On Running victories prove brand is 'resonating on the high-end peak performance' side: Co-CEO

On Running Co-CEOs Martin Hoffmann and Marc Maurer — who is also the CFO — join Yahoo Finance Live to discuss On Holding's reports of record revenue, earnings, and the Swiss running brand's plans for future growth.

Video transcript

RACHELLE AKUFFO: Right. Well, running full steam ahead popular Swiss running brand On Holding started the fiscal year with another record setting performance. The company posted record revenue, a whopping 80% increase in sneaker sales and boosted its full year guidance. Despite all that, inventory continues to be a problem for the company and shares are falling sharply for the second day in a row.

Let's bring in On Running's co-CEOs Martin Hoffmann and Marc Maurer. Thank you so much for joining me this morning. I mean, talk about what we're seeing with the share price today. Martin, I want to start with you because, I mean, people were celebrating this but now we're seeing some selling action today. What do you think investors are honing in on?

MARTIN HOFFMANN: Well, we're celebrating as well and we're very proud of the quarter. 80% growth. We have been growing very strongly in all the different regions. 90% growth in Americas, 50% growth in Europe, almost 100% growth in Asia-Pacific. We significantly increased profitability over the last year with 14.5% EBITDA margin. So we raised our guidance again. We continue seeing very strong demand. So we are super proud and we are here for the long term. And this is what we are building the business for. And I think Q1 was a very strong proof point for what we are doing.

RACHELLE AKUFFO: And Marc, what do you think about the inventory concerns that some of these analysts are honing in on?

MARC MAURER: Yeah. We have-- I think we have two elements at play here. One is we're trying to build inventory, fresh inventory that allows us to overachieve also the potential targets that we set out. So we want to be able to capture that demand. So we're very happy with that.

And then the other one is over the last couple of months we've been accelerating how we get inventory. So the factories have been able to ship much faster, transit lanes so on the freight side have become faster. So there's a bit of a catch up happening here from COVID. But it's fresh inventory, it's new inventory that allows us to capture demand and we are not worried about the position at all.

RACHELLE AKUFFO: And we see that you've got some of the clothing as well as the sneakers there in front as well. Talk about some of the best sellers here, because I mean, you did see some success here across the brand for some of these.

MARTIN HOFFMANN: Yeah. I mean, on the shoes side we just launched the Cloud Surfer, so here in front of me, which is the first shoe on our new outsole technology Cloud Tech face. So fully computer engineered. Really soft, smooth landing and take off. And it's doing well. It's been referred as the strongest launch of a product that we had. And then also on the apparel side we just launched a lot of really strong items both for the dedicated runner, but also for people who like to move in our apparel.

We see the success in our London store, for example. That has been an amazing start since the opening in February. And already there apparel makes almost 15% of the sales in that store.

RACHELLE AKUFFO: And Marc, obviously for a lot of these international brands we've seen some of these foreign exchange headwinds showing up, having an impact on gross margins. What are your expectations there? Because we did see that you noted a 60 to 100 basis point impact on the gross margin.

MARTIN HOFFMANN: Yeah. So we see still a relatively weak euro compared to a pre-IPO when we set our long-term goal. For us important is that the fundament of the business is in the right place. So the cost of the product is there, our channel mix is there. We are selling full price. So again, we are here for the long term and the business is set up to reach that 60% gross profit margin.

RACHELLE AKUFFO: And I know you say you focused on the seasoned runner, looking at Helen Obiri's win at the Boston Marathon in particular, when you have a shoe like that in the spotlight at such a big event. What about broadening it out though to perhaps your nontraditional runner or perhaps people who like to wear them more for fashion? Any plans to expand there?

MARC MAURER: Yeah, we were very happy about Helen's win. We also had several victories, for example, in Millrose Games and track and field events. Very much looking forward to the Budapest World Champs. We also signed Iga Swiatek and Ben Shelton on the tennis side. So I think we're proving that our products are really, really strong and they're resonating on the very high end peak performance side. And we want to make that accessible to all our fans.

So the products that Helen has run will become available to our consumers. We're making the tennis shoes available. We've already launched the Roger Pro. And this is really trickling down. And as Martin already mentioned, this allows us to have the biggest launch ever with a product like the Cloud Surfer. So we're innovating on the top high end side of the running range but also make it very accessible for the people that want to run 5 miles, 10 miles a week.

RACHELLE AKUFFO: And Martin, one of the key themes that we continue to hear, of course, this earnings season is the role of AI. How is your company sort of incorporating it both on the customer experience side, perhaps what it does in terms of efficiencies for the business?

MARTIN HOFFMANN: As the mission of the company is to ignite the human spirit through movement, so what we want to do is we want that people move. And this is what we are here for. This is what we are creating the product for. But there are many opportunities to work with AI to make processes more efficient. And there are probably also opportunities towards the customer to make that movement more enjoyable. So we are looking into that. But our focus is really on the innovation in the product, what you experience on your feet and on your body.

RACHELLE AKUFFO: I'll definitely have to check those out. A big thank you there to On Holding co-CEOs Martin Hoffmann and Marc Maurer. Thank you so much for joining us on Yahoo Finance.

MARC MAURER: Thank you so much for having us. Thank you.