On Holding AG (ONON) Earnings

Management highlights

- Strategic Leadership & Culture * The new co-CEO leadership structure (in place for 12 weeks) preserves the company's founder-led DNA, balancing disciplined near-term execution with long-term patience to build a multi-decade premium global sportswear brand, prioritizing sustained value over short-term volume growth. * Key leadership promotions and hires: Rebecca Kay promoted to Chief Global Markets Officer, Alice Delahunt added as Chief Customer Officer to strengthen DTC strategy. A September 2026 Investor Day in Zurich will share the updated long-term growth roadmap. - Product Innovation * Launched the next-generation marathon racing shoe Cloud Boom Strike 2, which an independent study confirmed delivers a 1.6% improvement in running economy over leading competitors. The brand's Light Spray robotic upper technology is now fully commercialized, with immediate sellouts for the CloudMonster 3 Hyper Light Spray. * Previewed the Spring-Summer 2027 collection featuring new Surreal Foam technology, which combines superfoam with dynamic Cloudtech cavities to eliminate industry tradeoffs between impact absorption and rebound. * Expanded elite athlete partnerships to build technical authority: launched the On Athletics Club sprint squad ahead of the 2028 LA Olympics, and secured high-profile performance wins across running, tennis, and ultra-endurance racing. - Brand & Market Positioning * Global brand awareness increased to 30%, with consumers under 34 now representing over one third of the total customer base, growing rapidly. CloudTilt lifestyle sneakers captured 3 of the top 5 selling positions at Foot Locker Europe, unseating long-standing incumbents. * Premium brand marketing drove strong results: the Zendaya co-created collection sold out ahead of expectations (60% of buyers were women under 34), and the Spike Jonze-directed Shape of Dreams campaign won three Cannes Lions, prioritizing earned attention over paid ad spend. * Apparel expansion is gaining traction with the proprietary ZenStack fabric driving engagement with female consumers, and now represents a 28% share of running category net sales, completing the full head-to-toe runner uniform offering. - Retail Execution * Company-owned flagship stores outperformed expectations: the Paris Champs-Élysées location was the global top-performing store in Q2, the new Stockholm flagship is performing at twice projected levels, and new and existing stores in Tokyo, Macau, Madrid, and Milan delivered strong results with no cannibalization in existing markets.

Guidance

- Full-year 2026 constant currency net sales growth is guided to the low 20s, revised lower from prior guidance, entirely due to intentional wholesale sell-in restrictions to protect full-price positioning. DTC growth is expected to remain very strong for the full year, driving continued significant DTC mix expansion. - Full-year gross margin guidance is raised to at least 65%, up from prior outlooks, driven by stronger full-price execution, a higher DTC mix, and ongoing operational efficiencies. - Adjusted EBITDA margin guidance is maintained at 19.5% to 20%, with the gross margin benefit from higher DTC mix reinvested back into long-term brand and growth initiatives. Neither margin outlook includes potential benefits from future US tariff refunds, which will be updated once visibility improves. - Q3 2026 sales growth is expected to be lower than Q4 2026 growth, as remaining wholesale inventory management actions are completed in Q3.

Segment performance

By Channel: - Direct-to-Consumer (DTC): Net sales of 388 million Swiss francs, up 34.3% at constant currency. This segment contributed 45.7% of total Q2 net sales, its highest ever second quarter share. - Wholesale: Net sales grew 12.7% at constant currency (4.8% reported), with slower growth driven by intentional sell-in restrictions to protect full-price positioning. By Region: - Americas: Net sales grew 13.0% at constant currency (4.5% reported), with soft wholesale sell-through for everyday running franchises offset by strong DTC momentum. - EMEA: Net sales grew 20.5% at constant currency (15.4% reported), a standout performance driven by past channel pruning to protect premium positioning, with broad-based DTC growth across all sub-regions. - APEC: Net sales grew 54.7% at constant currency (43.1% reported), with exceptional performance across Japan, Korea, and Greater China, and contributed 20% of global net sales. By Product Category: - Footwear: Net sales grew 18.9% at constant currency (10.9% reported). Performance running led growth with strong sell-through for the CloudMonster 3 Hyper, while the lifestyle CloudTilt franchise saw 190% year-over-year growth. Training vertical grew 40% year-over-year, and tennis footwear continues to build momentum. - Apparel: Net sales grew 56.2% at constant currency (47.7% reported), now representing a meaningful standalone growth driver. Apparel accounted for 28% of running category net sales in Q2, with tennis apparel nearly tripling in sales this quarter, and the Zendaya co-creation collection significantly exceeding sales forecasts.

Risks & headwinds

- Soft sell-through for everyday running franchises in the Americas wholesale channel, in a highly promotional multi-brand retail environment, has required intentional sell-in limits to avoid excess in-channel inventory that could erode full-price positioning. - Elevated 30% year-over-year inventory growth at quarter-end is driven primarily by volume growth to support expanding sales and FX movements increasing the reported value of inventory, but remains a watched metric as the company scales. - Broad industry softening in athletic wear demand has impacted peer brands, though On has maintained strong growth driven by innovation and premium positioning.

Analyst Q&A

• Q: Given broad athletic wear industry slowdown, what gives On confidence it can sustain strong growth? /

  A: On continues to see stellar broad-based DTC growth across all regions and verticals. Growth is supported by a large societal shift toward health and wellness the company calls the 'movement class', where sportswear serves as identity, not just utility. This shift creates sustained opportunity for premium innovation-focused brands, which matches On's core strategy, as seen in Q2 performance.

• Q: What is the scope and duration of the current wholesale softness, and why is it concentrated in the Americas? /

  A: The slowdown is almost entirely concentrated in the Americas wholesale segment, and it is transitory. It is driven by heavy promotional activity in the region that impacted everyday running franchise sell-through, but the company has already seen early positive momentum in Q3 from new innovation launches like CloudX 5.0. A rapid accelerated pipeline of new technology-enabled running products will roll out broadly through early 2027, with all everyday running franchises updated within 14 months.

• Q: Why did gross margin guidance increase while adjusted EBITDA guidance was maintained? /

  A: The gross margin uplift is fully driven by a higher-than-expected DTC mix, continued full-price execution, and operational efficiencies. EBITDA guidance is maintained because the company plans to reinvest the extra gross margin upside into long-term growth initiatives, including brand building, innovation, and retail expansion, rather than taking immediate margin upside.

• Q: Why is EMEA performance so strong compared to the Americas, and can those lessons be replicated? /

  A: EMEA's strong performance stems from deliberate channel pruning actions taken 3 years ago to exit non-premium distribution, creating a clean full-price marketplace that now delivers strong growth. This discipline is being applied to the Americas currently, and EMEA also benefits from strong new store momentum and exceptional lifestyle growth, with CloudTilt capturing top spots at Foot Locker Europe and drawing a large young consumer cohort.