Sales — and losses — continued to rise at On Holdings in the first quarter as issues with the supply chain disruptions and factory closures made their mark. Even so, the Swiss running brand managed to ship more than 1 million pairs of shoes in a single month in March for the first time in its history and is projecting sales to exceed 1 billion Swiss francs for the full year — another milestone for the Zurich-based company.
In the period ended March 31, On reported net sales increased 67.9 percent to 235.7 million Swiss francs, or $253.7 million at current exchange, with direct-to-consumer and wholesale growing “nearly equally.” Net sales through d-to-c channels rose 68 percent to 83.4 million Swiss francs, or $83.4 million, while wholesale sales jumped 67.8 percent to 152.3 million francs.
Net losses also increased in the period to 14.3 million francs from a loss of 10.5 million francs in the same period last year. Adjusted EBITDA was 15.7 million Swiss francs, a decline of 21.1 percent from the 19.9 million francs in the year-ago quarter.
Martin Hoffmann, co-chief executive officer and chief financial officer, attributed the higher losses in part to “significant” investments in air freight to offset the issues with the factory closures, a strategy that paid off in higher sales volume around the world, he said. “It’s encouraging to see our product recognition has been so well received.”
He pointed specifically to two new introductions — the Cloudmonster, On’s entry into the maximum cushioned shoe market, as well as the Cloudrunner, a new product for the “everyday runner” — as having been “received incredibly well. And we were able to launch on time.”
Caspar Coppetti, cofounder and executive co-chairman, added: “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.”
The Cloud 5 is made of 44 percent recycled content, the company said. In addition, On said that in spring 2023, it will introduce the Cloudtec Phase, a new cushioning technology that was created using Finite Element Analysis simulation. That’s a computerized method for predicting how a product reacts to real-world forces, vibration, heat, fluid flow and other physical effects and is used in Formula 1 cars, Hoffmann explained.
Breaking things down, the company said sales in Europe rose 31.1 percent to 74.9 million Swiss francs, were up 86.5 percent to 138.4 million francs in North America and increased 125.9 percent to 16.4 million francs in Asia Pacific in the period.
Specifically, net sales of shoes rose 69 percent to 222.5 million Swiss francs, apparel was up 44.9 percent to 11.4 million francs, and accessories jumped 111.8 percent to 1.8 million francs in the period.
Hoffmann said apparel offerings will continue to be expanded this year, including the launch of the first performance bra and “many items” for the activewear, running, performance running, traveling and exploration communities.
A second drop of the collaboration with Loewe is also in the works, he said. The first collection sold out completely, with 70 percent of sales coming from Asia. But even though On is “extremely happy” with the results, Hoffmann said not to expect any other collaborations since the company wants to keep its focus on its own innovations and geographical expansion.
That will include moving into most of the larger countries in Latin America — Argentina, Bolivia, Chile, Colombia, Peru and Uruguay — through distribution deals in the second half of this year. Hoffmann said the company has had a successful presence in Brazil and Mexico for several years and had been looking to enter Latin America for a long time. “It’s a big market,” he said.
Looking ahead, the executives said they 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 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 lockdowns in China on our top or bottom-line.”
But “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 to 800 basis points,” they continued.
For the year ending Dec. 31, On is now expecting net sales to hit 1.04 billion Swiss francs, a growth rate of 44 percent over last year and adjusted EBITDA of 137 million francs.