This article first appeared on GuruFocus.
On Holding (NYSE:ONON), the Swiss premium footwear and sportswear company, delivered plenty of growth in the second quarter. Wall Street still hated it. Shares crashed roughly 16.2% Tuesday after sales reached CHF850.3 million, up 13.5% year over year and a much stronger 21.6% at constant currencies. The problem was where the growth slowed. Americas revenue increased just 4.5% on a reported basis, a painful number for a region generating more than half of On's sales. When investors are paying for premium growth, even a good quarter can get punished when the biggest market suddenly loses speed.
Warning! GuruFocus has detected 2 Warning Sign with ONON.
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But this was hardly a broken quarter. Direct-to-consumer revenue jumped 26% to CHF388.4 million and reached a record 45.7% of sales, pushing more business through On's higher-control channel. Wholesale grew just 4.8% to CHF461.9 million, partly reflecting management's decision not to dump product into an increasingly promotional market. Asia-Pacific sales surged 43.1%. Apparel jumped 47.7%. Gross margin expanded a hefty 390 basis points to 65.4%, while adjusted EBITDA climbed 23.5% to CHF168.1 million despite higher U.S. tariffs. In other words, On may be slowing in the wrong place, but it is still growing fast in several of the right placesand doing it with better economics.
That makes the 16% selloff especially interesting. Management still sees full-year constant-currency sales growth in the low-20% range and raised its gross-margin outlook to at least 65%, with revenue implied at roughly CHF3.47 billion to CHF3.56 billion at prevailing exchange rates.
Then there is valuation. GuruFocus puts GF Value at $63.16 versus a share price of just $31.37, meaning On trades 50.33% below that estimate. That discount is huge, but it comes with a clear question: Is the Americas slowdown a temporary speed bump or the first crack in On's premium-growth story? If DTC keeps ripping, margins keep expanding and international growth stays hot, the market may have just reset expectations far faster than the business itself.
