ONON, a Swiss company specializing in premium footwear, apparel, and accessories for running and other physical activities, experienced a significant setback in Q4 after a strong start to 2024. Despite a +25% increase in shares earlier in the year, Q4 results and FY24 guidance disappointed investors, leading to a -13% drop in stock value. This downturn was attributed to misses in earnings, revenue growth slowdown, and bearish forecasts for the upcoming fiscal year.
Key points from the Q4 performance include:
- ONON reported its first net loss in two years, with a CHF (0.05) per share, missing the positive quarter expected by consensus.
- Revenue growth slowed to 21.9%, a sharp decline from +46.5% in Q3, and fell short of analyst estimates. This was in part due to lapping over +90% growth in the previous year's Q4.
- The earnings miss was largely due to unfavorable foreign exchange (FX) impacts, despite a gross margin expansion to 60.4% year-over-year.
- Excluding FX impacts, sales grew by 31% in the quarter, with significant growth in all regions, particularly the APAC region with over 75% growth.
- ONON is shifting its focus towards its direct-to-consumer (DTC) channel, which has higher margins but adds near-term risk due to its reliance on wholesale sales.
- FX headwinds are expected to continue affecting top-line growth in FY24, with projected revenues of CHF 2.25 billion, a 26% increase year-over-year but below analyst expectations.
Despite today's sell-off, ONON's underlying performance remains strong. The company has managed to optimize its inventory, expand its market share in the DTC channel, and raise its compound annual growth rate (CAGR) through 2026 to 30% from 26%, excluding currency fluctuations. ONON is also on track to achieve adjusted EBITDA margins of over 18% by 2026. The recent pullback is seen as an attractive buying opportunity, considering the company's overextension earlier in the year and the impact of a strengthening U.S. dollar.
