On Holding, the parent company behind Swiss shoemaker On Running, plunged below a buy point and other key levels after Q2 earnings fell short and guidance pointed to sales growth continuing to slow. ONON stock had doubled in 2023 prior to the report.
On Running Earnings
Backed by tennis champion Roger Federer, the Switzerland-based performance-shoe maker is a rising star in the industry. Sales soared 55% to more than $1 billion in 2022, boosted by the reinvention of its popular Cloudmonster, Cloudrunner and Cloudgo brand performance trainers.
On Running earnings adjusted plummeted 66% to 5 cents per share, compared to 15 cents per share last year. Revenue leapt 64.5% to $505 million, a torrid pace but slowing for a second straight quarter..
Analysts expected On Running earnings of 13 cents per share, on a 55.7% revenue spike to $477.5 million.
For the year, On Running guided 44% net sales growth to 1.76 billion Swiss Francs. That translates to an increase to about $2 billion, compared to $1.32 billion in 2022. But that implies 30% revenue growth in the second half, signaling continued deceleration.
The company maintained its gross profit margin projection at 58.5% and its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin at 15%.
Shoe Stocks Sprint
Footwear stocks raced through early 2023, but then the group turned mixed. Crocs stock peaked in late April, then downshifted and is now lower for the year. Skechers stock leveled off and has made only grudging gains since the start of May. It has a year-to-date gain of 26%.
Hoka maker Deckers Outdoor has been a group hotshot, continuing to push to all-time highs after blowing away estimates. Deckers is up nearly 40%.
But On Holdings has been the clear group leader. UBS raised its price target on ONON stock to 46 from 42 last Tuesday and maintained a buy rating on shares. That suggests shares have another 32% of headroom. And UBS sees a good chance On raises its 2023 guidance, which will boost sell-side estimates and market sentiment.
KeyBanc initiated coverage of On Holding on July 25 with an overweight rating and 42 price target on shares. On Running is a premium sportswear brand made by runners, for runners, and awareness of it continues growing thanks to its grassroots marketing campaigns and unique product line, analyst Ashley Owens wrote in a research note. KeyBanc believes On's 2023 guidance is conservative and there's upside potential as margins expand.
ONON Stock
ONON stock faded early Wednesday. The stock tumbled 14% to 29.77 Tuesday in massive volume, decisively gapping down below a 33.67 cup-with-handle buy point. That triggered the 8% sell rule. Shares also plunged below the 50-day moving average.
On Running stock doubled this year prior to the report, but that included a big sell-off on Q1 earnings. That reflect concerns over excess inventory following On Running's first-quarter earnings report — turned into a cup-with-handle base.
ONON cleared that base in July, but has had trouble muscling above the 5% buy zone. The losses Tuesday pushed shares well below the buy zone for the 33.67 entry and On Running joined the IBD Leaderboard list after it crossed a trendline near 30 on June 9. The relative strength line is moving higher, and the stock remains in the buy zone from the 33.67 entry. But it has been reduced to a half position on the Leaderboard list.
On Running leads the Apparel-Shoes & Related Manufacturing Group according to the IBD Stock Checkup.
ONON shares have a perfect 99 Composite Rating, which combines various technical indicators into one easy-to-read score. On Running has an 81 EPS Rating. The stock's relative strength line is off highs from mid-May and it currently has a 95 RS Rating.
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