Release Date: November 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- On Holding AG (ONON, Financial) achieved record net sales of CHF636 million in Q3, marking a 33% growth on a constant currency basis.
- The company reported a strong gross profit margin of 60.6% and an adjusted EBITDA margin of 18.9%, the highest since going public.
- Significant growth in the APAC region, particularly in Japan and China, with over 85% growth on a constant currency basis in the first nine months.
- Increased brand awareness, especially among younger demographics, driven by partnerships with celebrities like Zendaya and FKA twigs.
- Successful product launches, including the Cloudsurfer Next and Cloudrunner 2, which have shown immediate blockbuster potential.
Negative Points
- The company faced operational constraints in Q2, which impacted their ability to capture full demand.
- Despite strong results, there were considerable unrealized FX losses of CHF37.2 million due to currency fluctuations.
- Apparel growth was slightly behind expectations due to supply constraints, though improvements are anticipated in Q4.
- The wholesale channel growth was moderate, partly due to door closures in Europe and inventory limitations.
- The company anticipates a higher inventory position at year-end, which could impact cash flow and operational efficiency.
Q & A Highlights
Q: Can you share details on the increase in brand awareness, particularly by demographic?
A: Marc Maurer, Co-CEO, explained that brand awareness has significantly increased among younger demographics, aided by partnerships with Zendaya and FKA Twigs. The increase is not limited to younger audiences; it spans globally, including in highly penetrated markets like Switzerland and across the U.S. The Olympics also helped position On as an innovation and performance brand, boosting awareness in the running community.
Q: What drove the 50% B2C growth in the quarter, and what gives you confidence in accelerating revenue growth in Q4?
A: Marc Maurer highlighted that brand awareness, successful product launches, and investments in the D2C environment were key drivers. Martin Hoffmann, Co-CEO and CFO, added that the momentum from Q3 continues into Q4, with record months in APAC and strong performance in China during the Double 11 shopping festival, supporting their positive outlook.
Q: How are you addressing inventory and supply chain constraints, and what is your channel prioritization for 2025?
A: Martin Hoffmann noted improvements in product flow and warehouse management, with plans for automated warehouses in the U.S. by spring 2025. Marc Maurer mentioned a continued focus on growing the D2C share and opening 20-25 new retail stores annually, while wholesale growth will focus on penetrating existing doors better.
Q: How does innovation like LightSpray contribute to consumer awareness and commercialization opportunities?
A: Caspar Coppetti, Co-Chairman, emphasized that LightSpray is a significant innovation with potential to disrupt footwear manufacturing. It combines new materials and manufacturing processes, offering sustainability and cost advantages. The focus is on scaling this technology for broader market relevance beyond performance products.
Q: Can you discuss the outlook for gross margins and any factors that might offset tailwinds from channel mix and pricing?
A: Martin Hoffmann stated that the current environment is favorable for maintaining high gross margins, with price increases and economies of scale supporting this. The D2C channel's growth is crucial for sustaining high margins, and they are prepared to manage potential supply chain disruptions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
