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    On Holding (ONON)

    ONON Q3 2024: 50% Direct-to-Consumer Growth, Margins Headed to 18%

    Reported on Jul 28, 2025 (Before Market Open)
    Pre-Earnings Price$52.71Last close (Nov 11, 2024)
    Post-Earnings Price$53.95Open (Nov 12, 2024)
    Price Change
    $1.24(+2.35%)

    What went well

    • Robust D2C Growth & Brand Momentum: Q&A participants highlighted record D2C performance—with strong double-digit growth fueled by strategic celebrity endorsements and targeted marketing that significantly boosted brand awareness among younger consumers and across key geographies.
    • Innovative Manufacturing with LightSpray: Management underscored the potential of the LightSpray technology to revolutionize production by integrating the upper and sole in one automated step, enhancing sustainability and cost efficiency, which could drive long-term margin expansion.
    • Operational & Supply Chain Enhancements: Discussions emphasized ongoing improvements such as inventory optimization and automation initiatives (e.g., the Atlanta warehouse project), which are expected to boost operational efficiency and support future growth.

    What went wrong

    • Continued Inventory & Supply Chain Constraints: Concerns remain over persistent supply chain issues and inventory shortages—which require complex measures like shifting volumes and using airfreight—that could disrupt fulfillment of demand, especially with planned inventory increases for new launches.
    • Margin Pressure and Higher Distribution Costs: The reliance on D2C growth, which drives higher distribution expenses and potential FX losses (e.g., the CHF 37.2 million unrealized FX loss mentioned), could pressure margins if operational improvements or cost benefits from automation projects don’t materialize as expected.
    • Moderation in Wholesale Growth: The reported slight moderation in wholesale channel growth, partly due to inventory constraints and store closures in Europe, raises concerns about the brand’s ability to balance its omnichannel strategy and sustain broader revenue growth.

    Q&A Summary

    1. Margin Outlook
      Q: What is the multi-year margin projection?
      A: Management expects adjusted EBITDA margins to grow from around 15% toward 18%+ over the next two years, with Q4 margins at the high end of the 16–16.5% guidance, reaffirming a focus on long-term, durable growth.

    2. Innovation & EBITDA
      Q: How will LightSpray impact margins and Q4 results?
      A: They view LightSpray as a disruptive manufacturing advancement with scale slowly coming online, while Q4 is expected to show strong adjusted EBITDA performance as investments weigh in for longer-term gains.

    3. Inventory & Supply Chain
      Q: When will inventory constraints ease?
      A: Inventory and supply chain issues are improving, with measures such as shifting volumes to the U.S. West Coast and plans for full automation on the East Coast by spring ‘25 to support growth.

    4. Wholesale & Automation
      Q: How are wholesale losses and Atlanta DC automation affecting operations?
      A: Wholesale moderation partly reflects inventory issues, while the Atlanta automation project is on track to launch in the first half of next year, promising FX benefits and cost efficiencies.

    5. Gross Margin Outlook
      Q: What are the long-term gross margin expectations?
      A: Management remains confident in maintaining a full-year gross margin at around 60.5% through favorable pricing and lower airfreight impacts, despite short-term fluctuations.

    6. B2C Growth Drivers
      Q: What fueled the 50% B2C growth this quarter?
      A: Strong D2C performance was driven by elevated brand awareness, key product launches, and operational improvements, setting the stage for accelerated constant-currency revenue growth in Q4.

    7. Apparel Strategy
      Q: How is the apparel segment performing?
      A: Apparel faced supply constraints in Q3 but is easing, with improvements in sizing and a positive channel mix in own retail and premium wholesale channels offering renewed growth opportunities.

    8. Running Category
      Q: What’s the outcome of SKU streamlining in running?
      A: The streamlined SKU strategy has bolstered balanced franchise growth in core running lines, with notable momentum in the Cloudrunner and Monster models.

    9. Brand Awareness
      Q: What drove the increased brand awareness?
      A: Strategic investments, celebrity partnerships, and global marketing efforts have notably doubled U.S. brand awareness among younger consumers and significantly boosted recognition in key markets.

    10. Marketing Strategy
      Q: How is brand marketing balanced with performance spending?
      A: Management treats brand and performance marketing as a unified approach, leveraging star partnerships to authenticate products and drive demand across channels.

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