Dive Brief:
- Led by direct-to-consumer growth, On’s second quarter net sales increased 32% year over year to 749.2 million Swiss francs (about $928 million at press time), according to a company press release Tuesday.
- The athletics brand swung from a net income of 30.8 million Swiss francs the year before to a loss of 40.9 million Swiss francs. DTC sales increased 47.2% while wholesale jumped over 23%, per the release.
- On raised its full-year guidance, now expecting net sales to grow 31% year over year on a constant currency basis instead of the previously anticipated 28% increase. Additionally, the brand raised its gross profit margin projection to a 60.5% to 61% range instead of its previously lowered range of 60% to 60.5%.
Dive Insight:
While acknowledging an uncertain macroeconomic outlook due to U.S. trade policy shifts, On’s executives remained confident in the brand’s ability to meet high expectations.
“We have not even spoken to retail or factory partners about mitigation efforts,” On CEO and CFO Martin Hoffmann told analysts on a call Tuesday. “We haven’t needed it yet.”
The executive noted that heightened import costs aren’t desirable, but tariff rates aren’t new to the international brand. On already worked with tariff rates on imports to the U.S. from various Southeast Asian countries such as Vietnam, which made up about 90% of its footwear production for the six months ending June 30, per the brand’s filing.
The Swiss brand’s larger Q2 obstacle was currency exchange rates as the U.S. dollar weakened compared to the Swiss franc, contributing to On’s net loss.
“As expected, currency shifts created significant noise on the print, including a sizable spread between reported and constant-currency sales as well as a CHF 140 million currency translation loss that flowed through to a reported net loss,” William Blair analysts said in a Tuesday note shared with Retail Dive. “The sales beat was significant enough net of the currency impact that we believe the Street is more inclined to look through the implications of a stronger franc.”
On’s premium positioning continues to be a component of its overall strength, executives noted.
The brand implemented select price increases in the U.S. in July and doesn’t expect the need for additional increases to reach its projected margin targets (though macroeconomic changes can alter that perspective), Hoffmann added.
Looking forward, continued momentum in On’s apparel category will further expose the brand to a broader audience, executives said on the call.
Shoes continue to be the largest category for the brand with a nearly 30% Q2 net sales increase. However, apparel grew 67.5% to 36.7 million Swiss francs and accessories jumped 133.3% to 7.7 million Swiss francs, per On’s filing. Apparel now makes up 4.9% of net sales, up from 3.9% the year prior.