Q2 2022 On Holding AG Earnings Call
Water.
Consumer demand for the owned brand remains very high.
<unk> grew 67% overall in the second quarter of 'twenty two.
In many key markets had outstanding growth rates, such as the U S and Japan, which doubled or the U K and Australia, which grew by more than 60%.
All geographies channels and categories contributed strongly to this outstanding result.
Permitting on tried and tested strategy of maintaining a well balanced product and distribution portfolio.
Honest, winning with consumers and also on the racetrack as a result of this strong growth on is making significant market share gains in the specialty and high end distribution channels.
We choose to play in.
The growth comes from both established as well as new product franchises.
I would like to call out some of these new products that have become instant fan favorites.
<unk> promised showrunners has to run on the cloud and we are doubling down on this with more underfoot protection and ultra light comfort.
This spring we have introduced the cloud months for maximum cushioning and the cloud runner for ultimate all around comfort and performance.
The cloud is already amongst the best sellers in our own distribution and it has given us access to an additional consumer and first time purchaser of our brand.
The cloud runner introduced early in Q2 jump straight to be one of the most successful performance running shoes, when looking at the combined growing specialty and general sporting goods channel.
In performance outdoor countless others also launched in Q2 as quickly rising to the top of the lead the board.
And last not least the cloud five which we launched earlier this year is continuing its winning streak and performance all day.
But we also have new styles and this kid category. If you are looking for a light some issue for your August getaway, we can recommend the cloud easy with its ultra light slip on knit upper.
On the apparel side Q2 saw the entry into new product category with the launch of our active bra and performance problems. Both has received great feedback from customers.
Covered by numerous media channels.
And both for US are now among the best selling apparel in on E Commerce.
Now, let's move on to our fastest product and to race track you will remember that we introduced you to licensing program at our last quarterly update.
This includes a dedicated team that works on making the fastest shoes to unleash our athletes full potential.
We didn't expect is that we will be able to stand here only three months later and talk to you about on for striking field Diamond League victory on first Commonwealth games, Sweet treat and answer first broke championship metal as well.
You most likely have never heard of Dominique Laval Lu from South Sudan.
Well you're in good company.
Neither had the elite field into 3000 meters of the Stockholm Diamond League meeting predominant came first head of the favorite who would go on to win three medals at the World Championships and the Commonwealth games.
Stockholm, Oslo makes first elite race for the simple fact that he is a refugee and does not have a passport.
It's important to him for some years now first through the athlete refugee team and now here in Switzerland, and we are very happy for him and this incredible achievement.
Only a couple of weeks ago, all athletes <unk> added another huge milestone by winning on first track and field World Championship medals in Eugene Oregon.
And Boise founding member only whore took the 1500 meter schools at the Commonwealth Games and Birmingham.
We're not just winning on the track, but also making strong progress on sustainability.
First I would like to give you an update on our circularity program cyclone.
The shoe that he will never own and it's only available through a subscription called cloud Neil.
So car T and the use of lower impact materials are a big part of <unk> mission to decouple on resource consumption from our strong growth.
One of <unk> core company values is to survive or spirit and sense for innovating our way to a more sustainable future.
Over the past weeks, our very first community of a cycle of subscribers in the U S and Switzerland received the cloud deal and we look forward to giving more and more people around the world the opportunity to run and exploring on most sustainable product to date.
This very special launch has brought on a step closer towards our sustainability mission two hour on its carbon footprint by designing product made for circle assistance.
And engineered with full cell free material.
As you observed the consumer behavior and connects with cloud and our subscription model.
Addressing in our push to more sustainable products on all fronts in the short term as well.
For example, we have significantly increased the level of recycled polyester.
Some of our more recently launched running products the cloud Vista club months or and cloud runner contains 70, 484, and even 90% recycled polyester respectively.
In comparison in on spring Summer 'twenty, one range the level has been at 16% on average.
We are on a steep learning curve and fast implementation cycle.
And some of the learnings from the groundbreaking cloud and you have already found their way into other products.
The newly launched <unk> cloud easy is made with only 15 pieces about half of what a regular on users.
Let's parse mean less impact and higher recyclability.
This combined with our new high speed board made from injected TPU.
Full at upper made a 100% recycled polyester leads to significant waste reduction without any compromise on performance nor comfort.
We also believe that what gets measured gets done on a half to set ambitious clear sustainability targets and we are committed to trip transparently reporting on our progress towards them.
Which brings me to the pleasure of making you aware of the upcoming publication of arm's latest impact progress report.
Not only we will be updating on our goals and progress.
Also find the number of fascinating case studies on projects. Our teams have been partially been working on over the past months and years.
In sum, while looking back from the halfway Mark of our 2022 race half year, one has been incredibly strong for them.
Despite the supply challenges and macro headwinds.
We have achieved new record numbers launched well resonating product and reached new milestones together with our exceptional team an athlete.
At the same time, we have plenty of energy and stamina for the second half of the race.
