ONON Earnings Preview- Can shares run higher with lofty valuation?
On Holding AG (ONON) is set to report its earnings for the fiscal quarter ending June 2024 on August 13, 2024, before the market opens. The consensus among analysts is an EPS of $0.14, a significant increase from the $0.01 reported in the same quarter last year. Revenue expectations are high as well, with analysts consensus sitting at $561 million. Investors will watch ONON's performance given its strong growth trajectory. ONON is a rapidly expanding sportswear company known for its innovative products, particularly in the running shoe category, which accounts for over 95% of its revenue.
ONON has distinguished itself in the crowded sportswear market with its blend of technological innovation, fashion, and performance. The company's growth has been driven by its strong brand story and strategic partnerships with high-profile athletes like Roger Federer. Originally focused on running shoes, ONON has successfully expanded into other segments, including fitness, casual wear, outdoor activities, and tennis. This expansion has allowed the company to maintain its growth momentum across the Americas and Asia-Pacific, where it continues to introduce new products and open stores.
Shares of ONON recently rallied above the 10-, 30- and 5-day moving average ($39-40) ahead of its report. But with the stock sitting at 37x forward earnings, it will need to post an impressive top line figure to assure people that it is worthy of this loft valuation.
Despite its impressive growth—marked by a 55% revenue increase in FY2023—ONON faces some challenges. The company's stock is trading at a significant premium compared to its peers, leading some analysts to adopt a "hold" rating, suggesting that its growth potential may already be priced in. Nevertheless, ONON's ability to attract new customers, even in a tough market environment where competitors like Nike and Adidas have struggled, speaks to its strong brand and market positioning. The upcoming earnings report will be closely scrutinized to see if ONON can continue its impressive growth trajectory and meet the high expectations set by the market.
ONON started FY24 on a strong note, delivering significant earnings and sales beats in Q1, which led to an upward revision in its full-year revenue outlook. The company, known for its premium footwear and apparel focused on running and athletics, overcame the challenges of a tough Q4, which was affected by foreign exchange headwinds. In Q1, with easing FX pressures and growing demand, ONON surpassed its revenue forecast, achieving its first-ever quarterly profit with CHF 0.5 billion in revenue. The company's gross margin remained solid, allowing it to maintain its FY24 guidance of a 60% gross margin and adjusted EBITDA margins of 16.0-16.5%.
The core of ONON's success in Q1 was its strong performance in the running segment, particularly as rival Nike (NKE) has lagged in this area. This created an opportunity for ONON to attract frustrated Nike customers, contributing to a 20.9% year-over-year increase in total revenue, or a 29.2% increase on a constant currency basis, reaching CHF 508.2 million. ONON's direct-to-consumer (DTC) channel was a significant driver of growth, with DTC sales making up 37.5% of total revenue, a 500 basis point increase year-over-year. The company also launched its first commercial app during the quarter and saw a significant rise in membership, further fueling DTC growth. While the wholesale channel's growth was more modest, this was anticipated due to a strategic shift towards premium brand positioning.
Geographically, ONON experienced broad-based growth across all regions. The Americas led the way with a 22.0% increase in revenue, supported by growing brand awareness and strong DTC performance. Asia Pacific was a standout, with revenue soaring by 68.6% year-over-year, driven by explosive growth in Japan. The momentum from Q1 is expected to continue, as ONON raised its FY24 revenue guidance to CHF 2.29 billion, benefiting from a strong start to the year and easing FX headwinds. The company's focus on innovation, expanding its DTC channel, and penetrating global markets positions it well for long-term growth, particularly as it continues to capitalize on consumer demand for differentiated performance footwear.