On Holding is still feeling that running high.
The 12-year-old company — founded around a premium sneaker touted as giving the wearer the feeling of “running on clouds” — defied inflation, the threat of recession and the laws of retail gravity, posting continued gains in the third quarter.
And Martin Hoffmann, co-chief executive officer and chief financial officer, told WWD the company is methodically chasing its potential — in running, in other sports, in apparel and beyond.
“Having a core in running, but taking that running culture into basically everyday life opens up a much bigger market segment,” Hoffmann said.
Sales for the three months increased 50.4 percent to 328 million Swiss francs, or about $348 million. That included slightly slower gains in direct-to-consumer sales, which rose 40.7 percent to 106.6 million Swiss francs.
Net income for the quarter ended Sept. 30 increased 58 percent to 20.6 million Swiss francs, while adjusted earnings before interest, taxes, depreciation and amortization advanced 48.5 percent to 56.3 million Swiss francs.
“Running has a moment where it also becomes really culturally relevant, so it just doesn’t become a sport for nerds, for people who just like to spend time alone running,” Hoffmann said.
He pointed to run clubs popping up in New York and other key cities around the world.
“Running does so much good for your body, but even more for your mind,” Hoffmann said.
On started with running shoes, but has branched out recently with apparel, which Hoffmann said was still a “small category for us” but one with potential.
The company also has room to expand into more sports, he said, and has already made forays into tennis and outdoor activities, like hiking.
In a world that’s gone d-to-c crazy, On has built a growing business with wholesale accounts and Hoffmann doesn’t expect the company’s own distribution to take over.
The firm has a handful of flagships — with outposts in New York, Tokyo, Zurich and Los Angeles — and 12 stores in China.
But it is also growing with others, through shops-in-shop in Nordstrom and active footwear retailers.
“In the end, what we want to do is we want to be where our customers are shopping,” Hoffmann said. “Clearly if you look at where the runners are shopping, they’re running along the Hudson River [in New York]. They’re shopping Dick’s [Sporting Goods], they’re shopping at Fleet Feet and many of them are also shopping on brand pages like on-running.com.”
Wholesale has helped the brand go big.
“It allowed us in the past to reach many more customers globally, but then at the same time, by having our own e-commerce page and really focusing on that it allowed us to build a strong connection to the consumer,” the co-CEO said. “Both are equally good for us.”
On — which is based in Zurich, but went public in New York 14 months ago — has seen its shares lose some ground as the market weakened over the past year. And investors were looking for something more from the still fast-growing firm and sent shares down 8.7 percent to $18.40 on Wednesday.
That is below its $24 initial public offering price, but the company still has a market capitalization of $5.8 billion and growth on its side.
And while that’s still a long way off from Nike Inc. and its $165 billion valuation, in comparison with most of its consumer IPO cohort last year — On is still flying high. (Sustainable sneaker competitor Allbirds Inc., for instance, closed at $2.89, well below its IPO price of $15).
On sees itself continuing to push higher this year.
The company nudged up its annual sales outlook by 25 million Swiss francs to 1.125 billion Swiss francs, representing growth of about 55 percent from the prior year.
While On expects currency translations to continue to pressure margins, it raised its full-year target for adjusted EBITDA to 148 million Swiss francs, an increase of 3 million Swiss francs from the forecast in August.
“We’re here for the long term and we want to build something in the long term,” Hoffmann said. “We are not chasing short-term growth because building a premium brand also requires a certain level of scarcity.”
He said some wholesale accounts would like to expand more with On, but that the brand is taking its time. “We want to maintain scarcity and we want to build the brand and grow the brand over the years to come,” Hoffmann said. “It allows us to drive profitability.”
“We believe that running is a very resilient category in sports because, in the end, it’s the cheapest way to do sports, we feel we’re well positioned there,” he added. “At the same time, we have just recently launched product, especially in the running category, that is at the lower end of what our price range is.”
That’s running shoes at the $140 price point, rather than $160 or $170 — a still premium price point that could help bring more customers into the brand in tougher economic times.