Stock splits do not fundamentally change a stock or its valuation. They simply divide the pie into several pieces.

However, stock splits remain correlated with outperformance, according to a study by Bank of America. There is no simple explanation for this relationship, but companies tend to split their shares when they perform well, and this dynamic appears to continue after the stock split. After all, management teams choose when to divide their shares. If they were not confident in continued growth, they would be less likely to do a split because they would be wary of the stock falling after the split.

Deckers (BRIDGE 0.70%) is one of the latest companies to offer a stock split. The shoe specialist split its shares 6 for 1 on September 17.

Today, parent company Hoka released its first earnings report since then, and investors liked what they saw, with the stock jumping 12% after hours. Let’s take a look at what went well for Deckers during the fiscal second quarter.

Image source: Getty Images.

Deckers race forward

Deckers delivered another impressive quarter of growth with total revenue up 20.1% to $1.31 billion, significantly beating estimates of $1.2 billion.

Growth was balanced between direct-to-consumer and wholesale channels, with DTC revenue increasing 19.9% ​​to $397.7 million. Wholesale revenue jumped 20.2% to $913.7 million.

The Hoka brand remains on fire with sales up 34.7% to $570.9 million, an acceleration from the previous quarter. The company also saw strong growth in international markets, where its revenue increased 33% to $457.4 million, showing that the company has room to grow overseas . Ugg, which remains its best-selling brand, reported revenue of $689.9 million, up 13% from the year-ago quarter.

Further down the income statement, Deckers also impressed. Gross margin jumped 250 basis points to 55.9%, demonstrating that the company controlled costs and avoided markdowns, leading operating profit to jump 36% to $305.1 million. dollars.

Ultimately, earnings per share rose from $1.14 to $1.59, well above the consensus of $1.24.

If there was a flaw in the report, it was in the company’s instructions. Although it raised its revenue forecast, it still only expects growth of 12% to $4.8 billion, implying a sharp slowdown in the second half, and below the consensus of $4.82 billion. of dollars. Ultimately, he raised his forecast from $5.15 to $5.25, which compares to estimates of $5.35.

However, the company has a history of offering conservative guidance, so investors shouldn’t be too alarmed by the forecasts.

Is Deckers a Buy?

Hoka has garnered investors’ attention in recent years, and it’s deserved since the running shoe brand has been the company’s growth engine. But Ugg’s strong performance is a pleasant surprise and bodes well as we head into winter and the key holiday season.

Deckers shares are now up more than 500% in the past five years and the company has two category leaders, Hoka and Ugg. Even though Hoka represents the investor story here, he still accounts for less than half of the company’s sales.

Deckers is now trading at a price/earnings ratio of 32 based on its earnings forecast for this year, but I suspect the company will easily beat those forecasts. It expects earnings per share growth of just 7% at the midpoint on a revenue growth forecast of 12%.

The holiday season will be crucial for the business, and consumer confidence appears to be improving as the peak sales season approaches. Beyond that, lower interest rates should also encourage consumer spending.

Shoe stock is still a buy.