We'd be shorting more ONON on this print. By all means it was a good headline, with the company putting up CHF0.20 vs the Street at CHF0.14, but the good news pretty much ends there. Gross margins were up a healthy 280bp, but the improvement marked a sharp deceleration from last quarter. We think next year the change goes negative. There was a pull forward in revenue as the company unloaded some of its excess inventory into the wholesale channel, but receivables rose materially (+44% vs +27% last quarter), which makes us raise an eyebrow as it relates to the terms it's offering wholesale accounts. Inventories are still up 66% vs last year, and while that improved sequentially, the company remains aggressive with its product buys. On top of that, it guided 4Q to wholesale growth in the high-single-digits, which is simply a massive slowdown from its 3Q and TTM run rate of over 50%. The company cited shutting down certain doors in Europe, and the impact of the 3Q pull-forward. But optically, the rate of change is staggering. Our concern here remains that aver 80% of the company's cash flow comes from a single silhouette, and it's simply not innovating enough, aside from tweaking the design and coming out with new colorways. We're also concerned that growth at HOKA is slowing (we just went short DECK after getting more than a 2-bagger out of it long-side), and the competitive set including Asics, Brooks and Saucony are all stepping up their game and going right at HOKA and ONON. The nail in the coffin is that we think Nike will launch a major running platform in the March/April timeframe (ahead of the Olympics), which will stress the category beyond a level that ONON and DECK management are currently banking on. Whether Nike succeeds or fails is irrelevant. The fact is it's coming. We'd short ONON first, as the multiple has more torque (35x earnings and 20x EBITDA), though both names are likely to work short-side over the next 12 months. Knowing what we know today, we'd stay short ONON until 15, and wouldn't buy it unless it were a single digit stock. Yes, seriously. The risk that's building here is frightening. See our Elevator Pitch and Sigma Analysis below.
