On’s Executives Interpret Two Key Words: Apparel and China Market

3月 29, 2024

On March 12th, the Swiss sneaker manufacturer On announced its full-year financial report for 2023: net sales increased by 46.6% to 1.79 billion Swiss francs (calculated at a fixed exchange rate: 55%), and net profit increased by 37.9% to 79.6 million Swiss francs.

David Allemann, co-founder and executive co-chairman of On, stated, “On’s performance exceeded our expectations, which means On captured market share faster than its competitors.”

Although surpassing management’s expectations, On’s performance did not meet analyst expectations. The stock price fell 8.86% to $30.64 per share on the trading day after the earnings report was released but gradually rebounded thereafter. By the close of March 15th (Friday), the stock price had risen to $33.23 per share, with the market value returning to above ten billion dollars.

In recent years, On has been one of the fastest-growing global sports brands: from its establishment in 2010 to 2020, the company’s sales have seen leapfrog growth, with an annual compound growth rate (CAGR) of 85%. Whether it can continue its high growth after going public has been a topic of great interest.

At the analyst conference following the earnings release, co-founder and executive co-chairman David Allemann, co-CEO and CFO Martin Hoffmann, and co-CEO Marc Maurer, among other executives, were present.

Before communicating with analysts, David Allemann candidly shared On’s business philosophy:

“We all know that the pandemic has been a catalyst for change, redefining lifestyle and fashion norms. We’ve been liberated to work more from home, incorporate sports into our lives, and use sportswear as everyday clothing.

Looking back, this revolution reminds me of the early 20th century when Coco Chanel freed women from corsets and introduced comfortable trousers for women.

Since then, technological fibers and innovative manufacturing methods in footwear and clothing have allowed sports brands to replace military uniforms and classic dresses as the main prototypes and inspiration for fashion, launching jackets, formal blazers, leather shoes and sneakers, leggings, sweatpants, hoodies, technical jackets, and so on.

This is the next revolution. The past crucial years have clearly shown that sportswear will be the future of everyday clothing, a new norm that transcends culture and fashion. Sports is not just an activity; it is a declaration, a lifestyle, a new luxury for a generation that values sports and exploration over possession and status.

One thing is clear, On is not a luxury fashion brand, but a high-end sports brand.

During the analyst conference, the executives emphasized that the future growth focus will be on “apparel” and the “China market.”

From the financial report, apparel maintained high growth in 2023 and accelerated in the fourth quarter:

  • In 2023, net sales of footwear increased by 46.6% to 1.7114 billion Swiss francs, apparel by 45.5% to 69 million Swiss francs, and accessories by 60.7% to 11.8 million Swiss francs;
  • In the fourth quarter, net sales of footwear increased by 20.4% to 425.7 million Swiss francs, apparel by 60.1% to 18.4 million Swiss francs, and accessories by 60.1% to 2.9 million Swiss francs.

Martin Hoffmann pointed out, “Apparel was a focus of our marketing activities in the fourth quarter. In terms of the fourth quarter, net sales of apparel in our DTC channels surged by 110%; in the Asia-Pacific region, the apparel share exceeded 10% in the fourth quarter.

“The strong demand for apparel brings momentum for 2024. In the past year and a half, we have made tremendous progress in building an exciting apparel product line, while establishing a strong apparel team within On,” Martin Hoffmann added.

“Recently, our partners’ demand for our latest styles exceeded our already ambitious expectations, forcing us to increase production to meet the growing demand. We are very excited to launch tennis and training apparel, as our most loyal fans have been waiting for this moment since Iga Świątek and Ben Shelton first stepped onto the tennis court wearing our gear last year.”

Marc Maurer stated, “Looking at future orders, we see that apparel is growing, with the order volume for fall/winter 2024 apparel up by 126% compared to fall/winter 2023. This involves different apparel lines, including different price points. Clearly, apparel is making an impact.

David Allemann added, “In 2023, apparel accounted for about one-sixth of the sales in our flagship stores in New York, Paris, and Shanghai. This is also how we continue to fulfill On’s promise to equip consumers from head to toe.”

Martin Hoffmann further added that the apparel category has helped On attract more young customers, “We are encouraged that, with the expansion of product categories, especially styles that speak more to young customers, the proportion of customers under 34 reached 29% by the end of 2023, compared to about 24% in 2021.

Regionally, the Asia-Pacific region, represented by the Greater China area, performed the best in 2023:

  • In 2023, net sales in the Europe, Middle East, and Africa (EMEA) region grew by 29.2% to 488.7 million Swiss francs, in the Americas by 52.2% to 1.1622 billion Swiss francs, and in the Asia-Pacific region by 75.9% to 141.1 million Swiss francs;
  • In the fourth quarter, net sales in the EMEA region increased by 22.9% to 112.5 million Swiss francs, in the Americas by 18.5% to 300.6 million Swiss francs, and in the Asia-Pacific region by 57.7% to 34 million Swiss francs.

For the fourth quarter, the Asia-Pacific region was again the most affected by exchange rate conversion. At fixed exchange rates, the growth rate in the Asia-Pacific region for the quarter actually exceeded 75%.

David Allemann stated, during 2023, we opened 15 new retail stores, 10 of which were in China. Just in the fourth quarter, we opened 6 new stores in London, Miami, Paris, Beijing, Chengdu, and Guangzhou. In China, On currently has 22 stores, compared to just 12 a year ago.

“We are very excited about the strong momentum in China, especially as we gain a higher share and visibility in the running community. In the Shanghai Marathon held last November, On running shoes were ranked fifth in terms of wear rate.

| Source: On analyst conference

| Image Credit: On official website

| Editor: LeZhi