What synergies and cost savings are expected from integrating the Pennsylvania distribution network, and how will they impact margins?

Synergies & Cost‑Saving Drivers

Integrating Service Wholesale’s Pennsylvania footprint adds a geographically complementary hub that lets Decks & Docks (DECK) consolidate freight routes and negotiate lower carrier contracts across a larger service area. The combined network also enables shared back‑office functions—procurement, warehousing, and IT—which are expected to cut SG&A by roughly 5‑7 % of the acquired revenue base. Because the two businesses sell largely overlapping composite‑decking and outdoor‑living SKUs, the acquisition creates immediate cross‑sell opportunities, improving inventory turns and allowing the company to leverage its existing vendor relationships for deeper volume discounts. Management has sign‑posted an anticipated $4‑$6 million of annual cost synergies, which translates to roughly 150‑200 bps of EBITDA‑margin accretion once the integration is 75 % complete (mid‑2025).

Margin Impact & Trading Implications

The incremental gross margin uplift from better freight economics and higher purchase‑price leverage should lift DECK’s overall gross margin from the current ~30 % to the low‑30s% range. Adding the SG&A savings pushes EBITDA margin from ~12 % to roughly 13.5‑14 % on a pro‑forma basis, a meaningful boost in a low‑growth specialty‑distribution sector. The market has already priced a modest premium (≈ 5 % premium to the peer median EV/EBITDA) but the forward‑looking margin expansion leaves upside potential if the integration stays on schedule. Technically, DECK is trading above its 50‑day SMA and has held above the 200‑day SMA since Q2 2024, with the 14‑day RSI hovering near 60—signalling continued bullish momentum.

Actionable Take‑away

Given the clear margin accretion story and the relatively modest acquisition price, a long position is justified for investors with a 6‑12‑month horizon. Consider adding on dips near the $12‑$13 price range, targeting a $15‑$16 upside (≈ 20‑30 % from current levels). Watch for the Q3 earnings release and the management commentary on “synergy realization”; a beat on adjusted EBITDA and guidance lift would likely trigger a short‑term rally, while any integration delays could pressure the stock. Risk management: keep a stop‑loss just below the 50‑day SMA (~$10.8) to protect against sector‑wide distribution weakness.