Shares of On Holding (ONON -0.55%), the parent company of the innovative Swiss athletic shoemaker On Running, tumbled 3.4% on Tuesday, following the release of its third-quarter 2023 report.

The slight pullback is likely attributable to some investors taking profits. After all, shares have surged 49.2% this year through Tuesday. The pullback was not a reflection of the company's earnings report, as it was strong: The quarter's revenue and earnings both sprinted by Wall Street's estimates, and management raised its full-year 2023 revenue guidance.

On Holding's key numbers

Metric Q3 2022 Q3 2023 Change
Revenue 328.0 million CHF 480.5 million CHF 47%
Operating income 40.7 million CHF 57.8 million CHF 42%
Net income 20.6 million CHF 58.7 million CHF 185%
Adjusted net income 22.3 million CHF 65.5 million CHF 194%
Earnings per share (EPS) 0.06 CHF 0.18 CHF 200%
Adjusted EPS 0.07 CHF 0.20 CHF 186%

Data source: On Holding. CHF = Swiss franc. 1 CHF = $1.0922 at the end of Q3, per The Wall Street Journal's exchange rate data.

The revenue growth percentage above understates how well the company actually performed. On a constant currency basis, its sales jumped approximately 58% year over year.

On a U.S. dollar basis, On Holding's quarterly revenue and adjusted EPS were about $525 million and $0.22, respectively. Wall Street was looking for adjusted EPS of $0.17 on revenue of $508 million. So, On Holding exceeded both expectations.

Gross margin increased to 59.9% from 57.1% in the year-ago period. This is a great gross margin for the industry. For context, athletic shoe and sportswear giant Nike's gross margin for its quarter ended Aug. 31 was 44.2%.

For the first three quarters of the year, On Holding generated cash of 110.7 million CHF running its business, compared to using 157.1 million CHF in the year-ago period. The company ended the quarter with cash and equivalents of 432 million CHF, down 12% from the year-ago period.

What happened with On Holding in the quarter?

  • Direct-to-consumer (DTC) sales increased 55% to 164.7 million CHF.
  • Wholesale sales rose 43% to 315.7 million CHF.
  • Sales by region: Europe, Middle East, and Africa (EMEA) up 20% to 144 million CHF; Americas up 61% to 294.9 million CHF; and Asia-Pacific up 72% to 41.6 million CHF.
  • Sales by product category: Shoes up 47% to 456.9 CHF; apparel up 32% to 20.1 million CHF; and accessories up 84% to 3.5 million CHF.

What management had to say

Here's Co-CEO and CFO Martin Hoffmann's statement in the earnings release:

The third quarter has not only been the seventh consecutive record top-line quarter, but also our most successful quarter in history across numerous measures. We are extremely grateful for the hard work that our team is putting behind our joint mission. The brand momentum for On's footwear, apparel and accessories continues to convert into high sales growth across all channels. We are planning to add less additional wholesale doors in the future and to focus on our existing wholesale partners and our own DTC channels, E-com[merce] and own retail. With the increased outlook for the full year 2023 and our recently announced Dream On vision for 2026, we are heading into the holiday season with a lot of confidence and are very excited for the road ahead.

Annual guidance raised

Management increased full-year 2023 revenue guidance to 1.79 billion CHF, up from its prior outlook of 1.76 billion CHF. The new guidance implies annual growth of more than 46%. Moreover, it now expects 2023 gross margin of at least 59%, up from its prior outlook of 58.5%.

In short, On Holding turned in a robust quarter and signs point to its continued strong top- and bottom-line growth.