Earnings   //   August 15, 2023

On continues to post record sales thanks to DTC growth

On Holding — parent company of the running shoe brand On — remains on track for solid growth this year, thanks to a strong product assortment and a jump in direct-to-consumer sales.

Earlier Tuesday, On reported its sixth consecutive quarter of record net sales, this time, at CHF 444.3 million ($507.2 million). On also raised its guidance for the rest of 2023, citing “ongoing momentum in the start of the third quarter” and “continued positive feedback from its retail partners.”

Like other performance-based running brands, On’s sales skyrocketed over the last several years, largely thanks to a renewed interest in outdoor activities like running during the pandemic. Compared to Asics or Hoka, though, On has managed to differentiate itself via its shoe technology, premium price point and association with competitive athletes like Roger Federer and Iga Świątek. On went public in September 2021, and its shares soared more than 47% to value the company at $11.35 billion. Since then, the business has continued to grow. It’s now in more than 60 countries, and over the last 24 months, it rolled out six new performance shoes, including the Cloud Boom Echo 3.

On has relationships with various wholesalers including Dick’s Sporting Goods, JD Sports and Foot Locker, and wholesale has traditionally been a major driver of its sales. But, now, with more shoppers interested in buying in stores and online, its DTC channel is gaining speed. The company has its own stores in major markets like New York City and Tokyo, and it will open a new store in Paris this summer, according to SGI Europe.

In fact, DTC was On’s “fastest-growing channel” in the second quarter of 2023, co-CEO Martin Hoffmann announced during the earnings call. On’s second-quarter DTC sales hit a record of CHF 163.5 million ($186.65 million), 54.7% higher than the same period a year ago. On also saw an “all-time record” in traffic to its e-commerce site, growing more than 75% year-over-year, Hoffman said.

During the second quarter of 2022, On said it made CHF 105.6 million ($120.3 million) in net sales from DTC. Its total net sales at the time were CHF 291.7 million ($332.32 million).

“We see the strength of the DTC channel as a validation of our ability to bring consistent innovations to the market to balance our wholesale and direct distribution and to build a strong direct bond with our fans around the globe,” Hoffman said during Tuesday’s call.

This isn’t to say that On is abandoning wholesale. The company is sold in thousands of individual running boutiques, as well as larger retailers like REI and Foot Locker, and sees DTC working alongside wholesale. The two channels are “very complementary and additive to each other,” co-founder Caspar Coppetti told Modern Retail last September. “When we start working with a retailer, our online sales will go up in that area.”

But, On won’t work with just any wholesaler. The company initially passed on some retail partnerships, but that helped make the brand more selective, Coppetti added. On Tuesday’s call, Hoffman explained that “as communicated previously, we plan to selectively expand on our key wholesale partnerships by only adding doors with meaningful, edited, customer bases.”

Cristina Fernández, senior research analyst at Telsey Advisory Group, says On’s expanded wholesale partnerships are one reason for its outperformance, along with increased brand awareness and success with new products. Overall, On’s second-quarter results “point to a brand that continues to deliver exceptional growth,” she said.

Going forward, On says it has new products in the works. On Tuesday, co-founder David Alleman teased additional running apparel and said the brand would continue to focus on trail and add in more lightweight models. It is also adding updates to its performance franchises, such as a second generation of the Roger Pro and a more cushioned Cloud Monster.