Running-shoe maker On's stock slides 14% after surprise loss and revenue miss

By Ciara Linnane

Earnings were hurt by the strength of the Swiss franc against the dollar

Swiss running-shoe company On Holding AG's stock fell 14% Tuesday to put it on track for its biggest one-day selloff in almost two years, after the company posted an unexpected loss for the fourth quarter and revenue that fell short of estimates.

The company (ONON) - which is backed by Swiss tennis legend Roger Federer, who also inspired some of its designs - told analysts on its earnings call that demand remains strong and reiterated its ambition to be a premium global sports brand.

"While our portfolio is deeply rooted in our commitment to innovation, catering first to athletes and runners, we recognize the wider opportunities for On in the evolving sports and fashion landscape," said David Allemann, On's co-founder and executive co-chair, in the company's earnings release.

On posted a net loss of CHF26.8 million (equivalent to $30.5 million) for the quarter, equal to 8 cents a share. That was wider than the loss of $26.4 million, or 8 cents a share, posted in the year-earlier period.

Excluding one-time items, its loss was 5 cents a share, falling short of the FactSet consensus estimate for profit of 11 cents a share.

Sales rose 21.9% to CHF447.1 million, also below the CHF453.9 million FactSet consensus.

The earnings miss was due to the strength of the Swiss franc against the U.S. dollar, which reduces the amount the company receives when it repatriates dollar earnings to Switzerland. The Swiss franc gained almost 10% on the dollar in 2023.

"Based on current spot rates, we expect a partial reversal of these [fourth-quarter] losses and a corresponding gain in the course of 2024," co-CEO and Chief Financial Officer Martin Hoffmann told analysts on the earnings call, according to a FactSet transcript.

Executives were keen to emphasize the scale of demand for On's running shoes and their excitement about the marketing opportunities expected to come from this summer's Olympic Games in Paris.

The company's shoes were showcased last year by Hellen Obiri, who became the first woman in 34 years to win both the New York and Boston marathons. She then crushed the New York City Half Marathon course record.

"This isn't just a win for Hellen. It's a testament to the On brand's growing influence. This is also clearly visible in the fast-growing share of On shoes on major running routes across the world," Allemann said on the call.

The company signed up two tennis stars last year: Iga Swiatek, the Polish player who is currently ranked first in the world in women's singles by the Women's Tennis Association, and Ben Shelton, the young American player who wears a modified version of the Roger Pro Shoe, named after Federer.

It expects to launch a number of new products in 2024 and will promote apparel as a second growth engine after running shoes.

"We're extremely excited to kick off our apparel in tennis and training, which will allow us to speak to new audiences in the apparel-first categories," Hoffmann said.

The company is expecting to grow sales by 26% on a constant-currency basis in the first quarter to about CHF495 million. The current FactSet consensus is for CHF528 million.

For the full year, it expects to deliver a gross profit margin of about 60%, which is line with midterm financial targets offered at its last investor day.

One area in which the company is not going to compromise on is pricing.

"We are a premium brand," Hoffmann said. "We have premium pricing, and we have the power."

The company maintained full pricing during the holiday season, despite the pressure on consumers in the current inflationary environment. But it's not planning major price increases, besides a price point for the Cloudmonster 2 running shoe that is $10 higher than the Cloudmonster 1 model.

The new model was launched in February.

On went public in 2021 at $24 a share and was last quoted just above $28.

On's stock has gained 6.8% in the year to date, while the S&P 500 SPX has gained 7.9%.

-Ciara Linnane

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03-12-24 1324ET

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