On Holding 4Q25 Immediate Call Postmortem
David tells an amazing story about how athletic brands are going to crush life going forward. The “movement class” is the future and they have a desire for vitality. “Health is the new wealth”. Makes me want to buy every innovative athletic brand trading at value levels because that trend won’t just help On.
On is the first brand to combine structural engineering with superfoams (think we have heard this before). Crown jewel is Lightspray. No longer building uppers, now just spraying them. Bulls have to like that they are pumping this technology as hard as they are because it really is what will make or break the story this year. However unlikely to really know if the hype lives up to expectations until later in year.
Ultimate proof of strategy is Tennis. It’s their fastest growing category. Don’t know how many times have to repeat how EVERYBODY (except maybe Nike who is noticeably quieter than normal) is crazy focused on this sport. Pay attention Wilson Tennis 360 at Amer Sports.
Apparel grew 75.5% cc with 60% of those sales flowing through the higher margin DTC channel. Good news is that implies strong growth in the wholesale channel as well, which is much harder to achieve than simply opening a store.
We write a lot about how the brand seems to finally be inflecting in China (after many years of less-than-optimal growth for level of brand hype) and that continues to be the case. Chinese New Year DTC traffic doubled. Top five on T Mall for footwear over $140 during Double 11. Meanwhile Nike is in a downward spiral in that country (lot of share up for grabs).
“DTC should outperform wholesale in 2026.” That statement would have a lot more credibility if DTC didn’t underperform wholesale this quarter and all of 2025. Likely primary reason for stock weakness today. Bears going to say they have run out of wholesale distribution expansion to save them and while growth in both channels should be strong, DTC is the ultimate read on consumer saturation (no sell-in benefit). Historically $3 billion in sales is where it always gets much harder for athletic brands.
Janine was all over the topic of wholesale door growth in Q&A. They made a point to say they still have 50% growth in doors “around the world”, which isn’t reassuring because the bear thesis is they are tapping out in the US. We were just in France and noticed how Deckers (HOKA) isn’t in some JD Sports locations but On is in all of the ones we visited.
Terracotta (Thierry Cota - BOA) would be the coolest name ever for a building materials or furniture analyst.
Liked Sole’s TAM question about the “Movement Class”. On is the best positioned to fill this demand. Not just about utility but also about identity. Feels like they missed a big opportunity to show how they are different than other brands as the answer was lacking for sure. That said, remember when Lululemon had a hard time defining its TAM outside of the yoga demographic – most of that stuff is backwards looking if you truly are creating something new.
*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 Arhaus and other retail/consumer research) at our website here: M Squared Capital
Originally posted on X and Substack.