On Holding shares fell 14 percent, or $4.84, on the New York Stock Exchange yesterday to $29.77, after the company reported a 50 percent increase in quarterly operating income to 39.4 million Swiss francs (€41.1m) and raised its full-year revenue guidance to at least CHF 1.76 billion (€1.83b), including anticipated growth of 44 percent in H2.
But hurt by a nearly €51.0 million currency impact due to the strength of the Swiss currency against the U.S. dollar, Q2 net income came in at CHF 3.3 million (€3.4m) versus CHF 49.1 million in the year-ago period. Corresponding earnings per share fell 69 percent shy of a key Wall Street estimate.
Sales in all segments up
The company reported nearly 100 percent year-over-year expansion in adjusted Ebitda to CHF 63 million (€65.7m) and a gross profit margin of 59.5 percent, the highest quarterly level since its Sept. 2021 initial public offering.
Looking at segment and channel results, Footwear revenues stepped up by 53 percent to CHF 428.2 million (€437.6m); Apparel sales increased by 46 percent to CHF 13.4 million (€13.7m); and Accessories sales rose by 45 percent to CHF 2.7 million (€2.8m).
Wholesale channel revenues increased by 51 percent to CHF 280.8 million (€287.0m) and direct-to-consumer channel sales elevated by 55 percent to CHF 163.5 million (€167.1m).
| On Running - Income | |||
|---|---|---|---|
| 2023 | 2022 | Change | |
| Q2 (CHF million) | |||
| Net sales | 444.3 | 291.7 | 52.3% |
| Cost of sales | 179.8 | 130.8 | 37.5% |
| Gross profit | 264.5 | 160.8 | 64.5% |
| SG&A expenses | 225.1 | 134.5 | 67.4% |
| Operating result | 39.4 | 26.3 | 49.8% |
| Financial income | 4.3 | 1.1 | 290.9% |
| Financial expenses | 1.9 | 1.5 | 26.7% |
| Foreign-exchange result | -48.5 | 32.3 | – |
| Pre-tax | -6.7 | 58.2 | – |
| Tax | -10.0 | 9.0 | – |
| Net income | 3.3 | 49.1 | -93.3% |
| Diluted EPS Class A | 0.01 | 0.15 | -93.3% |
| Diluted EPS Class B | 0.00 | 0.02 | -100.0% |
| H1 (CHF million) | |||
| Net sales | 864.5 | 527.3 | 63.9% |
| Cost of sales | 355.1 | 244.4 | 45.3% |
| Gross profit | 509.4 | 282.9 | 80.1% |
| SG&A expenses | 427.7 | 253.2 | 68.9% |
| Operating result | 81.7 | 29.7 | 175.1% |
| Financial income | 6.4 | 1.4 | 357.1% |
| Financial expenses | 3.6 | 3.0 | 20.0% |
| Foreign-exchange result | -39.7 | 49.5 | – |
| Pre-tax | 44.8 | 77.6 | -42.3% |
| Tax | -2.9 | 14.1 | – |
| Net income | 47.7 | 63.5 | -24.9% |
| Diluted EPS Class A | 0.15 | 0.20 | -25.0% |
| Diluted EPS Class B | 0.01 | 0.02 | -50.0% |
| Source: On Running | |||
Some doors open as others close for On
Second quarter net sales in the EMEA rose by 30 percent, or 35 percent on a constant currency basis, to CHF 113.6 million (€116.1m). During H1, the region’s DTC sales grew stronger than wholesale.
The company is experiencing strong demand in the U.K., aided by its London store, and is building traction in Spain, Italy, and France where an owned store is slated to open in Paris.
Meanwhile, in Germany, Austria, and Switzerland, its strongest growth markets in Europe, distribution is being redirected to center on performance and running, and upwards of 200 doors that don’t have that reach will be closed in H2.
In the Americas, where On is continuing to take market share in the specialty run distribution channel, Q2 sales rose by 60 percent to CHF 296.6 million (€303.1m). At Fleet Feet, On is the running chain’s fastest-growing brand and had the highest average selling price (ASP).
In Asia-Pacific, Q2 sales jumped by 90 percent to CHF 34.1 million (€34.9m).
On focusing on wholesale expansion with existing partners
On had 9,800 total wholesale doors at the end of Q2, up 14 percent year-over-year from 8,600. Historically, the company has added 400 to 500 doors every quarter. But that figure is expected to slow to approximately 200 going forward as On works with larger wholesale partners that reach broader consumer segments. Two are Foot Locker and JD Sports.
Currently distributed in 175 US Foot Locker locations and 46 in the EMEA, there are plans to add another 50 doors this fall. JD carries On in 166 US stores and 60 in the EMEA, with 50 more slated to open this fall, mostly in the U.S. from conversions of Finish Line banners to JD.
Looking forward to H2
Annual sales are now forecast to reach CHF 1.76 billion (€1.8b), which implies year-over-year growth of 44 percent and H2 sales expansion of nearly 30 percent. Meanwhile gross profit margin and adjusted Ebitda margins of 58.5 percent and 15.0 percent, respectively, are maintained.
