Speaking at the 2023 ICR Conference, officials of On indicated holiday results came in strong for the Swiss running brand, highlighted by continued healthy demand and full-price selling. Several catalysts were also cited to drive growth in 2023.
“We have seen very strong demand throughout the holiday season in all our channels and in all our regions,” said Martin Hoffmann, CFO and co-CEO, at the event. “During the holiday season, we were able to basically sell at full price and this is extremely important for us.”
Offering two examples of On’s brand strength currently in the marketplace, Hoffmann noted that 94 percent of On’s sales online during the holiday season represented full-price sales despite the heavy promotional climate amid inflationary pressures. Said Hoffmann, “This shows the strength of the brand but also our commitment to not engaging in discounting.”
Hoffmann also noted that while typically the strongest online sales days over the holiday period occur on Black Friday or Cyber Monday, On’s strongest day over the last two months was in mid-December when the brand sent out an e-mail indicating the popular Cloudnova model was back in stock. Said Hoffmann “This shows how much demand is there for the product and how much we are holding back by basically controlling our supply and keeping that below demand. So I think this gives us a lot of confidence moving into the first quarter and we approach the first quarter with a very healthy inventory situation.”
On didn’t update its outlook for the year prior to its presentation at ICR.
When it reported third-quarter results, On again lifted its sales and EBITDA guidance to reflect the successful first nine months of 2022, including three consecutive net sales records in the respective quarters; a healthy order book for the remainder of 2022 and into 2023; and a strong inventory position following transitory supply shortages as a result of factory closures.
The updated outlook for the year ended December 31 at the time called for:
- Sales of CHF 1.125 billion ($1.2 billion), representing a year-over-year growth of approximately 55 percent. Previously, sales were expected to reach CHF 1.1 billion, representing growth of 52 percent;
- Adjusted EBITDA to expand 53.5 percent to CHF 148 million ($160.5 mm) from CHF 96.4 million in 2021. Previously, adjusted EBITDA was expected to be CHF 145 million; and
- Adjusted EBITDA margin of 13.2 percent, the same as previous guidance.
Asked to assess 2022, Marc Maurer, co-CEO, said On initially faced “huge disruptions” in production largely tied to pandemic-related factory closures that threatened to see On missing sales goals despite strong demand in the marketplace. Maurer said, “I think the fact that we can sit here and we will achieve over a billion of sales by the end of the year is outstanding and is a tribute to the work that the team has done in highly uncertain and difficult times.”
He further noted that the conversation by mid-year “quickly moved from a supply chain topic to a consumer demand topic” with questions about inflation, but On’s performance held up against the challenging macro environment as well. Maurer said, “I think we’re very, very, very encouraged with what we saw in Q4 and with what we see when we look at the pre-books that we have in 2023.”
Maurer added that the logistic challenges faced by a third-party provider on the east coast of the U.S. noted on its third-quarter analyst call has been resolved and On “had basically no operational constraints” in the fourth quarter. He added, “I think what’s important to remember is that we’re operating in an environment with physical products and we’re growing at over 50, 60 percent and in some markets at over 100 percent at quite a sizeable volume already. So this always poses challenges to the whole supply chain.”
On is investing in warehouse capacity to help overcome supply challenges in the future, including signing a deal with Kuehne+Nagel to bring automation to its Atlanta warehouse.
Most of the discussion at the ICR conference focused on growth drivers for 2023 and the years ahead.
Asked about innovation arriving in 2023, Maurer said the Cloudboom Echo, On’s carbon-plated model that Gustav Iden wore when he won the Ironman World Championship 2022 in Kona, would become available for consumer purchase this spring. Said Maurer, “It’s targeting the fast runners on marathon routes, and this is where we also feel we have quite some opportunity versus our competitors.”
On will launch the next phase of CloudTec cushioning technology this spring with the CloudTec Face in the new Cloudsurfer. Said Maurer, “This has been more catering to the four and four-and-a-half-hour runner for a marathon where we already have quite a strong presence.”
Apparel will also be a key focus. Maurer said On always wanted an apparel component to align with its footwear offerings, but apparel becomes more important as a revenue stream as the brand gets bigger. He said, “If you want to build a $5 billion-plus brand, you need to be strong in apparel.”
He said On apparel has been in the marketplace for a few years and the approach will now be fine-tuned this year based on lessons learned.
“2023 is the first year where we can really implement some of those learnings,” said Maurer. “So reflecting a bit on the past, I think what we know is that pieces that are rooted in running and that you can wear all day and every day are working really, really well. So you can expect more rooted in running pieces for running but also for all day and every day.”
On is also investing with some key wholesale partners and in On stores to better showcase On apparel. On’s website is being relaunched, starting with a pilot in the UK, to enable customers to “experience apparel in a very, very different way,” he said.
Finally, On continues to invest internally in its apparel team to support a “very strong design direction” in the category from the brand. Maurer said, “Many of these changes you’ll see to come to life in the next one or two years and then apparel will over time, become a meaningful part of the business.”
Hoffmann said priorities in the coming year include the On Athletic Club, the brand’s own professional team launched in 2020.
Tennis is expected to receive a bigger push, including signing more professional players. On entered the tennis category through an investment in 2019 from Roger Federer that led to the launch of The Roger tennis-inspired model. In November, On signed 20-year-old Ben Shelton, the youngest of 13 Americans in the top 100 in the world, to an endorsement deal.
Hoffmann also said On will be emphasizing that while its roots are in running, it’s “a sportswear brand and it’s a head-to-toe brand.”
As part of that emphasis, the brand recently purchased on.com. Over its 11-year history, its website URL has been on-running.com. Said Hoffman, “I think this shows the commitment that we want to be a truly global sports brand.”
In the running category, Maurer said several models, the Cloudmonster, the Cloudgo and the Cloudrunner, were launched over the last year in “very, very few stores” in the run specialty channel and are now seeing broader distribution following success. Said Maurer, “We’re very, very positive on how the products are resonating. The pre-orders for next year on these, especially these products, are super, super strong. The investments we make in the core running category continue to pay up.”
On is also finding success in lifestyle products with Cloudova appealing to younger consumers. Maurer said, “If you wear an On product all day and every day, it’s because you love how light it is or that it looks great. I think you’ll continue to see a brand that is rooted in performance at its core, but that is adopted in an all-day environment.”
On distribution, Hoffmann said On continues to emphasize direct-to-consumer but remains committed to wholesale. He said, “We strongly believe in basically the combination and the strength of doing both. Wholesale gives us access to the right customer quicker and at a bigger scale whereas we are able to have a more intense and direct connection with our fans through our DTC channel.”
Among newer wholesale distribution, On is now in about 50 stores at Dick’s Sporting Goods with the aim of reaching the core runner. Other newer partnerships with Foot Locker and JD Sports are aimed at reaching the younger consumer with Cloudnova and The Roger.
At its owned retail, On is planning a “major store” in London this spring with openings soon planned for Miami and the Williamsburg section of Brooklyn. About three or more stores are further planned outside of China as well as about 10 in China.
Maurer said China remains a “small, small part of the business” and is being currently impacted by a Covid outbreak, but remains a key growth area. Said Maurer, “Once things clear up and basically this wave is through, probably for the first three, four months there will be some labor shortages in different locations as we have seen this in other markets as well. But then really for the second half of the year, we can focus on expanding our retail network and we can focus on building our e-com channel.”
Photo courtesy On