On Running (ONON) earnings writeup
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On Running (ONON)
ONON Q2 earnings report: https://investors.on-running.com/financials-and-filings/financial-releases/news-details/2024/On-Reports-Results-for-the-Second-Quarter-and-Six-Month-Period-Ended-June-30-2024/default.aspx
ONON Q2 earnings webcast: https://events.q4inc.com/attendee/700843176
Overview
On Running is a performance brand from Switzerland with a strong focus on innovation and premium quality. Initially aimed at professional runners, On Running has gained broader appeal in recent years by expanding its product offerings beyond running.
It remains one of the fastest-growing companies in the consumer sector, far outpacing all its competitors while gradually taking their market share.
While Nike, still the King of athletic sportswear and apparel, continues to lose its market share, as evidenced by its last several quarters, On Running is firing on all cylinders and is the one that will challenge Nike the most in the coming years.
Today, On Running is sold in 60+ countries around the globe, both online and in physical retail stores through wholesale partners and company-owned stores.
The company expects to generate CHF 2.26 billion in sales in 2024 (up at least 30% YoY on constant currency basis or fx neutral), barely scratching the surface of athletic footwear and apparel which is worth hundreds of billions per year.
On Running remains my top choice for sneakers (next would be Hoka which is owned by Deckers (DECK) which I have a small position in). ONON is the 6th largest position, behind TMDX, ASPN, APP, FOUR and NU.
I believe ONON will continue to grow their market share over the next 3-5 especially in North America and Asia-Pacific, both regions are growing faster than Europe.
Three years ago I could walk into the gym and see less than 5% of members wearing ONON sneakers. Nowadays when I walk into the gym at least 20% of members are wearing ONON sneakers and sometimes it could be 40% or more. I will say that my gym in Boston has way more people wearing ONON (mostly professionals, 25-45 years old) compared to my gym on Cape Cod (mostly high school kids, some college kids and then older blue collar workers and retirees).
This tells me that ONON has been more effective tapping into the 25-45 demographic but still has alot of white space in the younger and older groups. Hopefully partnerships with certain celebrities like Zendaya will help the company generate awareness with the sub 25 y/o demographic.
In terms of ONON’s valuation, when you consider the fundamentals (growth rates, margins, etc)… I still think the valuation is compelling for long term investors. ONON is up +57.4% YTD so the stock is certainly more expensive than it was coming into this year but still only trades at 26.6x NTM EBITDA (using current estimates). With that said, I’m certainly not adding to my position at current prices and in fact I’ve trimmed my position by ~36% over the past few weeks. I would probably add to my ONON position if we got a pullback into the low to mid $30s.
ONON isn’t a cheap stock but that’s because the company continues to execute very well and investors believe this could be a much larger company in 5-10 years. ONON management has said they should be able to continue growing revenues at 25-30% for the next few years and hopefully that comes with a little margin expansion too (I’m hoping for 50 bps per year).
Where ONON looks undervalued is compared to Nike (NKE) and Deckers (DECK) which are both growing much slower yet trading at similar EBITDA multiples as ONON.
For instance…
NKE trades at 20x NTM EBITDA with 0% YoY revenue growth
DECK trades at 21x NTM EBITDA with 15% YoY revenue growth
ONON which trades at 26x EBITDA with 30% YoY revenue growth
If I’m comparing these three, I think ONON looks the most compelling because Nike now feels like a turnaround story which does not interest me and Deckers has other brands (Ugg and Teva) that I don’t care about.