On - Earnings Call - Q3 2025

Transcript

Speaker 0

Good afternoon and good morning to our investor community. Thank you for joining On's 2025 third quarter earnings conference call and webcast. With me today on the call are On's Executive Co-Chairman and Co-Founder Caspar Coppetti and CEO and CFO Martin Hoffmann. Before we begin, I will briefly remind everyone that today's call will contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements reflect our current expectations and beliefs only and are subject to certain risks and uncertainties that could cause actual results to differ materially. Please refer to our annual report on Form 20-F for the 2024 fiscal year filed with the SEC on March 4, 2025 for a detailed explanation of such risks and uncertainties. We will further reference certain non-IFRS financial measures such as adjusted EBITDA and adjusted EBITDA margin.

These measures are not intended to be considered in isolation or as a substitute for the financial information presented in accordance with IFRS accounting standards. Please refer to today's release for a reconciliation to the most comparable IFRS measures. We will begin with Caspar, followed by Martin, leading through today's prepared remarks, after which we are looking forward to opening the call to Q and A session. With that I am very happy to turn the call over to Caspar.

Speaker 2

Thank you and a very warm welcome everyone to our third quarter 2025 earnings call. It is great to be back on this call with all of you and to give you an update on On's global success which is driven by the exceptional heat around the On brand, our product innovation pipeline and our accelerating profitability. Today we're thrilled to share another outstanding quarter for On. Our mission to ignite the human spirit through movement is resonating worldwide and across multiple categories. It is powered by an innovation engine that continues to unlock human potential and create champions on the world's biggest stages. This quarter's performance is the direct result of our premium strategy in action, delivering incredibly strong growth and record profitability.

Net sales in the quarter approached CHF 800 million, growing 24.9% year over year on a reported basis and by 34.5% at constant exchange rates through our commitment to premiumness, a commitment that runs from our products through our entire value chain and driven by our pursuit of operational excellence. We have also delivered exceptionally strong gross profit and adjusted EBITDA margins. Behind the results is a story of global momentum, how constant innovation, community building and cultural relevance are coming together to elevate the On brand as the benchmark for performance and design in premium sportswear. This success is exceptionally broad based with significant growth contributions from across our portfolio in performance and lifestyle footwear and apparel, proving the global appeal of our brand.

The spirit of On was everywhere this quarter, from the crowds lining up for the openings of our new stores in Tokyo, Palo Alto, or Zurich to the thousands of people who came to see how Lightspray products are manufactured during the Berlin Marathon Tour. Athletes winning major titles across our entire portfolio of sports from track and field to trail running to triathlon and tennis, all strongly connected with audiences around the world. Nowhere was this connection in energy felt more strongly than in Asia Pacific, our fastest growing region. The momentum there is extraordinary. With a fourth consecutive quarter of triple-digit constant currency growth in September, Tokyo became our showcase as the city hosted this year's World Athletics Championships. On the Ginza store is one of the crown jewels in our retail collection and the world champs provided the perfect opportunity to express On's innovation and ambition.

Jordi Beamish, Hitachi Kambuchi and Bella Whitaker claimed On's first ever track and field gold medals. These successes matter. Consumers are increasingly watching how brands perform in competition and On is exceptionally well positioned. The ultimate proof point for our advanced footwear technologies came 10 days ago when Helena Obiri won the New York City Marathon against the stacked field of Olympic and World champions, breaking the 22 year old course record by almost three minutes. We are incredibly proud that she chose to race in the Cloudboom Strike Lightspray. This win clearly demonstrates that our newest technology is being trusted and adopted by the world's best athletes in the most iconic races. Pictures like these define what we mean by ethics. First, innovation. Our strategy is clear.

Technology is proven at the highest level of competition and then refined to deliver the best experience for every type of runner. This elite credibility flows directly into our core performance running franchises Cloud Surfer, Cloud Monster, and Cloud Runner. These are the engines that have won millions of fans and driven our significant sustained growth in the run category. 2025 has been a testament to this strategy. We successfully re-energized the Cloud Surfer franchise. First was the Cloud Surfer 2 in the spring and now with the new Cloud Surfer Max this summer, the commercial momentum is immediate and clear. The newly launched Cloud Surfer Max ranked among the top five selling models with key run specialty partners its very first month. This sets the stage for 2026. We are already seeing a strong order book for the new Cloud Runner 3 and Cloud Monster 3 launching in Q1.

