Krista Zuber

Krista Zuber inquired about the factors supporting On's Q4 2025 gross margin outlook, including tailwinds and headwinds, and sought clarification on the long-term sustainability of favorable product costing benefits mentioned in Q3.

Answer

Martin Hoffmann (CEO and CFO) reiterated that the Q3 gross margin upside is largely due to the sustainable power of On's business model, which is expected to continue into Q4 and next year, helping to offset future tariff impacts. He noted additional benefits from the current FX and freight environments, emphasizing that On has significantly surpassed its long-term gross profit margin target through business improvements.

Krista Zuber asked about On's raised fiscal 2025 gross margin expectation, which implies modest expansion for Q4 despite tough year-ago comparisons. She requested a breakdown of tailwinds and headwinds supporting the Q4 outlook and the long-term perspective on favorable product costing benefits.

Answer

CEO and CFO Martin Hoffmann reiterated that the Q3 gross margin strength is largely due to the sustainable power of On's business model. He confirmed continued margin upside in Q4 and into next year, which will help offset additional tariff impacts. He also noted benefits from the current FX and freight environments, emphasizing that On has significantly surpassed its long-term gross profit margin target.

Krista Zuber, on for John Kernan, inquired about the specific drivers of the increased $150 million cost savings target, the company's long-term optimal SG&A rate, and the factors contributing to the business turnaround in China.

Answer

CFO Jim Swanson detailed that the savings stem from supply chain optimization, labor efficiencies, a prior reduction in force, and disciplined discretionary and capital spending, with a long-term goal of returning operating margins to the double-digit range. CEO Tim Boyle added that the China business has significant growth potential due to its relatively small current size, a strong outdoor trend, and ongoing investments in localized product design.

Krista Zuber, on for John Kernan, asked about the opportunity to accelerate inventory turns, given the company's progress in channel cleanup and SKU rationalization, alongside the current product transitions.

Answer

CEO Stefan Larsson explained that the long-term goal is to continuously optimize inventory to demand by improving planning and buying each season. He noted that while they sometimes have to adjust after being too lean, the company will become increasingly data and demand-driven to achieve step-by-step improvements in inventory optimization over time.