On Tuesday, BTIG maintained a Neutral rating on On Holding AG (NYSE:ONON) after reviewing the company's second-quarter performance. The firm highlighted a mixed quarter for the athletic shoe and performance sportswear company, noting both positive and negative aspects for investors.
On Holding reported a beat in revenue and adjusted EBITDA for the quarter, but experienced slower direct-to-consumer (DTC) performance, which contributed to a slight miss in gross margin (GM). Although the company reiterated its underlying guidance, it adjusted its revenue forecast due to foreign exchange (FX) impacts.
The slower DTC growth was attributed to warehouse disruptions and out-of-stock issues, which have limited the company's ability to meet demand. However, there was a silver lining as DTC growth picked up in June, moving into the third quarter, thanks to improved inventory availability. This momentum is expected to carry forward, providing some reassurance to investors.
Wholesale sell-through rates have remained robust, and On Holding's product innovation and strategic segmentation are reportedly gaining traction in the performance running category. Despite these positive indicators, BTIG expressed caution, pointing out that second-half sales and margin improvements are already factored into the company's guidance, particularly for the fourth quarter. The ongoing warehouse disruptions add a layer of complexity to assessing the underlying demand for On Holding's products.
Given the current premium valuation of On Holding shares, BTIG finds its Neutral stance appropriate at this time, suggesting a wait-and-see approach as the company navigates its operational challenges and aims to capitalize on its growth potential in the latter half of the year.
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