While Fall Winter 2026 will see the launch of the new model Cloudrunner Max, showcasing a significant leap in engineering and foam innovations. On top of that, On's most groundbreaking technology, Lightspray, will help redefine the category and elevate our entire running assortment. In Spring Summer 2026, we will bring this championship level technology to everyday runners for the first time with the Lightspray Cloudmonster Hyper. This is our innovation process in action, continuously and obsessively making the best possible products that push the limits of performance. Of course, On's mission goes far beyond running. We are witnessing a unique moment where performance and innovation are key drivers for fashion and the cultural side. Guys, On is uniquely positioned to both drive and benefit from this trend. This quarter our collaboration with Zendaya introduced the Cloud Zone Moon, blending On design innovation with refined expressive style.

In tennis, our partnership with Roger Federer has already connected the sport to a much broader audience. This quarter we welcomed the music artist Burna Boy to our tennis lifestyle brand who is resonating strongly with the young demographic. These cultural moments are accelerating our connection and traction with young aspirational consumers, including teams cementing On as a global symbol of modern performance and style that resonates deeply with both her and him. To summarize, as ever, On is carving its own path. Our previous strategy is working and we are executing on our vision with precision and discipline. Our relentless focus on innovation has built a durable multi dimensional growth engine. An engine that is built for the long run. Fueled by our accelerated global brand heat and awareness. The foundation for our next chapter of premium growth is stronger than ever.

With that, Martin will share more on our strategic and financial highlights in the quarter and our significant race outlook for the year.

Speaker 1

Thank you Caspar. By staying true to our vision and executing this discipline, we are delivering remarkable consistent success. This is inspiring to experience whether on the road, the track, the trail or the court, in the gym or in the streets, whether on the feet or on the body, On has become a true toe to head partner in our customers' lives. That connection makes our entire team incredibly proud and grateful. What sets us apart is our premium position. Our vision is and will remain to be the most premium global sportswear brand. Premium is an emotion formed in the minds of our fans. We earn it by consistently exceeding their expectations in the moments that matter. They know premium when they find it because they feel it. This quarter Tokyo brought that vision to life. The atmosphere was electric.

It was three years since my last visit and in that time the team has more than doubled in size and even further elevated how we show up in this vital market. What I saw in Japan was the clearest expression yet of On's premium strategy. A brand that feels completely at home in a culture defined by craftsmanship, precision and design excellence. That harmony is perfectly captured in our new flagship store in Ginza. It opened to record demand, delivering the highest monthly sales across our entire retail fleet in October. The space embodies what premium means for On performance, elevated through design and delivered with care and consistency. While Japan set the tone, the proto Asia Pacific region demonstrated the sheer scale of what's possible. Across China, Korea and Southeast Asia.

We are connecting with a new generation of younger, deeply design conscious customers, proving the global appetite for On's premium performance approach. We saw this again in Bangkok where our first store opened to the highest daily sales of any store opening in our history. The global demand is a direct result of our customer strategy. Our community is growing, but also deepening, becoming more diverse, more active and more connected across all our verticals. While trend awareness is accelerating, the clearest metric of our success is loyalty. Engaged fans are returning at higher rates and, crucially, buying across more categories, embracing the full breadth of our product universe. Retail is an important driver of this evolution. It's fundamentally reshaping how people view and enter our brand. It's becoming a key acquisition channel, attracting a growing share of first time customers.

By also building lasting value as apparel shoppers buy more frequently and with bigger baskets. We are also seeing a clear shift towards younger customers in apparel, highlighting a sizable and well defined long term opportunity. Importantly, we are not building apparel as an add on to our footwear business, but as a company within the company, serving the same communities but with a unique product offering and customer experience. As a result, apparel is driving incremental high value growth across all our channels. Operating at this level with such broad based strengths sets an incredible high standard and it requires flawless execution. This is where our focus on operational excellence and technology is delivering profound results. We are transforming the way we work. We have structurally reduced lead times and enhanced how we plan and run the business.

With intelligent tools powering our integrated planning, we are building a faster and more agile company that is a stronger partner for suppliers, retailers, and consumers. More and more, AI becomes a core component to how we operate across all areas of the business and engage with our fans. All of this is deeply rooted in our culture of innovation and excellence. It is the daily passion of our amazing team that makes all of this work. From the cheering zone at the Marathon in New York to the Lightspray Innovation Lab. From passion shows to the shop floors of run specialty partners. Their energy is what sets us apart. Thank you so much, team. Our incredible brand momentum and precise execution continued through Q3, delivering another exceptional set of results.

