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Table of Contents
On Running is a premium athletic shoe and clothing company quickly gaining ground against Nike and Adidas. They have several popular running shoe products, with 8 of them contributing at least 5% of overall revenue. This is not a one-trick pony. In terms of sports, they’re popular for runners and tennis players, with expansion into more activities going well. It’s founder-led, with a focus on operational excellence and creating the next trending category through impactful, focused innovation – like LightSpray. As a reminder, LightSpray is On Running’s new automated manufacturing technique. It uses robotic arms to (as the name indicates) spray a light material right onto the sole of the shoe to form a single-piece, laceless model. Impressively, it takes a robot 3 minutes to make a shoe and is comparatively quite cheap. That combination should be fantastic for On’s long-term margin ceiling.
a. Key Points
- Strong quarter for brand building.
- Healthy traction with younger customers.
- Record margins despite tariffs.
- Strong growth despite the strict dedication to only quality revenue opportunities.
b. Demand
- Beat revenue estimates by 1%.
- Europe, Middle East & Africa (EMEA) growth was held back a bit by war.
- Korea was cited as a country standout this quarter, with 200%+ Y/Y growth and fantastic success across existing stores.
- Beat wholesale revenue estimates by 2%.
- Direct-to-consumer (DTC) revenue slightly missed estimates.
c. Profits & Margins
- Beat 61.4% GPM estimate by 280 basis points (bps; 1 basis point = 0.01%).
- The sharp Y/Y GPM expansion was despite an incrementally larger tariff impact during the quarter.
- The mix-shift to DTC sales and full-price strength helped more than offset tariff headwinds.
- Beat EBITDA estimate by 22%.
- They continue to aggressively invest in brand-building, LightSpray and other innovation.
- Beat 0.27 CHF (Swiss Francs) EPS estimate by 0.10 CHF.
- FX drives big quarterly net income swings. EBIT is a better metric here. FX lowered net income by $0.3M vs. $14.5M Y/Y.
d. Balance Sheet
Subscribe below to read about ONON's Balance Sheet, guidance, valuation, the details of its investor materials published tonight and my take on the quarter and company.
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