On Holding AG 2Q26 Immediate Call Postmortem
Well it had to happen at some point: On finally feels pressure from the “heavily promotional environment”. Clearly management previously thought the brand an immune unicorn or else they wouldn’t be guiding revenue down today. The company is managing wholesale sell-in to protect full price integrity and ensure a clean runway for innovation in 2027. We explicitly mentioned this could be a problem in October last year when we wrote to subs: “It’s difficult to imagine an ultra-high growth company developing a strong muscle to properly manage clearance…we have seen many brands fall prey to the pitfalls of ramping SKU counts of older product on sale, which not only begins to degrade brand strength but also provides competition to newly launched product”.
“We do not create exclusivity through artificial scarcity or hype” – tell that to people who are forced to wait in a two-hour queue just to enter the massive store in Ginza Tokyo with very few customers inside.
The Spring Summer 2027 collection will feature Helion foam technology in the Cloudsurfer 2 and Cloudsurfer Max 2. The proprietary Z-stack fabric in apparel is helping the company engage further with female customers worldwide. Will begin scaling the Cloudsurfer 3 in October with run specialty partners – response to this innovation at Paris Run Summit was “incredible”.
Main product callouts include: The Cloud franchise was up 190% versus last year. Cloudtilt was three of the top five selling positions at Foot Locker Europe, unseating current incumbents that held the top spots for years. Tennis is the fastest growing apparel vertical with sales nearly tripling this quarter. Continue to scale Lightspray which already contributed quite meaningfully to performance despite being early in the scale up journey.
Consumers under 34 represent over one third of the total customer base – for some reason I would have expected that number to be even higher. The Zendaya collection was huge success selling out well ahead of expectations with 60% of buyers women under the age of 34.
You have to love that David made a point to say new CFO Frank is a marathoner and triathlete. The leaders of this company live breathe and eat the world that they design products for. We recently mentioned how companies like this, Deckers Brands, and Amer Sports stand out in this regard versus some of the established players like Nike and Lululemon. Even Adidas is run by a former professional footballer.
The company expects continued very strong momentum in DTC for the rest of the year. I certainly hope so because they are opening lots of stores and its really the only channel where you can find Lightspray. Good growth in ecommerce during 2Q, which is encouraging.
Sole asked the main question which was about broader industry growth overall - they didn’t really answer. Rather just repeated what they always say which is they are an innovation brand with a premium position and are seeing broad based growth in the DTC channel.
The challenges in wholesale are primarily in the US and relate to “everyday running franchises, which have still grown but not at expectations”. Already off to a good start in 3Q with innovation that they have. Very strong back to school season even in the region where wholesale is a bit depressed, which they believe is transitory. There is a lot of innovation happening from 4Q26 to 2Q27 with the fastest accelerated rollout of product they have ever had. Happy with sell-through in wholesale channel outside the US.
Pricing architecture is $160 opening price point for everyday running, something around $200 for better product and then something towards $300+ for best product. On is a premium brand and lowering prices has never been a part of the playbook.
It’s always comical to hear call operators mispronounce Paul Lejuez’s (Citi) name but today was an entirely new one!
*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 AG and other retail/consumer research) at our website here: M Squared Capital
Originally posted on X and Substack.