Thanks in part to its partnership with Zendaya and its strong presence at the Paris Olympics this summer, On Holdings continued to outperform in the third quarter, notching a record in both net sales and profitability. And the company sees no end in sight, raising its full-year projections as it approaches what it expects to be a strong holiday season.
Marc Maurer, co-chief executive officer, told FN sister publication WWD that the company is well on its way to reaching its previously announced goal of doubling its 2023 revenues by 2026. He said the means to that end is built around scaling the company’s own retail network, growing apparel and increasing its reach in the Asia-Pacific region.
“We’ve been very consistent in executing that strategy,” Maurer said. “And we’re very happy to also see in Q3 that it’s working out and that consumers are appreciating it, and we’re really looking forward to the holiday season. We very much feel we’re attacking it from a position of strength, and then we can take the momentum into 2025.”
He said the recent campaign with Zendaya that showed her in the Swiss Alps in On’s apparel is expected to provide a big boost to clothing sales going forward.
In the period ended Sept. 30, net sales for the Zurich-based brand increased 32.3 percent to 635.8 million Swiss francs. The jump was fueled by a significant increase in the company’s direct-to-consumer sales which were up 49.8 percent to 246.7 million Swiss francs over the prior year. DTC sales now account for 38.8 percent of the company’s overall business.
But it wasn’t just DTC that did well, wholesale sales also increased 23.2 percent in the period, hitting 389.1 million francs.
As Maurer explained: “With everything we do, we really try to focus on long-term brand growth and reaching and tapping into new communities with lots of product innovation. What you saw over the summer with the Olympics, for example, is now playing out. We had a huge jump in brand awareness in the U.S. We grew to 20 percent aided awareness, which still leaves a lot of room to grow, but it is a significant jump from where we were before. I think this really converted into e-com revenues.”
He also said the company’s partnerships with Zendaya as well as FKA Twigs, an English singer and dancer, “really allow us to gain additional credibility in those communities.”
In terms of profits, On achieved its highest gross profit margin since going public in September of 2021, reaching 60.6 percent in the third quarter, up from 59.9 percent in the same period last year.
But net income decreased 48 percent to 30.5 million Swiss francs from 58.7 million francs in the same period last year.
Maurer explained that the company looks at other indices to determine its performance. “What’s important for us is when we look at sales and how it flows through,” he said. Maurer pointed to the gross profit margin that indicates the company’s ability to sell product at full price — a number that “really shows the long-term profitability potential of the brand.” Then adjusted EBIDTA margin, which stood at 18.9 percent, was also strong and an indicator that some distribution issues the company experienced in the second quarter are now basically cured. He credited the company’s team for navigating the “operational headwinds” that had impacted sales in the second quarter
Now he said the company is able to “look super positively into Q4 and the holiday season.”
Net income was also impacted by currency conversion issues and capital expenditures as On continues to aggressively add stores around the world, he said.
By region, net sales in the Americas rose 34.5 percent to 395.5 million francs, while Europe, Middle East and Africa were up 15.2 percent to 165.8 million francs and Asia-Pacific jumped 79.3 percent to 74.6 million.
By category, net sales of shoes rose 32.1 percent to 603.7 million francs, apparel was up 33.4 percent to 26.8 million francs, and accessories increased 53.9 percent to 5.3 million francs.
As a result, On raised its full-year net sales outlook to at least 32 percent on a constant currency basis, or 2.29 billion Swiss francs. Gross profit margin is now expected to be approximately 60.5 percent for the full year and adjusted EBITDA is expected to come in at the higher end of the previous expectation of 16 percent to 16.5 percent for 2024.
Maurer said On is also pleased with the results of its recent collaborations with Loewe and Post Archive Faction, a technical label from Korea, that is “gaining a lot of traction.”
“And we have very, very strong momentum on key franchises like the Cloudmonster and the Cloudrunner 2, which is an important run franchise, and our holiday campaign is really building around the strengths of some of our key franchises, and also pushing apparel,” the co-CEO said.
On will also continue to add to its retail footprint. Maurer said the company’s previously announced goal to add roughly 20-25 stores every year is on track. He pointed to two new U.S. units that recently opened in Chicago and New York’s Flatiron district, as examples. One more store will be added this year.
“We’re seeing own retail working exceptionally well,” he said. “The stores are elevating the brand experience. The stores allow us to showcase apparel in an even better way. And the stores also allow us to penetrate key markets in Asia-Pacific even further. So a large part of the store rollout is also driven by China. That’s a path we aim to continue. We’re super happy with how the retail strategy, which is basically in its infancy, is yielding very, very strong returns.”
Other On executives were also upbeat following the earnings report.
Caspar Coppetti, co-founder and executive co-chairman of On, said: “Just over a year ago, we shared our ‘Dream On’ vision with the world. This quarter’s record results are a testament to the incredible momentum we have built. From increasing our brand awareness amongst our core communities worldwide, to pushing the boundaries of performance credibility and deepening our sustainability impact, to expanding our premium footprint across all channels, we are turning our dream into a reality. With our continued relentless focus on performance, innovation and authentic partnerships, we are excited to inspire the world to move with even greater purpose.”
Martin Hoffmann, co-chief executive officer and chief financial officer of On, said: “This quarter’s exceptional results are a demonstration of the incredible work of our team, the growing global demand for the On brand, and the power of On’s premium position. Our commitment to innovation and excellence has allowed us to capture this demand and deliver outstanding performance, particularly in our DTC channel. The resulting net sales and profitability ahead of our expectations puts us in a position to significantly increase our outlook for the full year 2024 and fuels our confidence as we head into the holiday season and continue to shape the future of sportswear.”
