On running shoes: Federer’s favourites make a racy dash for cash

The company, whose backers include tennis star Roger Federer, has filed for a New York listing, seeking a reported valuation of up to $8billion (CHF7.3 billion). ON running shoes

Running shoes have come a long way from the plimsolls or “road slappers” army recruits once had to wear.

The name of Swiss group On refers to the phrase “running on clouds”. Investors will soon get the chance to see whether owning its stock is as heavenly.

The company, whose backers include tennis star Roger Federer, has filed for a New York listing, seeking a reported valuation of up to $8billion (CHF7.3 billion).

Timing is spot on. Share prices for big brands Nike, Adidas and Puma are at record highs, or near them. High valuations reflect recoveries in the wake of the pandemic. Nike and Adidas sales soared in their respective home regions of the US and Europe in the past quarter.

On’s sales are almost exclusively in the US and Europe as well. The group targets serious fitness enthusiasts who are willing to pay a premium. Would-be investors must be prepared to do the same.

Sales at On have kept pace with bigger peers, up 85% in the first six months of this year to CHF315 million ($340 million). At that pace, an $8 billion valuation represents a steep nine times multiple. That compares with three times and five times forward sales multiples for Adidas and Nike respectively. 

Financial performance suggests a premium of some sort is deserved. On’s gross margin was 54% last year. At Adidas it was 49% and at Nike 45% . Higher-margin sales direct to consumer at On accounted for just 38% of total last year, compared with 41% at Adidas.

The Swiss group should be able to raise direct sales substantially, given its niche proposition.

The territory of Adidas and Nike is the mass “athleisure” market. A steep mooted multiple may pressure On to diversify, bringing it into closer competition with the two giants.

The Swiss group is already doing this by producing more clothing and accessories. The risk is that On’s premium appeal with running aficionados floats away with its growth ambitions.

Copyright The Financial Times Limited 2021