On Holding continued to outperform in the second quarter as the Swiss running shoe brand bucked macroeconomic struggles to report the highest quarterly net sales in its history.
The sales increase of 66.6 percent to 291.7 million Swiss francs in the period ended June 30 came despite supply chain issues and factory closures that impacted the company during that time. With those headwinds subsiding, On expects product demand to continue to accelerate in the future, prompting it to raise its outlook for the remainder of the year.
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Net income for the three months hit 49.1 million Swiss francs, up from 14.2 million Swiss francs in the prior year and adjusted net income rose to 44.8 million Swiss francs from 14 million Swiss francs in the year-ago period. Adjusted earnings before interest, taxes, depreciation and amortization were 31.4 million Swiss francs, up 14.7 percent from 27.4 million Swiss francs in the year before.
For the three months, net sales through the direct-to-consumer channel increased 60.9 percent to 105.6 million Swiss francs, while wholesale sales jumped 70.1 percent to 186 million Swiss francs. On counts more than 8,600 wholesale doors including Dick’s Sporting Goods, Foot Locker and JD, with apparel offered in more than 2,000 of them.
Net sales in North America rose 102.5 percent to 181.7 million Swiss francs, while sales in Europe rose 17.5 percent to 83.3 million Swiss francs and the Asia-Pacific region rose 52.2 percent to 17.9 million Swiss francs.
In its earnings call Tuesday morning, co-executive chairman Caspar Coppetti pointed to some solid introductions in the quarter that helped the company gain “significant market share…in the specialty and high-end distribution channels that we choose to play in. The growth comes from both established as well as new product franchises,” including the Cloudmonster cushioned running shoe, and the Cloudrunner, which was introduced early in the second quarter and is now one of the company’s most successful performance running shoes in the specialty and general sporting goods channel.
On the apparel side, he continued, new product launches such as the active and performance bras are among the bestselling apparel items on e-commerce.
Speaking to the period as a whole, Martin Hoffmann, co-chief executive officer and chief financial officer, said, “We are very pleased and proud to report that we have reached our highest quarterly net sales in history by a good margin in the second quarter of 2022 and with that, are observing a continued strong demand for On products across all regions. Our team has done an outstanding job to efficiently manage product flows in what we expect to be the near final stages of supply shortages stemming from last year’s factory closures.”
In June, the company notched its largest single-month sales, which exceeded 100 million Swiss francs, bringing total net sales for the first half of 2022 to more than 500 million Swiss francs, he said. “Based on the performance we have seen in the first half, we are once again increasing our outlook for net sales and adjusted EBITDA for the full-year 2022.”
The company now expects sales for the fiscal year ending Dec. 31 to reach 1.1 billion Swiss francs, an increase of 52 percent compared to 2021. Adjusted EBITDA is now expected to reach 145 million Swiss francs for the year with adjusted EBITDA of 13.2 percent.
In an interview with WWD, Hoffmann attributed On’s success in the first half to continuing to “deliver the right product to the customer even in a difficult environment.” He said longtime customers are embracing the product updates that have been introduced, while new customers have been drawn to the introductions of the Cloudmonster, the Cloudrunner and the Cloudvista trail runner. The Cloud 5, an environmentally friendly iteration in the Performance All Day category, has also “continued to grow very steadily,” Hoffmann said.
The second quarter saw the first deliveries of the Cloudneo, the company’s first fully recyclable subscription-based running shoe. As reported, runners pay a subscription fee every month, can return the shoe at the end of its life and receive a new pair. The company will recycle the returned shoes, with some of the old materials used in other On products.
Coppetti said in addition to the Cloudneo, the company has significantly increased the level of recycled polyester in some of its newly introduced shoes including the Cloudvista, Cloudmonster and Cloudrunner as it moves forward on its mission to lower its carbon footprint by “designing products made for circular systems and engineered with fossil-free materials.”
Hoffmann said the company’s fledgling apparel division grew by 31.3 percent in the second quarter, slightly below expectations, but leaving “large opportunity.”
“Our strategy to build On as a sportswear brand has been validated in [the second quarter] by the ongoing very strong apparel sales in our own retail stores as well as in shop-in-shop environment. The apparel share in our new Tokyo store is already at 18 percent and in Zurich at 19 percent,” Hoffman said. For the future, he said the plan is to offer clothing geared to running, which will help consumers “transition most easily from footwear to the apparel side.”
Going forward, On will continue to invest in adding shops-in-shop such as those in Nordstrom, Sport Chek in Canada and others, which is expected to increase sales of apparel to between 15 and 25 percent, Hoffmann said.
Within the next several months, the company will launch the Cloudgo, another signature running shoe, as well as the second iteration of the Loewe collaboration. The first collection sold out completely, with particular strength in Asia.
On recently opened flagships in Tokyo and Zurich, both of which had very strong starts, he said, and the company’s New York store also posted its strongest quarter in the period. Going forward, the company will open units in Los Angeles in September and Miami in December of this year, as well as a store in London in early 2023. At the end of 2022, On will have 13 owned and operated stores in China and six in other markets around the world.
And in October, a website will be introduced that will offer “a much more tailored, individualized brand experience. And it will allow us to show more product details, which we believe is a key driver for further growth of our apparel share,” Hoffmann said.
Looking ahead, Hoffman said: “We feel very confident about the second half. We don’t see a slowdown in any regions.” North America, which accounted for 62.3 percent of overall sales in the second quarter, continues to drive the business, but the company is also seeing growth in Japan and Australia, which offset the downturn in China, where the company was forced to close its stores for nearly two months due to the pandemic.
In the six-month period, net sales rose 67.2 percent to 527.3 million Swiss francs with sales through the direct-to-consumer channel increasing 63.9 percent to 189.1 million Swiss francs and wholesale sales jumping 69.1 percent to 338.3 million Swiss francs. North American sales skyrocketed 95.3 percent to 320.1 million Swiss francs, while sales in Europe rose 23.7 percent to 158.2 million Swiss francs, and Asia-Pacific sales jumped 80.4 percent to 34.4 million Swiss francs. Net income increased to 63.8 million Swiss francs from 3.8 million Swiss francs in the same period last year, and adjusted EBITDA decreased 0.4 percent to 47.1 million Swiss francs from 47.3 million Swiss francs in the prior six months.
September will mark the one-year anniversary of On Holding as a public company. Hoffmann said as a result of the initial public offering, the brand has experienced “a strong upside in brand awareness” in the U.S. and has also achieved “financial security, which gives us peace of mind.” He said 600 people have been hired since the IPO, bringing its employee count to 1,500.
On was founded 12 years ago by former professional triathlete Olivier Bernhard, who approached his friends David Allemann and Coppetti, executive co-chairmen, about reengineering a running shoe to create a different sort of running sensation. The concept he was seeking was a cushioned landing and explosive takeoff, or what they describe as “running on clouds.”