Deckers Outdoor Corp. (NYSE:DECK)

The financial performance, as measured by economic profit, demonstrates a significant improvement over the observed period. Initially, the entity experienced an economic loss, but subsequently achieved and maintained positive economic profit. This analysis details the trends in net operating profit after taxes, cost of capital, invested capital, and the resulting economic profit.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibited a substantial upward trend throughout the period. Beginning at US$130,421 thousand in 2018, it increased to US$502,935 thousand in 2023. The most significant year-over-year increase occurred between 2018 and 2019, followed by consistent growth in subsequent years. This indicates improving operational efficiency and profitability.

Cost of Capital

The cost of capital remained relatively stable, fluctuating between 15.01% and 15.82% over the six-year period. A slight increasing trend is observable, though the changes are incremental. The consistency suggests a stable risk profile and financing structure.

Invested Capital

Invested capital consistently increased from US$1,227,436 thousand in 2018 to US$1,948,548 thousand in 2023. This growth parallels the increase in NOPAT, suggesting that capital investments are being deployed effectively. The rate of increase in invested capital appears to be moderating in later years.

Economic Profit

Economic profit transitioned from a loss of US$-53,863 thousand in 2018 to a profit of US$194,739 thousand in 2023. The positive trend began in 2019 and accelerated in subsequent years. This indicates that the entity is generating returns exceeding its cost of capital. The magnitude of the economic profit has more than tripled between 2019 and 2023, demonstrating a substantial improvement in value creation.

In summary, the entity has demonstrably improved its ability to generate economic profit. The growth in NOPAT, coupled with a stable cost of capital and effective deployment of invested capital, has resulted in a significant increase in value creation over the analyzed period.

The financial data reveals a consistent upward trend in both net income and net operating profit after taxes (NOPAT) over the six-year period ending March 31, 2023. This indicates sustained profitability and operational efficiency improvements.

Net Income

Net income exhibited significant growth from 114,394 thousand USD in 2018 to 516,822 thousand USD in 2023. This represents more than a fourfold increase over the period, underscoring strong earnings expansion. Notably, the largest annual increases appear between 2018 to 2019 and 2020 to 2021, suggesting episodes of accelerated profitability gains.

Net Operating Profit After Taxes (NOPAT)

NOPAT mirrored the net income trend, rising steadily from 130,421 thousand USD in 2018 to 502,935 thousand USD in 2023. The data suggests improved operational efficiency and tax management. The gap between net income and NOPAT is relatively consistent, implying a stable relationship between earnings and after-tax operating profit.

Overall, the upward trends in net income and NOPAT reflect positive financial performance, characterized by continuous growth and effective operating profit generation over the six-year span. This progression indicates successful management and potentially stronger market positioning.

The data reflects the annual figures for income tax expense and cash operating taxes over six fiscal years ending March 31 from 2018 through 2023.

Income Tax Expense

The income tax expense exhibited a declining trend from 2018 to 2019, decreasing from approximately 106.3 million USD to 64.6 million USD. This lower level was maintained relatively stable into 2020. However, in fiscal year 2021, income tax expense increased significantly to about 119 million USD. After a slight decrease in 2022 to approximately 112.7 million USD, the figure increased again in 2023 to roughly 149.3 million USD, marking the highest value in the dataset.

Cash Operating Taxes

Cash operating taxes followed a somewhat parallel but more volatile trajectory. There was a notable decrease from about 103 million USD in 2018 to roughly 59.9 million USD in 2019. In 2020, a minor increase to 63.2 million USD was observed, followed by a large jump to approximately 129.3 million USD in 2021. The increasing trend continued into 2022 with payments rising to around 141.7 million USD, and higher still in 2023 at approximately 158.1 million USD.

Overall, both income tax expense and cash operating taxes decreased significantly during the initial two-year period, reached a trough around 2019–2020, and then displayed a sharp upward trend starting in 2021 through 2023. The rise in both metrics during the later years suggests an increase in taxable income or changes in tax rates, tax policies, or the company’s tax planning strategies during this timeframe. The cash operating taxes consistently remain slightly lower than the income tax expense except for 2021 and 2022, where cash taxes exceeded the income tax expense, indicating possible timing differences or adjustments in tax provisions.

