Executive Summary / Key Takeaways

• On Holding AG (NYSE:ONON) continues to demonstrate exceptional financial performance, consistently exceeding expectations with robust revenue growth and expanding profitability, driven by its premium brand positioning and strategic execution.
• The company's differentiated LightSpray technology and continuous product innovation serve as a core competitive advantage, enhancing manufacturing efficiency, sustainability, and product performance.
• A strong Direct-to-Consumer (DTC) strategy, coupled with global retail expansion, is elevating brand experience, driving higher-margin sales, and fostering deep customer engagement.
• ONON is effectively gaining market share from established players, particularly in the running segment, fueled by broad brand awareness, successful product franchises, and high-profile strategic partnerships.
• Management's increased 2025 guidance reflects confidence in sustained momentum, with proactive measures like selective price increases and operational efficiencies mitigating macroeconomic uncertainties and tariff impacts.

The Ascent of a Premium Challenger

On Holding AG, a Swiss-born athletic footwear, apparel, and accessories company, has rapidly ascended to become a formidable challenger in the intensely competitive global sportswear market. Founded in 2010 by David Allemann, Olivier Bernhard, and Caspar Coppetti, ONON's vision is to establish itself as the most premium global sportswear brand, operating at the dynamic intersection of performance, innovation, and fashion. This ambition was evident from its inception, with the company overseeing production of its first Cloudsurfer model in Asia and quickly expanding its global footprint into Europe, the U.S., and Japan within its first three years. This early global mindset laid the groundwork for its significant international business.

The athletic apparel industry is currently experiencing robust demand for performance-driven products, coupled with a growing consumer emphasis on sustainability and the seamless integration of sportswear into everyday lifestyle. ONON has strategically positioned itself to capitalize on these trends, differentiating its offerings through a relentless focus on technological innovation and a premium brand experience.

Technological Edge: The LightSpray Revolution and Beyond

At the heart of ONON's competitive strategy lies its commitment to groundbreaking technological innovation, exemplified by its proprietary LightSpray technology. This revolutionary manufacturing process, recognized by Fast Company as one of the world's 50 most innovative companies in 2025, represents a significant leap forward in footwear production.

LightSpray technology enables the creation of an ultralight shoe upper in a single, automated step using a robotic arm, completing the process in just three minutes per shoe. This tangible benefit translates into a manufacturing process that is significantly faster and less labor-intensive than traditional methods. The technology also promises a simpler supply chain, allowing for production closer to consumer demand, which enhances responsiveness and reduces logistical complexities. Beyond efficiency, LightSpray embodies a radical shift in materials, automation, and sustainability, paving the way for more circular production methods.

For investors, LightSpray is more than just a technological marvel; it is a critical component of ONON's long-term competitive moat. This innovation contributes to higher average selling prices (ASPs) for differentiated products, potentially lowers manufacturing costs over time, and supports better gross margins. The strategic intent behind LightSpray is to solidify ONON's market positioning as a leader in innovation, attracting consumers who prioritize cutting-edge performance and sustainable practices. The year 2025 is pivotal for testing and optimizing LightSpray for global scalability, with production capabilities already ramping up in Zurich and plans for a more scaled facility in South Korea. The company is actively investing in a future-facing team, hiring computational engineers, robotics specialists, and plant engineers to unlock LightSpray's full potential.

Strategic Pillars of Growth: Product, Channels, and Global Reach

ONON's growth narrative is meticulously woven through its diversified product portfolio, strategic channel expansion, and robust global footprint.

Product Portfolio Diversification

The company has successfully built a portfolio of nine distinct footwear franchises, each contributing over 5% to its top line, demonstrating a balanced and resilient product strategy. Key franchises like the Cloudmonster and Cloudsurfer continue to show strong demand, while the newly launched Cloud 6 has garnered fresh momentum. The upcoming Cloudboom MAX, positioned as the first super shoe for the everyday runner, is expected to further energize the running segment. Beyond footwear, ONON's apparel business is rapidly expanding, aiming to become a comprehensive "toe-to-head" sportswear brand. This segment delivered outstanding growth, with net sales increasing by 75.5% at constant exchange rates in Q2 2025. Notably, in the first half of 2025, ONON sold more apparel items than one of its most successful footwear franchises, the Cloudtilt, indicating deepening consumer engagement and a healthy increase in repeat transactions. The company has also successfully expanded beyond running into trail, outdoor, tennis (with athletes like Iga Swiatek and Ben Shelton), and training (through collaborations with FKA Twigs), broadening its addressable market and cultural relevance. High-profile lifestyle collaborations, such as the Cloudtilt with Levi's (LEVI), further illustrate ONON's ability to intersect sports and fashion.

