Dive Brief:
- Amid widespread unease over the state of the consumer this holiday season, On executives aren’t concerned and said Wednesday they would be approaching the holidays with a “full-price strategy.”
- “For us, the holiday season is a moment to connect with our brands about the right gear for the season that we are in,” CEO and CFO Martin Hoffmann said on a call with analysts. “It's to shop for gifts, but it's absolutely not the moment for us to drive sales through discounts.”
- Even tariff-driven price increases have not dampened consumer appetite. On already raised prices in the U.S. in July and Executive Co-Chairman Caspar Coppetti said those actions were “very well received” and that its affluent shoppers “are not price sensitive.”
Dive Insight:
Following record net sales and profitability in the third quarter, running brand On is setting its sights even higher.
The retailer, which saw net sales surge 25% to 794.4 million Swiss francs (about $1 billion at press time) in Q3, has raised its full-year guidance to assume 34% sales growth on a constant currency basis. The retailer recorded a net income of 118.9 million Swiss francs in Q3, up 290% from a year ago, and gross margin of 65.7%, an increase of 510 basis points.
Hoffmann stressed that On believes that level of gross profit margin is sustainable, thanks to the company’s focus on building a premium business. That’s also why the retailer won’t be discounting this holiday season, something Hoffmann called a “significant competitive advantage.”
Needham analysts led by Tom Nikic said On “remains the strongest-growth company in our coverage” and has solid momentum going into the holiday season and beyond. The retailer is pulling on a variety of levers to stoke growth, including store openings, global expansion and the broadening of its apparel assortment.
The retailer made big gains in both DTC and wholesale channels in Q3, which grew 27.6% and 23.3%, respectively. On plans to open 20 to 25 stores annually and is investing in both its own physical locations and its presentation at wholesale partners as well.
The retailer recorded its fourth consecutive quarter of triple-digit growth in the Asia Pacific region, saw meaningful growth in EMEA and even the slower growth in North America reflects “a more controlled approach” to wholesale distribution than anything else, according to William Blair analysts led by Dylan Carden. Hoffmann said about three-quarters of people in On’s markets don’t know the brand, creating substantial opportunity in those regions.
Apparel is another way On is attracting new shoppers, with that business becoming a “key acquisition channel,” according to Hoffmann. Apparel and accessories accounted for just 8% of On’s total business in Q3, but the retailer sold over 1 million apparel units for the first time in a single quarter. It’s also bringing in younger shoppers, along with a kids line that Coppetti said is doing “phenomenally well.”
“Importantly, we are not building apparel as an add-on to our footwear business, but as a company within the company, serving the same communities, but with unique product offering and customer experience,” Hoffmann said.
He added that many of the shoppers On acquires “have basically not used sneakers or performance-inspired apparel before.”
“What is most important is that we are not fishing in the same pond as everyone else,” Hoffmann said. “Instead, On is really expanding the market of sportswear.”
