On Tuesday, a Bernstein analyst provided insights into the Q3 earnings of various sportswear brands, revealing optimism among management teams for the upcoming holiday quarter, particularly for brands that cater to higher-income consumers. The analysis covered 14 brands and retailers, noting that international growth continues to outpace North American sales, with premium brands experiencing strong demand in Asia.
The analyst pointed out that despite a shorter peak holiday season and some weather-related disruptions, brands such as Lululemon (NASDAQ:LULU), On Holding (NYSE:ONON), Deckers Outdoor Corporation (NYSE:NYSE:DECK), Dick's Sporting Goods (NYSE:DKS) (NYSE:DSG), and Academy Sports + Outdoors (NASDAQ:ASO) reported a robust start to the holiday quarter.
On Holding has shown particularly impressive performance, with revenue growth of 26% and industry-leading gross margins of 60%.
According to InvestingPro analysis, the company maintains excellent financial health with strong liquidity ratios and has delivered remarkable returns, up over 114% year-to-date. These companies are also anticipating lower or consistent promotional levels compared to last year.
In terms of geographic performance, international sales for brands have been stronger than those in North America, with Nike (NYSE:NYSE:NKE), Adidas (OTC:ADDYY) (ETR:ADS), and others seeing significant growth. The Asia-Pacific region, particularly China, has been a key driver for premium brands, while mid-tier brands have found more success in Europe, the Middle East, and Africa (EMEA) compared to Asia.
The analysis also addressed the potential impact of tariffs, noting that leading global brands such as On Holding, Deckers, Puma (OTC:PMMAF) (ETR:PUM), Lululemon, Adidas, and Columbia Sportswear Company (NASDAQ:COLM) are not expecting major disruptions to their profit and loss statements from potential China tariffs.
These companies have reduced their production exposure in China over the past few years and can easily reroute to other supply markets if necessary.
Despite current soft performance from Nike at retail locations like Foot Locker (NYSE:NYSE:FL), sporting goods retailers remain optimistic about Nike's relationship and the improvements expected in product offerings into the fourth quarter and the year 2025. The sentiment suggests a positive outlook for Nike's performance in the coming year. While On Holding trades near its 52-week high of $60.12, InvestingPro analysis suggests the stock may be overvalued at current levels. Investors seeking deeper insights can access comprehensive analysis and 20 additional ProTips through InvestingPro's detailed research reports, available for over 1,400 US stocks.
In other recent news, On Holding AG has been the focus of several analysts' upgrades and target price revisions. TD Cowen increased its stock price target for On Holding from $60.00 to $65.00, maintaining a "Buy" rating, based on the company's sustained growth prospects and significant increase in brand awareness. Raymond (NS:RYMD) James upgraded On Holding from an "Outperform" rating to a "Strong Buy" and raised its price target from $52.00 to $63.00, highlighting the company's robust year-to-date performance.
Williams Trading shifted its rating for On Holding from "Hold" to "Buy" and increased its price target from $40.00 to $60.00, influenced by the company's impressive third-quarter performance. Telsey Advisory Group raised its price target for On Holding from $53.00 to $62.00, maintaining an "Outperform" rating, based on strong sales and EBITDA results.
In terms of financial performance, On Holding reported robust growth in the third quarter, with net sales reaching CHF 636 million, a 33% year-over-year increase. This was driven by strong demand across various regions, particularly in the Direct-to-Consumer (D2C) segment. The company raised its full-year 2024 net sales growth expectation from 30% to 32%, projecting net sales of at least CHF 2.29 billion.
On Holding also reported a gross margin of 60.6% and an EBITDA margin of 18.9% for the third quarter, exceeding expectations and surpassing the company's profit targets set for 2026. The company's successful product launches, strategic marketing initiatives, and increased brand recognition have contributed to these positive results.
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