Nearly half of On's 2020 sales were in the U.S. with minimum price point of $130 for a pair of shoes
Shares of On Holding AG, a Swiss athletic-shoe company backed by tennis giant Roger Federer, extended their gains Thursday by another 7.1%, after a stellar first day of trading that saw them soar nearly 46% .
On's initial public offering was priced at $24 a share, above the proposed range of $20 to $22, which had been boosted from an earlier range of $18 to $20. The company raised $610.6 million at a valuation of $6.5 billion.
The company offered 31.1 million Class A shares, and underwriters have the option to purchase another 3.82 million. Goldman Sachs & Co. LLC, Morgan Stanley, J.P. Morgan, Allen & Co. LLC, UBS Investment Bank, Credit Suisse, Baird, Stifel and Telsey Advisory Group were the underwriters on the offering.
On plans to use the proceeds for general corporate purposes such as working capital and operating expenses.
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The Zurich-based athletic-shoe company launched in January 2010 with professional athlete and On co-founder Olivier Bernhard intent on rethinking the running shoe.
By July 2010, specialty stores were already carrying On shoes. In 2013, Marc Maurer and Martin Hoffmann were brought on identified as co-founders. Today, Maurer is co-chief executive with Hoffmann, who also serves as chief financial officer.
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Today On merchandise, which also includes apparel and accessories, is sold at 8,100 shops in 60 countries, including Germany, the U.S. and China, as well as through On's direct-to-consumer channels. More than one-third of On's net sales in 2020 and for the first six months of 2021 (37.7% and 36.6%, respectively) were generated through the company's direct-to-consumer platforms.
On had a net loss of CHF27.5 million in 2020 ($29.9 million, based on the currency conversion rate Wednesday) after a loss of CHF1.5 million in 2019. Net sales in 2020 totaled CHF425.3 million, up from CHF267.1 million in 2019.
For the first six months of this year, On's pro forma net income was CHF3.8 million as pro forma sales totaled CHF315.5 million. The company does not expect to pay a dividend any time soon.
On describes itself as a premium product and has taken steps, such as selectively choosing where items are sold, to maintain that premium status. Among the retailers where On gear can be found are R.E.I. and Fleet Feet.
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"The majority of our wholesale partners are premium specialty stores that operate less than five retail stores and play an important role in establishing and reinforcing On's credibility in their respective communities," the company's prospectus said.
Maurer noted that the lowest On price point is $130. "We have the opportunity to grow with that premium price point," the IPO prospectus said. Nearly half -- 49% -- of 2020 sales were in the U.S., while 44% were in Europe.
"We are fortunate to have already gone out to 60 countries," Maurer told MarketWatch on the company's first trading day.
Maurer described the company's IPO as a "stepping stone" to further growth, and it's now eyeing international expansion and investment in sustainability and innovation. The company's CloudTec technology, for example, is designed for both comfort and running performance.
During COVID, more people began running and moving, according to Maurer, and that drove interest in On merchandise. The company has also seen an evolution from running sneaker to outdoor shoe to an all-day-use sneaker that works for customers looking for something to wear as they make their way through the day.
"The customers emerge over time," he said. "It's a broad customer. What unites them all is the inspiration to move, go out, experience nature."
On aims to seize market share in the $300 billion global sportswear category with help from social media, events and word-of-mouth recommendations as well as endorsement by athletes and tastemakers helping the brand gain name recognition. The company has co-developed a line of shoes with Federer.
The company faces competition from huge incumbent players in the space, and that's one of the risk factors it highlights in its prospectus.
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Another risk to On shares is in the supply chain. Though On describes its supply chain as "adaptable" in the prospectus, the company has been vulnerable to same shutdowns in Vietnam due to COVID that created stiff challenges for powerful competitors including Nike Inc. (NKE) and Adidas AG (ADS.XE).
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For the six months to June 2021, all of the company's shoes were made in Vietnam. In 2020, 97% of its shoes were made in that Southeast Asia factory hub.
Maurer is confident that facilities will reopen soon, he said. "We have always seen more demand than supply. We see this as a short-term topic."
One additional risk the company faces is a material weakness in the internal controls of its financial reporting. It was identified during preparation of financial materials for the year ending Dec. 31 and concerned "ineffective design of controls to address segregation of certain accounting duties within our financial reporting function, including the absence of functionality within our legacy ERP [enterprise resource planning] systems to require the review of journal entries, and certain reconciliations for which a formal review process had not been established," according to the prospectus.
On is putting a new ERP system in place and is bringing on third-party advisers but warns there could be "significant costs" to fixing its issue.
The Renaissance IPO ETF (IPO) is up 7.3% for the year to date, while the S&P 500 index has rallied 19.1% over that period.
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09-18-21 1010ETCopyright (c) 2021 Dow Jones & Company, Inc.