Deckers Brands just posted another stellar year, defying market expectations and cementing its position as a footwear powerhouse. HOKA continues its meteoric rise, while UGG, the brand once synonymous with comfy winter boots, has undergone a remarkable transformation, becoming a global fashion icon with diversified offerings and a younger, more diverse consumer base. Yet, hidden within the celebratory tone of the latest <a href="https://seekingalpha.com/symbol/DECK" alt="source1">Deckers Brands Q4 2024 Earnings Call Transcript</a> lies a subtle shift, a potential crack in UGG's golden armor that could signal a change in the brand's trajectory.

The narrative, masterfully crafted by Deckers' leadership, paints a picture of unyielding brand heat, exceptional full-price selling, and a controlled marketplace driving sustained growth for UGG. However, a closer examination of the transcript, specifically regarding pricing strategy, reveals a potential vulnerability that other analysts seem to have overlooked.

Deckers readily admits that a significant portion of UGG's revenue growth in fiscal year 2024 came not from increased unit sales, but from strategic price increases on a select number of high-performing styles. This tactic, while undeniably effective in the short term, raises a critical question: how long can UGG continue to raise prices without impacting consumer demand?

The transcript acknowledges that the exceptional levels of full-price selling and minimal promotional activity experienced, particularly for UGG, are unlikely to repeat in fiscal year 2025. This suggests an anticipation of a more normalized promotional environment, which could be a direct consequence of reaching a price ceiling for certain UGG products.

Here's where the hypothesis gets interesting. Let's delve into the numbers. In fiscal year 2024, UGG delivered a 16% revenue increase with single-digit unit growth. This implies a price increase impact of roughly 7-9%. While Deckers hasn't explicitly stated plans for broad-based price increases in fiscal year 2025, the transcript hints at potential "surgical" increases for select styles and markets.

If we assume a more conservative price increase impact of 3-5% in fiscal year 2025, coupled with a normalized promotional environment leading to lower full-price selling, UGG's revenue growth could be significantly constrained. The brand's mid-single-digit growth guidance for fiscal year 2025 already suggests this potential slowdown, but the underlying reliance on price increases as a key driver of past growth raises a red flag.

Further fueling this hypothesis is the subtle shift in Deckers' language when discussing UGG's long-term potential. While previous comments hinted at the possibility of doubling revenue, the latest transcript focuses on maintaining a healthy mid-single-digit growth rate, a more conservative outlook that aligns with the potential limitations of continued price increases.

Deckers, a master of brand management, has undoubtedly factored these dynamics into its guidance and strategic planning. However, the transcript's subtle shift in tone, coupled with the numbers, suggests a potential turning point for UGG. The brand's success in diversifying its offerings and capturing a younger, global audience is undeniable. But the reliance on price increases as a key driver of past growth raises a cautionary note.

The question remains: can UGG maintain its current momentum through product innovation and brand heat alone, or will the cash cow begin to show signs of slowing down as price increases reach their limit? Only time will tell, but for now, the subtle shift in Deckers' narrative regarding UGG warrants close attention.

HOKA vs UGG Revenue Growth

The following chart compares the revenue growth of HOKA and UGG based on information from the <a href="https://seekingalpha.com/symbol/DECK" alt="source2">Deckers Brands Q4 2024 Earnings Call Transcript</a>.

"Fun Fact: Did you know that the iconic UGG Classic boot was originally popularized by surfers in Australia? The sheepskin lining kept their feet warm after coming out of the cold Pacific Ocean. It's a far cry from the fashion runways of Paris and New York, but it highlights the brand's remarkable journey from a niche surf product to a global phenomenon."