We achieved record net sales of CHF 794.4 million growing 24.9% year over year on a reported basis and 34.5% at constant currency. This outstanding top line growth fueled record profitability. A gross profit margin of 65.7%, an adjusted EBITDA margin of 22.6% and nearly 50% year over year adjusted EBITDA growth. Our D2C channel once again delivered exceptional growth while driving superior profitability. Net sales reached CHF 314.7 million, an increase of 27.6% year over year on the reported basis and 37.5% at constant currency. Our success is driven by strong synergies between our e-commerce and retail ecosystems. Omnichannel customers are more loyal and deliver materially higher lifetime value, validating our seamless premium experience. This experience is brought to life in our flagship stores.

A recent highlight for me was the opening of our new Zurich flagship, a celebration of our Swiss heritage in a stunning downtown location alongside our new stores. Our established fleet continues to excel. We saw standout contributions in Q3 from key locations including Kett Street in Tokyo, Miami, and the Champs-Élysées in Paris, proving the productivity and longevity of our retail investments. Our brand strength is mirrored in our wholesale channel. Net sales reached CHF 479.6 million, increasing by 23.3% year over year on a reported basis and by 32.5% at constant currency. This performance reflects sustained elevated demand from our key account partners. The enthusiasm for our future pipeline is clear. The fall winter 2026 sell-in has kicked off with ongoing strong momentum and our building order book for 2026 already reflects our partners' deep confidence in our endless innovation.

Turning to our regional development in the Americas, net sales reached CHF 436.2 million growing 10.3% year over year on a reported basis and by 21% at constant currency. This quarter was a pivotal test of our premium strategy as our U.S. price increases came into effect. The results confirmed our view. Demand remained incredibly strong for our premium offerings, clear validation of our brand's pricing power and the impact of our full price strategy. This gives us tremendous confidence heading into the holiday season where our premium positioning and unwavering commitment to full price selling will be a significant competitive advantage. Europe, Middle East and Africa delivered an outstanding quarter with net sales reaching CHF 213.3 million up 28.6% year over year on a reported basis and 33% at constant currency. Our performance highlights the breadth of the brand heat in the region.

We are seeing exceptional demand in the U.K., which has firmly established itself as one of our largest global markets, incredible momentum in newer markets like France and Italy, and a sustained re-acceleration in growth across the German-speaking region. Asia Pacific continues its phenomenal growth, delivering net sales of CHF 144.9 million, up 94.2% year over year on a reported basis and an incredible 109.2% at constant currency. Asia Pacific is now approaching 20% of our total sales. What was once a new frontier has become a major engine for the brand. The remarkable demand is broad based, with continued triple-digit growth in Greater China, South Korea, and Southeast Asia amplifying the success we see in Japan. This increasing regional balance is a core strength, a direct reflection of our global strategy, and proof of our ability to drive high-quality growth across all markets.

Moving to performance by product, truth remain our core engine of growth. Net sales from this category reached CHF 731.3 million, an increase of 21.1% year over year on a reported basis and 30.4% at constant currency. This success confirms our expanding role in the lives of our fans across every part of their day. In performance, the Cloudmonster continues to win new fans and our latest innovations like the Cloud Surfer Max and Cloudboom Max are off to exceptional starts, driving strong results in key sporting goods and run specialty distribution. Meanwhile, in lifestyle, the Cloud Tilt, the Cloud, and The Roger continue to see tremendous demand. This combination of elite performance products and the distinctive edge in the lifestyle segment is what sets On apart.

Speaker 2

Our apparel.

Speaker 1

Category is rapidly establishing itself as a significant standalone growth pillar. Net sales reached CHF 50.1 million, an increase of 86.9% year over year on a reported basis and an amazing 100.2% at constant currency. This performance was kept by a major operational milestone as we sold over 1 million apparel units in a single quarter for the first time. This success is rooted in a global and multi channel expansion with a meaningful and balanced increase in apparel share across all channels and regions. Now we will move down the P. and L. We delivered an outstanding 65.7% gross profit margin, up 510 basis points year over year. This result is materially ahead of our expectations and reflects the power and momentum of our premium brand position.

