Ca$htag$: On Holding (ONON) Has ‘Little Room for Error’

0:00Welcome back to FastMark here on the Schwab Network. I'm Diane King-Hall alongside Tom White and our Chicago studio. Time now for our cash tax segment for that. We want to bring in our next guest to this Andy Swan co-founder of Lake Folio. Taking a look at on holding to Jay as compared to some of its competitors. When I look at on versus Jecker's outdoors, the parent company of Hoka, it's been an under performer in terms of the stock year today. You've got some new sentiment data that shows us what things look like broadly speaking. So can you take us through some of that new data you all have Andy? Yeah, you know, on holdings down 23% from its highs. Nice little pullback here, but the internals of the company look really good from our perspective. Web traffic up 21% year over year, which is crushing Nike, Hoka and under armor. You know, only the real higher end athletes, your brands are growing faster. So again, this is a company that's benefiting from the K-shaped economy because they've got the exact right type of consumer and that's consumers with money. So when we look at on holdings and we look at the way

1:05that the company is projected out, its profit margins are, you know, gross margins 66% what's not to like about that. Sales up 35% last quarter. We think they'll be able to print something comparable to that. The stock is very expensive. So there's very little room for error, but this is a company that, you know, from everything that we see at like folio, the consumer base is growing and the consumer base is very happy and loyal with the brand. And so that's why they've taken so much market share from Nike and others. Why they should continue to do so into the future and continue to do so really profitably. So we like on holdings here, especially on this dip. And you, when you guys look at the, you know, competitors in this ATHLEASURE space, we've seen the hits and misses. Nike's been struggling. Lulu Levin's been struggling a little bit also. And now competitions coming into the space. At that high price point and a global brand now, remember, they're based out of Switzerland,

2:11that seems to be setting up well where the affluent consumer is still the only one out there really spending on a consistent basis. Is that going to help on just, you know, just from their metrics? Yeah, they've got the right tailwind, the right consumer tailwind. Again, they've got the type of customer that can afford, you know, $150 or $200 shoes. And they're getting more and more of the, of the clothing items, you know, they sold over a million clothing items last quarter, which is new territory for them. So they're expanding the brand, they're expanding how much they're taking advantage of that consumer tailwind that they have. And so when we look at this stock down, you know, 23, 25% from highs, they have the right customer, they have a really loyal customer base. And they're expanding profitably into, you know, new areas of business. It's a pretty good story, although Wall Street is expecting a great story, you know,

3:11the stock is at 61 times earnings, it's really expensive. So they have to keep producing these types of results into the future, including this upcoming earnings report. Okay. So what risks are you worried about? Like, do, do tariffs still matter when it comes to, you know, because we knew that last year that was certainly one of the headwinds for these companies. Is that something that's on your radar? What risks are you watching here, Andy? Yeah. I think that tariffs do matter. I think, you know, it's close to 90% of what they produce comes from Vietnam. And so tariffs are a real headwind there. I think the company's done a good job of managing this. And they've shown the ability to pass through those prices to the customer really effectively, which is one of the benefits of having a really beloved brand that is almost has a cult like following. So you can kind of get away with charging customers more when you get charged more, you can pass that through and

4:13keep your margins intact. So I think it's going to be really interesting to hear what the company says about tariffs going forward, the apparel division, how that's doing. But I think mostly what Wall Street's going to be watching for is can they maintain the profit margins that Wall Street has come to expect going forward? So as they grow their user base, are they able to continue to command those high prices and keep costs under control? We'll find out. But from a demand perspective, from the consumer demand perspective, this is one of the companies that is just, you know, really hot and looking good from a like folio data perspective. This is one of those where you just say, you know, there's a lot of room for upside here. Nike is a very large company and there's a lot of market share still to take and and on holdings is proven competent at taking that. Andy, when you look at, you know, maybe the web visits versus a stock price, I've seen that dip here. Is that maybe seasonality where it's past, you know, the holiday shopping season?

5:17So seasonality's down a little bit, but that stock price is still far below some of the data that you have, right? Yeah, that's seasonal. If you just look, you know, this dip is pretty normal after a holiday quarter because that's a 90 day moving average. So we expect to see that in the spring, but we're at much higher levels than we were a year ago. So, you know, a seasonal dip that is higher significantly than last year seasonal dip is an overall positive thing. We'd love to see the this stabilized here at all time highs in terms of web visits. That would tell us that going into the spring and summer season, they're really cranking on all cylinders. All right, we'll leave it there for today. Andy, thank you so much. This Andy Swan co-founder of Lake Folio with a look across on holding, especially as it compares to rivals. Now,