20xing On Running -> #1 Premium Sportswear

🧠 The Takeaways

Today, we’re taking an activist stake in On Running to ensure they stick the landing on the exponential growth they’ve had.

1. Bet the farm on being the “Most Premium Sportswear” brand.

2. Reverse the DTC-1st Strategy.

3. Fix the overloaded OPEX before it’s too late.

+ Do you know your weeks of inventory cold?

LBAB! Community - Do You Know Your Weeks of Inventory Cold?

When I meet founders during the acquisition process, 1 question I always ask: 

What’s your Weeks of Inventory?

Most of the time, they don’t know. And it blows my mind. The formula's simple:

(Current Inventory ÷ Weekly Sales Volume) = How many weeks it’ll take to sell through what you have on hand.

This dictates the entire rhythm of your biz. 

• Tells you how fast you’re turning inventory into cash. 

• Drives your cash flow.

• Determines every single decision from promotions to POs to pricing.

You should always have a target band for Weeks of Inventory that ties back to your lead times (how long it takes to replenish stock).

During the holidays, your Weeks of Inventory will drop fast if you’re aggressive with promos + traffic. In slower months, it’ll balloon up. 

Always think through:

• Products with high Weeks of Inventory → push them harder with discounts + traffic.

• Products with low Weeks of Inventory → protect margin, don’t discount, let them sell at full price.

Looking at Q4 -> Q1, don’t forget: Lunar New Year shutdowns, holiday cash crunches, and long China production timelines.

If you can rattle off, “We’ve got 5 weeks on this, 12 weeks on that,” then you can instantly diagnose problems and opportunities in your biz.

Let’s Examine This Biz

Note: As always, none of what follows is legal, tax, investing, financial, or any other sort of advice. And I was never here.

On Running (Roger Federer's running/walking shoe brand) is crushing it, and the market is believing the hype. But in these moments of winning big, the cracks are starting to show.

• Share price: $42

• Market Cap: $13B

• L5 Performance: +9%

• P/E Ratio: 82x

This stock is trading unbelievably high above the mean—at higher P/E ratios than AI bizs, despite 29% YoY growth.

Financial Summary

2024 Financial Statements (YoY Comparison)

Sales: $2.3B (+29%)  👍
Gross Profits: $1.4B (+32%) 💪
OPEX: $1.1B (+35%) 😨

Net Income: $242m (+204%) 😍

Link to Company’s earnings

TLDR Analysis: Hitting Their Stride

• Gross Profits outpacing Rev, as Rev increases faster than COGS. 💪

• OPEX outpacing both Rev + Gross Margins. 😨

• Net Income exploded YoY on hitting scale. 😍

On crushed it, but you can see how a brand truly operates when it’s running the table, and the cracks are starting to show.

OPEX is starting to grow the fastest, which is eating away at any cushion the brand has for a future misstep.

Let’s Guide This Biz

Here are the 3 ways I’d guide this biz to avoid getting out over their skis.

1) Bet the Farm on Premium

Going Premium propelled On from “cool new Running shoe” to the hottest Footwear brand on the market.

Aligning their entire brand around their aspiration to be “The more premium sportswear brand” is a great tactic.

Showing how effective positioning over reality is and a stunning reflection of the current economy we’re in.

+ an incredible flank to attack Nike.

$160+ for Runners/Walkers are mid-tier athletic shoes, but when you start adding in $60 Running T-shirts, $45 caps, and $25 socks, the picture starts to unfold.

+ it’s working. 

• Sales: +29% YoY

• Gross Margins expansion: +32% YoY

• Net Income: +204% YoY

Justifying artsy ads with Zendaya to make you feel like you’re buying more than just a running shoe.

https://youtu.be/6_gzWOzsL48?feature=shared

Now the game is 3-fold:

1. Sell more to the same customers.

2. Attract more HHI customers.

3. Sell them a $250 running shoe.

Everything that On does from here needs to be inflationary. 

They need to thread the age old needle of: How can we justify continually charging customers more while maintaining sell-through volume?

Takeaway: The beauty of a premium brand: price increases are a value signal.

2) Go slower in Retail, but keep it #1.

I disagree with On’s goal to make DTC their largest channel (currently 41% of total Sales + growing 40% YoY).

Retail is a slow, expensive game, but when it’s working, it’s a better growth path for a brand at On’s scale.

1. Consumer: Customers want to try on their shoes. Walk/run in them a little bit. Crucial for a “Comfort shoe” brand, this is crucial.

2. Branding: Premium needs to come with a premium experience.

3. Financial: Offload OPEX onto the Retailer = less required headcount/unit.

AND 80% of consumer $$$ still flows through IRL Retail.

On needs to learn from Nike’s mistake. Nike also flew too close to the Sun thinking the great DTC reckoning was just around the quarter. That single strategic blunder is what created On’s window to break out.

On’s making smart moves by pruning retail partnerships that aren’t working and stacking 20–30% YoY wins over a decade while figuring out the right retail partners. It’s boring, but that’s what builds generational brands.

It’s crazy to think that a 15-year-old brand is still figuring it out. 

But if you want to build a generational brand, that is the work to be done.

Takeaway: Retail isn’t fast. But when it works. IT WORKS.

3)  Present as a Tech Biz, but operate like a Retailer

On’s 82x P/E ratio (Profits/Earnings) is ASTOUNDING.

That’s better than AI stocks:

• NVIDIA: 50x

• Meta: 27x

• Microsoft: 37x

AMD (97x) is the only AI stock I could find with a higher P/E Ratio.

Growing 29%+ for the last 2 years, at 4–10% Net Income margins, this stock isn’t worth anything near 82x Earnings, but if they can convince investors to buy at that price, more power to them.

My greater concern is they’re starting to act more like a tech biz.

• Stock Based Compensation (SBC): +125% YoY (small base but still)

• G&A: +33% YoY

• Selling/Marketing/Distribution: grew only <25% YoY each

They had a profitable year, so this doesn’t seem like a big deal. 

But it becomes a big deal when these trends compound over 5 yrs.

SBC becomes the norm for comp. Everyone gets used to the additional G&A resources. OPEX balloons.

At this scale, you don’t want to see so much overhead placed on the biz + crowding out growth investments.

On’s scale is impressive, but Nike’s 2024 Rev was $51B. Adidas’: $24B. 

That’s a significant amount of Marketing and Sales $$$ that still need to be invested.

Takeaway: ALWAYS keep OPEX lean.

Final Thought

On is the perfect ex of perception vs. reality + why you always want to win the marketing game regardless of the product quality.

When I got my pair of Cloud Surfers, multiple people told me they’re great until ~500 miles (~1 yr if you walk a lot/are active), then they fall apart.

That was my exact experience.

They were the most comfortable shoe I’d bought and looked cool. But at ~10 mos of owning them, they started to fall apart and make this ridiculous squeaking noise every time I took a step. (Apparently a common problem other customers have). 

I switched to Hokas, which don't look as cool, but haven’t looked back since.

If we compare On to Deckers (Hokas + Ugg parent co.) at ~$1B in Sales, Deckers trades @ a 15x P/E Ratio.

Would you rather have the better product or the better branding?

We can argue which brand is better and what the P/E ratio should be, but it’s clear On has proved you can create a ton more value by getting investors to trade on vibes.