We are staying vigilant and financially prudent as always all indicators show that demand for the on Brian will stay very high.
This puts <unk> in the privileged situation to consciously select which of the levers we want to pool at which point in time to.
To deliver durable and controlled growth with that let me pass over to Martin for the Q2 financial review and the outlook for the rest of the year.
Thanks for customer and Hello, everyone also from my side.
It's $291 7 million Swiss francs, and 66, 6% growth net sales in Q2 has been by far the strongest in the history of all <unk>.
For the first time net sales in a single month exceeded $100 million and net sales in the first six months of the year have grown by 67, 2% to $527 3 million Swiss francs.
Our adjusted EBITDA more than doubled compared to Q1.
And if you exclude the extra freight which was needed to overcome the residual impact of the supply side from last year's factory closure, our gross profit margin and adjusted EBITDA margin for both Q2 as well as health care, one would already reconfirm, our long term profitability targets.
We could not reach such incredible results without the dedication and passion our team puts into all parts of the business every day.
We have grown from 1150 to almost 1500 team members since the beginning of the year.
Over the last weeks Caspar David Mark all of you and I had the opportunity to visit our North America team the new office in Portland.
Our tech and happiness delivery team and our recently opened office in Berlin.
Our development and innovation team in Ho Chi Minh City.
After two years.
So allow us again to visit Tokyo to meet with the <unk> team and to see firsthand, how honest, new Tokyo store resonates very strongly with Japanese customers.
We also had the opportunity to visit many of our factories and factory owners to align on our joint growth plans.
And last but not least we opened on left which is what we call our new office in Zurich and for the first time in four years, all our Switzerland based teams are now starting to launch fronts from the center.
They share.
A coffee on our community platform.
We also had the opportunity to already welcomed many of our global key retail partners to our new homepage.
On left also serves as the new innovation heart for more than 30% of the space dedicated to research and product development, allowing us to take Swiss engineering to the next level.
We haven't even opened our own assembly production lines to produce shoes and apparel samples onsite took.
Together with an elevated computer simulation programs and devote class Sports Science Laboratory, we are now able to test and refine innovation at a much higher pace.
And on the left is home to our thrust on retail store in Europe , which allows us to test the latest innovations for on store design and to further build a strong run community in our hometown.
Now, let me turn to our financial performance in the quarter in some more detail.
Our net sales growth has been stronger than expected and driven by all channels regions and product categories.
Success of our latest product launches exceeded our own expectations and lower effort rate allowed us to deliver more product to meet the incredible demand we have seen at our retail partners as well as our own direct to consumer channel.
In Q2, we saw our Omnichannel strategy, China, again strong growth of 71% in wholesale and 68% and direct to consumer.
And wholesale growth was driven by the continued gain of market share with most of our existing retail partners. This is driven by the success of existing and new products as well as first the selective expansion of our doors with our global in reach Nokia Com.
We see the strong growth in our DTC channel consisting of only comment on retail as a further validation of our ability to build and retain a loyal fan base and to provide the best and most authentic experience to our customers.
For the first time direct to consumer net sales surpassed $100 million in the quarter, reaching $105 6 million.
The contribution of nets outs from the DTC channel of our 36, 2% for the quarter was a seven to seven 5% in the same period last year.
Especially in Europe , Q2 D to C sales last year were still inflated by the ongoing lockdowns.
Germany for example, only lift that restriction in May 2021.
Starting in October we expect to rollout, our new website, which will provide our fans are much more tailored individualized brand experience and it will allow us to show more product details, which we believe is a key driver for further growth of our apparel sure.
We think DTC, while still a small part we are pleased to observe the success increasing contribution of our own retail stores.
The new flagship stores in Tokyo in Zurich.
Successful start financially, but also as hubs for the local run community.
Our New York City flagship store had its strongest quarter in history, driven by a significant increase in in store traffic.
This success is giving us a lot of confidence for the next doors in the U S. We expect to open.
In September and on Miami in December .
The opening of our London store will be slightly delayed to very early 'twenty. Two 'twenty three we step we expect to end 'twenty two with 13 owned and operated stores in China and six one retail stores in all of our markets.
As mentioned all regions contributed significantly to the <unk> clubs.
North America, we continue seeing the strong Brent momentum that has been fueled by the IPO by a strong product market fit of our existing and our recently launched products and by the successful expansion of our collaboration with the best key accounts and specialty stores in the reach.
Q2 net sales.
North American region more than doubled increasing by 102, 5% to $181 7 million Swiss francs with this North America accounted for 62, 3% of our business into three months period.
Net sales in Europe grew by 17, 5% to $83 3 million Swiss francs.
Wholesale has grown over proportionately.
As we continue seeing a stronger shift from online to a financial thing.
Also DTC sales in Q2 last year had been elevated due to the sustained lockdowns in many key markets.
In addition, <unk> growth has been negatively impacted by the weaker euro and British pound compared to the Swiss francs.
We continue to be very encouraged by the development in individual markets within Europe , including but not limited to UK and France.
