On Holding AG’s profits tripled in the first quarter on strong margin improvement and 78 percent sales growth. The Swiss running brand’s results easily topped analyst targets. Strength was seen across regions, channels and product groups.
Sales of CHF 420.2 million ($470mm) topped Wall Street’s consensus target of CHF 382.3 million. Adjusted EBITDA of CHF 61.0 million ($68mm) easily topped CHF 45.1 million consensus.
Highlights Of The Quarter
- Q1 2023 net sales of CHF 420.2 million and a growth rate of 78.3 percent year-over-year, reflecting strong brand momentum across all regions, channels and product groups;
- On delivers a first-quarter gross profit margin of 58.3 percent, up from 51.8 percent in the prior year period, reflecting the normalized supply chain environment and the resulting discontinuation of exceptional air freight usage, which had weighed on profitability during the first quarter of 2022;
- The higher gross profit margin alongside scale gains on SG&A expenses supported On’s ongoing profitability expansion towards its stated mid-term targets. This resulted in increases in net income and adjusted EBITDA for the quarter, reaching CHF 44.4 million and CHF 61.0 million respectively;
- On’s strong order book for the second half of the year, driven by existing and upcoming product launches, is increasing confidence in its growth projections for 2023 and therefore raising its revenue outlook for the full fiscal year 2023 to reach at least CHF 1.74 billion; and
- On continues to capture market and mind share in the performance category, this included strong performances by On athletes, including Hellen Obiri’s win at the Boston Marathon and Iga Świątek winning her first tennis tournament as an On athlete at the Stuttgart Open. Such successes are seen continuing to increase awareness and credibility of the On brand, leading to visible market share increases with runners worldwide.
Martin Hoffmann, Co-CEO and CFO of On said, “Our record Net Sales in Q1 are further proof of the strong brand momentum across all regions, channels and product groups. This was supported by a largely normalized supply chain environment versus the first quarter of 2022, which also allowed for the discontinuation of exceptional air freight and corresponding significant gross profit margin improvement. We always emphasize the importance of our multi-channel strategy, and we are very happy to see the contributions of our new retail stores. Supported by an exceptionally strong start for our new London store, our own retail net sales more than quadrupled year-over-year. Along with our expansion into Tennis, including the first on-court performances by Iga Świątek and Ben Shelton, On is reaching more fans than ever before.”
Caspar Coppetti, co-founder and executive co-chairman of On, said, “We entered into 2023 with high ambitions and we are very pleased to see the continuation of our growth journey and increased profitability in the first quarter of the year. With Hellen Obiri’s win at the Boston Marathon, we were once again able to prove that our highest-level performance products are some of the fastest products available in the market for long distances. At the same time, we are thrilled to see how such achievements at the highest level are increasing the awareness and reach of our products with everyday runners. We recently kicked off the road to Paris 2024, but still have a lot more to come in 2023 to be excited about.”
First Quarter 2023 Financial and Operating Metrics
Key highlights for the three-month period ended March 31, 2023 compared to the three-month period ended March 31, 2022 include:
- net sales increased 78.3 percent to CHF 420.2 million;
- net sales through the DTC sales channel increased 64.3 percent to CHF 137.0 million;
- net sales through the wholesale sales channel increased 86.0 percent to CHF 283.2 million;
- net sales in the EMEA, Americas and Asia-Pacific increased 51.6 percent to CHF 118.9 million, 91.9 percent to CHF 270.2 million and 89.4 percent to CHF 31.1 million, respectively;
- net sales from shoes, apparel and accessories increased 80.0 percent to CHF 400.5 million, 48.9 percent to CHF 16.9 million and 52.3 percent to CHF 2.8 million, respectively;
- gross profit increased 100.6 percent to CHF 244.9 million from CHF 122.1 million;
- gross profit margin increased to 58.3 percent from 51.8 percent;
- net income increased 209.2 percent to CHF 44.4 million from CHF 14.3 million;
- net income margin increased to 10.6 percent from 6.1 percent;
- basic earnings per share (EPS) Class A (CHF) increased to 0.14 from 0.05;
- diluted EPS Class A (CHF) increased to 0.14 from 0.04;
- adjusted EBITDA increased 288.2 percent to CHF 61.0 million from CHF 15.7 million;
- adjusted EBITDA margin increased to 14.5 percent from 6.7 percent;
- adjusted net income increased to CHF 48.8 million from CHF 17.0 million;
- adjusted basic EPS Class A (CHF) increased to 0.15 from 0.05; and
- adjusted diluted EPS Class A (CHF) increased 0.15 to 0.05.
Key balance sheet highlights as of March 31, 2023 compared to December 31, 2022 included:
- Inventories were up 186 percent to $465.2 million from $162.5 million a year ago. Inventories were $395.6 million at the close of the year;
- Cash and cash equivalents decreased by 2.6 percent to CHF 361.3 million from CHF 371.0 million; and
- Net working capital was CHF 573.0 million as of March 31, 2023, which reflects an increase of 24.8 percent compared to December 31, 2022.
On entered 2023 with high ambitions of continuing its growth trajectory capturing market share and further increasing profitability. Supported by a normalized operational environment and brand momentum, On started the year with a record net sales quarter ahead of expectations.
The company’s overachievement in the first quarter combined with a strong order book for the second half of the year, driven by existing and upcoming product launches, brings confidence in its growth forecasts for the remainder of 2023. As such, On raised its net sales outlook for the full fiscal year ending December 31, 2023 to at least CHF 1.74 billion. This represents a year-over-year growth rate of 42.6 percent which takes into account approximately 300 basis points of the current foreign exchange headwinds and reflects a currency-neutral growth rate of about 45.6 percent.
When On reported fourth-quarter results, the company expected to reach net sales of at least CHF 1.7 billion for the full year 2023, representing 39 percent reported and 42 percent currency-neutral growth.
On further maintains its outlook for gross profit margin in 2023 to reach 58.5 percent, implying an absolute gross profit of over CHF 1 billion. The company’s focus on profitable growth and economies of scale, further allows it to retain an adjusted EBITDA margin outlook for the full year 2023 of 15.0 percent even at the higher net sales outlook.
As previously communicated by the company, the supply chain normalization over recent months led to some acceleration in product inflow, and the company is in the process of optimizing its product on hand for the updated lead times. On continues to expect the inventory levels at the end of the year 2023 to be broadly in line with December 2022 levels, while maintaining a higher net sales base.
Photo courtesy On