This story was updated on Aug. 13 at 2:50 p.m. EST.
On Holding had another stellar quarter as the Swiss brand continued to defend its prime spot in the ultra-competitive running market.
But it’s not just sneakers that are making their mark for the company. Its nascent apparel business is on fire, with sales in the second quarter jumping 63 percent to 21.9 million Swiss francs. Martin Hoffmann, co-chief executive officer and chief financial officer, specifically cited “the highly successful launch of our tennis apparel collection earlier this year.” Running apparel as well as training product is also helping to increase interest in the apparel offering.
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As a result, he said On is “confident in the ability to drive significant growth and to increase our apparel share consistently over the coming quarters. New products, but also exciting collaborations like the one with Loewe and our South Korean Post Archive Faction drove significant awareness for the category and also allowed us to reach a higher level of engagement. For example, we provided members with early access to the Post Archive Faction collection and the launch was a huge success,” Hoffmann said.
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And the future is bright too, said David Allemann, cofounder and chairman, who noted that preorders for the fall 2024 apparel line have doubled. In addition, he revealed, every fourth item sold in the company’s newly opened store on the Champs-Élysées is apparel. In addition to the tennis collection, he pointed to not only running clothes but training apparel as other areas of opportunity. “Expect a lot of launches as well in the third quarter where you also see exciting innovations,” he said. As an example, he said the training category was intended for high-intensity workouts in the gym but On still introduced a dry tech fabric that felt like cotton but performed at a high level. This proves that On’s innovation pipeline is being used for more than just sneakers, he said. “Apparel is an incredible opportunity for the brand because we’re happening head to toe.”
Hoffmann also pointed to the launch of On’s first bag collection — its entry into accessories — as another bright spot.
As reported, On hired award-winning designer Tim Coppens in 2022 as head of design. He has created a unisex collection in what On describes as “featuring futuristic silhouettes and disruptive shapes, this is performance redefined.” The assortment ranges from shorts, tights and pants to jackets, T-shirts, sweatshirts and hoodies.
The Nuts and Bolts of the Numbers
Overall in the second quarter, On reported record net sales of 567.7 million Swiss francs, up 27.8 percent from the same period a year ago. (Sales increased 29.4 percent on a constant currency basis.)
Gross profit margin in the period was 59.9 percent, which was up from 59.5 percent in the year-ago period. Net income came in at 30.8 million Swiss francs, and adjusted diluted earnings per share increased to 0.14 Swiss francs from 0.04 Swiss francs a year ago. Adjusted EBITDA was 90.8 million Swiss francs.
Over the last 12 months, On has achieved net sales of more than 2 billion Swiss francs.
“We clearly see that the brand is extremely hot all around the world,” Hoffmann said in an interview. “And in the end, that high demand is converting into all our channels: wholesale, e-commerce and retail.”
But the quarter wasn’t without its challenges. Hoffmann said that as a result of “the ongoing transition of our Atlanta warehouse,” the company experienced some product availability issues in the Americas that led to delayed or missed deliveries in both its direct-to-consumer as well as at its wholesale channels.
In the earnings call, Marc Maurer, co-CEO, explained that On is building a fully automated warehouse in Atlanta but until that is completed, the company is operating out of “a space that is simply not optimized. And so, as a result, we are experiencing capacity constraints in that warehouse. This then leads into basically unreliable late deliveries, but also inventory shortages.” Without this issue, Maurer said On would have been able to “deliver a sales growth on a global level above our full-year guidance.”
Retail Is a Growth Engine
By channel, wholesale sales grew 29 percent in the second quarter and DTC sales increased 30 percent, driven by in-store sales as well as digital. As On continues to expand its retail fleet — the company operates 25 stores in China and 12 stores in other cities globally — and newly added stores in Paris and Hong Kong have seen positive early trends in terms of customer conversion. On the digital side, On’s recently launched mobile app exceeded expectations in terms of downloads and sign-ups. On the app, Hoffmann said, the company is experiencing “a very high apparel share, comparable to what is reached in our retail environment. The increasing brand awareness is also visible in a wave of new visitors to the expanding network of retail stores in our new Paris location and beyond.”
He said the store on Lafayette Street in New York “remains a vibrant hot spot, attracting some of the highest traffic levels among all our retail locations this quarter.”
Looking at the quarterly results by region, sales in Asia Pacific grew 73.7 percent to 59.2 million Swiss francs, and sales in EMEA increased 21.8 percent to 138.4 million Swiss francs.
In the Americas, the company’s largest market, net sales increased 24.8 percent to 370 million Swiss francs. The U.S., specifically, had a negative sales impact from brand’s warehouse transition in the region that caused some order disruptions.
Footwear sales were up 26.7 percent in the period and accessories sales were up 23.6 percent.
On the product side, Hoffmann called out recent key launches that contributed to high demand, such as the Cloudrunner 2 and the On x Loewe Cloudtilt 2.0 sneakers, which were singled out as the hottest footwear products on Lyst’s quarterly ranking. And just last week, On launched its latest cushioned running shoe, the Cloudsurfer Next.
Hoffmann also called out more recent initiatives that are bringing On’s brand awareness to the next level, such as store openings in key cities; a new multiyear partnership with Zendaya; a strong performance at the Olympic Games with 66 athletes, and the recent debut of LightSpray, On’s latest upper technology created through a fully automated production process.
In its earnings call Tuesday morning, David Allemann, cofounder and chairman, pointed to a pop-up On Lab the company opened in Paris during the Olympics as well as its new and largest flagship on the Champs-Élysées as an “opportunity to leave a mark on the world’s largest sport stage. Sport remains one of the last and ultimate life moments to build cultural relevance for brands in performance and lifestyle. In the last weeks on storytelling reached a global community of millions and together with our global talents, we are just getting started.”
He also said that the company’s recent signing of Zendaya as a brand partner has led to the brand reaching “a global audience of millions in the last three months.”
Given the strong trends, On reiterated its full-year outlook, and still expects to reach net sales of 2.26 billion Swiss francs in 2024. Gross profit margin is expected to be around 60 percent and adjusted EBITDA margin is projecting in the range of 16 percent to 16.5 percent for the full year. Constant currency growth rate for the year is expected to be at least 30 percent.
“What we have now done in the last months and weeks is clearly a laid a foundation for much more brand awareness in the world,” Hoffmann said. “And so we expect that this will convert into strong demand in the mid and the long term. We also have more exciting product launches for the second half of the year.”