Net sales in Asia Pacific grew by 52, 2% to $17 90 million Swiss francs.
Very strong growth in Japan, and Australia allowed us to offset most but not all of the impact from the extensive lockdowns in China.
Our warehouse in Shanghai and around half of our China stores have been closed for two months, resulting in approximately $5 million loss there.
Due to the structure of the China business the impact over proportionate on our D to C and apparel business.
As soon as restrictions were lifted we have seen a very strong recovery in China and in June our own retail locations had the strongest months in history.
Finally rest of World net sales grew by 224, 2% to $8 8 million, reflecting the post COVID-19 recovery in many of our distributor markets as well as some earlier shipments of following the products compared to Q2 last year.
Moving to the performance by product category as Kessel mentioned, our expanded line of innovative performance running shoes is driving market share gain in the running market both from existing as well as new customers to cloud Ultra and Claude Vista have become paper on the feet of trailer on it and.
The cloud Nova continues to drive us to new customer groups.
Net sales from shoes increased by 68, 2% year over year for the quarter to $280 6 million Swiss francs.
Net sales from apparel products grew 31, 3%, which was slightly below our expectations, but also shows the large opportunity that we have in this category given the strength and penetration of our brand in footwear.
Strategy to built on a sports footprint has been validated in Q2 by the ongoing very strong apparel sales in our own retail stores as well as in shop in shop environment.
The apparel sharing our new Tokyo store is already at 18% and in Zurich at 19%.
In Europe , and North America, we continue to invest in shop in shop installations for example, in Nordstrom spot check and pricing.
As a result, we see both a strong uplift in overall itself and a significantly higher apparent split between 15% to 25%.
Finally, net sales from accessories increased by 51, 9% to $1 8 million Swiss francs.
Gross profit in the second quarter, 2022 was 168 million Swiss francs compared to $106 3 million in the previous year period.
As expected we continue to selectively use airfreight in Q2 to ensure key product availability.
However, come a step closer to normalization and have reduced the required airfreight share in comparison to the first quarter.
As a result of the investment into airfreight, our gross profit margin decreased from 67% in Q2 last year to 55, 1% in Q2. This year, but was up sequentially from 51, 8% in the first quarter of the year.
In Q2, we continued to invest in all parts of the business, while still delivering profitability despite significant effort cost.
SG&A expenses before share based compensation and excluding $3 3 million of IPO related equity transaction cost in Q2 2021.
48% of net sales in Q2, this year compared to 48, 7% for the same period last year.
Chip as compensation led to a lower expense both in Q2 this year and then the prior year period.
Two reductions of existing provisions to reflect revised estimates in connection with future option exercises.
Despite the investments in air freight as well as the higher but controlled SG&A expense, we achieved strong adjusted EBITDA of $31 4 million.
An increase of $4 million and 14, 7% compared to prior year period.
Adjusted EBITDA margin for Q2. This year was 10, 8% compared to 15, 7% with this reduction again, largely being a result of airfreight costs.
Moving to the balance sheet capital expenditure for the quarter was 11 million Swiss francs, or three 8% of net sales largely consisting of investments into new owned retail stores office build out as well as into IP infrastructure.
Inventories increased by $54 3 million compared to end of March reflecting the significantly improved supply situation.
This disposition, we were well equipped to deliver a strong fall of indices and preorder beginning as of early July .
Higher working capital was the key driver for the reduction of our net cash from $604 million at the end of Q1 to $557 7 million at the end of Q2.
Our strong balance sheet allows us to pursue our ambitious growth plans.
Coming investment.
Now, let's look ahead.
To help frame our financial outlook, let me share our view on some of the underlying drivers.
First the macroeconomic environment.
Despite the macro uncertainty we currently do not see any signs of slowing demand for our products.
Appropriately in an environment like this some key accounts have started to pay more attention to the in store inventory, but sell out numbers for AWN have stayed consistently strong.
And we are clearly planning the business this year for continued strong growth.
We are also focused on controlled and durable growth, which I will come back to at a later point.
Second.
Given the macroeconomic uncertainties, we took the decision to grow our cost base more conservatively and to reduce our goal for new hires for the remainder of.
And while we've held the importance for our teams to come back to get a physically after the end of the pandemic, we plan to make more use again of the proven ability to working together virtually and to reduce travel in the months to come.
Stuart.
Our financial results are impacted by the current volatility of currencies, especially the strength of the us dollar and the weakness of the euro and ratio to our reporting currency Swiss franc.
A strong U S dollar versus with strengths can be considered a tailwind for net sales and absolute gross profit by having a negative impact on gross profit margin.
A weak euro versus Swiss franc has a negative impact on net sales on gross profit and gross profit margin.
We will continue to report our results on a stated basis and focus on the underlying business development, but a continued high volatility of currencies may impact those reported results.
Our guidance in general is based on spot rates.
Ports.
Thanks to the dedication and commitment of our factory partners, where we're able to compensate for the majority of the loss production capacity during the factory closure smartphone.
