On Shares Slump After Swiss Sneaker Brand’s Sales Disappoint
(Bloomberg) — On Holding AG’s stock tumbled after it posted disappointing second-quarter sales as the Swiss brand held off from discounting older shoe models ahead of product updates in the highly promotional US market.
The Roger Federer-backed company posted net sales of 850.3 million Swiss francs ($1.05 billion) on a constant currency basis, according to a statement Tuesday. That missed the 881.4-million Swiss franc average of analyst estimates.
The shares plunged as much as 17% in premarket trading in New York. The stock was already down by about 17% for the year through Monday’s close.
The brand also slightly watered down its sales forecast for the year, saying it now expects growth to be in the “low 20% range” compared with the more bullish previous target of “at least 23% growth.”
Still, the expected range based on current exchange rates is now between 3.47 billion and 3.56 billion Swiss francs, similar to the 3.51 billion that it previously forecast. On also nudged its gross profit margin goal for the year to at least 65%, higher than the previous 64.5%.
The more cautious sales outlook comes as On is looking to keep prices high for its sneakers and new lines of apparel at a time when many brands are resorting to markdowns to pull in customers. That dynamic has been particularly pronounced for On at specialty running stores in the US, the world’s biggest sports market, co-Chief Executive Officer David Allemann said in an interview.
On has been cautious about supplying retailers there with older versions of its key products ahead of updates. The brand is already seeing “incredible” demand for its new Cloudmonster 3 model, which retails for $190 and came out in April, Allemann said.
On released the latest version of its Cloudrunner franchise in recent days while it plans to start selling its updated Cloudsurfer model — the third leg of its hardcore-runner offering — in October. These new models feature On’s latest foam technology and trademark “clouds,” or engineered holes, in the soles.
Constant-currency net sales grew 13% in the Americas in the second quarter, slower than the 55% growth in Asia-Pacific and 21% in Europe, the Middle East and Africa.
That dynamic — and the fact that On’s direct-to-consumer sales channels have been strong — helps explain why On resisted the trend toward offering markdowns in the US, Allemann said.
“Our vision is to be the most premium global sports brand in the very, very long run,” he added. “It’s a lot of innovation coming in and now we just have to wait and then this cycle fully takes hold.”
Founded in 2010, On has grown rapidly with its high-end running footwear and expansion into areas like tennis, outdoors, training and apparel. That’s seen it grab market share from the likes of Nike Inc. and Puma SE and put it well ahead of the three-year sales and profitability targets it set in 2023.
On will offer another strategic update to investors in late September, Allemann said.
While sneakers still make up the vast majority of On’s revenue, the apparel business posted 56% growth in constant currency terms in the second quarter. The company’s gross profit margin of 65.4% came in ahead of expectations.
Allemann and fellow co-founder Caspar Coppetti have resumed operational control of the company, taking over the roles of co-CEOs in May. The duo founded On with former professional athlete Olivier Bernhard and are focused on maintaining its fast growth, particularly in Asia.
The industry has been out of favor among investors due to rising geopolitical and trade friction, widespread US discounting in the US and Europe and anxiety from some investors about whether a decades-long sneaker boom will continue.
–With assistance from Subrat Patnaik.
(Updates with shares in third paragraph.)
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