Dive Brief:
- Falling short of analyst expectations, athletic brand On slightly missed the “high bar” it set for itself with direct-to-consumer channel growth in the third quarter, CFO Frank Sluis said during an earnings call Tuesday.
- The company’s DTC share grew 2.6 percentage points year over year to 42.2%, he added. Net sales through the DTC channel jumped 25% to 393.3 million Swiss francs (about $477 million at press time), per a press release.
- More broadly, On’s Q3 net sales increased 17.2% to 931.4 million Swiss francs, and the brand reiterated its sales outlook for the full year, now with U.S. tariff refunds included.
Dive Insight:
Wholesale has typically been the lagging channel for On’s earnings, with DTC a core focus for the brand. This quarter, the reverse happened as wholesale net sales grew 12.2% to 538.2 million Swiss francs.
“Our concern into the print had largely been on wholesale, where continued promotional pressure and planned lower sell-in created downside risk to Street expectations,” William Blair analysts said in an emailed note Tuesday. “Our initial read is that the quarter helps alleviate our near-term concern around the pace of wholesale growth, though the DTC miss leaves the composition of growth somewhat more mixed. To be sure, the results suggest On is navigating the promotional wholesale backdrop better than we had anticipated, particularly given the strength in underlying margins.”
Sluis remarked on the earnings call that On held full price discipline throughout its markets despite softer online traffic and a higher promotional environment in the category. In North America, On increased shelf space with partners and made gains with younger shoppers during the back-to-school period.
For the fourth quarter, executives told analysts On expects an acceleration of growth versus Q3, led mostly by DTC.
As the holiday season unravels, On’s partners are at a healthy inventory level and the brand expects to continue operating a premium-pricing business amid the more promotional environment.
