On Holding AG pushed first quarter net sales past the half billion Swiss francs (CHF) mark for any quarter in its relatively short history, and did so with nearly 30 percent growth for the period ended March 31.

The strong Q1 results made Wall Street forget about the tumultuous day following the last quarter report that saw ONON shares fall in the mid-teens after the earnings release and conference call in March before taking back some energy in the afternoon to close down less than 9 percent to $30.63 to end the day. At issue at the time was an apparent “miss” against the profit number the analysts were expecting.

But that was March. And it may as well been 1999, as the company today hit 52-week highs in its stock price, on its way to closing up 18.3 percent for the day at $36.30.

“We have continued to grow very substantially, just shy of 30 percent on a constant currency basis and made great progress in every region, channel and category,” expressed company Executive Co-Chairman and Co-Founder Caspar Coppetti on a conference call with analysts. “What makes us especially proud is that we are achieving this growth at an ever increasing higher profitability. Our gross profit margin of close to 60 percent in the first quarter underscores the power of our strategy to be the most premium global sports brand.”

Coppetti continued, “At On, everything starts with running. The lightning and rain strategy, winning on the racecourse with next level innovation, and gaining market share with everyday runners, continues to deliver for the On brand. Three weeks ago, Hellen Obiri won the marathon in Boston for the second time, the first woman in two decades to go back-to-back. She was running in On head to toe, including a groundbreaking new footwear technology, which On will reveal in Paris this summer.”

Those head to toe looks are clearly part of the plan for the On brand as Coppetti walked through other key athlete deals and how the company is tying it all together at races, tennis matches and at owned-retail stores.

“In Q1, we opened stores in Berlin and Portland, OR, which brings us to over 50 stores globally, 34 of which are owned and operated by On,” Coppetti said. “Stores in Paris, Champs-Elysees, Milan and Austin, Texas will open in the coming months.” He also said those retail stories are having a very positive effect by organizing local run clubs from those owned stores, “particularly in key cities like Tokyo, Berlin and Los Angeles.”

On the wholesale side of the business, Coppetti said On continues with a disciplined strategy of being very intentional in choosing the right partners and adequate door footprint, with a clear focus on performance and young consumers.

“On our road to becoming the number one running brand, we continue to win market share in run specialty stores, while Dick’s Sporting Goods provides us with access to high school and college athletes, who On resonates with particularly strong,” Coppetti suggested. “In Q1, we went live with Zalando in our EMEA market, an important digital marketplace in the region to connect the On brand with additional younger consumers.”

Coppetti also outlined what he called “strong progress” against the brand’s apparel initiative, through resizing On’s entire collection to fit more customers in a consistent way.

“We have significantly increased our addressable market,” he said. “Just a week ago, we introduced [British singer-songwriter] FKA Twigs as a new creative partner and the face of our upcoming training collection that will be launched in August.”

To address the performance run market, which tends to be an older consumer, Coppetti said when reviewing race counts, or the share of people wearing On on race day, the On brand is seeing “very positive results across all regions with market shares of more than 10 percent in cities such as Tokyo and Berlin, and across key cities in the U.S., from Boston down to Nashville, and from San Francisco down to LA.”

He also said the brand also rolled out its first apparel collection in tennis and so that “fans can now wear the same key looks as seen on Ben Shelton and Iga Swiatek.”

Coppetti said apparel, in particular, saw extremely strong demand in the brand’s DTC e-commerce and our owned-retail channels, with apparel contributing around 25 percent of purchases at the Paris Saint-Germain store.

“You can tell that after such a strong start, we are very optimistic for the remainder of the year with many more highlights to come, not least being the Olympics in Paris,” he said.

“Our team created a runway show that would have easily turned heads at any major fashion event and ignited an unimaginable level of energy for our future apparel business,” added company CFO & Co-CEO Martin Hoffmann when discussing the company’s recent global meeting. “This will certainly be felt by our wholesale partners when we share it with them in the coming weeks.”

Moving on to first quarter results and performance, Hoffman reported that net sales for the quarter reached CHF508.2 million, growing 20.9 percent year-over-year.

“As expected and discussed on our call in March, this includes considerable FX translation impacts from the conversion to our reported currency Swiss francs,” he noted. “On a constant currency basis, On grew by 29.2 percent in the first quarter of 2024. This growth is supported by the strong consumer demand that we have seen across all our channels and geographies.”

He said the majority of growth has again come from the strength of the direct-to-consumer (DTC) channel, resulting in a significant increase in the DTC share of the business. The DTC share of the business reportedly expanded by almost 500 basis points year-over-year in Q1, from 32.6 percent in Q1 last year to 37.5 percent in Q1 2024.

DTC net sales grew by 39 percent versus the prior-year Q1 period, contributing CHF190.5 million to the company’s top line.

