On Holding - The Fastest Growth Story In Consumer Sector: Analyst

Needham analyst Anna Andreeva initiated coverage on On Holding AG ONON with a Buy rating and a price target of $40.

As a premium, disruptive brand that is still in the early innings of its growth lifecycle with secular tailwinds of health & wellness, On is one of the fastest growth stories in consumer (30%+ Sales and EBITDA growth on average expected in '23/'24), notes the analyst.

While the anticipated door closures in EMEA will create a $25 million revenue headwind (2% to Wholesale sales next year), the DTC business outpacing Wholesale should drive upside to margins (per management, each 1% in additional DTC mix adds 20 bps on the GM line).

The brand is still in the early innings regarding SKUs/categories and distribution points in the U.S. and globally, with profitability poised towards a high-teens EBITDA margin, up from 15% expected this year.

In the last 24 months, On launched six new performance shoes, with 4 quickly becoming key franchises, notes the analyst.

Looking at the total SKU count across three key segments of Road Running, Trail running, and Hiking, the analyst notes that ONON currently has minimal SKUs in comparison to Nike, Inc. NKE and Adidas AG ADDDF.

The analyst adds that Apparel has stayed at 4%-5% of sales--lower (yet still premium) price points to be introduced into '24 should broaden the audience.

For FY23, the analyst expects revenues of $1.782 billion, with EBITDA of $267 million.

Price Action: ONON shares are trading higher by 0.20% to $29.92 on the last check Wednesday.

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