On: Federer's shoes fly in the stock market

A piece of hose stuck to the sole of a shoe. That is the origin of a company that today is worth 8,606 million dollars (7,968 million euros) on the stock market. In 2010, Olivier Bernhard ended his life as a professional athlete. He had specialized in triathlons and was several times world champion of Ironman, one of the toughest disciplines by combining 3.86 kilometers of swimming in the open sea, 180 kilometers of road cycling and 42.2 kilometers of running. In the Swiss Alps, where I lived, I was thinking about how to create sneakers that would provide wearers with such comfort that they would have the feeling of floating in the air. He showed the prototype to several friends, also former athletes, and they decided to patent it. That was the birth of the footwear and sportswear firm On, which has among its shareholders the former tennis player Roger Federer.

13 years have passed since then and the company has carved a niche in the market, gradually stealing market share from brands with much more history behind them such as Adidas, Nike, Puma or New Balance. Between January and March of this year, On broke its quarterly revenue record with sales valued at CHF 420.2 million (EUR 433 million). In addition, in this period it achieved a profit of 44.4 million – in the whole of 2022 the profits totaled 57.7 million. This growth has been rewarded by investors: since January, the company's shares have appreciated by 54%, becoming one of the stars of the parquet.

"The brand is experiencing a great moment in all the regions where we are present and in all our products and sales channels," said Martin Hoffman, co-CEO and CFO of On, in the note to investors that accompanied the presentation of the quarterly accounts. "We have benefited from the end of supply chain problems. We have always stressed the importance of our multi-channel strategy and are very happy with the evolution of the new stores we have opened," he added.

On's marketing strategy is not based so much on large advertising campaigns such as those that characterize the big players in the sector, but on supporting elite athletes who become their ambassadors. Following the good results at the start of 2023, the company has raised its revenue forecast for the full year to CHF 1.740 billion – an increase of 42% compared to 2022 revenue. In the presentation of the quarterly accounts, the directors of On recognize that in the achievement of this objective the victories of the athletes it sponsors are key. And it highlights as an example the first place of Hellen Obiri in the Boston Marathon or the triumph of the tennis player Iga Swiatek in the Stuttgart Open.

A luxury signing

In 2019, On made himself known to the general public by announcing that they had the backing of his compatriot Federer. "We are proud to be able to count on Roger not only as an investor in the company, but as a friend and a partner who spends many hours with us in the innovation lab to improve his line of sneakers," the five founders acknowledge in a letter addressed to shareholders and that is hosted on their corporate website. Two years after this signing of bells, in September 2021, On debuted on the New York Stock Exchange. After a bullish debut – in the placement the shares were valued at 24 dollars and a few months later they reached 51 dollars – the price was deflated by the problems of suppliers first and by the increase in the price of raw materials due to the war in Ukraine later. However, the stock returns to market favor in 2023 and is already trading at almost $ 28 per share after having touched lows a few months ago at $ 16 per share.

On's success has not gone unnoticed by its competitors. In early May, Adidas CEO Bjorn Gulden acknowledged in a meeting with analysts that brands such as On and Hoka are changing market dynamics by making their shoes worn daily and not just for sports. "We are working hard to have a response to this new commercial proposal as soon as possible," Gulden said, in statements collected by Bloomberg.

The three pillars in the Swiss manufacturer's business strategy are innovation, the use of alternative materials (in many cases recycled) and sustainability. From a geographical point of view, the United States is its main market; There it generates 60.4% of sales. Europe occupies the second place, contributing 29% of its revenues, and where they have more room for growth is in Asia since this market barely accounts for 6.6% of their turnover.

In addition to the search for new markets, the company also wants to increase diversification in products and sales channels. In the first case, 95% of its sales come from sneakers. The range of sports shoes has only increased in recent years and already have models for training on the road, trail, competition, tennis, mountain and urban sports. In terms of distribution, sales through distributors outside the company are still the majority, although the commercialization in own store doubled in 2022 and already accounts for 36% of total turnover thanks to the fact that they have accelerated the opening of establishments.

"Our goal is long-term growth. When we enter a new market we don't bet our cards on being successful in the first season," Hoffman said in an interview with Bloomberg. This strategy, however, is not shared by all analysts covering the value. Recently, the brokerage house Williams Trading downgraded its recommendation on the company to sell from hold. "The aggressive growth plan is achieving impressive results in the short term, gaining market share from almost all the big players in the sector with the exception of Hoka and New Balance," argues Sam Poser, an analyst at the firm, in his note. "However, in the long term the health of the On brand is not being protected as it has expanded its product range and inventories too quickly," he adds.

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