Our supply situation has improved significantly and as announced in earlier calls we expect to use the more standard ocean freight for the vast majority of shipments.
But our recently launched cloud monster and cloud runner exceeding expectations and in order to provide sufficient supply we decided to continue investing into airfreight for both franchises in Q3 to meet this demand.
This will have a limited impact on our gross profit margin of 150 to 200 basis points in the third quarter.
In addition, we expect an additional 50 basis points headwind for Q3 and Q4 from the current currency rates.
With all the context as a backdrop.
Based on the performance we have seen in the first half year. We are once again raising our outlook for 2022 from one four to $1 1 billion Swiss strengths, which.
Which effectively pass through slightly more than our Q2 over performance for the full year.
This new top line reflects a strong full year growth of 52% compared to 44% and our previous guidance.
As always we will continue to strive to exceed this number but only in the service of a durable long term growth.
Let me explain what we mean with durable and controlled growth.
We're thinking long term and our goal is to build a durable company at the intersection of performance design and impact.
Managing that growth ensure scarcity.
If the key driver to build desire and to maintain our position as a premium brand.
It also allows a balanced growth across both channels and all regions.
Growing strongly but control data puts focus on efficiency across all parts of the organization as a prerequisite for a continued increase of our profitability.
But at least the strong focus on tight inventory control premium positioning and controlled growth of the cost base makes on more resilient against the impact of a potential economic downturn.
The higher net sales will allow additional growth focused investments into the Brent and the team while increasing our adjusted EBITDA target for the full year to 145 million Swiss francs Reconfirming, our call of an adjusted EBITDA margin of 13, 2% for the year.
Even at a significantly elevated top line outlook.
As you can see our foundation is being laid for larger and even more profitable company in the years ahead.
But even 12 months ago, we filed for our initial public offering.
So much progress since then.
We became more diverse inclusive and more sustainable company.
We introduced new exciting innovation, and sustainability, driven apparel and footwear products for running outdoor and performance all day.
We entered into new markets, including Latin America, and Hong Kong, and we started to work with some of the largest key accounts and devote to increase our share on run a seat and also with the younger community.
We have grown our last 12 months revenue by 64% from $570 million to $937 million.
And our teams achieve.
Achieved all of this despite the ongoing impact from COVID-19 factory closures in Vietnam, and the recent Lockdowns in China.
Almost 600 people started at <unk> since the IPO and we are proud to welcome them in our new offices around the world.
We're equally proud about our athletes their success and their passion for innovation that has driven.
<unk> ment of exciting new products.
But most importantly, our culture has not changed and continues to be ruled by our pipe steroids.
Lead explorer positive survivor, and the team spirit.
They will continue to drive our future and we couldnt be more excited about all the opportunities we see in front of us.
We will continue to ignite the human spirit through movement and to three months.
That customer Mark and I would like to open up the session to your question.
Operator, we're now ready to begin the Q&A session.
Ladies and gentlemen.
This time well begin the question and answer session and you wish to ask a question you May press star followed by one on that touchdown telethon.
Wish to remove yourself from the question queue, you May press star followed by team.
If you are using speaker equipment today, please with the handset before making your selection.
Anyone who has a question.
At this time, one moment for the first question. Please.
The first question comes from the line of scanner Fernandez with Telsey. Please go ahead.
Yeah.
Good morning, and congrats on the recent tender.
Nice quarter I wanted to ask about your.
The industry.
Inventories across.
The market place.
Hum.
Factoring into the.
There's definitely competition.
Picking up on promotions, increasing in the back half.
So how are you thinking about.
Yes.
Thanks.
Okay.
Thank you for the question and this is Mark speaking also from my side.
Hello to everyone.
We're watching that very very closely and debate. We're looking at is wandering in close contact with our factory partners and trying to understand how production volumes are moving and then we're very much focused on sell out in inventory data also with our key retailers to also understand.
What market dynamics from a discount perspective, and we might see in the second half sphere.
What is very important for us and as you can see in our in our Q2 numbers.
We're still very much in the game of gaining market share and it's not about incremental growth and so we feel that the strong brands and we'll continue to see strong momentum also in the second half of the year and to just reconfirm.
By our partners and how they're looking at their order book.
I think in general there is there is some expectation that the brands that probably have a little bit less momentum and they will there is some higher inventory positions and probably also a slowdown on that on the production side.
Okay.
Thank you and then.
Can you talk about demand trends by region North.
North America continues to be.
Perhaps Europe when growth along with lower how are you.
You're expecting that to congrats.
On the back half of the year.
Yes, so I think what youre, what youre seeing in the numbers.
Is it similar to what we expect to happen in day in the second half of the year. So we continue to see the U S.
And to be very very strong.
The order book looks very very good for the second half of the year key parameters that we're using for our D to C business.
Traffic and look very very strong.
In Japan Asia strong.
Poke about how quickly China.
