On Holding Shares Tumble 22% as Americas Growth Slows Amid Market Challenges
On Holding Faces Setbacks in Key Markets and Financial Performance
By Angela Christy M
Second-Quarter Results and Market Reaction
Aug 11 (Reuters) - U.S. shares of On Holding plunged as much as 22% and were on track for their worst day on record after the sportswear brand missed estimates for second-quarter net sales on Tuesday, hurt by slowing growth in its all-important Americas market.
Impact of Macroeconomic Environment
The Roger Federer-backed company is feeling the strain of a tougher macroeconomic environment even as it takes market share from Nike and Adidas, with slower U.S. growth testing its ability to expand rapidly without resorting to the steep discounts that have hurt many rivals.
Regional Sales Performance
Zurich-based On's sales growth in the Americas, which accounts for more than half of On's revenue, slowed to 13% on a constant-currency basis from 17% in the first quarter. By contrast, Asia-Pacific sales jumped 54.7%.
Company Strategy and Executive Commentary
Executives said the company would not "compromise" its full-price selling strategy for higher volumes even as bigger rivals turn to discounting to lure cash-strapped consumers.
"We are not sprinting for short-term volume. We are deliberately engineering for the multi-decade value of a premium brand," co-CEO David Allemann said on a post-earnings call.
Sales Channels and Revenue Breakdown
The strategy helped direct-to-consumer sales — or sales made through its stores and website — grow about 34% in the quarter. Wholesale revenue growth, or sales made via other retailers, however, slowed sharply, rising 12.7% in the second quarter compared with 25.1% in the preceding quarter.
Financial Outlook and Analyst Perspectives
Still, On forecast full-year gross profit margin of at least 65%, up from its previous expectation of 64.5%, and widened its annual net sales forecast range to between 3.47 billion Swiss francs and 3.56 billion francs on a constant-currency basis, compared with its prior target of about 3.51 billion francs.
However, Jefferies analyst Randal Konik warned that margin gains may not be sustainable as growth moderates and inventory levels remain high, adding that those trends could result in downward estimate revisions.
Quarterly Financial Highlights
Overall, the company, founded in 2010 and known for its sneakers' distinctive hollow soles, posted net sales of 850.3 million Swiss francs ($1.05 billion) for the quarter ended June 30, missing analysts' estimate of 878.16 million francs.
For the three months ended June 30, the company reported an adjusted profit per share of 0.35 francs, edging past analyst estimates of 0.34 francs per share.
The company's shares, which have fallen about 17% this year, were trading at $30.30 at a roughly two-year low.
Exchange Rate and Reporting Notes
($1 = 0.8101 Swiss francs)
(Reporting by Angela Christy in Bengaluru and Helen Reid in London; Editing by Janane Venkatraman, Tasim Zahid and Maju Samuel)
