Unmistakable when he swings for a one-handed backhand. With punches that seemingly defy gravity. When tennis legend Roger Federer took to the court, he didn’t just win most of the time. According to scores of tennis fans all over the world, he also cut a pretty good figure. What Federer did was almost always well received.
And what Federer does, apparently, too. Since the ex-tennis professional joined the Swiss running shoe specialist On in 2019, the company has been making rapid progress. Federer liked the shoes with the distinctive sole and wore them privately. The founders Olivier Bernhard, David Allemann and Caspar Coppetti promptly inspired him to become a brand ambassador and co-owner.
In the 2022 financial year, one year after going public on the New York Stock Exchange (NYSE), the Zurich-based company reached one billion in sales. Since then, it has been operationally and bottom line profitable. The results for the third quarter of 2024 have just been published: With a jump in sales by almost a third to around 636 million francs and an adjusted operating margin of around 19 percent – i.e. before taxes, interest, write-ups and depreciation – On recorded a record quarter, said co-chairman and chief financial officer Martin Hoffmann in an interview with the FAZ
Record results in the third quarter
At 60.6 percent, the company achieved its highest gross margin since going public. The success is primarily due to the growth in direct sales and the fact that many sales were made at full rather than offer prices. Things are apparently going so well that the board, which includes the three founders and Hoffmann as well as the other co-chairman Marc Maurer, is even raising the forecast for 2024. On now expects net sales to increase by at least 32 percent at constant exchange rates to 2.29 billion francs. The operating margin adjusted for exchange rates is expected to be at the upper end of the previous forecast of 16.0 to 16.5 percent.
This development is also reflected in the share price: The price of the share (ISIN: CH1134540470) has doubled since the beginning of the year and was quoted at $53.50 on the NYSE shortly before the nine-month figures were announced, above the previous all-time high of $51.45 for the first time.
As a fast-growing company, On decided not to go to its home stock exchange Six, but to the NYSE – for which the company was criticized in Switzerland. In New York, unlike in the Alpine state, there are a number of other sporting goods manufacturers listed with which On compares itself, especially the industry leader Nike.
German investors can buy or sell On’s shares in dollars on the NYSE. But if you don’t want to do this because of the currency account required, you have alternatives: direct brokers like Flatex, for example, offer so-called over-the-counter transactions (OTC) with investment banks. At Flatex this is Sociéte Générale, which enables investors to trade on their own account.
This is also possible with Deutsche Bank’s direct broker Maxblue. “Maxblue customers can trade the Swiss share On both on the stock exchange and over the OTC,” said a spokeswoman. The Bats platform is connected to Maxblue via over-the-counter trading, as are another 17 OTC trading partners.
The IPO was a success for the three founders, who hold more than 60 percent of the voting rights and can thus govern – as long as they agree. The two co-chairs Maurer and Hoffmann each have 3.5 percent of the voting power. Fidelity, the largest individual shareholder with 9 percent, only has 4.5 percent voting power according to the last published annual financial statements from 2023.
Share already highly valued
But can the Swiss maintain this pace of growth? With an estimated price-earnings ratio of 57 for the current year, the bar is set quite high. For one euro of profit, shareholders have to pay 57 euros.
Analysts Jay Sole and Mauricio Serna from UBS still recommend buying the stock and recently raised their price target for the next twelve months from $55 to $61. The two experts believe that profits will grow more strongly and have “more confidence in On’s ability to achieve sustainable sales growth and margin expansion.” Another part of the improved valuation results from a forecast change in the exchange rate: instead of a rate of 1.10 francs for the dollar, the analysts are now assuming a rate of 1.16 francs.
On himself has set high goals. Revenues are expected to rise to 3.6 billion francs by 2026. That’s an annual growth of 26 percent. “We want to be number one in running,” says Hoffmann. “We also plan to expand the clothing business from the current four to five percent share of sales to ten percent.” Another focus is on the brand’s own stores. The company has had a store in Berlin for the first time this year in Germany, as well as in Paris, which opened during the Olympic Games.
Despite the impressive prices – the shoe series “The Roger” with everyday and tennis shoes starts at 150 euros and goes up to 200 euros – the On team primarily wants to appeal to a younger target group. “Comfort and design are also important for younger customers,” believes Hoffmann – even in Germany, where many baby boomers tend to wear the shoe – and co-founder Coppetti once made himself unpopular by saying that it didn’t fit On’s brand ideal People wearing shoes to go shopping. Hoffmann calls the German market “a challenge.” But he is convinced of the appeal of the new collaboration with actress Zendaya towards younger customers, among other things.
On also wants to grow strongly in China. The country will soon contribute ten percent of sales. So far, the Asia region (Japan, Australia, China) is only at ten percent overall. The USA has so far accounted for the largest share of sales at 60 percent. The means to maintain the high pace of growth are available, says Hoffmann. With around 750 million francs in liquid assets and an equally large, as yet unused credit line, the company is “solidly” financed.
The shoe with the garden hose
On started very small. “Forget it,” Caspar Coppetti is said to have replied to his friend, the former professional endurance athlete Olivier Bernhard, when he presented him with his idea in 2010: a shoe with glued-on pieces of a garden hose that would provide a completely new running experience and shake up the global sports shoe market should. But then he was convinced.
Fourteen years later, Swiss industry giants such as Nike and Adidas are taking this as a benchmark. Adidas achieved around twelve billion euros in sales with shoes in 2023, with a total of 21.4 billion. Nike made $51.4 billion in the 2023/24 financial year that ended in May, of which a good $33.4 billion went to shoes.
On is no longer just specialized in running shoes. The product range includes trendy sneakers, tennis, training and hiking shoes as well as sports clothing. And in addition to Roger Federer, the Polish Iga Świątek, top ten tennis player and number one in the world rankings for more than two years, also wears shoes and outfits from On.
The stock market star’s latest innovation: a manufacturing process in which, unlike a conventional shoe, which is made of at least 37 individual parts, this shoe only consists of seven parts. This reduction is made possible by a process that has been developed in Zurich since 2018, the so-called light spray technique. Plastic fibers from the upper material are sprayed onto the midsole like the threads of a spider’s web, without glue or seams. This means that 1.5 kilometers of synthetic yarn can be processed in just three minutes.
The Kenyan Hellen Obiri had already won the Boston Marathon with a pre-production model. She also competed in France at the Olympic Games wearing the shoe without laces, which is pulled over the foot like a sock. So there’s a lot of movement in On. Also with the prices. The shoe, which will soon be available on the market, will cost 330 euros.
2024-11-13 10:22:00