Has come back into June and once we were able to reopen at there hasnt the stores.
Strong.
UK and continues to be strong also thanks to our continued door expansion with some of our key accounts.
And then we are very happy and especially also in Germany, which is a very large market for us that the outlook is positive and they are having a bit of a shift from more online to offline shopping.
And that's probably kind of continue into second half of the year, but it is also about reflected in how we're looking at DTC versus wholesale business in our Q2 numbers. So I think you can can very much expect a continuation of what youre seeing in these numbers.
Okay.
The next question comes from the line of market maybe from Credit Suisse. Please go ahead.
Hey, guys. Thanks for all the detail here congrats on a great quarter, and obviously a tough macro.
We're happy to see it could you would you help Orient us here with the model I guess just on the you mentioned 150 to 200 basis points of of current of freight sorry and.
In the third quarter, and 50 basis points of FX, how much were those two components into Q.
And then maybe how much are you thinking how much is in the full year for air freight in particular and I think you are.
Thank you are baking in an EBITDA margin of about 17% in the second half of the year and that includes some level of unusual freights. Since we don't have a lot of history here with the model that I would consider to have.
Occurred in a normal macro year to look at it as we tried to improve the model going forward is 17% plus what you would consider normal profitability levels for this business in the back half of <unk>.
Fiscal year.
Hi, Mike Thanks.
Thanks for the question.
You said a bit more light on it so.
In the second quarter, we used about half of the.
Okay.
In the first quarter, so you really see that our.
Fly situation.
It's improved dramatically.
And now for the third quarter, we really talk about.
A relatively low number somewhere around $5 million to $6 million that would be that they are going to invest into airfreight in order to provide the sufficient supply for the products that you mentioned, mainly the cloud months then the cloud runner and then for the for the fourth quarter, we expect that debt.
We are really in a normal ratio of air freight to ocean freight to what we have also seen before the factory closures happened.
On FX, we had already had some some headwind also in the Q2 numbers.
We expect that to continue which as we outlined on the call.
Comes from the from the relatively strong U S dollar to the Swiss francs, and then there are relatively weak.
Euro to the to the Swiss franc.
So.
If this continues to be the case then the impact is about three 4 million for the second half of the year, which makes the 50 basis points.
And then I think on.
On the on the EBITDA.
Clearly the.
We talked about it would be a bit more conservative and growing our cost base.
We have reduced a bit.
Hum bullish we are on hiring new people that doesn't mean, we don't we don't hire anymore.
Grow significantly.
A bit more cautious to compensate some of those additional impact on gross profit in order to maintain a certain point to EBITDA target that we have given for the full year.
Hmm.
And I guess just to follow that thinking a little bit bigger picture. What are you as we look out beyond 'twenty two and.
Get hopefully get back to normal here, what do you think are some of the biggest unlocks coming up that.
We will see in both the apparel side and moving footwear assortment beyond the cloud platform.
Sure.
Okay.
That's a very good question.
We are in the business of delivering innovation to the market. That's why consumers are drawn to the brand and innovation for AWN has several aspects.
It's mostly performance driven for many people performance translates into comfort so thats, mostly on the running side.
We innovate on the design and Feraheme.
Very very big focus is also the sustainability side.
As we go through the second half of the year and into 2023, we're actually going to deliver on all these fronts, both in footwear and apparel.
We have.
Tremendous success with products like the monster.
And the government, which which cater to a great uplift with cushioning experience for others.
And the really.
<unk> catching up with the demand here.
We're extremely happy with how <unk> has launched where we have incorporated some of the learnings from actually the cyclone program, making a less complex shoe that feel extremely comfortable about that.
Very positive impact on the environment and at the same time, creating a new look that consumers gravitate to and of course, we're seeing the success of our retro franchise.
Continue on the apparel side.
We're doubling down on everything thats related to running because that's what we're seeing.
Consumers transition most easily from from Switzerland to the apparel items. So the running broth has been a great.
In addition, as I said on the call earlier. These items are another top 10 and our own distribution.
We added the tide rising three more over the next 12 months.
And then we have some first installation pieces coming.
For the fall always from a perspective of.
Making very light and structural and product and turning too.
Spring 2003, and with a level set on the last call.
There is an innovative cloud tech coming called the cloud for that future phase, which is an evolution. Some I'd say a revolution of the sensation of running a cloud a different aesthetic.
That allows us to provide more cushion and a slimmer package.
So it's basically a combination of these things.
I don't want to go through a list of productivity the key takeaways.
As we were bringing this product to market.
They are already contributing significantly to our results. So that they are already meaningful to our growth and to our revenues and our profitability.
Thanks, a lot guys congrats again.
The next question comes from the line of Alex Scott from Mong Stanley. Please go ahead.
Great. Thanks, so much for taking my question and congrats on another outstanding quarter guys.
I know you guys said, you're slowing your hiring rate, which definitely makes sense in light of the uncertain macro and it's what we've heard from another a number of peers as well. So I just wanted to clarify will that be a slowing across the board or in specific areas and then aside from the lower travel expense you mentioned, what other cost saving levers can on.
