Last week, On Holding (ONON 2.66%), the Swiss maker of On Cloud and other premium athletic shoes and apparel, released a better-than-expected third-quarter 2023 report.
On's revenue and earnings raced by Wall Street's estimates. Revenue surged 47% year over year to 480.5 million Swiss francs (CHF), or about $525 million, exceeding the $508 million analysts had expected. Adjusted earnings per share (EPS) soared 186% to 0.20 CHF (about $0.22), surpassing the $0.17 analyst consensus estimate.
Moreover, management raised its full-year 2023 revenue guidance to 1.79 billion CHF, up from 1.76 billion CHF. The new outlook implies annual growth of more than 46%.
Earnings releases tell only part of the story. Following are three key things from On's Q3 earnings call that investors should know.
1. Building brand awareness
From the remarks of co-Chairman and co-CEO Caspar Coppetti:
[W]e are making strategic shifts in our marketing spending to further build global awareness for On. The headline "Dream On Hellen Obiri" could also be seen on billboards across New York City in the recent weeks, and Dream On, she did with her dominating win at the marathon, making Hellen the first woman to win Boston and New York in the same season in 34 years. I cannot emphasize enough how important successes like this one are for our brand and for our ambition to become the No. 1 running brand.
On was founded in 2010, so has not been around for all that long. Thus, it doesn't enjoy the sky-high brand awareness as do the long-established leaders in the global athletic shoe space, Nike and Adidas. But it's been doing a great job increasing its brand awareness, which was further boosted by its initial public offering (IPO) in the fall of 2021. And it's growing much faster than Nike and Adidas.
On's sponsored athletes have recently had some high-profile wins, which management says increase brand awareness and provide credibility to the company. Coppetti said that when American professional tennis player Ben Shelton, an On-sponsored athlete, reached the U.S. Open semifinals in September and played against Novak Djokovic, "a lot of people were introduced for the first time on mainstream TV and social media to the On brand."
2. Aiming to be the "most premium sportswear brand"
From Coppetti's remarks:
We aim to be the most premium global sportswear brand, rooted in innovation, design, and sustainability. ... Our design collaboration with JW Anderson and Loewe is a testament to the premium positioning of the On brand, and in particular to On's apparel range, which will again be featured in the collaboration with Loewe in the coming months.
Coppetti had remarked at another point during the call that "performance is at the very core of the On brand, and our superior products allow us to command premium prices." Along with tying its marketing campaigns to top-performing athletes, On uses other methods to achieve and maintain its premium positioning. These include design collaborations with retailers of luxury products, such as fashion house Loewe, owned by LVMH, whose stable of high-end brands also includes Tiffany and Bulgari.
In addition, the company has a full-price pricing policy, meaning it rarely discounts its products.
3. Plans to expand rapidly in China
From the remarks of co-CEO and CFO Martin Hoffmann:
Finally, we'll continue to expand our footprint in China at a rapid pace, accelerating market share gains in one of On's highest growth markets. ... APAC [Asia Pacific region] reached net sales of CHF 41.6 million in the third quarter, corresponding to a growth rate of 71.5% [year over year]. ... On a constant currency basis, growth in the region would have been over 95%. Overall, growth was broadly distributed across all sub-regions and channels with call-outs for the ... continued strength of our own retail stores in China, in particular during the Golden Week holiday period.
First, a clarification on terms: China has a couple of week-long national holidays called Golden Weeks. Hoffmann is referring to the Golden Week that included Oct. 1, the day in 1949 of the founding of the People's Republic of China. These weeks tend to be peak periods for tourism and shopping.
Hoffmann said the company is optimistic about its fourth-quarter performance in China, given its strong sales momentum in the first month-and-a-half of the quarter. Despite On's no-discounting policy, its sales volume surged more than 70% year over year in China during the Double 11 holiday period. (This nickname for the Singles Day holiday, which celebrates unmarried people, derives from its date on Nov. 11.) This growth is particularly impressive given the overall market was flat during this period, according to Hoffman, which means the company gained market share.
