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Saturday, November 23, 2024

On Brand Posts Record Sales, Says It’s No Longer ‘Just a Running Brand’

The On sneaker brand notched an all-time record in sales and profits for the third quarter, as brand awareness surges.

Nov 5, 2023; New York, NY, USA; Hellen Obiri of Kenya celebrates after finishing first place in the NYC Marathon.
Thomas Salus-Imagn Images

On Holdings reported an all-time record for sales and profit margin in its third quarter, as it continues to challenge bigger brands like Nike and Adidas. The Zurich-based shoemaker also raised full-year sales guidance and fourth-quarter growth expectations.

The company attributed the strong growth to “continued exceptional momentum for the On brand, driven by significant increases in global brand awareness and supported by On’s recent operational improvements.” 

Sales were particularly robust in the Asia-Pacific region, which surged 79% to $84.5 million in Q3. China is a bright spot for On, representing 5% of the company’s global sales, as Front Office Sports recently reported. While people might primarily think of On as a sneaker brand, Bernstein analysts expect On’s apparel offerings to “grow rapidly off a very small base” in that region.

The third quarter saw On reach its highest gross profit margin since its IPO in September 2021, reaching 60.6% in Q3 2024, up from 59.9% in the prior year period. The company said the increase was driven by “significant acceleration” in the direct-to-consumer channel and a “continued disciplined approach to full-price sales,” Bernstein analysts wrote in a note. 

On said global brand awareness has surged in recent months, driven by a strong presence at the Paris Olympics, “the incredible success of On athletes, extensive coverage of its innovative LightSpray technology, and high-profile and long-term partnerships with influential personalities like Zendaya.” On had 66 athletes wearing the company’s gear at this year’s Olympic Games, competing across track and field, triathlon, marathon and tennis, including Polish women’s tennis star Iga Świątek and Kenyan marathon runner Hellen Obiri.

No doubt the brand has been buffeted by a running boom as running clubs and road race participation has increased, especially since the COVID-19 pandemic.

With plans to launch the next version of its Cloud running shoe next year (Cloud 6), cofounders Caspar Coppetti and Martin Hoffmann said on the earnings call “we’re pricing it $10 higher than Cloud 5,” which retails for around $140. 

The strong momentum and consumer demand is allowing On “to focus on full-price premium business during holiday season,” executives said on the earnings call (read: don’t expect any discounts). Apparel and accessories, which make up a much smaller percentage of overall sales, also saw growth quarter over quarter.

On, which was founded in 2010 with Roger Federer’s backing as a running-focused brand, is “no longer just a running brand. We have training, tennis, On lifestyle,” Coppetti said, adding that ultimately On wants to be perceived as an outdoor brand and as a “head to toe brand.”

“We are not resting on the laurels of our existing franchise,” Coppetti said, adding that On is planning to launch a new sneaker style in 2025 with a lower silhouette, à la Adidas’s hyper-popular Samba—“which is very much on trend, but not retro like our competitors—it’s a futuristic take, performance inspired.”

In a note published after results were announced, UBS analysts said they believe On can reach around 2% market share over the long term. “ON has already shown it can address a large market. We believe it is a rare brand that has the characteristics to become a global, multi-sport, multi-category athletic wear brand, similar to Nike, Adidas, and Puma,” the analysts wrote.

Shares (ONON) dipped 5% initially in premarket trading because adjusted earnings per share showed a decline (stemming from unfavorable foreign exchange rates), but by market close were down 1%.

On raised its full-year forecasts on significant brand momentum heading into the holiday season. Full-year net sales are now expected to reach $2.6 billion, a 32% increase compared with its previous estimate of 30%.

“Given the brand’s impressive momentum, we believe the outlook may still prove conservative and remain highly encouraged by strong underlying fundamental demand trends,” Truist analysts wrote in a note following the results.

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