Deep Sail Capital
Founder & CIO of Deep Sail Capital, Long/Short GARP, Quality/Growth/Micro-Caps
On Holding could rerate quickly from 9 times forward EBITDA back to 20 times if its growth decline slows or reverses, possibly in early 2027, while it holds premium gross margins. Over the past two quarters it deliberately held prices and protected its premium positioning, pulling back from wholesale toward direct-to-consumer. Its apparel business is growing 84%, small now but a clear sign its category expansion is working. x.comÂ
On Holding is the better opportunity right now, supported by its recent earnings guidance. x.comÂ
On Holding trades at about 16.5x forward earnings after a roughly 52% drawdown. x.comÂ
On Holding holds zero interest now that its growth has slowed too much and all the founders have left. It would still be preferable to Nike or Lululemon, but retail and apparel are best avoided altogether. x.com x.comÂ
On Holding is the better business to own: when you can pay a few more turns of valuation for higher growth, don't think twice. Deckers, which Michael Burry killed, is the contrast. x.comÂ
If one insists on a recovery play in sporting apparel, On Holding seems best suited thanks to its balance sheet. Long-term buy-and-holds of apparel stocks are highly unlikely to work, which makes the space hard to get behind. Trends are fickle: in Southern California, younger gym-goers no longer wear On, only older people. x.com x.comÂ
On Holding looks likely to be dead money for a while after its first-ever guide-down sent shares down 19%. Revenue missed, guidance was soft and wholesale growth slowed, and part of the weakness may reflect Nike starting to recapture market share. x.comÂ
Nike may turn, but On and Hoka appear to be widening their moats, and cleaner economics with more durable advantages are preferable. Nike's FAST Graphs chart is one of the ugliest in a while, raising the question of how much of its moat remains. Possible catalysts are product innovation, a wholesale recovery, China stabilization and cost savings. On is taking market share, and street observation in New York showed On and Hoka standing out on people's feet. x.com x.com x.comÂ
Nike's brand concerns look priced in; stabilization, not sudden revenue acceleration, is what the speculative long needs. A few good campaigns and a return to large stores could help, though China consumers will be a drag. Short-term EPS is a poor indicator, and customers may return after trying other brands. x.com x.comÂ
Abercrombie & Fitch can define what is cool, while Lululemon is a category leader that would have to change its identity to adapt. Abercrombie executed its e-commerce pivot, cut lower-tier mall exposure and de-emphasized logos, freeing it to be more creative. Fashion retail remains tough, with inventory planned 6-9 months out and price-sensitive consumers, but it trades at 7x earnings, buys back 12% of shares a year and holds $14 a share in cash on a $77 stock. x.com x.com x.comÂ
Consensus underestimates Levi Strauss's transition into a high-margin direct-to-consumer brand, making it a conviction buy with a $34 target, about 40% upside, over 12-18 months. DTC now drives over 50% of revenue, lifting margins and cutting wholesale dependence. Brand equity gives it pricing power, the Dockers divestiture streamlines operations, and a ~2.5% dividend plus buybacks support EPS. As DTC tops 55% of sales, EV/sales could rerate from about 1.2x toward 1.6x-1.8x. x.comÂ
