On Holding AG reported a record third quarter in net sales and profitability, with net sales increasing 32.3 percent (+33.2 percent constant-currency) to CHF 635.8 million (~$756 mm). The company reported strong double-digit growth fueled by a significant acceleration in the direct-to-consumer (DTC) channel, which grew 49.8 percent (+50.7 percent cc) year-over-year, to CHK 246.7 million (~$293 mm). Still, the Street pulled back after initial excitement as the company reportedly missed earnings expectations. ONON shares closed flat for the day on Tuesday, November 12.

DTC channel growth resulted in a 38.8 percent DTC share for the third quarter, an increase of 450 basis points compared to the prior-year Q3 period.

Net sales through the Wholesale sales channel increased by 23.2 percent to CHF 389.1 million (~$462 mm), or 24.0 percent on a constant-currency (cc) basis.

On Holding reports in Swiss francs (CHF) currency. All conversions to U.S. dollars were done at 1 CHK = $1.18839 at quarter-end.

Region Summary

  • Net sales in Europe, Middle East and Africa (EMEA) region increased by 15.1 percent (+15.2 percent cc) to CHF 165.8 million;
  • Net sales in the Americas region increased 34.1 percent (+34.5 percent cc) to CHF 395.5 million; and
  • Net sales in the Asia-Pacific region jumped 79.3 percent (+85.7 percent cc) to CHF 74.6 million for the quarter.

Category Summary

  • Shoe category increased by 32.1 percent (+32.9 percent cc) to CHF 603.7 million;
  • Apparel category net sales increased 33.4 percent (+34.7 percent cc) to CHF 26.8 million;
  • Accessories category net sales increased 53.9 percent (+56.2 percent cc) to CHF 5.3 million for the three-month period.

“This strong growth reflects continued exceptional momentum for the On brand, driven by significant increases in global brand awareness and supported by On’s recent operational improvements,” the company said in a media release of results for the quarter.

Income Statement Summary
On saw its highest gross profit margin since its IPO in September 2021, reaching 60.6 percent of net sales in Q3 2024, up from 59.9 percent in the prior-year Q3 period, said to be driven by growth in the DTC channel and a “continued disciplined approach to full-price sales.” Gross profit increased 34.0 percent to CHF 385.3 million in Q3 from CHF 287.7 million in Q3 last year.

Net income decreased by 48.0 percent to CHF 30.5 million, or 4.8 percent of sales, in Q3 from CHF 58.7 million, or 12.2 percent of sales, in the 2023 Q3 period.

Basic earnings per share (EPS) Class A (CHF) decreased to CHF 0.09 in Q3 from CHF 0.18 in Q3 last year, and diluted EPS Class A (CHF) decreased to CHF 0.09 in Q3 from CHF 0.18 in Q3 last year.

Adjusted net income decreased to CHF 50.2 million in Q3 from CHF 65.5 million in the year-ago Q3 period.

Adjusted basic EPS Class A (CHF) decreased to CHF 0.16 per share in Q3 from CHF 0.21 per share in Q3 last year. Adjusted diluted EPS Class A (CHF) decreased to CHF 0.15 per share in the quarter from CHF 0.20 in the year-ago Q3 period.

In U.S. dollar terms, ONON posted EPS of 17 cents per share, down from 22 cents in the year-ago Q3 period. Zacks Consensus estimate was looking for 24 cents per share for the quarter.

“The strong net sales performance, combined with disciplined cost management, further results in an Adjusted EBITDA margin of 18.9 percent,” the company noted, a 200 basis-point improvement year-over-year. Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) increased by 47.7 percent to CHF 120.1 million in Q3 from CHF 81.3 million in Q3 last year.

