Shares of On Holdings (ONON 4.04%) stock fell 10% in April, according to data provided by S&P Global Market Intelligence. Investors weren't thrilled with its fourth-quarter results, and as inflation persists and interest rate cuts are nowhere in sight, the overall market was down.
Did the market overreact?
On reported its 2023 fourth-quarter results in March. Year-over-year revenue growth surpassed guidance at 46.6%, or 55% currency neutral, for the full year. On has a multichannel model, and although it has a strong wholesale business, direct-to-consumer sales increased 51%. On is developing its brand presence, and the high direct-to-consumer growth indicates loyal customers who love the brand.
As for profitability, it maintained its high gross margin at 59.6%, up from 56% in 2022. Net income rose 37.9% year over year.
Investors weren't excited about this report, it seems, because growth is decelerating. There was a slowdown in the fourth quarter, with a 22% revenue increase year over year, although direct-to-consumer was still strong at 38.2%. Gross margin rose from 58.5% to 60.4%, but net loss increased by 1%.
Management released a previous outlook for a compound annual growth rate of 26% through 2026, and it expects to exceed that with a 30% sales increase for the 2024 full year. It also expects gross margin to stay at 60%, which is unmatched in its industry.
The market might have forgiven some of this with a rebound in the stock price, but the market itself soured in April on continued high inflation. The S&P 500 fell about 4% in April, and negative investor sentiment remained for many stocks.
The "most premium" athletic gear
On positions itself as the "most premium" of the mass activewear companies, even ahead of competitor Lululemon Athletica. Its products are more expensive but still within what could be considered a mass brand. The focus on an upscale clientele gives it some resilience, especially during these kinds of tough, high-inflation times, but On can still reach consumers who are willing to pay more for products they love.
On, which is based in Switzerland, had CHF (Swiss Franc) 1.8 billion, or about $2 billion, in 2023 sales. But it's still relatively unknown in many parts of the world. It's still developing its name and building up its business through its multichannel approach and celebrity endorsements, including New York City and Boston Marathon winner Helen Obiri and tennis champs Iga Swiatek and Ben Shelton. It looks like it has incredible future opportunities, and investors might want to scoop up some shares on the dip.
