Story was updated at 4:16 p.m. Wednesday.
Nike may be clawing its way back to popularity, but don’t count out On Holding.
Despite some analyst hesitation that the popular Swiss running brand may be losing some of its steam to a reviving Nike, the company once again posted record sales and profits in the third quarter ended Sept. 30.
“We continue to reiterate that we are on a different journey — to become the most premium brand in the industry,” Martin Hoffmann, chief executive officer and chief financial officer, told WWD.
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It appears to be working.
Adjusted net income in the period nearly tripled to 142 million Swiss francs from 50 million Swiss francs in the prior year on a 24.9 percent sales gain, or 34.5 percent on a constant currency basis, to 794.4 million Swiss francs. Adjusted earnings per share were 0.36 Swiss francs, up from 0.09 Swiss francs in the prior year.
This beat Wall Street expectations of a quarterly sales increase of 20.1 percent and adjusted earnings per share of 0.27 Swiss francs.
The company’s direct-to-consumer sales increased 27.6 percent to 14.7 million Swiss francs, or 37.5 percent on a constant currency basis, while sales in the wholesale channel rose 23.3 percent, or 32.5 percent on a constant currency basis, to 479.6 million Swiss francs.
By region, net sales increased 33 percent in Europe, Middle East and Africa, 21 percent in the Americas and 109.2 percent in Asia-Pacific on a constant currency basis. Asia-Pacific is the company’s fastest-growing region with four consecutive quarters of triple-digit sales growth, and analysts were expecting sales in the American market to slow.
“The U.S. continues to be strong,” Hoffmann said. This comes despite a price increase of around 7 percent on select lifestyle products starting in the second half of the year. He said the company has experienced no resistance to the price hikes. “We continue to power on full-price sales,” he said on an earnings call Wednesday morning, adding that “affluent consumers are not price-sensitive.”
By category, net sales from shoes rose 21.1 percent to 731.3 million Swiss francs; apparel sales increased 86.9 percent to 50.1 million Swiss francs, and accessories sales rose 145.3 percent to 13 million Swiss francs.
Although apparel still represents around 8 percent of overall sales, Hoffmann said it is growing more strongly than footwear. And in the quarter, the company sold more than 1 million pieces of apparel for the first time, and the short-term goal is to raise the total sales percentage of the category to double digits. Hoffmann said on the call that the training and tennis categories are most popular, and the plan for the future is to “attack in additional categories” that can be worn every day.
He added that apparel penetration in the company’s retail stores is much higher, hitting between 10 and 20 percent, and in many cases serves as an introduction to the brand. On the call, he said apparel has become “a key acquisition channel” since apparel shoppers “buy more frequently and with bigger baskets. We are also seeing a clear shift toward younger customers in apparel, highlighting the sizable and well-defined long-term opportunity. 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 a unique product offering and customer experience. As a result, apparel is driving incremental high value growth across all our channels.”
Turning to retail, On operates 60 stores globally with additions in the Ginza in Tokyo; a flagship in its hometown of Zurich; Palo Alto, Calif.; its first South Korean store in Seoul, and a unit in Riyadh, Saudi Arabia.
Hoffmann said only a small number of stores are slated to open this year but the company will continue to add between 20 and 25 units a year in the future. “That’s the cadence we had this year,” he said.
While its own stores are an important part of the business, Hoffmann stressed that wholesale continues to be a key cog in its wheel. He said with the big-box stores such as Dick’s Sporting Goods and Foot Locker, there are 60 percent of doors that do not carry the brand. And within the run specialty channel, he expects business to be strong next year as the company introduces new models of some of its key franchises, such as the Cloudmonster and Cloudrunner.
On the earnings call, Caspar Coppetti, cofounder and executive co-chairman of On, singled out New York City Marathon women’s winner Hellen Obiri, an On athlete, who wore the new Cloudboom Strike Lightspray, as proof that its “new technology is being trusted and adopted by the world’s best athletes in the most iconic races. Our strategy is clear. Technology is proven at the highest level of competition and then refined to deliver the best experience for every type of runner. This elite credibility flows directly to our core performance running franchises Cloudsurfer, Cloudmonster and Cloudrunner. These are the engines that have won millions of fans and driven our significant sustained growth in the run category.”
Next year, Coppetti said, the company will launch the Cloudsufer Max, a model featuring “engineering and foam innovations,” as well as the LightSpray Cloudmonster Hyper, a shoe for everyday runners that features the company’s “championship level technology.”
As a result of the strong third-quarter results, the company raised its outlook for the year and is expecting net sales to grow 34 percent on a constant currency basis, to 2.91 billion Swiss francs, up from 31 percent previously. Analysts were expecting sales for the year to increase 28.2 percent. And in 2026, Hoffmann said, the company is projecting growth of at least 23 percent.
Hoffmann said the optimism is driven by the momentum already experienced in the fourth quarter and the strong sales in China. Looking ahead, the company plans to release a holiday campaign and continue to lean into collaborations, such as ones that just released with Loewe, with which it codesigned a Cloudsolo sneaker, as well as a capsule of apparel and footwear with SkyHigh Farm Goods.
Hoffmann declined to say if its partnership with Zendaya will get a refresh later this year, but Coppetti pointed to the popularity of the Cloudzoon Moon shoe collaboration it introduced with her this August as evidence of the company’s ability to blend fashion and performance. The shoe — and the fall collection she wore in the campaign — are helping the brand gain “connection and traction with young, aspirational consumers, especially teens,” he said on the earnings call.
Despite the strong showing, analysts still had some reservations. Tom Nikic of Needham & Co. said although On “remains the strongest growth company in our coverage,” he lowered his price target to $52 from $62 “as we believe that multiples in the second have moved structurally lower.” But he retained his “buy” rating on the stock.
Peter McGoldrick of Stifel also maintained a buy rating on the stock, writing that while there may be a “deceleration in fourth-quarter reported revenue growth and higher operating expenses,” he remained encouraged by the results against a challenging environment.
John Kernan of TD Cowen also retained a buy rating on the stock and reiterated his $55 target, and Cristina Fernandez of Telsey Group said the strong results disproved “concerns of a slowdown due to intense competition and a discerning U.S. consumer.”
Shares on Wednesday of On Holding closed up 18 percent to $41.51.