On Holding 3Q25 Immediate Call Postmortem
First the bad. Not only did they miss the Americas revenue consensus estimate, but they also barely had double digit growth to begin with and everybody remembers what happened to Deckers (DECK) after domestic revenue growth cracked that level. Poser and Straton delicately asked about regional sales to which we got the answer “could not give strong 2026 outlook if had doubts about largest region Americas”.
Now the good. As we mentioned in our note in October, the China business seems to have finally inflected after years of much more modest growth than global brand hype would dictate. But even we didn’t think it was going to be this good this fast.
With all the noise out there about how fashion trends are shifting away from athletic, On continues to aggressively push the opposite story about how innovation and performance is driving fashion. Perhaps the only reason people are wearing boat shoes again is because most athletic footwear brands just got stale in this regard. Same thing in athletic apparel as this reminds me a lot of the Lululemon (LULU) story last few years. Always love listening to these guys speak because this management team gets it.
Am not a big fan of them using the Cloud Surfer 2 as a huge success story as that product is already on sale at wholesale partners and even on their own website. That said, they clearly have a fully stocked pipeline of upcoming innovation coming and it sounds like the initial order book for that is quite strong. “Fall Winter 2026 order book strong momentum.”
Just now remembering that the Americas growth includes price increases. That makes the core trend probably a bit worse and likely cracks that double-digit barrier (wholesale sell-in would be at the higher price). Clearly there is a problem with the overall industry though and On still is doing better than everyone else.
Sold over one million units of apparel in a single quarter for the first time. Lejuez asked about this first in Q&A and got them to say growth will be DTC heavy going forward but that will come with a superior margin profile. Right now the business is strongest in running, training, and tennis but over time they will focus more on movement and everyday product.
The stupid levels of gross margin expansion (up 510 bps) include 200 bps one-time freight adjustment, reflect the timing lag of price increases for tariffs, and had 100 bps benefit from FX. Still, they crushed it on this line item even after adjusting for all that. Still think there is upside to gross margin in 4Q as well as more than enough in 2026 to offset tariffs.
They just raised the LT 3-year revenue growth CAGR to 30% from the prior 26%, which implies growth of at least 23% in 2026. Next year will benefit from update of Cloud Runner and Cloud Monster, LightSpray will become big and revolutionize running, apparel, 20-25 new stores, and a “few more surprises”.
Martin just said they had less seasonal sales in 3Q than last year and are going into the holiday season with a full price strategy. I don’t know about that guys because there is ample promotional activity in the marketplace right now – even Foot Locker just sent around a bunch of On shoes on discount. We are already in the holiday season BTW - it doesn’t start on Black Friday anymore.
*These are our unabridged quick thoughts and notes from the call. We get them out as soon as possible after the call ends. Management has given some topics to dig deeper into and will circle back afterwards with much more in depth work on what was mentioned. You can find that work (and more on On Holding and other retail/consumer research) at the website here: M Squared Capital
Originally posted on X and Substack.