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On Holding (ONON)

ONON Q2 2024: DTC Reaccelerates, Boosts 2H Margin Outlook

Reported on Aug 13, 2024 (Before Market Open)
Pre-Earnings Price$39.55Last close (Aug 12, 2024)
Post-Earnings Price$41.53Open (Aug 13, 2024)
Price Change
$1.98(+5.01%)
  • Robust DTC Channel Strength: Executives noted that the direct-to-consumer segment is performing exceptionally well with record online engagement and accelerating growth in early Q3, which bodes well for higher margins and long-term revenue expansion.
  • Innovative Product Pipeline and Technology: The management highlighted groundbreaking initiatives such as LightSpray—described as a manufacturing revolution with sustainability benefits—and a series of new product launches (e.g., Cloudrunner 2, Cloudsurfer Next), positioning the firm for both performance and mass-market appeal.
  • Exceptional Brand Engagement: The Q&A emphasized substantial marketing traction, citing significant social media engagement (over 15 million views on Instagram and 7 million on TikTok driven by high-profile partnerships like Zendaya), which is reinforcing brand awareness and driving consumer interest.
  • Supply chain constraints: The ongoing automated warehouse transition in Atlanta is causing inventory shortages and delayed deliveries, negatively impacting both DTC and wholesale channels.
  • Operational execution risks: Persistent inventory and distribution challenges might continue to affect sales conversion rates, potentially resulting in revenue growth falling short of guidance.
  • Dependence on one-off brand events: Heavy reliance on major brand-building initiatives and celebrity-driven events may not deliver sustainable long-term sales if consumer engagement and conversion fail to persist after the excitement fades.
  1. North America Supply
    Q: How are warehouse constraints managed?
    A: Management explained that temporary capacity issues at the Atlanta facility are being addressed by moving inventory to the West Coast and expediting automation, with expectations of a fully automated warehouse by early next year.

  2. DTC Growth
    Q: Will DTC share improve further?
    A: They noted that despite delivery challenges, DTC performance has re-accelerated, historically growing by 1.5–2 percentage points each year, positioning the channel to continue outpacing wholesale.

  3. Margin Impact
    Q: How will supply constraints affect margins?
    A: Management expects that resolving inventory issues will boost gross profit margins in the second half since DTC growth, less impacted by these constraints, will drive a better overall margin profile.

  4. Marketing Impact
    Q: Has Zendaya improved consumer engagement?
    A: They highlighted that Zendaya’s campaign generated over 15 million Instagram and 7 million TikTok views, amplifying brand visibility and engagement significantly.

  5. Product Strategy
    Q: What’s the plan for LightSpray and apparel?
    A: The leadership emphasized a threefold strategy for LightSpray—automated local production, enhanced performance credentials, and sustainability benefits—while noting robust 63% apparel growth and strong pre-orders as proof of consumer appeal.

  6. New Product Launches
    Q: Which new launch may surge revenue share?
    A: They expressed excitement over multiple launches, including the Cloudrunner 2 and special Cloudtilt drops, which are already capturing significant sales and may evolve into key revenue-driving franchises.

  7. EMEA Wholesale
    Q: How are store closures affecting EMEA?
    A: Management indicated that after a period of closures, markets like the UK, France, and Germany have stabilized, with renewed growth that is now factored into their guidance for Q3 and Q4.

  8. European Retail Initiatives
    Q: How will European initiatives benefit shareholders?
    A: They conveyed that strategic exits from non-core wholesale and focused investments in retail are expected to enhance long-term sales quality and profitability, with pre-order strength underscoring the strategy’s effectiveness.

  9. Regional Consumer Sentiment
    Q: Are regional consumer trends consistent?
    A: The executives stressed that U.S. consumers remain strong while European and Asian efforts, including partnerships like Zalando, are generating robust demand despite minor regional nuances.

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