(Bloomberg) -- On Holding AG’s shares fell after the Swiss shoemaker laid out ambitious growth plans but failed to upgrade its near-term guidance, disappointing investors who were hoping for more immediate rewards.
The company said it plans to double sales to 3.55 billion Swiss francs ($3.85 billion) by 2026, targeting fast growth in China. On has ambitions beyond 2026 of pulling in more than 10% of its net sales from the country, as well as from its own network of retail stores and from apparel products, it said Wednesday ahead of an investor event.
Those goals underpin efforts to expand sales of its running, tennis and training shoes and apparel by more than 20% annually in the back half of this decade while ratcheting up profitability.
While the strategy makes sense, many investors had already been expecting targets like that and may be disappointed that On didn’t raise its 2023 financial forecast, according to Tom Nikic, an analyst at Wedbush. Instead, On confirmed its outlook for this year, while shares fell as much as 9% as of 11:40 a.m. in New York trading.
“Given that the third quarter is now complete, we believe that many investors were anticipating a guidance raise at the event,” Nikic wrote in a note.
On has been one of a few sports brands, along with Hoka and Brooks, that have posted dramatic growth in recent years, benefiting from the twin global trends of a greater awareness of fitness and acceptance of casual dress, while also eating into the market share of veteran giants like Nike Inc. and Adidas AG. The smaller brands have gained foothold with serious runners and specialty stores, taking advantage of their bigger rivals’ heavy emphasis on direct-to-consumer sales.
Founded in 2010, On initially gained a cult following in its home market and elsewhere in Europe thanks to its shoe’s distinctive tubular cushions on the sole and backing from tennis champion Roger Federer. Since its 2021 public listing in New York, the Zurich-based company also rapidly built a consumer base in the US, the world’s biggest sports market. Until now, its China division has remained tiny compared to those of its bigger rivals.
The new long-term targets “should satisfy investors,” Baird analyst Jonathan Komp said in a note, citing “a high degree of confidence in current business fundamentals.”
The new targets are greater than the company outlined in its IPO and are “an intermediate step in our ambition to build a much bigger company in the future,” Martin Hoffmann, On’s co-Chief Executive Officer, said.
While On still sees room to grow market share in running, it’s also focusing on expanding in countries like China and building out its customer base in fitness and tennis. The company confirmed its 2023 outlook for reaching net sales of 1.76 billion Swiss francs this year and at least 58.5% gross profit margin.
--With assistance from Katrina Compoli.
(Updates with share move and analyst comment in third paragraph)
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