On Holding AG Q3 FY2025 earnings call

• On's premium strategy is driving strong growth and record profitability, with net sales growth at constant exchange rates of 34.5%.
• Global momentum is evident with significant growth contributions from across the portfolio, including performance and lifestyle footwear and apparel.
• Product innovation pipeline is active, with new models like Cloudsurfer Max, and technologies like LightSpray redefining the category.
• Retail expansion includes new stores in Tokyo, Palo Alto, Zurich, Riyadh, and Seoul, with flagship stores like Ginza performing strongly.
• Collaborations with Zalando, Burner Boy, Roche Feder, etc., are accelerating brand connection and traction with aspirational consumers.

Net sales in the third quarter approached CHF 800 million, growing 24.9% year-over-year on a reported basis and 34.5% at constant exchange rates. The DTC channel had net sales of CHF 314.7 million, an increase of 27.6% year-over-year on a reported basis and 37.5% at constant currency. The wholesale channel had net sales of CHF 479.6 million, increasing by 23.3% year-over-year on a reported basis and 32.5% at constant currency. In the Americas, net sales reached CHF 436.2 million, growing 10.3% year-over-year on a reported basis and 21% at constant currency. Europe, Middle East and Africa delivered net sales of CHF 213.3 million, up 28.6% year-over-year on a reported basis and 33% at constant currency. Asia Pacific had net sales of CHF 144.9 million, up 94.2% year-over-year on a reported basis and 109.2% at constant currency. The performance category had net sales of CHF 731.3 million, an increase of 21.1% year-over-year on a reported basis and 30.4% at constant currency. The apparel category had net sales of CHF 50.1 million, an increase of 86.9% year-over-year on a reported basis and 100.2% at constant currency.

• Raised 2025 constant currency net sales growth to 34% (previously at least 31%).
• Expect gross profit margin of around 62.5% (previously 60.5%-61%).
• Adjusted EBITDA margin expected to be above 18% (previously 17%-17.5%).
• 3-year constant currency CAGR from 2023 to 2026 expected to reach at least 30%, implying at least 23% growth in 2026.

Q: Curious if you could talk about the traction that you're seeing in apparel with any detail that you can give about regional acceptance of that product? And curious how it's performing in DTC versus wholesale accounts? And then just within your wholesale doors, you talk about 1% carry apparel? And any opportunity long term that you think? And when you think about the percent of accounts that carry our footwear, what percent ultimately will cover include apparel.

A: Thanks for the question. We're very excited about the apparel performance. As we've heard, we sold over 1 million items now in Q3 for the first time. Apparel accounts for about 8% of our total business. Traction is strong with execution on all fronts. Distribution through own stores and department stores is key. Running, training, and tennis apparel are strong, with performance innovations and aesthetic appeal resonating. Over time, we'll attack additional categories with performance and innovation core.

Q: My question is just is the growth was obviously very strong in the quarter. At the same time, the gross margin expanded a lot. And the same time your inventory looks very lead. Can you just talk about how you balance driving top line growth versus protecting margins, your premium position, maintaining that scarcity model and just delivering an algorithm, I think it's right for the brand for the long term. but also in a way that is -- allows the company to grow without having any operational issues.

A: I mean I think this is the result of the amazing work that the team is doing and that we pretty amplified capabilities in the organization across every part. And so we are really able to manage all the three areas that you mentioned in sync. I mean I think on the gross profit margin is just super important to understand that the premium business that we are building is the driver behind the gross profit margin. And of course, building a premium business also requires incredible discipline in your inventory management in order to protect the high share of full price sales. So this is the essence of what we are building. And you have already seen the power of that business model coming to life in the last 2 years with our gross profit margin expanding constantly. And this has really been the result of the pricing power, the full price discipline, a more DTC focused channel mix, operational improvements and then also economies of scale. And now in the last months, this has really amplified given the power of our team, our strong team that we have in Vietnam working with the factories. And so we have now really achieved a new level on gross profit margin that we also consider sustainable. And that's, I think, a great place to be given the environment around tariffs. So we are fully in control of our future. We will digest our -- the tariffs and still be well above our long-term target. And at the same time, we can reinvest into the business. We can invest into the brand into technology. But we are fully in control on pricing on doing the right things and also investing into the product. So this is the power of that premium position that we are building.