On Holding AG (ONON) Earnings

Management highlights

- Leadership Transition & Continuity * Martin Hoffman (outgoing CEO and CFO) stepped down after 13 years with the company, and will stay on as an advisor through 2027. Founders Kasper Capetti and David Alleman now serve as co-CEOs, with Frank Floos joining as new CFO effective May 1, 2026, and Scott Maguire taking an expanded role as President and COO. * The company's core premium strategy, strategic growth pillars, and innovation-led approach remain unchanged, with leadership emphasizing continuity of direction. - Product Innovation Milestones * The LightSpray custom 3D printing technology moved from prototype to commercialization: a 30-fold production capacity increase was achieved with the opening of a new factory in Busan, South Korea. The LightSpray CloudMonster Hyper sold out quickly across channels, reaching several hundred pairs per day in D2C channels alone, and represented nearly 20% of footwear net sales in the new Boston store opening week. * Surreal (Zorio SuperFoam) innovation, which delivers 60-70% more energy return at half the weight of industry standard EVA, will launch with the CloudSurfer 3 in October 2026 and roll out broadly across key running franchises in 2027. * New apparel fabric innovations SenseTech (for studio/training collections) and FormTech (for shaping tights) are being rolled out to expand product relevance. * Tennis is the highest growth apparel vertical, and new outdoor franchise CloudSoma had a strong debut. - Brand & Consumer Expansion * The company maintained a strict full-price selling strategy in an increasingly promotional market to protect premium brand equity. * Lifestyle product lines and celebrity/creator partnerships (including the Zendaya apparel/footwear launch and KISS CloudSwift relaunch) drove strong growth, with the 18-24 year old share of D2C customers seeing its largest increase on record, a trend that accelerated into early Q2. * Q1 brand tracking showed a sharp increase in running awareness, including crossing the 30% awareness threshold for the first time in the U.S. Run specialty accounts grew nearly 30% YoY in Europe. * An Investor Day will be held in Zurich on September 21-22, 2026 to share the company's 2030 long-term vision. - Operational Highlights * Gross profit margin reached 64.2% (up 430 bps YoY), driven by scale efficiencies, premium pricing, and supply chain improvements. SG&A as a percentage of net sales fell to 16%, the lowest level in two years, and adjusted EBITDA margin hit 21% (up 450 bps YoY), the second highest in company history. * D2C physical retail delivered sustained same-store growth for mature locations, with new stores planned for Stockholm, Sydney, San Francisco, and Sao Paulo in coming months. Wholesale expansion has a multi-year runway, as the company is only present in ~50% of planned doors with key global partners. * Cash position remains stable at over 1 billion Swiss francs, with Q1 capital expenditures of 23.6 million Swiss francs (2.8% of net sales) focused on retail expansion.

Guidance

- Constant currency full-year 2026 net sales growth guidance is maintained at a minimum of 23%, with APAC, newer geographic markets, and apparel expected to outperform the broader business. Reported net sales are projected to reach 3.51 billion Swiss francs based on current spot exchange rates. Management notes there is potential for upside to the 23% growth target if opportunities align with the company's premium strategy, but retained the current guidance to account for macro uncertainty and leadership transition. - Full-year 2026 gross margin guidance is raised to at least 64.5%, up from prior expectations, even after accounting for a 20% incremental tariff on imports from Vietnam (with no potential refunds included in the outlook). The 64.2% Q1 gross margin is considered the new baseline for the full year. - Adjusted EBITDA margin guidance is raised to a range of 19.5% to 20%, which is meaningfully above the company's prior guidance. - Full-year marketing expense as a percentage of net sales is expected to land between 13% and 13.5%, which is baked into the current guidance, to capture growing brand awareness and convert it to sales. - D2C share is expected to grow by 100 to 200 basis points for the full year, consistent with prior targets, with Q1 D2C share at 38.7%.

