On Reports Results for the Third Quarter and Nine-Month Period Ended September 30, 2023

On Holding AG (NYSE: ONON) (“On,” “On Holding AG,” the “Company,” “we,” “our,” “ours,” or “us”), has announced its financ­­ial results for the third quarter and nine-month period ended September 30, 2023.

  • On reports strong results for the first nine months of 2023, reaching CHF 1,345.0 million in net sales YTD. Q3 2023 net sales increased by 46.5%, or by approximately 58% on a constant currency basis when compared to the same period in 2022. Growth in the three-month period was driven by On’s direct-to-consumer (“DTC”) channel, recording a growth of 54.6% when compared to the same period in 2022, reflecting the strength of the On brand and On’s ongoing ambition for DTC to outgrow wholesale.
  • Q3 2023 presents On’s strongest quarter in history across numerous measures. Net sales of CHF 480.5 million, net income of CHF 58.7 million, adjusted EBITDA of CHF 81.3 million, as well as a significant positive cash flow offer a showcase of On’s ambition to combine strong growth with attractive and increasing profitability.
  • On reaches its highest gross profit margin since its IPO two years ago, increasing to 59.9% in the third quarter 2023 from 57.1% in the comparable period in 2022. The increase was driven by the continued high full-price sales, the increased DTC share versus the prior year comparison period, favorable freight and FX rates, as well as the discontinuation of extraordinary airfreight usage.
  • Based on the strong results in the first nine months of 2023 and the confidence in the ongoing strength and demand for the On brand, On is raising its previous net sales outlook for the full year 2023 to CHF 1.79 billion. In addition, On now expects to reach a higher gross profit margin of at least 59.0% for the full year 2023, while maintaining the outlook for a 15.0% adjusted EBITDA margin.
  • Supported by exceptional athlete successes, the On brand continues to gain popularity and performance credibility across the globe. A highlight in recent weeks was Hellen Obiri’s win at the New York City Marathon, becoming the first woman in 34 years to win the marathon in New York and Boston in the same season. In addition, On athletes and tennis sensations Iga Świątek and Ben Shelton each finished off their season with a tournament victory, in Iga’s case reclaiming the women’s world number 1 position.

Martin Hoffmann, Co-CEO and CFO of On, said: “The third quarter has not only been the seventh consecutive record top-line quarter, but also our most successful quarter in history across numerous measures. We are extremely grateful for the hard work that our team is putting behind our joint mission. The brand momentum for On’s footwear, apparel and accessories continues to convert into high sales growth across all channels. We are planning to add less additional wholesale doors in the future and to focus on our existing wholesale partners and our own DTC channels, E-com and own retail. With the increased outlook for the full year 2023 and our recently announced Dream On vision for 2026, we are heading into the holiday season with a lot of confidence and are very excited for the road ahead.”

Caspar Coppetti, Co-Founder and Executive Co-Chairman of On, said: “We are thrilled about the ongoing strength and momentum of the On brand as we follow our vision to be the most premium global sportswear brand. Innovation and performance are at the core of On, and we are extremely excited about how these elements have once again come to life in the third quarter. We’ve seen exceptional On athlete performances on the streets, trails, tracks and tennis courts, alongside a number of innovative and exciting product launches. Hellen Obiri’s win at the New York City Marathon was of course a huge highlight, and makes our team even more excited for the Paris Olympics 2024.”

Third Quarter 2023 Financial and Operating Metrics

Key highlights for the three-month period ended September 30, 2023 compared to the three-month period ended September 30, 2022 include:

  • net sales increased 46.5% to CHF 480.5 million;
  • net sales through the direct-to-consumer (“DTC”) sales channel increased 54.6% to CHF 164.7 million;
  • net sales through the wholesale sales channel increased 42.6% to CHF 315.7 million;
  • net sales in Europe, Middle East and Africa (“EMEA”), Americas and Asia-Pacific increased 19.9% to CHF 144.0 million, 60.5% to CHF 294.9 million and 71.5% to CHF 41.6 million, respectively;
  • net sales from shoes, apparel and accessories increased 47.0% to CHF 456.9 million, 31.8% to 20.1 million and 84.2% to 3.5 million, respectively;
  • gross profit increased 53.5% to CHF 287.7 million from CHF 187.4 million;
  • gross profit margin increased to 59.9% from 57.1%;
  • net income increased 184.4% to CHF 58.7 million from CHF 20.6 million;
  • net income margin increased to 12.2% from 6.3%;
  • basic earnings per share (“EPS”) Class A (CHF) increased to CHF 0.18 from CHF 0.07;
  • diluted EPS Class A (CHF) increased to CHF 0.18 from CHF 0.06;
  • adjusted EBITDA increased 44.3% to CHF 81.3 million from CHF 56.3 million;
  • adjusted EBITDA margin decreased to 16.9% from 17.2%;
  • adjusted net income increased to CHF 65.5 million from CHF 22.3 million;
  • adjusted basic EPS Class A (CHF) increased to CHF 0.21 from CHF 0.07; and
  • adjusted diluted EPS Class A (CHF) increased to CHF 0.20 from CHF 0.07.

