On Holding the parent company behind Swiss shoemaker On Running, tumbled from near a buy point Tuesday after its Q4 earnings came in well below forecasts.
On Running reported a quarterly loss of 6 cents per share, falling from earnings of 2 cents per share the year prior. The FactSet consensus expected 500% earnings growth to 12 cents per share. Revenue growth slowed for the fourth consecutive quarter, increasing about 28% to $509 million. However, sales came up short of estimates of $516.8 million.
The results marked On Running's first loss after two quarters of more than 200% growth. The company's Q4 gross profit margin improved to 60.4% from 58.5%.
At the end of the quarter, On Running's cash and cash equivalent securities increased 33.3% to 494.6 million Swiss francs ($566.17 million).
On Running said it expects to achieve a 2024 net sales growth rate of 30% to 2.25 billion Swiss francs ($2.57 billion), driven by strong demand for the brand and its product pipeline. For the first quarter, On Running sees direct-to-consumer net sales to grow 26% to 495 million Swiss francs ($564.8 million), which accounted for "the lapsing of a strong wholesale quarter in the first quarter of 2023."
The FactSet consensus expects Q1 5.8% earnings growth to 18 cents per share on 28.1% revenue growth to $601 million. FactSet predicts full-year earnings increase 95% to 78 cents per share on 29.2% sales growth to $2.637 billion.
The shoe brand backed by tennis champion Roger Federer in mid-November reported its seventh consecutive quarter of record sales, although its torrid pace has slowed. On Running at the time said it plans to add less additional wholesale doors going forward and will instead focus on existing wholesale partners and its own e-commerce, retail and direct-to-consumer channels.
Mixed Analyst Outlooks
Wedbush and Baird on Friday both raised their price targets on ONON stock ahead of results. Wedbush believes On Running should report a solid holiday season and remains one of the strongest momentum brands under its coverage. However, the firm expects a conservative Q4 guidance that will meet or just exceed Wall Street forecasts, according to the research note. Wedbush lifted its price target on On Holding stock to $38 from $33 and maintained an outperform rating on the shares.
Baird also raised its price target to $38 from $35 and kept an overweight rating on ONON stock. But Baird says it sees potential for On Running's 2024 revenue guidance to come up short, even assuming growth above the company's long-term targets. Still, robust brand momentum and additional product launches and positive orders support Baird's confidence in On Running's fundamentals, the firm wrote in a research note.
Redburn Atlantic on Thursday downgraded On Running to neutral from buy. The optimism around On Running's long-term business potential is little changed, but the stock's valuation has caught up to the positivity, analyst Geoff Lowery wrote in a research note. Meanwhile, industry conditions for the sportswear category carry some challenges into 2024, as well as opportunity. But Lowery sees limited potential upside to ONON stock following its recent rally. Redburn Atlantic maintained its $34 price target on ONON stock.
Shoemaker Performance
Meanwhile, most footwear stocks have been holding up well to start the year after many of On Running's rivals reported quarterly results in February.
Deckers at the beginning of February cleared Q3 views thanks to a nearly 22% jump in sales of its Hoka running shoes. The maker of Uggs reported a 44% increase in adjusted earnings to a Q3 record $15.11 per share, but slowing after five quarters of accelerating gains. DECK stock rallied 35% so far this year through Monday and is trading near record highs.
Skechers posted mixed results for its Q4 report on Feb. 1 as its revenue and outlook came in below Wall Street forecasts. Still, Skechers recorded double-digit earnings growth the last four quarters. SKX stock retreated 3.3% in 2024 through Monday's close. Shares are trading below a 65.17 buy point for a flat base, matching Skechers' all-time high from Jan. 22.
Clog maker Crocs is extended above a buy zone for a consolidation after topping earnings estimates on Feb. 15. CROX stock spiked 35.6% this year and is trading at its highest level since July 2023.
However, Dow Jones giant Nike is down 6.9% on the year through Monday after in December announcing a softer sales outlook amid weaker consumer demand during its Q2 earnings beat. Nike reports third-quarter results late March 21.
On Running Stock
On Running pared losses to 8.9% Tuesday after plummeting nearly 17% in early trade.. ONON stock dropped from near a 35.58 buy point for a cup-with-handle base, according to MarketSurge charts. Shares fell back below their 21-day exponential moving average after reclaiming the level on Friday. ONON stock is down in six of the last eight trading days.
On Running rose 13.6% so far this year despite a 19% drop in March.
ONON stock is on the IBD IPO Leaders list and the IBD Leaderboard Leaders Watchlist.
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