On, the Swiss running brand, raised its outlook for sales and earnings for the current year after reporting first-quarter results that easily topped Wall Street estimates. Net sales vaulted 67.9 percent in Q1 2022 and sales are now expected to grow at least 44 percent in 2022.
Highlights of the quarter:
- Net sales increased by 67.9 percent in Q1 2022, with the direct-to-consumer and wholesale business growing nearly equally and contributing to another record top-line quarter. Continued very strong consumer demand, successful new product launches, and extraordinary teamwork to mitigate the supply chain headwinds, allowed On to win market share at an accelerated pace in the first quarter 2022.
- On records Q1 2022 net sales of CHF 235.7 million, net income of CHF 14.3 million and adjusted EBITDA of CHF 15.7 million despite the continued challenging supply chain environment.
- On delivers a first quarter gross profit margin of 51.8 percent, down from 57.6 percent in the prior year period, reflecting transitory headwinds from higher airfreight share and the corresponding expenses.
- The success of On’s new product launches, the feedback from retail channels as well as the strength of the supply chain give On additional confidence in its growth aspirations in 2022. On is therefore raising its guidance for the full fiscal year 2022 and now expects net sales of at least CHF 1.04 billion.
- On continues to innovate at the highest level and explore ways to move away from petroleum-based resources. The first quarter saw On’s biggest product launch in history with the all-new Cloud 5, made with an industry-leading 44 percent of recycled content. On further announces a new cushioning technology to be introduced in Spring 2023, called Cloudtec Phase™, which was generated using advanced Finite Element Analysis (FEA) simulation.
Sales of CHF 235.7 million topped Wall Street’s consensus estimate of CHF 168.6 million. Adjusted EBITDA of CHF 15.7 million was ahead of Wall Street’s consensus estimate calling for a loss of CHF 1.5 million.
Martin Hoffmann, Co-CEO and CFO of On, said: “We are extremely proud and grateful to report that we continue to see strong demand for the On brand globally and we had an outstanding start to 2022. Our team has once again done phenomenal work to navigate through an uncertain supply chain environment and to mitigate the impacts from last year’s factory closures. While the transitory supply shortage had still limited our ability to fulfil all of the demand, we were able to ship more products to our customers than expected while also maintaining profitability. In March, for the first time in our history, we were able to ship more than 1 million pairs of shoes in a single month. Building on the strong first quarter and 12 years after our foundation, we anticipate to surpass the groundbreaking hurdle of CHF 1 billion in sales for the full year 2022. We are thrilled to continue to see the On community growing and are excited to announce the further expansion of our presence to most countries in Latin America in the second half of 2022 – this namely includes the introduction of Argentina, Bolivia, Chile, Colombia, Peru and Uruguay as distributor markets.”
Caspar Coppetti, Co-Founder and Executive Co-Chairman of On, said: “With the accelerated pace of market share gains in the first quarter of 2022, we made further progress towards our goal to be the number one brand on runners’ feet. We have supported this positive trend with the launch of a number of key new Performance Running styles that are seeing significant traction with consumers, both online and with our retail partners. In addition, with our Lighting program, we have a dedicated team that is focused on one mission: developing the fastest products possible and working together with our most talented athletes to reach their full potential. This quarter also saw our biggest product launch in history – with the Cloud 5, the latest and most environmentally friendly iteration of our flagship product in the Performance All Day category, we continue to drive the industry in sustainable innovations.”
First Quarter 2022 Financial and Operating Metrics
Key highlights for the three-month period ended March 31, 2022 compared to the three-month period ended March 31, 2021 include:
- net sales increased 67.9 percent to CHF 235.7 million;
- net sales through the direct-to-consumer (“DTC”) sales channel increased 68.0 percent to CHF 83.4 million;
- net sales through the wholesale sales channel increased 67.8 percent to CHF 152.3 million;
- net sales in Europe, North America and Asia-Pacific increased 31.3 percent to CHF 74.9 million, 86.5 percent to CHF 138.4 million and 125.9 percent to CHF 16.4 million, respectively;
- net sales from shoes, apparel and accessories increased 69.0 percent to CHF 222.5 million, 44.9 percent to 11.4 million and 111.8 percent to 1.8 million
- gross profit increased 51.0 percent to CHF 122.1 million;
- gross profit margin decreased to 51.8 percent from 57.6 percent;
- net income (loss) increased to CHF 14.3 million from CHF (10.5) million;
- net income (loss) margin increased to 6.1 percent from (7.4) percent;
- adjusted EBITDA decreased (21.1) percent to CHF 15.7 million from CHF 19.9 million;
- adjusted EBITDA margin decreased to 6.7 percent from 14.2 percent;
- adjusted net income increased to CHF 17.0 million from CHF 13.7 million;
- adjusted basic EPS Class A (CHF) increased 8.5 percent to CHF 0.05; and
- adjusted diluted EPS Class A (CHF) increased 9.5 percent to CHF 0.05.
On said in its statement, “We are incredibly excited for what is ahead of us for the remainder of 2022. This includes groundbreaking innovations on sustainability, many athletes that will compete in On gear on the big stages throughout the upcoming summer months and even more exciting footwear and apparel products, especially in our core running range.
“While many of our teams around the world have been returning to our respective offices, our colleagues in China and particularly in Shanghai are currently going through one of the toughest phases since the beginning of the COVID-19 pandemic. Given the relatively small overall net sales share of China, we do not expect a significant impact from selected local lock-downs in China on our top or bottom-line.
“However, in response to the transitory impacts from production shortages in the second half of 2021 in Vietnam, we expect to continue to use air freight in the second quarter of 2022 to further balance inventory levels against the strong demand. As such, we continue to expect a headwind to our cumulative gross profit margin for the first half of 2022 in the range of 700-800 basis points.
“The strong first quarter 2022 results put us in a good position to surpass our growth aspirations for 2022 and drive higher growth than previously anticipated. For the fiscal year ending December 31, 2022, we now expect net sales to exceed CHF 1.04 billion, representing a year-over-year growth of at least 44 percent compared to 2021. The higher anticipated net sales will allow additional, growth focused investments into the brand and the team while increasing our adjusted EBITDA target for the full year to CHF 137 million and the corresponding adjusted EBITDA margin to 13.2 percent. Other than with respect to IFRS net-sales, we only provide guidance on a non-IFRS basis. The company does not provide a reconciliation of forward-looking adjusted EBITDA to IFRS net income due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation. As a result, we are not able to forecast with reasonable certainty all deductions needed in order to provide a reconciliation to net income.”
The updated sales guidance calling for sales to exceed CHF 1.04 billion compares with the previous forecast calling for sales to exceed CHF 990 million. The updated adjusted EBITDA target for the full year of CHF 137 million compares to a previous forecast of CHF 130 million.