Key highlights for the nine-month period ended September 30, 2023, compared to the nine-month period ended September 30, 2022 include:

  • net sales increased 57.2% to CHF 1,345.0 million;
  • net sales through the DTC sales channel increased 57.4% to CHF 465.2 million;
  • net sales through the wholesale sales channel increased 57.2% to CHF 879.8 million;
  • net sales in EMEA, Americas and Asia-Pacific increased 31.3% to CHF 376.3 million, 68.9% to CHF 861.7 million and 82.7% to CHF 107.0 million, respectively;
  • net sales from shoes, apparel and accessories increased 57.9% to CHF 1,285.6 million, 40.9% to CHF 50.4 million and 60.9% to CHF 8.9 million, respectively;
  • gross profit increased 69.5% to CHF 797.1 million from CHF 470.3 million;
  • gross profit margin increased to 59.3% from 55.0%;
  • net income increased 26.4% to CHF 106.3 million from CHF 84.1 million;
  • net income margin decreased to 7.9% from 9.8%;
  • basic EPS Class A (CHF) increased to CHF 0.33 from CHF 0.27;
  • diluted EPS Class A (CHF) increased to CHF 0.33 from CHF 0.26;
  • adjusted EBITDA increased 98.1% to CHF 205.0 million from CHF 103.5 million;
  • adjusted EBITDA margin increased to 15.2% from 12.1%;
  • adjusted net income increased 50.0% to CHF 126.1 million from CHF 84.1 million;
  • adjusted basic EPS Class A (CHF) increased to CHF 0.40 from CHF 0.27; and
  • adjusted diluted EPS Class A (CHF) increased to CHF 0.39 from CHF 0.26.

Key highlights as of September 30, 2023 compared to December 31, 2022 included:

  • cash and cash equivalents increased by 16.4% to CHF 432.0 million from CHF 371.0 million; and
  • net working capital was CHF 581.7 million as of September 30, 2023, which reflects an increase of 26.7% compared to December 31, 2022.

Adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted basic EPS, adjusted diluted EPS and net working capital are non-IFRS measures used by us to evaluate our performance. Furthermore, we believe adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted basic EPS, adjusted diluted EPS and net working capital enhance investor understanding of our financial and operating performance from period to period because they enhance the comparability of results between each period, help identify trends in operating results and provide additional insight and transparency on how management evaluates the business. Adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted basic EPS, adjusted diluted EPS and net working capital should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance with IFRS. For a detailed description and a reconciliation to the nearest IFRS measure, see the section below titled “Non-IFRS Measures”.

Outlook

Supported by the continuously increasing popularity and awareness of the On brand, On has achieved three record quarters in the first nine months of 2023 and a YTD net sales growth rate of 57.2%. On is heading into the holiday season with confidence in the strength of the On brand and in the strength of our products.

Following On’s outperformance versus expectations, as well as the visibility into the fourth quarter, On is increasing its net sales outlook for the year ending December 31, 2023 by CHF 30 million, and now expects to reach CHF 1.79 billion, implying a full-year growth rate of over 46%. The updated outlook further implies a reported growth rate of 21% in the fourth quarter of 2023 (over 30% on a constant currency basis), which will again be driven by On’s DTC channel. Due to a number of transitory impacts, On anticipates a fourth quarter wholesale growth rate of high single digits. These transitory impacts include the early holiday shipment of some wholesale orders recorded in the third quarter of 2023, resulting in an element of pull forward of Q4 volumes. In addition, the fourth quarter will see the initial impacts of the announced strategic wholesale door closures in the EMEA region. Finally, wholesale volumes in the prior year period had further been shifted to the fourth quarter given a disruption of operations in the third quarter of 2022, resulting in a more challenging comparison period for the fourth quarter.

Going forward, the ability for DTC to outgrow wholesale on an ongoing basis will be driven by the strength of On’s existing own channels, supported by On’s accelerated rollout of its own retail store concepts, as announced at the recent Investor Day. In addition, the trend will be supported by the lower number of new wholesale channel door additions in relation to the overall door count, implying reduced incremental growth from new wholesale channel doors.

The higher DTC share, alongside On’s premium positioning and ongoing high full-price share will further support the achievement of higher gross profit margins in the future. The very strong gross profit margin YTD, as well as the outlook for a further increase in DTC share in the fourth quarter, gives On additional confidence to exceed its previously stated gross profit margin ambition for the full year 2023. On now expects to reach at least 59.0% gross profit margin for the year, with the ability to drive beyond this threshold in case of a continued favorable environment.

The increased net sales and gross profit margin outlook allow On to invest in additional brand building opportunities in the fourth quarter, while maintaining the full year outlook on adjusted EBITDA margin at 15.0%.

Other than with respect to IFRS net-sales and gross profit margin, On only provides guidance on a non-IFRS basis. The Company does not provide a reconciliation of forward-looking adjusted EBITDA to IFRS net income due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation. As a result, we are not able to forecast with reasonable certainty all deductions needed in order to provide a reconciliation to net income. The above outlook is based on current market conditions and reflects the Company’s current and preliminary estimates of market and operating conditions and customer demand, which are all subject to change. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of risks and uncertainties, including those stated below and in our filings with the U.S. Securities and Exchange Commission (the “SEC”).

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