Strategic Channel Expansion

ONON employs a dual-channel strategy that balances the extensive reach of wholesale with the premium experience of direct-to-consumer (DTC). Wholesale remains a vital channel, with products available in over 11,000 stores globally. However, the DTC channel, encompassing both e-commerce and 54 owned retail stores worldwide, is a key highlight. In Q2 2025, DTC net sales surged by 54.3% at constant currency, elevating its mix to a new Q2 high of 41.1% of total sales. These owned stores are designed as "special experiences where product, brand, community and storytelling come together," driving global brand awareness and customer engagement. The company is confident in scaling its retail footprint, with upcoming high-profile openings in Palo Alto, Stockholm, Singapore, and Thailand, and is on track to exceed its long-term target of 10% revenue share from owned stores.

Robust Global Footprint

ONON's global mindset, established early in its history, continues to fuel significant growth across key regions. The U.S. remains a strong growth engine, with brand awareness more than doubling in a single year among teens, positioning ONON as a top athletic shoe brand for Gen Z consumers. Europe is experiencing rapid demand acceleration, particularly in nascent markets like France, Italy, and Spain, which are showing substantial untapped potential. The APAC region continues to materially outpace expectations, delivering its third consecutive quarter of triple-digit growth in Q2 2025 and now accounting for a mid-teens percentage of total net sales. Demand in all APAC markets, including Greater China, Japan, and South Korea, is outpacing supply, driving aggressive expansion plans like the new flagship store in Chengdu.

Financial Performance: A Trajectory of Accelerated Expansion

ONON's financial results underscore its strategic effectiveness and operational prowess. The company has consistently tracked ahead of its 3-year strategic plan (2024-2026), which targeted a 26% net sales CAGR, a gross profit margin of over 60%, and an adjusted EBITDA margin of over 18%.

In the second quarter of 2025, ONON reported record net sales of CHF 749.2 million, representing a 38.2% increase on a constant currency basis. This strong performance contributed to nearly CHF 1.5 billion in net sales for the first half of 2025, a 39% year-over-year increase at constant currency. Profitability metrics also saw significant expansion, with the gross profit margin reaching 61.5% in Q2 2025 and the adjusted EBITDA margin climbing to 18.2%, up 220 basis points year-over-year. This margin expansion was primarily driven by the higher DTC share, lower freight expenses, and favorable foreign exchange tailwinds. While the company reported a net loss of CHF 40.9 million in Q2 2025, this was largely an unrealized foreign exchange impact due to the U.S. dollar's weakness against the Swiss franc, not a reflection of operational health.

From a liquidity perspective, ONON maintains a healthy balance sheet. The cash balance stood at CHF 846.6 million at the end of Q2 2025. Significant investments in its operational backbone and inventory management over the past 1.5 years have led to improved net working capital and cash conversion cycles. Capital expenditures were well-controlled at 2.3% of net sales in Q2 2025, supporting ongoing retail expansion and technological investments like LightSpray.

Competitive Landscape: Outmaneuvering Giants

ONON operates in a highly competitive global sportswear market, directly contending with industry giants such as Nike , Adidas , Puma , and Under Armour (UAA). While these larger players possess immense scale, extensive marketing budgets, and broad distribution networks, ONON has carved out a distinct and increasingly influential position as a premium, innovation-driven challenger.

ONON's core competitive advantage lies in its differentiated technology and premium product offering. Its proprietary cushioning systems and the revolutionary LightSpray manufacturing process provide tangible performance benefits that resonate with dedicated athletes and discerning consumers. This technological edge allows ONON to command higher price points and foster strong customer loyalty, particularly in niche segments like performance running. In contrast, Nike , with its vast product range and mass-market appeal, often relies on broader brand recognition and celebrity endorsements. ONON's focus on direct-to-consumer engagement and a curated product experience provides a distinct alternative to Nike's (NKE) more diversified approach, enabling ONON to gain significant market share, especially in the running segment.

