The specialist sneaker maker, On Holding (ticker: ONON), has unveiled its new three-year targets, signaling optimism in the face of challenges impacting consumer spending. As part of its first investor day as a public company, On announced plans to double its revenue to at least 3.55 billion Swiss francs ($3.88 billion) by 2026, reflecting a compound annual growth rate of 26%.
To achieve this growth, On aims to increase its margins on adjusted earnings before interest, taxes, depreciation, and amortization to 18% or higher, compared to the current 15%. The company expects to boost its gross margins to 60% or more, up from this year’s projected 58.5%.
Analyst Jonathan Komp from Baird expressed confidence in On’s new long-term targets and highlighted the company’s innovative footwear pipeline. He also recognized the potential for On to expand into accessories and apparel, further enhancing its growth prospects.
Looking beyond 2026, On aspires to maintain an annual net sales growth of 20% to 25% and achieve an adjusted EBITDA margin exceeding 20%.
Following the announcement, the company’s shares experienced initial gains but later declined by 7% to $24 during late-morning trading.
Commenting on the absence of an increase in the company’s full-year financial forecasts, analyst Tom Nikic from Wedbush noted that On has historically refrained from raising guidance at post-quarter events. This aligns with the company’s previous practice and should not come as a surprise to investors.
As On Holding ventures into the future, it aims to capitalize on its strong position in the sneaker market and drive substantial revenue growth while continuing to innovate and explore new opportunities.
Consumer Confidence and the Challenges Ahead
Despite a myriad of concerns surrounding consumer spending, On remains optimistic about the future. However, there are several factors that pose a risk to the outlook for consumer spending in the coming months.
Consumer confidence has seen a decline for the second consecutive month in September. Additionally, the surge in gasoline prices has been a key driver behind recent increases in retail sales.
Analyst Bradley Thomas from KeyBanc acknowledges these challenges and points out that rising gas prices, increased living costs, higher mortgage rates, a slowdown in the labor market, and the resumption of student loan payments all contribute to the potential constraints on consumer spending. He further highlights that there are remaining risks in both the labor and credit markets. Although much of the pandemic’s impact has subsided, he believes that there is still the possibility of a “trade down” phenomenon and reduced discretionary spending.
In this landscape, retailers like Walmart (WMT) are positioned to benefit from consumers prioritizing essential items over discretionary purchases. As shoppers become more focused on their needs rather than wants, discounters are expected to thrive.
Meanwhile, amidst these challenges, success stories similar to that of On might become increasingly scarce. Nevertheless, it appears that customers are still willing to indulge in certain areas while emphasizing value for their remaining expenditures.
By Teresa Rivas