Yet it is important to understand the components of this result as it also includes some temporary and one off factors that should not be extrapolated. First, the quarter includes a positive one time adjustment of approximately 200 basis points. This relates to lower than anticipated freight and other costs. Throughout half year one we saw these lower costs emerging partly from successful negotiations and scale benefits, but we prudently continued to accrue at our higher prior levels. Now in Q3 we have confirmed these efficiencies are sustainable and are updating our cost assumptions. This one time adjustment therefore represents the release of those accruals related to the first half of the year. Second, the timing lag between our U.S. price increases and the full impact of additional U.S. tariffs led to a slightly positive margin effect in Q3 which should be considered a temporary benefit.

Third, the current devaluation of the US dollar compared to the Swiss franc since early April drives a positive gross profit margin impact of approximately 100 basis points. Crucially, even after accounting for these effects, our underlying gross profit margin is significantly above our communicated long term target. This is the result of the structural strength of our business and the great work of our team, our increasing D2C share, our premium positioning, durable operational efficiencies and economies of scale. These structural effects are expected to be sustained and are expected to be reflected in our future results. We also delivered an outstanding Q3 adjusted EBITDA margin of 22.6%, up 370 basis points year over year, corresponding to an absolute adjusted EBITDA of CHF 179.9 million.

SGA excluding share based compensation was 47.1% of net sales in Q3, up from 46% in the prior year, reflecting a deliberate decision to invest in future growth through marketing and our global retail expansion. Importantly, we are funding these strategic investments largely through our operational efficiencies. Our focus on excellence has structurally improved our distribution cost baseline, which continues to decline as a percentage of net sales. This demonstrates our flexibility to thoughtfully reinvest in high return areas that fuel our long term brand growth. While the current FX environment positively impacted our gross profit margin, it negatively impacted SGA and ultimately also our adjusted EBITDA margin. Moving to our balance sheet, we continue to demonstrate exceptional capital efficiency. Capital expenditures were CHF 20.5 million or 2.6% of net sales, an improvement from 3% in the prior year.

As of the end of Q3 our inventory stood at CHF 380.6 million. As in Q2, inventory volume grew faster than value, ensuring we are fully prepared for Q4 by reflecting our new operational efficiencies. The proof of this new efficiency is in the results. Our cash conversion cycle improved again year over year. This disciplined working capital management combined with our strong operational performance fueled substantial operating cash flow of CHF 157.3 million in Q3. As a result, our cash balance grew substantially, ending the quarter in an exceptionally strong position at CHF 961.8 million. With that, let's look ahead. The consistent success our strategic focus and exceptional execution have delivered throughout the year fuel our confidence to deliver a strong finish to the year. Our brand momentum is undeniable and the first weeks of Q4 have already shown our strategic gains.

Alongside major athlete victories including Solvet's Ironman World Championship win in Kona and Joao Fonseca becoming the youngest tennis champion at the Swiss indoors since 1989, we have created moments that continue to elevate the brand globally. We launched the Cloud Solo, our first ever co-created product with Loewe and introduced a new capsule collection with Sky High Farm centered around the Cloud 6. We entered the GCC market with the opening of our first store in Riyadh, Saudi Arabia just yesterday and opened our first store in Seoul, securing a beautiful ultra-premium location in the Yongsan Mall. We were thrilled with our performance during Golden Week in China and our global holiday campaign gifting movement is off to a great start, confirming our momentum as we head into the end of the year. This is how our vision comes to life.

Winning in performance, elevating our brand and showing up in a credible, consistent and aspirational way for our ever expanding communities. Therefore, we are raising our 2025 guidance across all line items. We now expect constant currency net sales to grow by 34% year over year, well ahead of our previous guidance of at least 31% at current spot rates. Our constant currency growth guidance implies reported net sales reached CHF 2.98 billion. Alongside this top line raise, we now expect a gross profit margin of around 62.5%, a meaningful increase versus our previous guidance of 60.5-61%. As outlined before, this new ambition reflects our commitment to full price sales during the holiday season. Sustainable structural efficiency is rooted in our elevating premium positioning, economies of scale and increasing D2C share as well as the current FX tariffs and freight cost environment on adjusted EBITDA.

The exceptional gross profit generation allows us to do three things: absorb material foreign exchange headwinds on our more Swiss franc heavy cost base, simultaneously accelerate strategic investments into our brand, technology, and innovation pipeline, and to raise our profitability forecast for the year. We now expect an adjusted EBITDA margin of above 18%, a clear step up from our previous guidance of 17-17.5%. Looking beyond 2025, the proven impact of our strategic building blocks and clarity of our long term strategy provide us with the baseline for continued exceptional momentum. This is further supported by the strength of our product pipeline, validated by our existing order book, driving a trajectory well ahead of the targets outlined at our Investor Day in October 2023.

