Raymond James reduced its stock rating on On Holdings to “Outperform” from “Strong Buy” and lowered its earnings estimates due to the strengthening of the Swiss Franc and the impact of tariffs.
“While we see 2Q being ‘less clean’ due to FX, tariffs, and slower wholesale growth (due to timing of launches), we remain bullish on ONON as a long-term story and believe underlying demand and growth will remain strong in 2025 and beyond,” wrote Raymond James’ analyst Rick Patel.
Patel said that given the movements of the Swiss Franc over the past three months, he now estimates foreign exchange to be a 5.5 percent headwind to 2025 revenue growth versus an estimate of negative 3.5 percent prior.
Raymond James also lowered its gross margin estimates, as it expects On’s unmitigated annual tariff headwind to increase from 150 to 300 basis points, given that the Trump administration recently set tariff rates for Vietnam and Indonesia at 20 percent and 19 percent, respectively. In 2024, On sourced 90 percent of its footwear from Vietnam, with the rest primarily from Indonesia and Turkey.
Patel still said that given On’s “strong brand heat” and overall premium positioning, the brand “is better positioned than most to raise prices” to offset tariff costs. He noted that the Cloud 6 is seeing a strong reception despite being priced $10 higher than the Cloud 5.
Finally, Patel said On’s wholesale sales are expected to decelerate in the second quarter as the first quarter was boosted by the launch of the Cloud 6, and no major launches were planned for Q2. He also said that On faces difficult year-ago comparisons, again due to the timing of launches.
On the positive side, Patel noted that Raymond James’ channel checks indicate a “modest acceleration in Google searches and robust web traffic” quarter over quarter, pointing to a “strong DTC performance” for On in the second quarter.
Patel also noted that On’s smallest segments — Asia-Pacific, Retail and Apparel — “should continue to post outsized growth.”
Wholesale revenues are expected to receive a boost this year from the expansion into approximately 600 doors, representing a 6 percent increase. Patel also noted that On’s management indicated on its first-quarter call that its 2025 guidance “reflects conservatism and doesn’t reflect the full strength of its fall wholesale order book. This gives us optimism that underlying growth should be stronger in 2H vs. 2Q.”
Raymond James kept its price target for On at $66. On’s shares closed Thursday, July 24, at $49.95, down from $54.77 at the start of the year.
Patel wrote, “Net, while 2Q results could be bumpy due to macro factors, we remain bullish on ONON.”
On is expected to report second-quarter results in mid-August.
Image courtesy On