Pull on to kind of push in profitability should the top line slow for the rest of the year.
Thanks.
Hi, Alex.
Martin again.
No.
As we said in the first half year, we hired.
We'll be crude at team by about 350 team members to 1500.
You can expect a similar number for that for the second half, but we would have grown faster than that.
And this is where we are we just become a bit more.
Defensive which is those are always a good a good thing in such a high growth environment to slow down a little bit in order to.
To drive efficiency in the company and an improved processes.
We will not compromise on areas where.
It'd be really talk to the customers, so, especially in happiness delivery.
That's where we will continue building the team to the size of the business that we expect especially around the holiday season in the U S.
We are committed to continue investing in print building up in sports marketing really in driving the brands. We also continue to invest in inventory in order to be in a position to fulfill the demand that we that we currently see is that we don't want to artificially cuts the opportunity.
<unk> in that area, but there are there are always levers.
And all of the cost elements to slowdown to react again be in a growth environment. So for us it's not about taking something away. It's just about adding.
Adding cost more cautiously in any area.
Yes.
Great that's super helpful and maybe one quick follow up it seems like price increases are also a way to kind of maybe offset some of the headwinds can you just remind us how much you guys have taken price. This year, what the plans are for the back half and then next year as well as if you've seen any consumer pushed back it seems like not for the results.
Just any color there would be great.
As a result of execute on what we have.
What we announced in the past so in the U S. We have increased our prices on about 40% of our.
Volume, mainly the cloud.
10 U S dollar.
Another 20%.
Volume will be affected in the second half of the year and then another 20% to 30% in Q1 next year and then Europe will see the price increases on about 80% of the volume in Q1 next year.
So I think that we are in a good position also to offset some of the higher cost that we expect.
On the purchase prices for our products.
We have now a pretty good picture, how that looks like order for spring next year and if you're in a good position vis vis the price increases that we that we have planned at the same time, we continue seeing markets there.
We have strong pricing power and where we were.
Use debt and selectively used price increases and then some of those markets.
Thank you so much.
The next question.
<unk> is from the line of Jim Duffy from Stifel. Please go ahead.
Thank you I hope, you're all doing well and have a nice summer very impressive results and congratulations on the strong market reception to new products.
Wanted to start by asking about the June strength that you highlighted some others have reported slowing trends in June can you speak to the composition of your June strength was that driven by DTC or increased volume of wholesale shipments and was it led by any particular geography.
The question is about the.
Well basically the way I understand is about.
Mark you mentioned that the month of June was the strongest month in the history of on and and.
Basically boundaries.
Growth came from if I understand it correctly, so I think.
<unk> very much.
Again in line with what you see in the Q2 number it's not an outlier to the other months from.
From a D to C and geographical split so India. Andy was just kind of the highest level definitely if achieved so far with the missile very similar split and I mean, we have some seasonality in the business. So tune has historically been a good month and the very important months to online I think July is not a month that is.
It's very important and big and so I think this is a bit better seasonality also plays at all.
Thank you for that.
Can I also ask about the DTC growth can you just speak about how that splits between new customers versus repeat purchasers, perhaps given some context of the growth in the DTC customer file.
Thank you.
We're not sharing the exact details on that new customers and repeat customers.
And we're watching it very very closely because it is important to us when you look at the health of the business and so when you look at the market like the U S, which has experienced a very very strong growth.
We added some.
Definitely more new customers than we would add in a more mature market like like Switzerland, or like Germany. For example, I think one area that we're focusing very much on it which will be important for us in the months and years to come as well as how can we provide.
Hey, Barry.
And.
Basically very good brand environment to our consumers. So that we can bring them back or keep them in Jan environment.
Use our dependency also unpaid acquisition and which is something we've consistently working on.
This is going to be expect that to be a focus over the months and years to comment then I think we.
We spoke about.
The metrics that we're using so I said retention is important to your customer acquisition is important and conversion. It's important that this is also how.
We're looking at brand versus category. So we're looking very closely at some Google data on how the categories evolving online versus offline and how the brand is evolving there.
We really see that the on brand on all parametric continues to be very very strong and our conversion rates continue to be very very.
The positive in all different consumer segments.
We are heading.
Thank you for that.
The next question is from the line of Jonathan <unk> from Baird. Please go ahead.
Yes, hi, thank you.
I wanted to ask about that.
Martin I know you made the comment that you still have the ambition to be able to exceed the full year revenue guidance.
Which I believe is the typical approach, but I'm wondering if you could maybe just discuss some of the levers that you see.
To drive revenue growth, whether it's some of the distribution opportunity you have I know you mentioned that e-commerce site coming up or just any other drivers that you see is us.
Levers going forward.
Hi, Sean.
Happy to do so.
Yeah.
If you look at the opportunities that we have to to grow.
At our guidance, our robust and clearly.
Expansion and.