As you will recall, we communicated our goal to double net sales by 2026, implying a 26% net sales constant currency CAGR over the three years.

Speaker 2

We are.

Speaker 1

On track to complete the first two full years of our three year plan with in excess of 33% constant currency growth each year. This sustained and material overachievement gives us the confidence and visibility to update our long term outlook as we look ahead to the final year of our plan. We now expect the three year constant currency CAGR from 2023 to 2026 to reach at least 30%. This implies at least 23% growth in 2026 based on our current outlook for 2025. This isn't just about exceeding targets, it's a testament to the unparalleled momentum of our brand, the strength of our strategy, and the incredible dedication of our entire team. We are not just meeting expectations, we are redefining what's possible in the sportswear.

Speaker 2

Market.

Speaker 1

As we look at our mid term profitability ambition, the significantly higher gross profit margin achievement expected for this year provides us with a strong baseline and increased confidence in our ability to exceed our stated gross profit margin target for 2026 despite the full impact of tariffs next year. Importantly, this allows us to continue to invest meaningfully into the brand, fueling our global momentum by driving even more progress around new technologies and AI and ultimately to build an even stronger foundation for continued growth in 2026 and beyond. In line with our established guidance cadence, we will provide a formal guidance update in March when we share our Q4 and full year results. To summarize, we are thrilled with the continued strength of our brand.

We head into the holiday season with high momentum and conviction in our plan which allows us to look beyond the immediate horizon towards our next phase or as we like to say, to dream on. Again, a huge thank you to our teams around the world for their incredible execution and for making all of this possible. With that, Caspar and I are happy to take your questions.

We are now opening the floor for question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. Your first question comes from the line of Paula Juv of Citi. Your line is now open.

Hey, thank you, guys.

Speaker 2

Curious if you could talk about the.

Speaker 1

Traction that you're seeing in apparel with any detail that you can give about regional acceptance of that product. Curious how it's performing in D2C versus wholesale caps. Within your wholesale doors, can you talk about what % carry apparel and any opportunity long term that you think.

Speaker 2

When you think about the percent of.

Speaker 1

Accounts that carry footwear, what percent ultimately will, you know, include apparel.

Speaker 2

Thank you, Paul, for the question. We're very excited about the apparel performance. As you've heard on the call just now, we sold over a million items now in Q3 for the first time. Apparel and accessibility together accounted for about 8% of our total business. That's a new record and we're well on track of hopefully getting quickly into the double digits there. Traction is really strong. What drives this is we're really executing on all fronts. On the distribution side, our own stores play a very important role because we need to be able to showcase the breadth and the beauty of this product. If you've been to any of our newly open flagship stores, you'll see that come to life.

We're also doing that, for example, at department stores. Wherever we have shop and shops, we usually lead with apparel, and it's a great way to tell the brand story. Now, as we break down a bit into, you know, which parts of apparel are seeing the most traction, happy to give you a bit of color there. We have an exceptional strong running, training, and tennis business in apparel, and within running, we clearly see that whenever we do something from the performance side. So we work with our athletes, and we bring some of these latest material innovations to broader audiences. That resonates very well in training. It's all about winning with her, and so the sweet spot there for On seems to be where we have light resistance work.

You're at the gym or you're in a class and On brings performance innovation like SenseTech that we're rolling out now across the lines. We're also bringing a bit the more elevated aesthetic that resonates with our affluent customer. Of course, tennis maybe category even a bit underestimated, just a tennis look. Whether it's actually the performance gear that our athletes are wearing, competition like Joao Fonseca, the Brazilians are crazy about it, all the way to the lifestyle looks. You've probably seen what we've done with Burna Boy just now, bringing the tennis lifestyle to wider audiences. All these things resonate extremely well over time. We will definitely attack in additional categories there, bringing it more to movement and stuff that can be worn every day or always with the performance and innovation core.

We also have a very strong jacket business that is mostly reflected in our outdoor and running collections.

Speaker 1

Maybe just add a point here because I think it's very important for where we are taking our business model. We said it on the call that really the way we look at apparel is as a company and the company and it follows a slightly different distribution model, model approach. It will be much more D2C heavy, which doesn't mean we are not working with great wholesale partners as Caspar just said. Retail will play a much stronger role in the physical presence of apparel. As a result, our apparel business is expected to drive also a superior margin profile into the brand. We are not only adding additional customers, but also additional profitability.

Thank you very much.

Good luck.