“Currency-neutral growth was even higher than that at 48.7 percent,” Hoffman added. “We continue to successfully optimize and expand our digital ecosystem. Caspar already mentioned the expansion of our digital marketplace at Zalando. In Q1, we also launched our first commercial app, which is now available across the globe and which will allow for the most intimate customer relationship across all of our digital outlets.”

The app reportedly serves as a key pillar in the brand’s digital strategy to further enhance the customer experience, more personalized offerings and to ultimately drive loyalty and deeper customer value.

“With that, we are also investing in our membership program,” Hoffman noted. “We have tripled the number of members in each of the past two years, but still have a huge potential to increase the share and value of our customers that connect more closely with On through this channel.”

As our growing On retail network becomes a more important part of our D2C ecosystem, we have a strong focus on the seamless omnichannel experience across all customer touch points consistently meeting the customer in whichever environment they prefer.

The Wholesale business grew 12.2 percent year-over-year reaching CHF317.7 million in the first quarter. On a constant-currency (CC) basis, wholesale growth was 19.8 percent.

“As previously discussed on our last call, this slightly more modest Q1 growth rate in the wholesale channel was expected and very much intentional,” Hoffman said, reminding the analysts about the planned closure of non-strategic stores in EMEA in 2024.

Regional Highlights
EMEA (Europe, the Middle East and Africa) region sales grew 6.1 percent (+10.4 percent CC) year-over-year (YoY) to reach CHF126.2 million in the first quarter.

“In EMEA, the closure of a number of non-strategic doors allows us to focus on the premium performance position of the brand,” Hoffman explained. “And number two, in Q1 last year, our wholesale revenues were helped by the initial sell-in into large new key account partners, which are now driving strong controlled sell-out growth.” He said the same overall dynamics are visible when considering the net sales performance by region, most likely alluding to the slower growth rate in EMEA versus the double-digit elsewhere.

“While the store closures led to a temporary reduction of our wholesale sales in the DACH region, DTC growth in the respective markets has accelerated and we continue to see strong growth in all other EMEA markets,” Hoffman noted.

He said the strength of the DTC business in EMEA continues to be “exceptional” and strongly validates the brand’s strategic priorities in the region.

“This is evident from the very strong start we have had in our new retail store in Berlin, but also significant traction and growth in some of our still nascent markets such as France, Spain and Italy, largely driven by our DTC channel,” he added.

The Americas region business also reportedly started off strong in Q1 and demand for the brand remains high, according to Hoffman’s prepared remarks. “In comparison to a prior-year period that was elevated as a result of the initial selling into some of our key accounts, net sales in the region grew by 22 percent year-over-year to CHF329.6 million.” Constant-currency growth was 30.4 percent for the quarter.

“While we again had quite significant FX translation impacts in Q1, we expect the translation impact to be less pronounced during the remainder of 2024, if the current U.S. dollar / Swiss franc spot rate persists,” Hoffman suggested.

“Casper mentioned the run account success in the U.S., in particular,” Hoffman said. “We are very pleased to continue to observe the increased brand awareness in our core communities converting to high quality demand and exceptional sellout strength in our strategic focus areas.”

He also called out the Latin America and South America sub-region of the Americas, noting that, while the vast majority of the Americas business is from the United States, the On brand continues to gain momentum in Latin America.

“Our sales in Brazil, for example doubled compared to Q1 2023,” Hoffman said.

The Asia Pacific region, which for the first time in the brand’s history made up for more than 10 percent of the overall business, reportedly saw “incredible momentum” in the quarter. Growth of 68.6 percent (+90.7 percent CC) compared to the prior-year period led to net sales of CHF52.4 million in the first quarter.

“With the unprecedented demand levels across the region, it is difficult to call out a specific highlight,” Hoffman shared. “But if I had to pick one, it would be the acceleration we are seeing in Japan. If you’ve been to Tokyo recently and visited our store, you would know what we are talking about. The store alone has more than doubled net sales year-over-year, a true testament to that brand heat in the region and the success of our own retail execution.”

Category Highlights
Net sales from Footwear grew 21 percent (+29.3 percent CC) to CHF484.7 million in the first quarter.

“As already alluded to, we’re very happy with the fact that our performance running vertical has contributed the maturity of the year-over-year growth,” Hoffman said. “The launch of the Cloudmonster 2 has continued the incredible performance of this highly successful franchise. With the upcoming launches of the Cloudrunner 2 later this week and the Cloudsurfer Next in late summer, we have a strong pipeline of innovation to come in our running lineup that will allow us to continue to win market share. In our performance all day category, the Cloudtilt has exceeded our expectations and demand is significantly higher than supply.”

Apparel category growth was 16.7 percent (+24.9 percent CC) year-over-year, resulting in CHF19.7 million for the first quarter.

