On Holding Plans Stores in Texas, Miami and Paris
Updated Aug 15 3:50 p.m. EST
As it approaches its second anniversary as a public company, the momentum does not appear to be slowing for On Holding. But as a result of a strong Swiss franc, the company’s stock took a bit of a hit, trading down 14 percent Tuesday to close at $29.77.
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In the second quarter, the Zurich-based company delivered its sixth consecutive quarter of top-line growth with net sales for the period ending June 30 increasing 52.3 percent to 444.3 million Swiss francs, the highest in its history.
In its earnings call on Tuesday morning, Martin Hoffmann, co-chief executive officer and chief financial officer, said: “Over the last month, we have seen a persistent strength of the Swiss franc versus nearly every other currency around the globe. Absent those negative currency effects, on a constant currency basis, our net sales growth was approximately 60 percent in Q2 with negative foreign exchange impacts of around 23 million Swiss francs on top line.”
Net income in the three months decreased 93.3 percent to 3.3 million Swiss francs from 49.1 million in the prior-year period, but adjusted earnings before interest, taxes, depreciation and amortization increased 99.6 percent to 62.7 million francs from 31.4 million francs the year before. The company attributed the discrepancy in the figures to currency exchange issues in the period.
Britt Olsen, general manager of the Americas, specifically pointed to the company’s growth across a variety of regions as well as its strength in the direct-to-consumer channel as highlights of the quarter.
In the second quarter, sales in the d-to-c channel jumped 54.7 percent to 163.5 million Swiss francs, while those in the wholesale channel increased 51 percent to 280.8 million francs. On the call, Hoffmann said wholesale will be “selectively” expanded in the future “by only adding doors with meaningful, additive customer bases.” As a result, the net additional door numbers in coming quarters will be lower, he said.
And by region, net sales in the brand’s largest region — Europe, the Middle East and Africa — increased 28.9 percent to 113.6 million Swiss francs, while the Americas’ rose 59.8 percent to 296.6 million francs and Asia-Pacific performed the best, with sales jumping 90.2 percent to 34.1 million francs.
On currently owns and operates 25 stores worldwide and there are 13 franchised units in China. Of those, four are in the Americas region, Olsen said. But the brand will continue to roll out retail in the U.S. with units slated to open in Portland, Oregon (a relocated unit); Austin, Texas; Chicago, and Miami later this year or early next year, she said. There is also a store slated for Paris.
By product category, sales from shoes, apparel and accessories rose 52.6 percent to 428.2 million francs, 45.9 percent to 13.4 million francs and 45.4 percent to 2.7 million francs respectively in the second quarter.
While apparel still represents a small percentage of the overall business, it is viewed as a major growth opportunity for the future. Olsen said the company has been “seeing really solid growth, particularly on the retail side.” She pointed to the recently opened store in Williamsburg in Brooklyn, New York, as an example, revealing that the apparel-to-footwear sales percentage in that store is higher than anywhere else.
The apparel is still primarily focused on performance, but Olsen said there are also collections that are earmarked more for movement and training as well as tennis, both on and off the court.
Roger Federer is an investor in the brand and earlier this year, the company On revealed it had signed Poland’s Iga Świątek, the world’s number-one-ranked women’s tennis player, as an ambassador along with Ben Shelton, a rising American star on the court.
Looking ahead, Olsen said tennis as well as running will be the primary growth vehicles for On, along with the outdoor category of trail and mountain shoes. Although the company has launched six new shoe models over the past two years, Olsen said, including the popular Cloudboom Echo 4, “We’re just getting started on the run side in the Americas.”
In the six months, net sales rose 63.9 percent to 864.5 million Swiss francs with sales in the d-to-c channel increasing 58.9 percent to 300.5 million francs. Wholesale sales rose 66.7 percent to 564 million francs.
By region, net sales in the EMEA rose 39.4 percent to 232.2 million francs, while in the Americas they rose 73.6 percent to 566.8 million francs. The Asia-Pacific region posted a rise of 90.5 percent to 65.5 million Swiss francs.
By category, sales of shoes rose 64.7 percent to 828.8 million Swiss francs, apparel increased 47.6 percent to 30.3 million francs and accessories rose 48.9 percent to 5.4 million francs.
Net income in the six months decreased 24.9 percent to 47.7 million Swiss francs from 63.5 million the prior year but adjusted EBITDA rose 162.5 percent to 123.7 million francs from 47.1 million francs in the previous six months.
Hoffmann said: “The very strong first six months of the year and now six consecutive record quarters is a testament to the incredible work and dedication our team continues to showcase every day. The strength of the On brand and continued exceptional growth is visible across channels, regions and products. We are thrilled that we are visibly progressing further on our strategy and ambition to win credibility and market share in the performance space. In particular, we are extremely pleased with the feedback on our Cloudboom Echo 3, which was more broadly launched in Q2 and is our fastest long-distance running shoe yet. On the tennis side, we saw Iga Świątek take the victory at the French Open at Roland Garros in early June — we are so proud to have kicked off On’s presence on the grand slam courts with such an incredible and emotional debut.”
David Allemann, cofounder and executive co-chairman, added: “We are coming closer to our two-year anniversary since our IPO. Our life as a public company has been an incredible continuation of our journey, marked by significant progress and huge achievements. Our product innovation engine has delivered six all-new performance shoes within the 24-month period, as we continue to take market share in the specialty run channel. We have opened the door for future regional growth and category expansion, while also improving our operational backbone. After a great first half of 2023, we are excited and energized for the second half of the year, starting with the upcoming World Athletics Championships in Budapest, where numerous On athletes will be participating.”
As a result of a strong start to the third quarter, On raised its outlook for the full fiscal year ending Dec. 31 and now expects to reach net sales of 1.76 billion Swiss francs, up from 1.74 billion. This would indicate a year-over-year growth rate of 44 percent and a second-half growth rate of close to 30 percent. On is maintaining its previous outlook on gross profit margin and adjusted EBITDA margin of 58.5 and 15 percent, respectively.
However, in the earnings call, Hoffmann said this outlook includes an additional negative foreign exchange impact of U.S. sales of around 3 percent in the second half, or around 20 million Swiss francs.
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