Your next question comes from the line of JSOL of UBS. Your line is now open.

Great, thank you so much. My question is just, you know, the growth was obviously very strong in the quarter. At the same time the gross margin expanded a lot and the same thing, your inventory looks very lean. Can you just talk about the, you know, how you balance, you know, driving top line growth versus, you know, protecting margins, your premium position, maintain that scarcity model and you know, just delivering the an algorithm, they think it's right for the brand for the long term, but also, you know, in a way that, you know, is allows the company to grow without having any like, you know, operational issues. Thank you.

I mean, I think this is the result of the amazing work that the team is doing and that we really amplify capabilities in the organization across every part. We are really able to manage all the three areas that you mentioned in sync. I think on the gross profit margin, it is just super important to understand that the premium business that we are building is the driver behind the gross profit margin. Of course, building a premium business also requires incredible discipline in your inventory management in order to protect the high share of full price sales. This is the essence of what we are building and you have already seen the power of that business model coming to life in the last two years with our gross profit margin expanding constantly.

This has really been the result of the pricing power, the full price discipline, a more D2C focused channel, operational improvements, and then also economies of scale. In the last months, this has really amplified given the power of our strong team that we have in Vietnam working with the factories. We have now really achieved a new level on gross profit margin that we also consider sustainable. That is, I think, a great place to be given the environment around tariffs. We are fully in control of our future. We will digest our tariffs and still be well above our long term target.

At the same time, we can reinvest into the business, we can invest into the brand, into technology, but we are fully in control on pricing, on doing the right things and also investing into the product. This is the power of that premium position that we are building.

Speaker 2

Got it.

Speaker 1

Thank you so much.

Thanks so much for all the color today, guys. Nice result. Maybe just on the 2026 initial guidance, that 23% rate, was that a constant currency number? Can you elaborate a little bit more on how you get confidence there by region and channel? I'm curious if any geographies or channels or categories should decelerate more than others or what the composition of how you're arriving there is. Thanks so much.

Thanks for the question, Alex. Yes, it's a constant currency number. Also, the 30% that we gave as a CAGR, both are constant currency. I mean, I think it's important, and we had it in the script already, to always be clear on what is our strategic aspiration. This is to become the most premium global sportswear brand. The first focus of what we are building is to increase our addressable market. I mean, about 75% of the people in our markets don't know about On. Increasing brand awareness is a key first step. We are not using a shotgun approach to do this. Instead, we are extremely conscious about the different communities and customer groups we are targeting. If you take Burna Boy and Zendaya, they speak to a Gen Z customer.

If you take Helena Obiri, she builds credibility with all kinds of runners. Joao Fonseca drives a hype in the brand in Brazil. I could go on for forever. What is most important is that we are not fishing in the same pond as everyone else. Instead, On is really expanding the market of sportswear because in the end, our products give our fans an identity that is really rooted in the innovation and the design that we are bringing to the product. We are bringing fans into our shoes and into the apparel that have basically not used sneakers or performance inspired apparel before. Ultimately we are becoming a bigger part of the life of our consumers.

I think it's very important that this strategy is to set ourselves apart from everyone else in the industry, and it also clearly defines on what we are doing as a next step going into 2026 when it comes to products, channels, and regions. Out of that strategy, it's very clear if you look on the product side, you can expect a firework of innovation. We mentioned it on the call. Early next year we will update two of our key franchises, the Cloudrunner, the Cloudmonster. Lightspray will become big, and it will really revolutionize running. We still have a few surprises further down the road for next year. You already see the success of apparel and how this is really incremental to the business.

In retail we are continuing to add about 20-25 doors on an annual basis as we have done this year. At the same time we are heavily investing into our wholesale partners. If you experience On in a physical space in a year from now, it will look very elevated to where it is today. All of this will drive strong growth in each of our region because that strategy will be working in each of our regions. Of course we could not give such a strong outlook for next year if we would have doubts about the growth opportunity that we have in our largest regions, America. This is fully embedded in there.

I think this is the confidence and the strategy that is sitting behind the outlook and the strong increase that we have given on the three year plan.

That's great, caller.

Speaker 2

Good luck.

Your next question comes from the line of John Kernan of TD Cowen. Your line is now open. Good afternoon, this is Krista Zuber on for John. Thanks for taking our questions. Just one on gross margin, you know you raised the fiscal 2025 gross margin expectation. It kind of implies a modest expansion for 4Q against, you know, your toughest year ago compare. Can you walk us through the various sort of tailwinds, headwinds that support the outlook into 4Q and separately I think in the release you mentioned favorable product costing benefits in 3Q and kind of what is the long term outlook for that line item? Thanks so much.