Then also the continuous increase in sell through with key accounts that we have started to work with.
It's a key driver and gives us a lot of levers.
We spoke about new products that are launching.
And in early Q3 like to cloud go rich.
It's another high volume models at the success of that.
Define some of the some of the growth.
The holiday season in the U S of course, it's a very important element of our DTC business on an annual basis.
Currently see as Mark just explained in the in the data that.
We are on track to continue growing strongly but just also Derek can always.
Go go a bit stronger or weaker.
If you just to put it and also the second half of your growth into perspective for the first half year of growth.
The outlook be below our year to date growth.
One important element of course is to see some shifts that we had in the first quarter. So we're basically the first quarter growth.
It was not like for like compared to last year and then.
Actually in the U S. We have seen a strong uplift from the IPO since September . So we also run into a year over year effect there.
Therefore, a bit more cautious on the on the underlying growth rates of the U S business.
As of October .
And so all of those elements are together is why we.
While we feel there is a lot of opportunity.
But at the same time.
It's also necessary to plan long term.
Look at this.
From a durability perspective, and really plan for it for the long term.
Not chasing growth so as I said, we will be ready to capture the demand if its there, but we were not artificially chase it is things.
Things that are not in the benefit of the of the long term thinking of the Brent.
Sure.
Yes, that's really encouraging thank you and then kasper if I if I could I had two product follow up questions first on the cyclone.
Any learnings that you've seen from that behavior from the consumers or any expectations around longer term economics or profitability of that model as they prove it out over time and then secondly, just on the Roger or any update on that franchise and the plans we should expect going forward.
Thanks, John .
Michael.
Consumer behavior, it's too early to tell that literally consumers have just received the chute, but turning purchases that people like the product.
The learning curve of Iran, or this is going to be.
Retention game under the management of churn going forward. So we also feel that these are the areas that are going to positively benefit the way they look at our overall DTC business.
So we were definitely encouraged by the first reaction and we're also thinking about introducing additional models within the cyclone program.
Within the next 12.
Yes, those are 12 months or so both in footwear and apparel.
And then thanks for the question on the <unk>, obviously, a very important franchise for us.
With the U S open coming up.
Roger came up with a very.
Who looks back flashback on the early part of his career and we're going to introduce a limited edition amidst hub and level.
Can say too much but it's going to be.
Very exciting.
Launched potentially resulting in some lines outside of some key retail stores.
It's kind of things need to stay secret until last minute. Another smid top model along with other Roger updates are going to hit the market as well this fall.
So that people can go stylish through.
So hopefully a nice fall anywhere in the world.
Great. Thanks for all the color best of luck.
The next question is from the line of Jay sole from UBS. Please go ahead.
Great. Thank you so much Katherine Mark Martin can you give us a update on just the wholesale door count globally sort of if you can give us an idea of how much it's grown in TT over last year and sort of give us an idea of where you think it can go bigger picture, maybe how some of the performance in the newer wholesale doors.
Foot locker has been thank you.
Okay.
I'm, Kevin our door count by the end of half year, one is 8612 stores.
So and the paradigm in roughly a quarter little bit over 2000.
So similar for for accessories.
We ended basically end of.
And 'twenty, one with 8364 doors and so that's the growth. So you're also seeing that a lot of the growth is actually coming from same store growth not just from adding door, which is very very important to us.
Expect a slight increase to continue.
For <unk> for the second half of the year, but again the growth will mainly come from in store growth and not from from door expansion.
On some of the key accounts.
You're aware that we opened with takes houses sports and we have already opened in Q2 and we already spoke about this.
Property plants than our expansionary foot locker is well underway our expansion with JD is well underway and will continue to grow with them in their best and TRA doors and we're closely watching sales. So we're extremely happy and with all three accounts is very happy with the consumers that we're getting in on product and you know that we want to run.
On that we want to win on runners seat and Thats why <unk> is very very important to us and out of the gate on was extremely strong in the doors that we opened.
So so definitely will continue and to see a little bit of shift more towards key accounts also in day in the second half.
Got it thank you so much.
The next question is from the line of Tom Mitchell from Wedbush Securities. Please go ahead.
Hi, everybody. Thanks for taking my question I just wanted to ask about the gross margins here I think.
When you reported three months ago, you said that excluding <unk>.
<unk> freight gross margins would've been close to 60%.
Is that the way we should also think about Q2 gross margin excluding freight and when we look at the back half of the year I know you highlighted a little bit afraid in Q3 and from some FX headwinds.
But should we think about gross margins being higher.
Year over year in the back half of the year.
Yes.
If you exclude the airfreight.
We basically reconfirmed again, the ability to go towards the 60%.
Q2, we also had the negative impact from from FX.
And therefore, this would be excluded as well in order to 260% to 60%.
But for the for the second half of the year.
Actually it's just.
So 60%.
Before we could consider the baseline and then.
The impact from air freight comes on top.
Traditionally Q4 can.