Compared to Adidas (ADDYY), which often emphasizes style and versatility, ONON prioritizes high-performance gear with advanced materials, appealing to consumers seeking specialized athletic advantages. Similarly, against Puma's (PUMSY) youth-oriented, speed-focused designs, ONON's commitment to sustainability and direct customer engagement offers a different value proposition. While ONON's smaller scale can lead to higher operating costs and potential supply chain dependencies compared to these larger rivals, its strategic focus on innovation and premium positioning allows it to thrive. The company's ability to maintain a high gross profit margin (61.5% in Q2 2025) demonstrates its pricing power and brand strength, even as competitors face varying profitability trends. ONON's customer dynamics show a strong connection with both performance and lifestyle consumers, including outsized growth among 18- to 34-year-olds, indicating a broad and resilient appeal.

Outlook and Guidance: Sustained Momentum with Strategic Prudence

ONON's management is highly confident in the company's future trajectory, as evidenced by its increased 2025 guidance. The company now expects net sales to grow by at least 31% year-over-year on a constant currency basis, an increase from its previous guidance of at least 28%. This implies reported net sales of at least CHF 2.91 billion. This revised outlook reflects the strong performance in Q2 2025 and continued powerful momentum into Q3, with July 2025 marking the strongest month in the brand's history.

The gross profit margin guidance for 2025 has also been raised to a range of 60.5% to 61%, up from 60% to 60.5%. This improvement is expected to be driven by the sustained strength of the DTC channel, a focus on full-price sales, ongoing operational efficiencies, favorable freight cost evolution, and positive foreign exchange rates. Crucially, this increased outlook already accounts for a 20% incremental tariff on imports to the U.S. from Vietnam, up from the previously assumed 10%. Management has implemented selective price increases in the U.S. as of July 1, 2025, particularly in the lifestyle segment, and believes no further price increases are needed to achieve these margin targets. The adjusted EBITDA margin for 2025 is projected to be in the range of 17% to 17.5%, validating the company's 2026 target of 18%+.

Underpinning this guidance are several strategic assumptions. ONON plans to maintain a high level of marketing investment (11-12% of net sales) to continue building brand awareness and market share. Investments in LightSpray technology and IT/tech capabilities will continue, with the Atlanta warehouse automation project expected to go live in the first half of 2025, promising future economies of scale in distribution. While the company embeds prudence for potential macroeconomic uncertainties in the second half of 2025 and anticipates ongoing foreign exchange headwinds from the U.S. dollar's devaluation against the Swiss franc, its strong order book and operational excellence provide a solid foundation.

Risks and Challenges: Balancing Growth with Global Dynamics

Despite its strong momentum, ONON faces several pertinent risks. Foreign exchange fluctuations, particularly the U.S. dollar's weakness against the Swiss franc, can lead to significant unrealized FX losses, as seen in Q2 2025. While these do not reflect operational health, they can impact reported net income. Increased tariffs on imports from key manufacturing hubs like Vietnam and Indonesia pose a direct cost challenge, though ONON's premium positioning and strategic pricing adjustments are currently mitigating these impacts.

Macroeconomic uncertainty remains a factor, potentially influencing consumer demand in the second half of 2025. Operational challenges, such as the supply chain disruptions experienced in the first half of 2024 and the ongoing transition to the automated Atlanta warehouse, require diligent management to ensure seamless product flow and customer satisfaction. Furthermore, the intense competitive landscape necessitates continuous innovation and brand building to maintain market share against well-capitalized rivals.

Conclusion

On Holding AG is demonstrating a compelling investment thesis, characterized by its premium, innovation-led growth strategy that is yielding impressive financial results. The company's relentless focus on technological differentiation, particularly with LightSpray, and its robust direct-to-consumer expansion are proving to be powerful engines for market share capture and profitability. Despite operating in a highly competitive industry dominated by larger players, ONON's unique brand positioning and strategic partnerships enable it to outmaneuver rivals and resonate deeply with a broad, engaged consumer base.

With consistently strong financial performance, an upwardly revised 2025 guidance, and a clear roadmap for long-term growth, ONON appears well-positioned to continue its ascent. While macroeconomic headwinds, foreign exchange volatility, and tariff impacts present challenges, the company's proactive management of these risks through pricing power and operational efficiencies underscores its resilience. Investors should recognize ONON's commitment to innovation and its strategic pursuit of premium market expansion as key drivers for sustained value creation in the years ahead.