Grade: A — Strong Financial Health
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2025-05-23) + Yahoo Finance
Auditor: KPMG LLP — Clean opinion (unqualified)
One-line verdict: Deckers Outdoor — the company behind UGG and HOKA — is a $5.0B revenue footwear powerhouse with near-pristine earnings quality. Zero red flags, one minor watch item, a 57.9% gross margin, $1.9B cash against only $277M debt, and an Altman Z-Score of 10.79. The M-Score of -2.57 is clean. CFFO backs net income at 1.08x, FCF of $958M nearly equals net income, and the accruals ratio is negative at -2.2%. The single watch item — revenue growing 16.3% while CFFO grew only 1.1% — reflects working capital timing rather than quality deterioration. This is one of the cleanest earnings reports in consumer discretionary.
| Metric | Result |
|---|---|
| Red Flags | **0** |
| Watch Items | **1** |
| Checks Completed | **17/18** (1 N/A) |
| Beneish M-Score | **-2.57** (below -2.22 — clean) |
| F-Score (Fraud Probability) | **0.55** (0.20% probability) |
| Altman Z-Score | **10.79** (safe zone — extremely strong) |
| Auditor | KPMG LLP — Unqualified opinion |
| Fiscal Year | 2025 (ended March 31, 2025) |
| Report Date | 2026-04-05 |
The Business: UGG + HOKA Growth Engine
The 10-K describes Deckers as "a global leader in designing, marketing, and distributing innovative footwear, apparel, and accessories developed for both everyday casual lifestyle use and high-performance activities. We market our products primarily under five proprietary brands: UGG, HOKA, Teva, AHNU, and Koolaburra."
HOKA has been the primary growth driver, transforming Deckers from a seasonal UGG boot company into a diversified footwear platform. The filing notes products are sold "through quality domestic and international retailers, international distributors" and direct-to-consumer channels.
Profitability: Exceptional Margins
| Metric | FY2022 | FY2023 | FY2024 | FY2025 | Trend |
|---|---|---|---|---|---|
| Revenue | $3,150M | $3,627M | $4,288M | $4,986M | +16.3% YoY |
| Gross Profit | $1,608M | $1,825M | $2,385M | $2,886M | +21.0% |
| Gross Margin | 51.0% | 50.3% | 55.6% | **57.9%** | Strong expansion |
| Net Income | $452M | $517M | $760M | $966M | +27.2% |
| Net Margin | 14.3% | 14.2% | 17.7% | **19.4%** | Expanding |
| ROE | 29.4% | 29.3% | 36.0% | **38.4%** | Strong |
The margin expansion is remarkable: gross margin rose from 51.0% to 57.9% over four years, and net margin nearly doubled from 14.3% to 19.4%. Revenue grew 16.3% YoY driven by HOKA's continued momentum. ROE of 38.4% is excellent for a company with minimal leverage.
Cash Flow: Clean and Consistent
| Metric | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| Operating Cash Flow | $172M | $537M | $1,033M | $1,045M |
| Net Income | $452M | $517M | $760M | $966M |
| **CFFO / Net Income** | **0.38** | **1.04** | **1.36** | **1.08** |
| CapEx | -$51M | -$81M | -$89M | -$86M |
| Free Cash Flow | $121M | $456M | $944M | $958M |
From the cash flow statement: "Net cash provided by operating activities" was $1,044,523 thousand for FY2025, compared to $1,033,184 thousand in FY2024 — essentially flat despite 16.3% revenue growth. The filing explains this through working capital timing: inventory and receivables investments consumed cash as the company scaled.
The accruals ratio of -2.2% is negative and healthy. FCF of $958M nearly equals net income of $966M — a 0.99x ratio that demonstrates genuine cash conversion.
Balance Sheet: Fortress
| Metric | FY2025 | FY2024 |
|---|---|---|
| Cash | $1,889M | $1,502M |
| Total Debt | $277M | $267M |
| Cash/Debt Coverage | **6.82x** | 5.63x |
| Debt/EBITDA | 0.2x | — |
| Interest Coverage | 335.3x | — |
| Goodwill + Intangibles | $30M | — |
| Altman Z-Score | 10.79 | — |
The balance sheet is among the cleanest in the consumer sector. Cash of $1.9B exceeds total debt ($277M, mostly operating leases) by nearly 7x. There is essentially no goodwill ($14M) and negligible intangibles ($16M). The Altman Z-Score of 10.79 is extraordinary — far into the safe zone.
