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On Shares Soar After the Running Brand Posts Strong First Quarterly Earnings

On, the fast-growing Swiss running brand, just reported quarterly results for the first time as a public company.

In the third quarter, On reported a net sales growth of 68% to 218.0 million Swiss francs, or about $234 million, and a net income of 13 million Swiss francs, or about $14 million.

Shares of the newly-public athletic company rose as high as 22% in the early afternoon on Tuesday.

Backed by tennis champion Roger Federer, On sold 31.1 million shares for $24 each in its IPO in September, which brought the company’s value to more than $6 billion, Reuters reported. In its filing with the SEC, On described itself as “one of the fastest-growing scaled athletic sports companies in the world,” with net sales growing at an 85% compound annual growth rate. On is currently sold in about 8,100 retail stores globally.

According to the company, 36.6% of its net sales in the first six months of 2021 were generated through direct-to-consumer channels, mainly the company’s website. In Q3, DTC net sales increased 93%.

In an interview with FN in September, On co-CEO Marc Maurer said the company plans to bolster its presence in markets that are critical to longterm success, expand its brick-and-mortar presence in key cities, and make strides in sustainable innovation. While analysts initially had mixed forecasts for the footwear brand, On’s latest earnings prompted strong recommendations from some firms.

“On’s Q3 report featured few, if any, flaws,” Baird analysts wrote in a note on Tuesday, noting that headwinds from factory closures in Vietnam have begun to wind down since they reopened earlier this month. On will also open two new factories in Indonesia in 2022, which will further mitigate supply limitations.

Stifel analyst Jim Duffy expressed optimism in sales picking up even more once factories get back up to speed.

“All in, demand indicators are exceptionally strong and Vietnam disruptions to growth are less than feared,” Stifel analysts wrote in a note. “We remain enthused about the long-term growth capacity for the brand.”

To meet growing demand, On executives said in a call with investors that it was investing in airfreight and working with retail partners to adjust launch dates accordingly.

On co-CEO Marc Maurer said that the company is diversifying sourcing and manufacturing to more countries to keep product closer to consumers across the globe. He also said On is looking to automate more of the manufacturing process to lessen its dependency on labor.

“We are confident that the supply chain disruptions in Vietnam are temporary,” co-CEO and CFO Martin Hoffmann said in a call with investors. “And that our pricing power will allow us to compensate increased freight and distribution costs in the mid- to long-term with selective price increases.”

As a running brand, On is benefiting from a pandemic-era health and fitness boom that is still riding high. Saucony, Adidas and Brooks all posted stellar numbers in their Q3 earnings results last week. Brooks, a leader in the running category, reported Q3 revenue growth of 24% year-over-year, led by gains in the Adrenaline GTS, Ghost and Glycerin franchises, which were up 50% versus 2020.

According to On co-founder and executive co-chairman Caspar Coppetti, the company won’t be hurt when consumers return to the gym, as many people will likely still continue running, even on a treadmill.

“We are in a key position that we can not only just grow with the industry, but we can take significant market share given the way we have been able to manage our supply and plan for hyper growth going to 2022,” Coppetti said. 

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