“The underlying demand was significantly stronger exemplified by our DTC channels where apparel grew at a much faster rate than shoes, albeit off a much smaller base,” Hoffman noted.

“In the interest of having consistent sizing offers in store, we decided to take back some items from some of our wholesale channel partners resulting in a one-time correction to our reported net sales figure,” he continued. “With the high DTC demand and confidence in our new apparel product lineup, we expect growth rates to continue to accelerate significantly from here for the remainder of the year.”

Income Statement Highlights
The higher net sales mix from the strong margin DTC business compared to the prior year, as well as the progress the brand made to manage inventory more tightly allowed On Holding to reach a very strong gross profit margin of 59.7 percent of net sales in Q1, up 140 basis points from 58.3 percent in Q1 2023.

SG&A expenses, excluding share-based compensation, were 48.8 percent of net sales in Q1 this year, increasing slightly from 47.0 percent in the prior-year Q1 period. The increase was said to be primarily a result of higher marketing expenses as percent of net sales.

“While we had the relatively low investment level in brand building in Q1 ‘23, we increased our investments in upper funnel brand building campaigns and partnerships in the most recent quarters,” Hoffman explained. “We view the strategic focus as very important to support the next growth phase and the long term health and success of the On brand. And you can expect to see even larger activations as we approach the Olympics and other big brand moments this summer.”

Resulting adjusted EBITDA margin for Q1 was 15.2 percent of net sales, up from 14.5 percent in the first quarter of 2023.

“This number came in ahead of our expectations and puts us in a very good position heading into the remaining nine months of the year,” Hoffman said. “As anticipated and communicated at our full year results in mid-March, the reversal of the U.S. dollar Swiss francs FX rate from its low point at the end of December means our U.S. dollar balance sheet assets were revalued at a significantly higher rate at the end of March.”

Hoffman said the result is a sizable unrealized FX gain in Q1 and supports a very strong and record quarterly net income increasing 106.0 percent YoY to CHF 91.4 million, or 18.0 percent of net sales, from CHF 44.4 million, or 10.6 percent of net sales, in the year-ago Q1 period. Diluted EPS for Class A shares increased to CHF 0.28 in Q1 2024 from CHF 0.14 in Q1 2023.

Balance Sheet Highlights
Capital expenditures were CHF 9.2 million in Q1 2024, or 1.8 percent of net sales, slightly down YoY in absolute terms from the CHF 9.7 million in the prior-year Q1 period.

“As previously mentioned, this will begin to increase again in the coming quarters as a result of higher expenses in connection with our continued retail store rollout,” Hoffman said.

“On the inventory side, we continue to actively manage our inventory and decouple our inventory growth from our top-line expansion, which drives efficiency in our working capital,” Hoffman noted. “Our inventory position has remained broadly stable versus the year end and stood at CHF365.3 million at the end of Q1.”

As a result of strong operating cash flow of CHF 81 million, On Holding has further increased its cash position from CHF 494.6 million at the end of 2023 to CHF 584.6 million at the end of Q1 2024.

“We are all extremely excited for the Summer Olympics that are less than two months away,” Hoffman commenced. “Taking place close to On’s home, the road to Paris and the games themselves offer a great opportunity for us to build our credibility in and beyond the running world. As mentioned, we are planning to open a second store in Paris, this time on Champs-Elysees.”

During the Olympics, On’s two stores will serve as hubs for the running community to connect and move.

“Many of our athletes have already qualified or been nominated by their respective countries,” Hoffman shared. “We expect over two dozen On athletes to hit the starting lines across track, triathlon, tennis and of course, the marathon. And we are ready to support them with our fastest, most innovative and most sustainable performance products yet. Until we get there, we will tell the inspiring stories of our athletes on their journeys towards what is for many the biggest moment in their careers.”

Regarding the company’s business and financial outlook, Hoffman said they are optimistic and excited about their momentum and pipeline and what is in front of them for the rest of the year. At the same time, he said they remain prudent in the way they plan for the future, “always taking into account the dynamic macroeconomic and consumer environment.”

He said the continued high demand for the On brand across the globe and the strong order book for the second half of the year, give the company a lot of confidence to reiterate its full year constant-currency net sales growth rate expectation of at least 30 percent.

“Considering the FX movements over the past weeks and our full year reporting, this implies an increase to our reported net sales expectation from CHF 2.25 billion to at least CHF 2.29 billion at current spot rates,” he shared.

Further, the company continues to expect a gross margin of around 60 percent and an adjusted EBITDA margin in the range of 16.0 percent to 16.5 percent for the full year 2024.

“We dream on and we are ready to bring our own fire to Paris and beyond. It will be an exciting summer,” Hoffman closed with his prepared remarks.

Image courtesy On