The 18-Point Screening
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | PASS | DSO 24 days, change -1 day YoY. Improving |
| A2 | AR vs Revenue Growth | PASS | AR growth 12.2% vs revenue growth 16.3% |
| A3 | Revenue vs CFFO | WATCH | Revenue +16.3% but CFFO +1.1% |
| B1 | Inventory vs COGS | PASS | Inventory +4.4% vs COGS +10.4%. Normal |
| B2 | CapEx vs Revenue | PASS | CapEx -3.6% vs revenue +16.3%. Normal |
| B3 | SG&A Ratio | PASS | SG&A/Gross Profit = 59.1%. Normal |
| B4 | Gross Margin | PASS | Gross margin 57.9%, +2.2pp. Expanding |
| C1 | CFFO vs Net Income | PASS | CFFO/NI = 1.08. Profits backed by cash |
| C2 | Free Cash Flow | PASS | FCF $958M, FCF/NI = 0.99 |
| C3 | Accruals Ratio | PASS | Accruals ratio = -2.2%. Low accruals |
| C4 | Cash vs Debt | PASS | Cash $1.9B covers debt $277M. 6.82x coverage |
| D1 | Goodwill + Intangibles | PASS | Goodwill+Intangibles $30M = 1% of equity |
| D2 | Leverage | PASS | Debt/EBITDA = 0.2x. Interest coverage 335x |
| D3 | Soft Asset Growth | PASS | Other assets -21.9% vs revenue +16.3%. Normal |
| D4 | Asset Impairment | N/A | No write-off data |
| E1 | Serial Acquirer FCF | PASS | FCF after acquisitions positive |
| E2 | Goodwill Surge | PASS | Goodwill+Intangibles -28% YoY. Declining |
| F1 | Beneish M-Score | PASS | M-Score = -2.57 (< -2.22). Clean |
A3 Watch Item Context
Revenue grew 16.3% while CFFO grew only 1.1%. The cash flow statement shows the gap: working capital changes (inventory build, receivables growth) consumed cash as the business scaled rapidly. This is a timing issue — the company is investing in growth — not a quality concern. CFFO/NI at 1.08 confirms that absolute cash flow generation is strong.
Beneish M-Score Component Breakdown:
| Component | Value | What It Measures | Concern? |
|---|---|---|---|
| DSRI | 0.965 | Days Sales in Receivables — declining | Good |
| GMI | 0.961 | Gross Margin Index — margins expanded | Excellent |
| AQI | 0.785 | Asset Quality Index — hard assets | Good |
| SGI | 1.163 | Sales Growth Index — 16.3% growth | Normal |
| DEPI | 0.902 | Depreciation Index — accelerating | Normal |
| SGAI | 1.007 | SG&A Index — flat | Normal |
| TATA | -0.022 | Total Accruals to Assets — negative | Good |
| LVGI | 0.939 | Leverage Index — deleveraging | Good |
Key Risks from the 10-K
1. Brand Concentration
The filing notes reliance on UGG and HOKA for the vast majority of revenue. Any damage to either brand — fashion trend shifts, quality issues, or competitive displacement — would materially impact results.
2. Seasonality
UGG is heavily seasonal (fall/winter). HOKA helps diversify, but the filing warns: "Our business is subject to seasonal variations in demand" that create quarterly revenue volatility.
3. International Expansion Risk
The 10-K describes growing international operations that face "currency and exchange rate fluctuations" and the complexity of operating in different regulatory environments.
4. Consumer Discretionary Spending
Footwear is discretionary. The filing warns of risks from "changes in consumer confidence and spending" driven by macroeconomic conditions.
5. Supply Chain Dependence
The filing cites dependence on third-party manufacturers, primarily in Asia, for production. "A disruption in our supply chain could adversely affect our business."
Key Financial Trends (4-Year)
| Metric | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| Revenue | $3,150M | $3,627M | $4,288M | $4,986M |
| Net Income | $452M | $517M | $760M | $966M |
| Gross Margin | 51.0% | 50.3% | 55.6% | 57.9% |
| Net Margin | 14.3% | 14.2% | 17.7% | 19.4% |
| ROE | 29.4% | 29.3% | 36.0% | 38.4% |
| CFFO | $172M | $537M | $1,033M | $1,045M |
| CFFO/NI | 0.38 | 1.04 | 1.36 | 1.08 |
| FCF | $121M | $456M | $944M | $958M |
| Cash | $844M | $982M | $1,502M | $1,889M |
| Total Debt | $222M | $246M | $267M | $277M |
Summary
Grade: A. Zero red flags, one minor watch item. Exceptional earnings quality.
Deckers Outdoor is a textbook example of clean financial health. Every key metric is strong: 57.9% gross margin (expanding), 19.4% net margin, CFFO/NI of 1.08, FCF of $958M (0.99x net income), negative accruals ratio, $1.9B cash against $277M debt (6.82x coverage), no goodwill, Debt/EBITDA of 0.2x, interest coverage of 335x, and an Altman Z-Score of 10.79.
The M-Score of -2.57 and F-Score probability of 0.20% both confirm no manipulation risk. The single watch item (revenue-CFFO gap) is a timing issue from working capital investment, not a quality concern.
HOKA's continued growth trajectory and UGG's brand durability underpin the revenue expansion. The primary risks are brand concentration, seasonality, and consumer discretionary spending sensitivity. But from a pure earnings quality perspective, Deckers is as clean as it gets.
**Disclaimer**: This report is based on Deckers Outdoor's fiscal year 2025 10-K filed with the SEC on May 23, 2025. This is NOT investment advice.
**About EarningsGrade**: We screen earnings reports for financial red flags using an 18-point forensic framework. Grade A means the company passed all checks with no significant concerns.