On Holding (ONON), the company behind the popular On running shoe brand, outpaced Q1 estimates early Tuesday. But ONON stock fell sharply. On shares have nearly doubled in 2023, setting a hot pace for the footwear industry's impressive performance. On Holding raised guidance after its Q1 beat, but sees growth slowing significantly later in the year.
XThe Swiss performance-shoe maker went public at 24 per share in September 2021 and is backed by tennis champion Roger Federer. The company is a rising star in the industry. Sales bolted 55% to more than $1 billion in 2022, boosted by the reinvention of its popular Cloudmonster, Cloudrunner and Cloudgo brand performance trainers.
"On's rally is being driven by the brand's strong momentum and product acceptance by consumers," Cristina Fernandez, managing director and senior research analyst at Telsey Advisory Group, recently told IBD.
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The shift toward casual footwear during the coronavirus pandemic helped sales, but innovation and bringing a new product to the market have really fueled On's success, according to Fernandez. "Consumers were ready for something different," she said.
After rolling out new products over the past year, On has a bigger presence at its retail partners and is taking share from other players, Fernandez said.
Rivals Crocs and Skechers both topped quarterly estimates for their respective reports in late April but shares fell on weaker-than-expected outlooks for Q2.
On Earnings
On earnings tripled to 0.15 per share CHF (Swiss francs) adjusted on a 78.3% revenue increase to 420.2 million CHF. In U.S. dollars, earnings spiked to 17 cents on $470.6 million in sales.
Analysts polled by FactSet expect adjusted earnings to double year over year to 0.10 CHF. Sales were seen spiking 61.4% to 380.57 million CHF. In dollars, FactSet analysts expected earnings of 13 cents per share on $426 million in revenue.
On Holding maintained its gross profit margin projections for the year, expecting it to reach 58.5% in 2023 from 56% last year.
The company raised its net sales outlook to at least 1.74 billion CHF, up slightly from its March forecast of 1.7 billion CHF. In dollars, the performance shoe maker expects sales of $1.95 billion, up from $1.36 billion last year.
Guidance Not Good Enough?
On Holding raised revenue guidance largely reflects Q1's outperformance vs. a higher forecast for the rest of the year.
Executives in the earnings call said they expect On's revenue growth rate in the mid-50s for the first half of the year but were more conservative for the second half of 2023, projecting the revenue growth rate in the mid-30s range. Executives noted a weaker environment and more volatile wholesale orders may weigh on performance but said, "we don't need to chase sales," as the "brand has been received super, super strongly" at new stores.
Williams Trading downgraded On Holding to a sell rating from hold early Wednesday following earnings on concerns over its long-term brand health. Analyst Sam Poser noted that On's aggressive growth plans are driving "impressive" short-term results and pulling significant market share from "pretty much every athletic footwear brand" except for HOKA from Deckers Outdoor (DECK) and New Balance. The management teams at HOKA and New Balance protect their brands better than On, Poser contends. On executives are clear they plan to keep supply below demand, the analyst wrote. But their focus on growth and broad consumer acceptance has created a large spread of styles for On running and "far too much inventory." Poser has a 26 price target for ONON stock.
On Holding averaged a massive 269.5% earnings growth over the past four quarters on an average 66% leap in sales leading up to the release.
ONON Stock
On stock fell 7.6% to 27.89 Wednesday following the downgrade from Williams. Shares tumbled 9.8% to 30.17 during trading Tuesday, and dipped below support at the 10-week line by close.
ONON stock bolted 75.8% so far this year. Shares are trading above the profit-taking zone for a cup-with-handle base after breaking out on March 24. On Holding stock has been finding support near its 21-day moving average for several weeks.
On Holding ranks second in the Apparel-Shoes & Related Manufacturing group according to the IBD Stock Checkup. It trails clog-making competitor Crocs (CROX) and leads Deckers Outdoor (DECK), which makes the increasingly popular HOKA brand, and Skechers (SKX).
On Holding has a perfect 99 Composite Rating, which combines various technical indicators into one easy-to-read score. The stock has a 97 RS Rating and its relative strength line is just shy of recent highs. Shares have an 80 EPS rating.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison.
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