Nine-Month Year-to-Date (YTD) Summary

  • Nine-month YTD net sales increased by 27.3 percent (+30.7 percent cc) to CHF 1.71 billion.
    • DTC sales channel net sales increased by 39.0 percent (+43.0 percent cc) to CHF 646.6 million.
    • Wholesale sales channel net sales increased by 21.1 percent (+24.2 percent cc) to CHF 1.07 billion.
    • Region net sales in EMEA, Americas and Asia-Pacific increased by 14.4 percent (+15.9 percent cc) to CHF 430.4 million, 27.1 percent (+30.2 percent cc) to CHF 1,095.1 million and 73.9 percent (+86.3 percent cc) to CHF 186.2 million, respectively.
    • Net sales from Shoes, Apparel and Accessories increased by 26.9 percent (+30.3 percent cc) to CHF 1.63 billion, 35.7 percent (+39.8 percent cc) to CHF 68.4 million and 39.5 percent (+44.1 percent cc) to CHF 12.4 million, respectively.
  • YTD gross profit increased by 29.1 percent to CHF 1.03 billion, or 60.1 percent of sales, from CHF 797.1 million, or 59.3 percent of sales, in the year-ago YTD period.
  • Net income increased by 43.6 percent to CHF 152.7 million, or 8.9 percent or sales, from CHF 106.3 million, or 7.9 percent of sales, in the 2023 YTD period.
    • Basic EPS Class A (CHF) increased to CHF 0.47 in the YTD period from CHF 0.33 in the 2023 YTD period and diluted EPS Class A (CHF) increased to CHF 0.47 YTD from CHF 0.33 in the 2023 YTD period.
  • Adjusted EBITDA increased by 40.6 percent to CHF 288.3 million YTD from CHF 205.0 million in the 2023 YTD period. Adjusted EBITDA margin increased to 16.8 percent YTD from 15.2 percent in the 2023 YTD period.
  • Adjusted net income increased by 61.5 percent to CHF 203.6 million YTD from CHF 126.1 million in the 2023 YTD period.
    • Adjusted basic EPS Class A (CHF) increased to CHF 0.63 per share YTD from CHF 0.40 in the 2023 YTD period and Adjusted diluted EPS Class A (CHF) increased to CHF 0.62 per share YTD from CHF 0.39 per share in the 2023 YTD period.

Balance Sheet Summary
Cash and cash equivalents increased by 51.4 percent to CHF 749.0 million at quarter-end from CHF 494.6 million at the end of Q3 last year and net working capital increased by 8.9 percent to CHF 540.1 million at quarter-end from CHF 496.2 million at third quarter-end last year.

Outlook
Driven by strong performance in the first nine months of 2024 and significant brand momentum heading into the holiday season, the company raised its full-year 2024 net sales growth percentage outlook to at least 32 percent growth on a constant-currency basis; this corresponds to reported net sales of at least CHF 2.29 billion at current spot rates.

“On has achieved a very strong year-to-date net sales growth rate of 27.3 percent, including over CHF 1.00 billion net sales contribution from the Americas region in the first nine months of the year,” the company wrote. “Supported by a relentless focus on operational excellence over recent months, On heads into the holiday season with a lot of confidence to fulfill the strong consumer demand for the brand in the fourth quarter.”

The company said this implies an acceleration in the constant-currency net sales growth rate in the fourth quarter and an anticipated sizable foreign exchange headwind when converted to Swiss Francs in the fourth quarter.

On further anticipates an increased gross profit margin of ~60.5 percent for the full year 2024 and now expects an adjusted EBITDA margin at the upper end of the previous expectation in the range of 16.0 percent to 16.5 percent for the full year 2024.

“On’s global brand awareness has surged in recent months, fueled by a strong presence at the Paris Olympics, the incredible success of On athletes, extensive coverage of its innovative LightSpray technology, and high-profile and long-term partnerships with influential personalities like Zendaya,” the company concluded. “This momentum is further amplified by exceptional growth in the APAC region, strategic store openings in key cities around the world, and the continued success of On’s core running franchises. These achievements underscore On’s long-term vision of being the most premium global sportswear brand.”

Image courtesy On Holding AG