U.S. shares of On Holding plunged as much as 22 per cent 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. 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. Zurich-based On’s sales growth in the Americas, which accounts for more than half of On’s revenue, slowed to 13 per cent on a constant-currency basis from 17 per cent in the first quarter. By contrast, Asia-Pacific sales jumped 54.7 per cent. 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. The strategy helped direct-to-consumer sales — or sales made through its stores and website — grow about 34 per cent in the quarter. Wholesale revenue growth, or sales made via other retailers, however, slowed sharply, rising 12.7 per cent in the second quarter compared with 25.1 per cent in the preceding quarter. Still, On forecast full-year gross profit margin of at least 65 per cent, up from its previous expectation of 64.5 per cent, 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. Overall, the company, founded in 2010 and known for its sneakers’ distinctive hollow soles, posted net sales of 850.3 million Swiss francs (US$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 per cent this year, were trading at $30.30 at a roughly two-year low. Reporting by Angela Christy in Bengaluru and Helen Reid in London; Editing by Janane Venkatraman, Tasim Zahid and Maju Samuel, Reuters
