Yahoo Finance On Holdings Plans to Open 100 Stores, Build ‘Powerful’ Apparel Business
This story was updated March 12 at 4:04 p.m. EST
Driven by record high traffic to its website and retail stores around the world, On Holdings outperformed its own expectations in 2023, but didn’t meet Wall Street’s — and shares dipped nearly 9 percent to $30.63 on Tuesday.
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In the fourth quarter, losses tallied 26.8 million Swiss francs from 26.4 million a year earlier. Sales rose 21.9 percent to 447.1 million Swiss francs, or more than 31 percent on a constant currency basis. Sales came in around 1.5 percent less than analysts had been projecting, according to FactSet.
“For the first time since going public in 2021, On didn’t crush top-line expectations in Q4,” said Wedbush analyst Tom Nikic, “and they guided revenues below expectations for fiscal year ‘24. Given that investors have become acclimated to huge revenue beats from this company, this is likely to be viewed as a major disappointment. We don’t think anything is ‘wrong’ here, and when the dust settles, we still think this is the strongest fundamental growth stories in our coverage.”
In the year, net sales for the Swiss running brand hit 1.8 billion Swiss francs, a jump of 46.6 percent over the prior year with net income rising 37.9 percent to 79.6 million Swiss francs and an adjusted earnings before interest, taxes, depreciation and amortization margin of 15.5 percent.
For the year, sales through the company’s direct-to-consumer channels increased 50.9 percent to 671.8 million Swiss francs and wholesale revenue increased 44.2 percent to 1.1 billion Swiss francs. By region, sales in Asia Pacific jumped 75.9 percent to 141.1 million Swiss francs, while in the Americas they rose 52.2 percent to 1.2 billion Swiss francs. The European, Middle East and Africa region rose 29.2 percent to 488.7 million Swiss francs.
By category for the year, net sales from footwear increased 46.6 percent to 1.7 billion Swiss francs in the year while apparel was up 45.5 percent to 68.9 million Swiss francs. Accessories sales rose 60.7 percent to 11.8 million Swiss francs.
In a conference call with analysts Tuesday morning, David Allemann, cofounder and executive co-chairman, said apparel is one of the company’s priorities going forward.
“We all know that the pandemic has been a catalyst for change, redefining lifestyles and fashion norms,” he said. “We have been liberated to work more from home, introduce sports and movement to every day, and wear sportswear as the new uniform. The last pivotal years made it clear that sports is the new uniform, the new normal that will continue to transcend culture and fashion. Sports is not just an activity. It’s a statement, a lifestyle, a new luxury for a generation valuing movement and exploration over possession and status.”
Martin Hoffmann, co-chief executive officer and chief financial officer, added that in the fourth quarter, apparel was the focus of On’s marketing campaign which led to a growth rate in that period of 60.1 percent to 18.4 million Swiss francs. In the DTC channel, apparel sales grew by a whopping 110 percent, he said, and in the Asia-Pacific region, apparel sales exceeded 10 percent in the quarter.
“The strong demand provides a tailwind to 2024 with exciting new products, updated sizings and more focus across all channels,” that are expected to drive success, Hoffmann said, adding that tennis apparel will be launched later this week. Preorders for fall 2024 apparel are up 126 percent, the company said.
Expanding retail is also a priority this year. The brand operates 32 stores globally and Allemann said On will open an additional 100 stores worldwide, a strategy that not only showcases its footwear but its apparel as well. In the company’s flagships in New York, Paris and Shanghai, roughly one in six items sold is apparel, not footwear, he said.
In 2023, 15 stores were added, 10 of which were located in China. The New York store was also expanded. Looking ahead, a 300-square-meter store will open in the center of Berlin in April and roughly 17 to 19 stores overall are expected to be added this year with a focus on key cities in Europe, North America, China, Latin America, Australia and possibly the Middle East.
Footwear, which remains the bulk of On’s business, also experienced some highlights this year. Allemann said the Cloudmonster, On’s cushioned shoe that was introduced two years ago, was the brand’s “highest absolute growth franchise in 2023.” To build on that momentum, he said, the company two weeks ago introduced the Cloudmonster 2 and next month will launch a Cloudmonster Hyper.
Other top performers include the Cloudswift, Cloudrunner and Cloudnova in running and the Roger franchise in tennis. Roger Federer is an investor in On.
In the quarter, net sales from DTC channels rose 38.2 percent to 206.6 million Swiss francs, while revenue from wholesale accounts rose 10.7 percent to 240.5 million Swiss francs. By region, net sales in the Americas rose 18.5 percent to 300.6 million Swiss francs, while Asia-Pacific increased 57.7 percent and EMEA rose 22.9 percent to 112.5 million Swiss francs.
The momentum has continued into 2024, the company said, and coupled with some “exciting and highly innovative product launches” slated for later this year, On is now projecting sales growth of at least 30 percent. Sales are now expected to hit at least 2.25 billion Swiss francs with a gross profit margin of about 60 percent and an adjusted EBITDA margin in the range of 16 to 16.5 percent for the full year of 2024.
Through wholesale partners, the company “observed strong sellout numbers at full price,” both online and in physical locations, Hoffmann said. In the EMEA, he said the brand is pulling back its product from around 200 doors in Central Europe that it deems “nonstrategic,” and going forward, it will be “adding a lower number of incremental wholesale doors…than we have over the past years.”
Our mission is very clear,” Hoffmann said. “We want to be the most premium global sportswear brand.” To achieve that goal, he laid out several strategies for 2024. First is to capitalize on the Olympics in Paris to “connect and build credibility as an innovation-driven premium performance brand.”
Second is to grow the apparel business. “During the last one and a half years, we made huge steps in creating exciting apparel product pipeline and at the same time a dedicated, powerful apparel organization. Recent demand from our partners for our updated styles has been higher than our already ambitious expectations, so much so that we had to increase production to fill the growing demand. We’re extremely excited to kick off our apparel in tennis and training, which will allow us to speak to new audiences in the apparel first categories. At the same time, we will offer our running community exciting innovations at the intersection of performance, design and sustainability.”
The third pillar is its own retail stores, Hoffmann said, combined with a strong wholesale division at partners such as Dick’s Sporting Goods, JD Sports and Foot Locker, where the brand presence is expected to be expanded this year, he said.
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