Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- On Holding AG (ONON, Financial) reported a 28% increase in net sales, reaching CHF567.7 million for Q2 2024.
- The company has successfully increased its profitability levels, both in gross profit and adjusted EBITDA margin.
- Strong brand momentum is evident, with significant marketing investments leading to increased brand awareness and consumer engagement.
- The launch of innovative products like LightSpray technology and new footwear models has been well-received, driving growth.
- The company has seen exceptional growth in the APAC region, with net sales increasing by 73.7% year-over-year.
Negative Points
- The ongoing transition of the Atlanta warehouse has led to product availability constraints and delayed deliveries, impacting both D2C and wholesale channels.
- Despite strong demand, the company faced inventory shortages, particularly affecting the D2C channel.
- The company is operating out of a temporary, non-optimized warehouse space, leading to capacity constraints.
- There are concerns about the impact of currency fluctuations, particularly in the APAC region, which could affect future sales.
- The company has had to prioritize certain franchises and retail partners due to inventory and capacity limitations, potentially missing out on some sales opportunities.
Q & A Highlights
Q: Could you discuss how you are prioritizing new launches and products across channels given the constraints in North America? What steps are needed to get things fully operational?
A: (Marc Maurer, Co-CEO) We are building a fully automated warehouse in Atlanta, temporarily operating out of a non-optimized space, leading to capacity constraints and inventory shortages. We are shifting some capacity to our West Coast warehouse. We prioritize important franchises, retail partners, and our D2C channel. The automated warehouse is expected to be live in the first half of next year.
Q: Can you share metrics about consumer engagement, specifically regarding Zendaya and the Olympics?
A: (David Allemann, Co-Founder and Executive Co-Chairman) Zendaya's air tennis match with Federer was viewed over 15 million times on Instagram and 7 million times on TikTok. On has been in the conversation of a global audience of millions, reaching popular culture while maintaining performance innovation at the core.
Q: Can you talk about the second half adjusted EBITDA margin guidance and any dynamics between Q3 and Q4?
A: (Martin Hoffmann, Co-CEO and CFO) We expect a slight reacceleration in the second half due to higher volume and a stronger gross profit margin driven by the holiday season. Marketing expenses will be lower as a percentage of net sales compared to Q2. We are confident in achieving an adjusted EBITDA margin of 16% to 16.5%.
Q: How should we think about the door closures in EMEA and wholesale into the back half of the year?
A: (Marc Maurer, Co-CEO) The impact of door closures is mostly over. We have a more stabilized perspective for Q3 and Q4. We are growing the store base by about 5% now, focusing on existing store and new store growth in key markets.
Q: What's the plan for LightSpray technology? Will it be available to the mass market?
A: (Martin Hoffmann, Co-CEO and CFO) LightSpray is a manufacturing revolution allowing near-shoring and fewer parts. It will be brought to the mass market, not just elite athletes. The upper has 75% less CO2 emissions. We plan to bring the product to more consumers in Q4.
Q: How do you feel about apparel today versus 90 days ago? Is it on track to becoming a higher percentage of total sales?
A: (David Allemann, Co-Founder and Executive Co-Chairman) Apparel grew by 63% in Q2. We see increased momentum with doubling pre-orders for fall/winter 2024. Apparel is becoming a significant part of our sales, with every fourth piece sold in our Paris store being apparel.
Q: Should we expect wholesale to be stronger than expected and DTC perhaps not as strong in the second half?
A: (David Allemann, Co-Founder and Executive Co-Chairman) We continue to expect D2C to significantly outgrow our wholesale channel despite the impacts. We expect a higher gross profit margin in the second half of the year.
Q: Which of this year's new product launches are you most excited about? Could one of these new launches become your eighth franchise that reaches 5% revenue share?
A: (Marc Maurer, Co-CEO) Excited about apparel, Cloudrunner 2, Cloudmonster, Cloudsurfer, and Cloudtilt. (David Allemann, Co-Founder and Executive Co-Chairman) In the second half, we will launch Cloudsurfer 2, Cloudboom Strike, Cloudnova 2, and Cloudnova X. The Cloud VI will be a significant launch in February next year.
Q: How do you see a return on the investments in quality of sales initiatives in Europe?
A: (David Allemann, Co-Founder and Executive Co-Chairman) We are focusing on channels that allow us to reach new consumer segments. We see strong sellout in partners like JD and Footlocker. We are confident that our strategy is working and will build long-term strength.
Q: Have you noticed any differences in consumer behavior across regions?
A: (David Allemann, Co-Founder and Executive Co-Chairman) We see positive signs in the US, strong brand efforts in Europe, and exceptional growth in Asia, particularly Japan and China. We are confident in consumer demand for Q3 and Q4.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