Speaker 1

Yeah, as I just said, I think it's super important to understand that a big part of the upside that we have seen in Q3 or the strong margin that we have seen in Q3 is really based on the power of the business model that we have built. We consider this to be long term. If we look into Q4, I think there is still upside in the margin. We put some prudence in here and then going into next year that sustained uplift will still be there and it will help us to more than offset the additional impacts that are expected from the tariffs to come into the P and L. On top of that, we are benefiting from the current FX environment, from the current freight environment, which will drive additional margin into the gross profit.

Really the important pieces that we have taken a big step above our target that we communicated by improving the business that we have built.

Thank you. Your next question comes from the line of Sam Poser of William Trading. Your line is now open.

Thank you guys for taking my question. Real quick, you said at a conference that, you know, you said that the U.S., you know, that you might, you know, tone down the U.S. growth. How much of what's going on right now of sort of with the really strong growth in APEC and EMEA, how should we think about the U.S. and how much is that sort of more controlled growth?

Speaker 2

It sounds like you're going to do.

Speaker 1

Going forward reflected in the gross margin and the outlook for the gross margin.

Speaker 2

Thank you, Sam. That's a very thoughtful question. Look, executing a premium strategy takes a lot of discipline. The comment that we've made repeatedly also on these calls is that we're not chasing growth by adding especially wholesale doors that don't make any sense. We're also not chasing growth by discounting. I can maybe give you a bit of color around the U.S.

Speaker 1

We'Re very.

Speaker 2

Happy to see that the price increases that we've done now in July of this year have been very well received and we see continued demand growth implying that our affluent consumers are not price sensitive. I think that's a very important fact as a lot of people seem to be concerned about the tariff impact. Secondly, our global brand tracker for the U.S. shows that it's one of the regions where we've gained the most awareness and we're also gaining with relevance, especially with high income teens and affluent demographics combined with a high relevance in running. All the things we do around running, like Helena Obiri winning the New York City Marathon, these things translate into more demand from consumers. Thirdly, as you have heard on the call, Q3 saw less season sales.

We always have a very small % anyway, but we saw even less than we had last year. We are going into this holiday season with a full price strategy. We have no discounts coming up. That is against the backdrop of a very price competitive environment. We are really staying true to the discipline that the premium strategy demands.

Speaker 1

Thanks. When we think about your initial look at 2026 and the raise of the.

Speaker 2

Three year plan is that would that.

Speaker 1

Sort of mean on a FX neutral basis that ongoing, you know, sort of.

Speaker 2

Ongoing double-digit growth in the U.S.

Speaker 1

Significantly higher growth in Asia and the MEA?

I mean, it includes strong growth across all the different regions. As I just said, a lot of the things that we are building, they will amplify the opportunity that we have as a brand, the reach that we have as a brand in all the different regions. Our assumption is based on a continued strong growth of the U.S. and it is on a continued strong growth of Europe and Asia Pacific. I mean just take apparel for example. This is a global story. Apparel is as much underpenetrated in the U.S. as it is in Asia Pacific. The growth opportunity is massive in each and every region. We will expand on retail in all the different regions and at the same time we will not change the philosophy that Caspar just mentioned on expanding wholesale.

We still have about 60% of the key account doors from Foot Locker, Dick's Sporting Goods, and Shady where On is not yet present. That is a multi-year opportunity, but again very much with a focus on building the brand in a very meaningful and controlled way.

Thank you very much.

Hi, thanks for taking my questions and congrats on an excellent quarter. Two questions. One is in APAC, very impressive triple-digit growth. You mentioned triple-digit in Greater China, South Korea. I was wondering if you could share how much of that comes from space versus, you know, same store sales growth or like-for-like growth. Secondly, just a quick clarification question. I think you had your raised guidance implies a mid-20s growth in Q4. We know that tough comps here. I just wanted to track, you know, what are the considerations behind this outlook which still looks pretty conservative. What are you seeing in each regional market since October? Thank you.

Okay. I think in Asia Pacific we talk about very different markets. Japan is a market where we entered in 2015. We have a strong presence with our wholesale partners. We are very carefully expanding with additional retail stores, as we just have opened the one in Ginza. This is a playbook of growing brand awareness and being where the customer is shopping. If we are looking in most of the other regions, and I include China in that, I think On is very much at the beginning of the journey and here we see massive same store growth and at the same time we are extremely disciplined in opening additional stores.

