ONON tripped up, fall 15% as company posts surprise loss for the quarter

On Running, the premium sportswear brand backed by tennis champion Roger Federer, has reported its earnings for the fourth quarter of 2023. Shares fell 15% in reaction as it posted a surprising loss and provided guidance below analyst expectations. The stock has slipped below key support t of the 50- and 200-day convergence ($29.50). It will be critical for the stock to recover this level. 

The company revealed a loss of $0.05 per share, significantly worse than the expected earnings of $0.11 per share consensus. While revenues increased by 21.9% year-over-year to $447.1 million, they fell short of expectations, which had predicted revenues of $453.86 million. This marks the first loss for On Running after two consecutive quarters of impressive growth. Gross profit margin for the fourth quarter improved to 60.4% from 58.5%, surpassing the company's mid-term goal of exceeding 60%.

For the three-month period ended December 31, 2023, net sales increased by 21.9% to $447.1 million, with net sales through the DTC sales channel increasing by 38.2% to $206.6 million. Net sales through the wholesale sales channel increased by 10.7% to $240.5 million. On Running also reported strong net sales growth in EMEA, Americas, and Asia-Pacific, with net sales increasing by 22.9%, 18.5%, and 57.7%, respectively.

Gross profit increased by 25.9% to $270.2 million, with gross profit margin increasing to 60.4%. However, the company reported a net loss of $26.8 million,

In the first quarter of 2024, On Running projects direct-to-consumer net sales to grow by 26% to CHF 495 million ($564.8 million), accounting for the lapsing of a strong wholesale quarter in the first quarter of 2023. Additionally, On Running issued downside guidance for FY24, expecting net sales to be $2.25 billion, which was below the consensus of $2.32 billion. 

Despite the downside guidance, On Running remains optimistic about its growth prospects. The company expects to achieve a 2024 net sales growth rate of 30% and to achieve a gross profit margin of approximately 60%. It also expects to achieve an adjusted EBITDA margin in the range of 16.0 - 16.5% for the full year 2024. 

The company's strategy moving forward involves focusing on existing wholesale partners and its own e-commerce, retail, and direct-to-consumer channels, rather than adding new wholesale doors. On Running aims to scale existing and new audiences globally with large brand moments while supporting its roster of world-class athletes.

Both Wedbush and Baird recently raised their price targets on ONON stock ahead of the earnings report. Wedbush expects solid holiday season results and views On Running as one of the strongest momentum brands. Baird, while expressing some concerns about potential revenue guidance falling short, remains confident in On Running's fundamentals and brand momentum.

On Running's strong brand momentum and pipeline of product launches provide it with the confidence to execute on the next step towards its mid-term targets. The company's multi-channel strategy has helped it gain market share at unprecedented rates, and it plans to scale existing and new audiences globally with large brand moments.