Can even be a bit stronger due to the strong <unk> sales that we will be seeing and expect to be seeing out of the holiday campaign.
But.
Depends on the share of DTC to wholesale in Q4 not in Q3.
Understood. Thanks, very much and congratulations on all the momentum in the business.
The next question is from the line of Sam Poser from Williams trading. Please go ahead.
Good morning, Thank you for taking my questions.
I wanted to know.
What the what you mentioned the headwinds of about 200 basis points of gross margin in Q3.
<unk> three mm.
Around 50 basis points in Q4 can you give us what the offsets can you sort of give us a better one.
And where do you expect the gross margins to be by quarter, just make it simple.
You talked about the guidance.
Guidance on gross profit.
<unk>.
Or indicated for to what I just said.
Basically commentary is.
As Derek in last year, and the long term expectation.
And then I also mentioned a bit.
Absolute impact that we're expecting from both.
The FX headwind as well as the <unk>.
Higher freight.
But you would expect I'm, just confirming and I have one other question that you expect gross margin in Q4 to be higher than it is in Q3.
From a mix perspective.
From what you said.
And that's from mortgage yes.
Penetration yes.
And then.
Uh huh.
Based on current expectations from the fact that we will not be using excessive.
Right.
SBA SBA.
Outlined for Q3 of this dose.
Two 6 million additional spending for cloud and cloud monster.
Okay great.
Then.
Hum.
You mentioned, you've been mentioning key accounts a number of times can you give us some indication on.
Who you regard as key accounts at this time.
Okay.
Adam.
And then it's about the size it's about the size of an account it's about how global account is the growth potential and also.
About the significant <unk> in a specific consumer segment, so it's a bit difficult to add to answering your question, but again, if you look at.
For example, the U S. We would have in our core running segment, we would have a it sounds like fleet feet.
With an amazing partner Turan and very very important to us and if you look more in the outdoor space and it's been working with Rei and for many years and very very good very good account for US and then more on the performance holiday side, we spoke about.
We spoke about foot locker.
Zinc.
Those are some examples of key accounts and you would have that for different geographies and this is what will be basically <unk> and its clear that theyre all multi door accounts. So so a single dollar account whatever will never be a kickoff.
And then lastly, if I may.
With the expansion that you are having within these key accounts, which also does impact the number of doors that you're in.
Are you.
How are you allocating product are you like.
Like the smaller accounts.
Are you.
Are you able to maintain inventory levels in the smaller account as you become more aggressive with the key accounts.
Yes, so when we look at the product allocation, it's always about the consumer and so.
So the question is.
If you are speaking to our core around are there to support under sharpened, what's the product that caters best to that community or to the core runner and this is how we would allocate products. So if you are looking into a hiking shoe and then our best outdoor partners independent of entered a key accounts or independent small accounts would have to hire.
And level of priority if you look at.
And if you're a runner Andy want to access our latest running product then again, we would look at the accounts that are very much specialized in running all out around specialty partners that we're working with those accounts like fleet feet and then if you're more looking at the product for you all day use.
<unk>, JD or footlocker being prioritized and the only the only account or channel that basically gets gets at highest priority in all different categories as our own D to C. Because we feel very much that with our own D to C website and stores, we cater to all the community.
And that we're targeting and therefore, they should find.
The respective product there as well.
Yes.
Thank you very much appreciate it.
Our final question comes from the line of Eddie Secondary from Piper Sandler. Please go ahead.
Thank you guys keep getting Ian do you have an update on your market share in specialty Ron and then how does this differ.
In North America, and then secondly, I guess here is the new consumer that you think you're reaching like products like cloud Monster and can you comment on which brands, maybe with style and corn is gaining share and that actual events. Thank you.
Thanks Savi.
So with the Clermont Silicon are really reaching maybe some people that didn't there too.
July and maybe not enough.
Cushion.
And with these two molecules are able to provide.
On the food protection.
Comfort to your very very average drama that maybe would mean consider themselves around that but they run for campus and sustain shape.
Maybe they are little bit older and I can offer that same target growth.
Once you go past 40 running becomes harder allow we're.
We're seeing with the success of these two modules.
We've almost left out this market segment.
And part of the U S success is also explained.
A lot of this kind of lenders.
In North America, while able to offer them a product as well.
No look tomorrow on the market share.
Yes.
When we're looking at market share I think.
In most of the file around specialty doors in key markets, such as Germany, or the US we are amongst the top three brands.
And we're seeing in many doors and for example in the U S still a growth rate of above 50% and this is all growth that comes from same.
Same store because runs batted around specialty is definitely the area, where we already have the highest distribution highest density. So we continue to gain share we continue to to grow much stronger than the channel is growing.
And also looking at the order book and looking at the product innovations that Kasper already spoke to.
We are very positive that consumers will continue to benefit from that.
Great. Thank you so much.
Ladies and gentlemen, this concludes the Q&A session. The conference has now concluded you may disconnect. Your telephone. Thank you for join and have a pleasant day Goodbye.
Yes.
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