The financial data reveals several key trends in the company's capital structure and equity position over a six-year period ending March 31, 2023.

Total Reported Debt & Leases

The total debt and leases decreased from $308.6 million in 2018 to a low point of $222.1 million in 2022, indicating a significant reduction in leverage during that period. However, in 2023, this figure rose to $246.5 million, reflecting a partial reversal of the prior deleveraging trend.

Stockholders’ Equity

Stockholders’ equity demonstrated consistent growth throughout the entire timeframe. Beginning at $940.8 million in 2018, it increased steadily each year, reaching $1.77 billion by 2023. This upward trajectory indicates sustained profitability and/or retained earnings accumulation, contributing to a strengthening equity base.

Invested Capital

Invested capital, representing the total amount invested in the business from both equity and debt, also showed a persistent upward trend. It increased from $1.23 billion in 2018 to nearly $1.95 billion in 2023. This reflects not only the rise in equity but also ongoing capital investments or asset growth, with the company supporting expansion or operational needs through a combination of equity and debt financing.

Overall, the company has managed to grow its equity base substantially over the period while maintaining a moderate and somewhat fluctuating debt level. The partial increase in debt and leases in the most recent year suggests a potential strategic shift toward leveraging capital structure more actively after a period of deleveraging. The consistent growth in invested capital indicates ongoing investment in the business's long-term assets, supporting future growth prospects.

The economic spread ratio demonstrates a significant positive trend over the observed period. Initially negative in 2018, the ratio has consistently increased through 2023, indicating an improving relationship between returns generated and the capital employed.

Economic Spread Ratio Trend

In 2018, the economic spread ratio was -4.39%, signifying that the company’s returns were lower than its cost of capital. A substantial shift occurred in 2019, with the ratio rising to 6.14%, indicating returns exceeding the cost of capital. This positive trend continued, with the ratio reaching 7.69% in 2021 and further increasing to 9.59% in 2022. The most recent year, 2023, shows a further increase to 9.99%, representing the highest value within the observed timeframe.

The consistent growth in the economic spread ratio suggests increasing efficiency in capital allocation and improved profitability relative to the capital invested. This improvement coincides with increases in both economic profit and invested capital, though the ratio’s growth indicates that profitability is improving at a faster rate than the expansion of invested capital.

Relationship to Economic Profit

The economic spread ratio’s positive trajectory aligns with the growth in economic profit. Starting from a negative economic profit in 2018, the company achieved positive economic profit from 2019 onwards. The increasing economic spread ratio reflects the company’s ability to generate greater economic profit from its growing invested capital base.

The upward trend in the economic spread ratio is a positive indicator of financial performance, suggesting the company is becoming more effective at generating value for its investors. The ratio’s consistent increase over the five-year period suggests a sustained improvement in the company’s ability to generate returns above its cost of capital.

The economic profit margin demonstrates a significant upward trend over the observed period. Initially negative in 2018, the metric has consistently increased through 2023, indicating improving profitability from an economic value perspective.

Economic Profit Margin Trend

In 2018, the economic profit margin was -2.83%, reflecting an economic loss. A substantial improvement occurred in 2019, with the margin rising to 3.97%. This positive trend continued, albeit at a moderating pace, reaching 3.14% in 2020 and 4.96% in 2021. Further gains were observed in 2022 and 2023, with the margin reaching 5.27% and 5.37% respectively.

The consistent increase in the economic profit margin suggests that the company is increasingly generating returns above its cost of capital. The magnitude of the increase slowed between 2021 and 2023, indicating potentially diminishing returns or increased capital costs relative to profit growth during those years. However, the overall trajectory remains strongly positive.

Relationship to Adjusted Net Sales

The economic profit margin’s improvement coincides with consistent growth in adjusted net sales. Sales increased from US$1,903,339 thousand in 2018 to US$3,624,930 thousand in 2023. While sales growth contributes to the absolute increase in economic profit, the rising margin indicates that profitability is improving independently of revenue expansion.

The progression from negative economic profit in 2018 to positive and increasing economic profit margins through 2023 signifies a positive shift in the company’s ability to create value for its investors.