Segment performance

By Channel: - Direct-to-Consumer (D2C): Net sales of 322.3 million Swiss francs, 28.7% YoY constant currency growth (16.4% reported), contributing ~38.7% of total net sales. D2C apparel share exceeded 10% for the first time. - Wholesale: Quarterly net sales exceeded 500 million Swiss francs for the first time, reaching 509.6 million Swiss francs, 25.1% YoY constant currency growth (13.3% reported), contributing ~61.3% of total net sales. By Region: - Americas: Net sales of 450.7 million Swiss francs, 17.1% YoY constant currency growth (3.1% reported), contributing ~54.2% of total net sales. - Europe, Middle East, and Africa (EMEA): Net sales of 207.1 million Swiss francs, 25.6% YoY constant currency growth (22.8% reported), contributing ~24.9% of total net sales. - Asia-Pacific (APAC): Net sales of 174 million Swiss francs, 61.4% YoY constant currency growth (44.4% reported), exceeding 20% of total net sales for the first time, with South Korea net sales tripling YoY and Greater China growing above regional average. By Product Category: - Footwear: Net sales of 763.7 million Swiss francs, 24% YoY constant currency growth (12.2% reported), contributing ~91.8% of total net sales. Newer franchises like Cloud Zone grew over 350% volume from a low base, while performance running franchises such as CloudMonster delivered strong momentum, and lifestyle footwear CloudTilt saw exceptional growth. - Apparel: Net sales of 55.3 million Swiss francs, 57.5% YoY constant currency growth (45.1% reported), contributing ~6.6% of total net sales, and exceeded 10% of D2C sales for the first time.

Risks & headwinds

- The company faces foreign exchange headwinds, particularly from a stronger Swiss franc relative to other currencies that impacts overhead costs, and reported net sales growth was significantly lower than constant currency growth in Q1 due to these effects. - Higher incremental U.S. tariffs on product sourced from Vietnam create an ongoing headwind to profitability, which the company has absorbed via scale and efficiency gains without compromising margin targets. - Unpredictable macroeconomic conditions and geopolitical uncertainty (including ongoing conflict in the Middle East) create a challenging operating environment. - The increasingly promotional retail landscape creates pressure to cut prices, which the company is actively resisting to protect long-term brand equity.

Analyst Q&A

• Q: What is the division of responsibilities between the two new co-CEOs? Will there be a change to strategy after the leadership transition? /

  A: Management emphasizes the transition is rooted in full continuity. Kasper and David have worked closely together for 13 years, and helped develop the current strategy alongside the outgoing leadership. They will retain their existing division of labor on strategic initiatives, and both the new CFO and President/COO will report to both co-CEOs for execution. The overall strategy and direction remains unchanged. (308 characters)

• Q: What is the current demand trend in the U.S. post-Q1, and have full-year expectations for the market changed? /

  A: Management reports very strong U.S. performance, highlighted by crossing 30% brand awareness for the first time, with growth driven by new younger and female consumers reached via the Zendaya collection and lifestyle footwear lines. Wholesale still has significant room to expand (the brand is only in ~50% of planned partner doors) across multiple new categories beyond running. D2C growth is expected to remain at Q1's strong 28.7% constant currency rate for the full year, with apparel now exceeding 10% of D2C sales as a new customer entry point. (477 characters)

• Q: With the leadership change, is the company still committed to its premium no-promotion strategy, or will it pursue growth at the cost of brand equity? /

  A: Management reaffirms that the core goal from day one has been to build the most desirable premium sportswear brand, not the largest, and this priority will not change. The company has multiple organic growth trajectories across product categories, geographies, and channels that can be delivered while maintaining premium positioning. The Q1 margin results confirm the strength of the ongoing premium strategy, and the long-term goal remains to reshape the sportswear industry rather than chase raw size. (421 characters)

• Q: Why did Q1 gross margin outperform expectations, and what is the growth cadence expected for the rest of 2026? /

  A: Gross margin outperformance was driven by unanticipated early gains from supply chain improvements implemented 12 months prior (250 bps of benefit), followed by full-price selling discipline (150 bps), FX tailwinds (100 bps), and efficiency gains offsetting tariffs (100 bps). For the full year, D2C growth is expected to hold at Q1's strong rate, while wholesale growth is moderated intentionally to ensure clean inventory levels heading into the heavy 2027 innovation launch cycle, supporting the 23% full-year growth target. (453 characters)