On Holding is bucking the challenges.
In reporting results for its first full year as a public company on Tuesday morning, the buzzy Zurich-based running shoe brand significantly cut its losses in the fourth quarter and swung to profitability for the year as sales surpassed 1 billion Swiss francs for the first time, hitting 1.2 billion Swiss francs, or $1.29 billion.
And management expects the momentum to continue.
“After a great year and exceptionally strong fourth quarter well beyond our own expectations, we are heading into 2023 with a lot of momentum and in a position of strength,” said Martin Hoffmann, co-CEO and CFO for On. “After navigating through a challenging 2022, including supply shortages, tight production capacities and disruption of global trade lanes, we are looking forward to a great year with largely normalized operations. We have made significant progress in many areas in the 18 months since our IPO, which will set us up for ongoing success and market share gains.”
He pointed to the company’s new website, the recent purchase of its domain name, the opening of its first retail store in London and the launch of the CloudTec Phase as among the “recent drivers that excite us about the opportunities which lie ahead. With the Paris Olympics in 2024 as an important medium-term target, we will continue to invest in both our athlete team as well as pinnacle products at the forefront of innovation.”
On Monday, On revealed that it had signed Poland’s Iga Swiatek, the world’s number-one ranked women’s tennis player, as an ambassador along with Ben Shelton, a rising American star on the court. Going forward, both players will be wearing the company’s newly launched on-court collection for their professional competitions as well as the Roger Pro shoe named for Roger Federer, an investor in On.
In an interview, Hoffman said that fourth-quarter results were a “positive surprise” that provided a “very strong finish” to the year and prompted the company to elevate its guidance for 2023.
With the “craziness on the supply side behind us,” he said, “we can focus on brand building and connecting with the customer.”
He said the reopening of China, where the company operates 13 stores, is a “big opportunity for us,” and will allow for the brand to further expand its presence there.
In the U.S., he pointed to the “strong momentum” On has experienced with its key accounts including Foot Locker, where fourth-quarter sales were up 50 percent, as well as Dick’s Sporting Goods and Fleet Feet. The plan, he said, is to “continue expanding our network,” but in a calculated way.
In Europe, sales rose more than 80 percent in the fourth quarter, he said, showing that the brand has room for growth even in its most-mature market.
Hoffman said the recent launch of a children’s collection has proven popular right out of the box. He pointed out that the line is not just a “mini-me” of the adult assortment, but was developed specifically to meet the needs of kids ages 4 to 10.
He is also optimistic about the upcoming relaunch of the Cloudsurfer shoe, which has been reimagined using CloudTec Phase featuring computer-engineered cushioning designed to make for a softer landing while running.
Turning to retail, Hoffmann said that while wholesale and e-commerce continue to represent the biggest part of the business, brick-and-mortar will also be expanded this year. Currently, in addition to the China stores, On operates six additional units around the rest of the world.
The London unit on Regent Street, which opened last month, has proven to be even more popular than the New York City unit, which has been a top performer since opening at the end of 2020. Next up in the States will be Miami, Williamsburg in Brooklyn and Portland, Oregon, where On operates its American headquarters. He also said the company is hoping to add one or two more units in key cities in Europe.
Beyond footwear, apparel is still seen as a nascent category for the brand, he said. “We look at it as a two- to three-year project,” Hoffmann said. In London, the apparel assortment is selling well, which proves that when the environment is right, it does perform, he said. But he knows it will take some time to truly gain a foothold in the competitive clothing category.
“The launch of tennis will be super-important for our apparel business,” he added. The performance-inspired collection is viewed as “an important pillar for growth for the company,” but is still not expected to surpass running as the key category for the brand. “Run is still where we see the most opportunity.”
Hoffmann said not to expect a lot of collaborations. Although the partnership with Loewe is popular and recently dropped a few new colors, the goal is to continue to focus on the On business as a stand-alone. “We want to build our brand,” he said.
In the fourth quarter ended Dec. 31, the net loss fell to 26.4 million Swiss francs against 187 million Swiss francs the prior year. Net sales in the period increased 91.9 percent to 366.8 million Swiss francs with strength in both direct-to-consumer and wholesale, which increased 76.4 percent to 366.8 million Swiss francs and 104.3 percent to 149.4 million Swiss francs respectively.
For the year, On posted net income of 57.7 million Swiss francs versus a loss of 170.2 million Swiss francs the prior year. Net sales rose 68.7 percent to 1.22 billion Swiss francs with direct-to-consumer sales jumping 61.4 percent to 445.1 million Swiss francs and wholesale net sales increasing 73.1 percent to 770 million Swiss francs.
By region, sales in North America rose 80.3 percent to 738.5 million Swiss francs; in Europe, they were up 36.1 percent to 354.3 million Swiss francs and the Asia-Pacific region rose 87.7 percent to 80.2 million Swiss francs.
Footwear remains the biggest part of the business, with sales in that category increasing 70.9 percent to 1.17 billion Swiss francs while apparel sales rose 30.2 percent to 47.3 million Swiss francs and accessories 48.3 percent to 7.4 million Swiss francs.
David Allemann, co-founder and executive co-chairman, added: “Finishing our first full year as a public company with net sales exceeding 1.2 billion Swiss francs and a net income of 57.7 million Swiss francs is a huge testament to the incredible work that our team continues to do every day. We are thrilled to see how our continued innovations are supporting the expansion into new consumer groups and are building our community of fans and incredible athletes. Running will continue to be our focus in 2023, but we are also extremely excited to announce On is increasing its presence on the tennis court too.”
Looking to the future, the company is anticipating that as a result of a normalized supply chain and an improved inventory position, net sales should grow 61 percent in the first quarter of this year and hit 1.7 billion Swiss francs in the full year 2023, which would represent a growth rate of 39 percent.