On Holding AG Q4 FY2024 earnings call

• Brand Strategy: On focuses on premium product offerings, strategic partnerships, and high-impact presence in global markets. Premium product offerings include a family of brands like Cloudmonster, Cloudsurfer, etc. Strategic partnerships involve long-term collaborations with figures like Roger Federer, Zendaya, and FKA twigs. High-impact presence in global markets includes live sports moments and premium retail stores.
• Product Innovation: Launched new products like the Cloud 6, and has an upcoming Cloudboom Max. The Cloud 6 is a refresh of an iconic item with strong momentum. The brand is expanding into new verticals like tennis and training through partnerships.
• Financial Performance: 2024 saw a constant currency growth rate of over 33%, reaching CHF 2.32 billion in net sales. Gross profit margin was 60.6% and adjusted EBITDA margin was 16.7%. Q4 2024 net sales grew by 35.7% on a reported basis and 40.6% on a constant currency basis, with D2C share reaching a record 48.8%.

In Q4 2024, net sales from shoes grew by 33.6% to CHF 568.8 million. Apparel saw a very strong growth of 77.5% in Q4, reaching CHF 326 million, with an apparel share of over 5% of net sales for the quarter. For the full year 2024, net sales totaled CHF 2.32 billion. The top 3 running franchises - Cloudmonster, Cloudsurfer, and Cloudrunner - grew between 60% and 140% during 2024. Apparel net sales on a constant currency basis grew 51% in 2024, with apparel in D2C channels growing by 6%, resulting in a higher D2C mix compared to the footwear category.

For fiscal year 2025, On expects a constant currency growth rate of at least 27%, aiming for net sales of at least CHF 2.94 billion. Anticipates a gross profit margin of around 60.5% and an adjusted EBITDA margin of 17% to 17.5%. Sees a slightly higher growth rate in the first half of 2025 versus the second half, with preorders indicating strong growth but being prudent due to macroeconomic uncertainties.

• Operational challenges related to the warehouse automation project in Atlanta, with expected headwinds during the ramp-up phase. - Macroeconomic uncertainties that could impact consumer spending and the overall business environment. - Potential disruptions from global market fragmentation and changing consumer preferences.

Q: Could you elaborate on Cloud 6 and its difference from Cloud 5 launch?

A: The Cloud has become an iconic staple. The Cloud 6 is a refresh, focusing on being a basic staple and part of a classic campaign. Early signs from retailers show strong momentum.

Q: How is growth by region expected in 2025?

A: Asia Pacific is very strong with high preorders and retail store openings. Europe and the Middle East show growth in nascent markets. The U.S. continues the brand journey with plans for more retail stores. Q1 growth expected in low to mid-30s with strong D2C and wholesale growth.

Q: How are you tracking to long-term objectives like 10% apparel revenue?

A: Leverage in G&A line expected to help reach adjusted EBITDA margin target. On track with retail and China objectives, slightly behind on apparel but hopeful with streamlined collections and partnerships. Wholesale door growth expected to reach around 11,300 doors from 10,700.