Federer-Backed On Hits a Two-Year Low As Its Biggest Market Loses Steam

Shares of Roger Federer-backed sportswear company On Holding plunged Tuesday after the premium sneaker brand reported weaker-than-expected second-quarter sales, raising concerns that slowing growth in the Americas could complicate its rapid global expansion.

On's U.S.-listed shares fell as much as 22%. The selloff came after the Swiss company reported quarterly net sales of 850.3 million Swiss francs, or about $1.05 billion, below analysts' expectations of 878.16 million francs.

The biggest concern for investors was the Americas, On's largest market and the source of more than half of its revenue. Sales in the region grew 13% on a constant-currency basis during the second quarter, slowing from 17% growth in the first three months of the year.

The slowdown comes as U.S. consumers remain under pressure from a challenging economic environment, forcing sportswear companies to compete for increasingly cautious shoppers. For On, which has gained market share from larger rivals including Nike and Adidas, the challenge is maintaining its premium positioning while continuing to deliver the fast growth investors have come to expect.

On executives made clear Tuesday that they have little interest in chasing sales through aggressive promotions, even as competitors increasingly turn to discounts to attract price-sensitive 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 during the company's post-earnings call, according to Reuters.

That approach appears to be working particularly well through On's own retail network. Direct-to-consumer sales, which include purchases through the company's stores and website, climbed about 34% during the quarter.

Wholesale growth, however, weakened considerably. Revenue generated through outside retailers increased 12.7%, down sharply from 25.1% growth in the previous quarter. The results also highlighted a widening difference between On's performance in the Americas and other international markets.

While growth slowed in its biggest region, Asia-Pacific sales surged 54.7% on a constant-currency basis, suggesting the brand still has significant room to expand internationally. Despite the quarterly sales miss, On raised its profitability expectations.

The company now forecasts a full-year gross profit margin of at least 65%, compared with its previous forecast of 64.5%. It also widened its annual net sales outlook to between 3.47 billion Swiss francs and 3.56 billion francs on a constant-currency basis. Its previous target had been approximately 3.51 billion francs.

Not everyone is convinced the stronger margins will last. Jefferies analyst Randal Konik warned that On's margin improvements could prove difficult to sustain as sales growth slows and inventory remains elevated. Those pressures could eventually lead analysts to lower their financial estimates for the company, according to Reuters.

On nevertheless managed to slightly beat expectations on the bottom line. Adjusted profit came in at 0.35 Swiss francs per share for the three months ended June 30, compared with analysts' expectations of 0.34 francs per share. Founded in Zurich in 2010, On has grown rapidly since Federer became an investor in the company in 2019 and later collaborated with the brand on its tennis footwear, making the former tennis player a billionaire.