The 20-25 store numbers that I gave earlier, that was a global number, so it includes China, which means we take the same approach as in every other region to very carefully go from one city to the other to build a brand in the right way and to really make sure that there's also strong performance credibility. I think that approach just hits an environment where the demand for a premium sportswear brand is incredibly high and we could easily sell more product there. We see this as a multi-year journey. I think if we look into Q4, and we already gave some colors in the prepared remarks, it's always very important to understand what does the holiday season mean for On.

For us, the holiday season is a moment to connect with our brands about the right gear for the season that we are in. It's to shop for gifts, but it's absolutely not the moment for us to drive sales through discounts. As Caspar said before, our commitment to full price sales is first and foremost a commitment to build the brand long term. When we look into Q4, we had a very strong start into October and into November. We spoke about China. Singles Day was yesterday, 11:11. We have seen incredible momentum in Tmall. Our traffic there has been up by more than 250% and again, it's a full price environment. We achieved our apparel target much earlier than the end of 11:11.

If we're looking into Americas, we had a very strong holiday season last year and we are now expecting that region to be in line or even slightly accelerated in terms of growth compared to what we had seen in Q3. There is a lot of momentum on a global level.

Great. Thank you very much. Your next question comes from the line of Audrey Tianello of BNP Paribas. Your line is now open.

Hey, thanks for taking the questions.

Speaker 2

I wanted to ask about profitability.

Speaker 1

Your EBITDA margin guidance for this year?

Speaker 2

Puts you a year ahead of schedule.

Speaker 1

Versus your 2026 target. How should we be thinking about the progression of EBITDA margin longer term now that you're surpassing some of these targets? Especially Martin, with your comment that there's structural improvement on the distribution expense line.

Speaker 2

Thanks.

Speaker 1

Yeah, I think it's always important to recall the philosophy that we have when it comes to managing our business around profitability. For us it's first and foremost about investing into the business, investing into long term growth, which means investing into brand building, into building capabilities, the team, technology, and at the same time drive additional profitability year by year. We keep on doing this unless there's a moment where our sales just exceeds expectations and we can't invest into the business in a meaningful way. This is a bit what we have seen now in Q3, where really sales came in much stronger than expected and has driven, together with a strong gross profit margin, a high profitability. Our philosophy of approaching that profitable growth has not changed. We will approach next year very much with the same mindset.

How can we invest into the brand? How can we maybe accelerate some of the dreams that we are having that will continue to drive growth well beyond 2026, given the fact that we have a stronger gross profit, we have a solid sales outlook and we have an improved distribution line. At the same time, how can.

Speaker 2

We.

Speaker 1

Drive profitability beyond the outlook that we gave three years ago? This is the mindset that we are approaching 2026 with and then we'll give a precise outlook in March.

Speaker 2

Very helpful, thank you.

Your next question comes from the line of Rick Patel. Raymond James, your line is now open.

Thanks very much.

Speaker 1

You touched on the opportunity with the younger consumer. Can you expand on that? Like what do you define as a young consumer and how big is that business today? Can you unpack your go.

Speaker 2

To market strategy to acquire these consumers.

Speaker 1

As we think about categories and geographies?

Speaker 2

Yes. You know, we entered this space with running, and the running category is typically a bit older. At the same time, you know, we entered the running category with an injury prevention technology, which made it even, even older.

Speaker 1

Right.

Speaker 2

Over the last, I would say about six, seven years, we have gained a lot of traction with younger consumers. You know, working with generational talent like Zendaya has of course helped a lot. You have seen recently we have started a collaboration with Burna Boy to add something more on the, you know, something that is appealing to male teens as well. If you are going across a high school in the U.S., especially in a more affluent neighborhood, you will see the cool kids wearing On. That is a relatively new phenomenon. That is not something we are chasing. It is not that we depend on the market, but it is, of course, very inspiring that we were able to connect to this younger target group. This target group gives us a very long, a very strong LTV.

You may have also seen that we have launched a kids line that is going phenomenally well. It's really hard to keep it in stock. Of course, for the small children, it's the moms and dads buying the product. We are basically leveraging that appeal. We also have a kids line, so basically young teens, where we are also seeing very, very strong results.

Speaker 1

Thank you.

That concludes our question and answer session for today and also the conclusion of our session. Thank you so much for attending today's call. You may now disconnect. Goodbye.