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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.
“The gross margin increase isn't a one-time peak. It is driven by the fundamentals of the brand and our business model, and we consider this new level as our new baseline for the year, as you will hear later from Caspar.” – Departing CFO Martin Hoffmann
d. Balance Sheet
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1.02B CHF cash & equivalents.
No debt
1.1% Y/Y dilution.
e. Annual Guidance & Valuation
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