ONON's Billion Dollar Buyback Could Signal a Turnaround

SPEAKER_1 (0:02)

Let's go inside out on On Holding. Joining us now to do that is Ted Thatcher, President Bright Lake Wealth Management. Ted, thanks so much for joining us. It's been a big week for this company, obviously with Investor Day. What's been your biggest takeaway?

Ted Thatcher (0:14)

You know, Sam, it's like there's no Investor Day that hasn't come out with a lot of positive headlines, but On Holding certainly had a fantastic one, underlined by their billion-dollar buyback. I think that was the major headline that came out, along with some other technical things. But really that serves at the company's current valuation around 10 billion to effectively be a 10% yield. They announced that billion dollars in buybacks coming between now and through 2029 So it'll be over a few years here. But if you've been holding the company for a while, you've got to be really pleased with that announcement, along with the announcement of their anticipated margin expansion. This quarter, net EBITDA margins came in around 12%.

By 2029, they're now projecting over 22% margins. So when you pair those two, I think announcements together, certainly along with all the other hype and positivity, you can see why the stock popped basically 13% on that news, and then it's having a good week so far.

SPEAKER_1 (1:15)

Yeah, it's been a big turnaround for what has been a pretty challenging year for this name. I mean, it did experience a pretty sharp movement following, as you mentioned, the first ever share buyback. It looks like it could potentially shrink the outstanding share float by roughly 10%.

But you mentioned some of the other hype. I'm interested to dig into some of the strategic moves here. I mean, firstly, with Mbappe, other collaborations around golf. What have you made of some of that? Do you think it's sustainable, obviously given the turnaround we're now starting to see in this name?

Ted Thatcher (1:50)

Yeah. I think, I mean, in terms of the long-term sustainability, I think they have to run their playbook to see how it goes. But they're clearly putting their, I was going to say money where their mouth is, but their Swiss francs where their mouth is with these new partnership with Mbappe. Obviously, you mentioned golf expanding and soccer is a core focus for them or football. Along with additional effectively, of course, running an apparel expansion of those lines.

I think from a branding standpoint, it's a real positive. One thing that I think a lot of people would point to, but I certainly would, is the partnership they've had with Federer. Obviously, he became an investor in 2019 I think a real beautiful, real pairing for the company. They're trying to be, of course, that premium brand. Federer's brand, I think goes fantastic with that. Now, when you get an amazing footballer like Mbappe behind it, I think that you're appealing to hopefully a new set of consumers. To get a name like that on their docket, I think does serve the brand well. A consumer brand like this, I mean, obviously, this segment isn't about Nike. But when you think about where ON has come from, from a brand standpoint to the headlines we've seen with Nike getting excluded from the indexes, you can see why, again, coming out of Investor Day, there's a lot of positivity.

Certainly, I think that that's important.

SPEAKER_1 (3:07)

Yeah, interesting timing. And from the macro perspective, I mean, what is the outlook here for a name like this with Nike as well? I mean, these companies have been struggling with, obviously, what we're seeing, consumer discretionary spending, some of the pressure. But the retail sales at the same time have been holding up. I mean, do you suspect we could be out of the woods to some degree with some of these operational efficiencies, some of these more strategic bets by these companies?

Ted Thatcher (3:43)

I think that you're right to point to the nuance here, Sam. So to my point earlier, I like the margin expansion story that ON is able to tell. I think that it's a core strength of the business, almost half of it, 45 percent or so of their revenue comes from the direct consumer relationship that they have and controlling that relationship with the consumer, I think, is really important for ON's ability to be successful in the future. But I would point to the same hesitancies. Obviously, the consumer discretionary is a category when we talk about the macro market right now that we have to be sensitive to.

Certainly, the retail sales numbers are a little bit mixed. I think a brand like ON, to give the positive narrative here, because it's more of a premium brand and serves, let's say, the top half a little bit of that K-shaped economy, I think that they have a more clear path in the sort of murky retail waters that exist today, as opposed to maybe a more budget-type brand.