 0.4% while international sales rose 9.0%.³

The quarter was still a step up. Sales rose 3.5% to $1.481 billion, with HOKA up 6.8% to $677.2 million and UGG up 3.5% to $786.4 million.¹ Most sales go through wholesale partners: $1.093 billion in the quarter, against $387.5 million through the company's own stores and websites.² Comparable direct-to-consumer sales, which count only stores and sites open in both years at constant exchange rates, fell 6.4%.³

Gross margin, the share of sales left after the cost of the goods, jumped to 60.5% from 56.2%.¹ Management said the refunds supplied about 310 basis points of that, and the underlying gain of 120 basis points came from full-price selling and product mix.² Excluding refunds, operating margin was 23.2%, up from 22.8%.³

Reported earnings were $2.31 a share against $1.82 a year earlier.¹ That includes about $0.28 from $46.0 million of net tariff refunds, which equal 11.8% of the quarter's $389.5 million operating profit.² Without refunds, earnings were $2.03 a share, up 11.5% and, management said, well above the top of its guidance.³

Buybacks did part of the work. Diluted shares fell about 8% to 135.3 million from 147.7 million, so net income rose about 17% to $313.1 million while reported earnings per share rose 27%.

For the full year, Deckers has collected $87.9 million of net refunds through October 8, 2026, worth about $0.52 a share, and the guidance assumes nothing more.¹ The refunds received are about 90% of what it has filed for.² Taking the $0.52 out leaves about $7.28 to $7.43 a share, slightly below July's $7.35 to $7.50. Management described this as, in large part, holding its prior earnings view before refunds.³

The two ranges rest on different buyback assumptions. July assumed buybacks worth about 80% of projected free cash flow, while the new guide assumes $1.0 billion.¹ Without refunds, management said gross margin would be 57% and operating margin slightly better than 21.5%, the same operating margin it guided in July. The reported targets are about 58.5% and 23%.²

Cash fell $697.5 million since the fiscal year began, to $1.21 billion.¹ Most of it went to buybacks: about 6.5 million shares for $637.5 million, at an average of $98.77.² The rest reflects the usual build before the holidays, with inventories at $860.8 million against $487.0 million, money owed by customers at $675.2 million against $319.0 million, and supplier bills at $647.9 million against $384.5 million.³

Both sides of the buyback matter. Selling holders got $637.5 million in cash, and the shares retired equal about 5% of the stock outstanding, so every remaining holder owns a bigger slice.¹ At $77.50, those 6.5 million shares are worth about $504 million, about $134 million less than Deckers paid. Even the September-quarter buys averaged $93.65.² To reach the $1.0 billion the guidance assumes, Deckers would spend about $362.5 million more this fiscal year, and it has about $4.4 billion of authorization left.³

Deckers had no borrowings, and its $500 million credit line runs to August 27, 2031.¹ With $1.21 billion of cash and no debt, ratios such as net debt to earnings do not bite.² The largest fixed commitments are purchase obligations, which totaled $1.374 billion at March 31, 2026; long-term lease liabilities rose to $459.3 million from $291.3 million, mainly after a warehouse lease extension.³ Dilution from pay is small: stock awards added only about 296,000 diluted shares in the June quarter.⁴

Cash flow swings with the seasons. In the June quarter, operating cash flow was only $47.9 million; $320.6 million went into inventory, more than offset by $341.6 million of higher supplier bills.

The 8-K also carried a board change. Rati Sahi Levesque, chief executive of The RealReal, joins on December 1, 2026, and Lauri Shanahan retires.¹ The company says her retirement is not the result of any disagreement. She had drawn by far the most opposition at the September meeting, with 15,390,905 votes against her.²

The stock traded at $85.245 a minute before the close and fell to $77.50 after the release, about 9.1% lower and 9.3% below Wednesday's $85.49 close.¹ The S&P 500 fund's 1.2% dip ran from Wednesday's close and came mostly before the release.² The after-hours drop took about $1.05 billion off the company's value.³ At $77.50 the stock trades at 9.8 times the midpoint of the new earnings guide, or about 10.5 times without refunds. It sits just under its September 15 close of $77.54, the lowest close in our price file, which begins in mid-September.⁴

The bull case: underlying profit is growing faster than sales. Excluding refunds, earnings per share rose 11.5% and beat the company's own guide, gross margin improved on full-price selling, and operating margin guidance before refunds is unchanged from July.¹ The new sales range asks only for second-half growth near the first half's pace, the company has no debt, and at under 10 times guided earnings a bull would say little growth is priced in.² Management also has new HOKA products coming, starting with the Bondi 10 launch in January.³

The bear case, strongest point first. Demand is softening in its own stores and websites: comparable direct-to-consumer sales fell 6.4%, UGG's direct sales fell 8%, and management now expects American wholesale to outgrow its own stores and sites.¹ Second, the guide still needs HOKA growth to speed up in the fourth quarter and assumes fewer UGG reorders than last winter, so a soft holiday could bring another cut.² For the December quarter, management said higher freight and a bit more discounting take about 150 basis points off gross margin, against about 210 basis points of help from refunds.³ Third, part of the higher earnings guide is refunds, and the guide assumes no more of them, so a bear would say next year starts from a lower base. Fourth, Deckers spent heavily on its own stock well above today's price, and it faces two consumer class actions over tariff-related pricing.⁴

Management's goals, not results: it wants the December quarter to be UGG's largest in its nearly 50-year history, and it guides earnings of $3.52 to $3.60 a share for that quarter, including about $0.24 of refunds already collected.¹ Asked about the longer framework, the chief executive said the company is only six months into the guidance it shared.² The dated markers are the board change on December 1, 2026, UGG's peak weeks from late November through December, the Bondi 10 in January, and the December-quarter results.³

What would prove the bear wrong is a December quarter at or above the guide with UGG's biggest holiday ever. What would prove the bull wrong is earnings below $3.52 a share, more canceled European orders, or another sales cut.

The results release gives a balance sheet and income statement but no cash flow statement, so first-half operating cash flow and free cash flow will not be known until the 10-Q.

Management says refunds received are about 90% of what it has filed for, and the guide leaves out anything not yet received. Neither the release nor the call gives the dollar value still outstanding, or when it might arrive.

Management did not say how much of the roughly $22 million of delayed European shipments will be canceled rather than shipped in the December quarter.

The 10-Q says Deckers faces two purported consumer class actions over tariff-related pricing, but gives no damages sought and no reserve.