ONON Q2 2024: DTC Reaccelerates, Boosts 2H Margin Outlook
- 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.
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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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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.
Research analysts covering On Holding.