'They're Expensive... But You Have To Pay For Outsized Growth': Jim Cramer Discusses On Holding, Hoka Vs. Nike

Zinger Key Points
  • Nike and Lululemon struggle with intense competition and sluggish revenue growth.
  • On Holding and Deckers Outdoor excel with strong direct-to-consumer sales growth.

Jim Cramer discussed the challenges facing the athletic apparel industry on CNBC’s “Mad Money” on Thursday.

Nike Inc NKE and Lululemon Athletica Inc LULU are experiencing growth challenges, he said.

Nike’s stock, for example, underperformed for over two years. Lululemon’s stock dropped nearly 35% from its all-time highs in December. The sector is grappling with “unusual worries about the tapped out consumer” and “endless competition,” affecting both giants and smaller brands alike.

“Everybody in the space is going against Nike,” Cramer emphasized. The Beaverton, Oregon-based brand expects only 1-2% revenue growth this year.

Meanwhile, Lululemon contends with fast-growing competitors like Gap Inc‘s GPS Athleta and Levi Strauss & Co‘s LEVI Beyond Yoga. The Vancouver, Canada-based company anticipates 11-12% growth, falling short of Wall Street’s expectations.

Despite the overall struggles in the sector, Cramer highlighted two growth stocks that continue to perform well: On Holding AG ONON and Deckers Outdoor Corp DECK.

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On Holding, known for its On brand of footwear, has shown remarkable resilience. The company recently reported strong quarterly results, with Cramer noting, “They delivered 21 percent revenue growth, and it would have been 29 percent on a constant currency basis.” This growth was driven by “strong demand including major momentum for the direct to consumer channel,” with direct-to-consumer sales up 39% year-over-year.

“The strength here is incredibly broad-based with better than expected sales in the Americas and Asia Pacific.” Cramer said.

Deckers Outdoor — parent company of brands like Hoka, Ugg, and Teva — also received praise for its performance, particularly due to the success of Hoka running shoes.

Hoka’s sales have surged from $223 million in fiscal 2019 to a projected $1.78 billion for fiscal 2024. It achieved a compound annual growth rate of 51.4%, Cramer noted.

“Deckers has seen its stock surge 513 percent over the same period,” he said. The company’s direct-to-consumer business and international expansion, particularly in Europe and China, have also been significant growth drivers.

However, Cramer cautioned that investing in these high-growth companies comes at a price. “They’re expensive. They’re really expensive,” he said. On Holding trades at over 33 times next year’s earnings estimates, while Deckers trades at 25 times.

Despite the steep valuations, he said, “You have to pay up for outsized growth and these companies can deliver it.”

“Even when the footwear and athletic apparel space is a nightmare for most of the industry, you can still find great brands that are winning, like the ones that belong to On Holding and Deckers Outdoor,” Cramer added.

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This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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