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Dad sneakers, fluffy clogs and rubber slides. Ugly shoes had a good 2023 and an even better 2024. Yet after a blistering run, they appear to be losing their stride.
Shares in Deckers Brands, the company behind bulbous Hoka sneakers, Ugg sheepskin boots and Teva rainbow sandals, are down 32 per cent this year. On Holding, the Switzerland-based maker of rival running shoes with oversized soles, and Birkenstock have each lost about 14 per cent of their values.
With more than a third of footwear sold in the US coming from China, jitters around the impact of Trump’s trade wars are understandable. Rising freight costs and the strong dollar also merit some caution. Yet more than anything, the companies may simply be the victims of their own success and investors’ sky-high expectations.
Birkenstock, for instance, is growing at pace. Revenue was up 19 per cent for the fiscal first quarter, topping analyst estimates. Still, the shares took a spill after the company opted to keep its full-year outlook unchanged despite the robust start to the year.
Likewise, there was plenty to like in Deckers’ last set of results. The group raised its full year sales and earnings guidance after delivering a 17 per cent rise in sales and net earnings for its fiscal third quarter. Both Ugg and Hoka — its two biggest brands — grew at a healthy clip, with sales up 16 per cent and 24 per cent respectively.
And while Hoka’s pace of growth slowed compared to previous quarters, that is a reflection on its push, in the first part of the year, to sell more through retail partners. Underlying demand remains sturdy: direct to consumer sales rose 28 per cent during the quarter, according to Citi estimates.
Moreover, a devoted fan base meant Birkenstocks and Deckers were able to sell their wares full price despite a deal-heavy holiday season. The two boast gross profit margins of 60.3 per cent. That compares to Nike’s 44 per cent.
The resilience of these brands could create buying opportunities. Deckers shares — having come off a record high — are trading on 22 times forward earnings according to S&P Global Intelligence. Birkenstock is on 26 times. Both are below their three-year average and stand at a hefty discount to Nike and On. Deckers has a history of beating its own guidance.
While fashion trends come and go, Hoka’s high-performance running shoes and Birkenstock’s podiatrist-approved sandals’ main selling point is they are as comfortable as they are aesthetically questionable. This triumph of function over form should ensure the companies continue their run.
pan.yuk@ft.com
