Shares of On Holding are lower on Tuesday, despite a beat-and-raise quarter. Its co-CEO says that the running-shoe maker is on track to meet its long-term goals as it grabs market share.
On (ticker:
ONON
) said it earned 0.20 Swiss francs, or 22 cents a share, in the third quarter, up from 7 cents in the year-earlier period and above the 16 cents analysts were expecting. Sales climbed 46.5% to $532.4 million, also ahead of the $502.3 million consensus estimate.
For the full year, On raised its guidance for revenue to roughly $2 billion, just squeezing ahead of the average analyst estimate.
Nonetheless, the shares were down just over 2.6% in morning trading to $25.87. They are off about 9% since Barron’s highlighted them in September.
The forecast was likely the main culprit: Although On raised its outlook for 2023, it didn’t do so as much as hoped, meaning that its fourth quarter, which includes the holiday period, could lag behind expectations. The company’s new guidance implies revenue will climb 21% in the fourth quarter, while the consensus was calling for just over a 25% increase.
Bulls’ hopes may have been even higher, given that footwear stocks in general have done well recently.
Co-chief executive officer Marc Maurer told Barron’s on Tuesday that investors shouldn’t have been surprised by the implied fourth-quarter outlook, saying the company has “tried to be very clear in what we communicate.” He noted that despite a strong October, On has seen a “little less momentum on the macro level going into the holiday season.”
Nonetheless, On has “continued to gain share in a difficult environment at full price,” he said. “Consistent with [previous] years we’re not going in a very promotional way into the holiday season. We’re building this business for the long term.”
Overall, Maurer called the third-quarter results “amazingly positive,” saying On delivered its most profitable quarter yet, with gross margin just shy of 60%. He highlighted recent sporting victories by some of the athletes who represent the brand, along with the company’s ability to avoid discounting.
He noted that while the company can’t control currency fluctuations, which can affect both profits and revenue, it can control the pace and quality of its product innovation. In terms of the number of products sold, a number driven in part by the appeal of its shoes, On is “tracking significantly above our goal for the year,” Maurer said.
Looking ahead to 2024, Maurer is excited about the summer Olympics in Paris, and the newest innovations On is creating for its athletes to use at the games. Next year also marks the first of work to deliver on the company’s three-year strategy, introduced in October. Its targets, which include doubling revenue, mean On will be doubling down on running, opening new stores, and launching training products, among other initiatives.
Write to Teresa Rivas at [email protected]
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