In case you missed it:

ONON is a premium athletic shoe and clothing company quickly gaining ground against incumbents. 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 in tennis, with expansion into more activities going well. The founders are still involved.

Their focus includes operational excellence to find more cost efficiencies, while using that added margin to fund elite product design and innovation – like LightSpray. As a reminder, LightSpray is On'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, this takes a robot 3 minutes per pair and is comparatively quite cheap. Methodical, consistent innovation like this helps with more OpEx efficiencies, which creates room for more investment and drives more profitable growth. That's the formula here.

The sources of the 16% APAC beat were numerous, as this geography was the standout. Japan (their most mature market) is growing very nicely, while newer APAC markets are enjoying 100%+ Y/Y growth. For more context, holiday events in China delivered “incredible momentum” and exceeded internal targets.

Generally speaking, there was no dramatically over-indexing source of demand outperformance. Results exceeded internal expectations across every channel, geography and product category.

I realize "IFRS GPM" sounds odd, but for GAAP accounting companies, I call it "GAAP GPM" and "GPM" when it's adjusted. I wanted to keep formatting consistent for this IFRS-based company.

More Margin Context:

Lots to unpack for margins this quarter. Durable Q3 GPM tailwinds included:

Those are all sustainable positives. On the other hand, there were 3 temporary items that amplified the leverage in the chart below:

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First, there was a one-off 200 bps benefit from lower freight costs. As leadership explained, they noticed supply chain cost benefits developing through the first half of the year. They weren’t confident enough in Q1 or Q2 to assume these benefits were permanent enough to recognize them. Now they are. This meant a profit boost from releasing some of those previously accrued expenses. Next, there was a timing benefit from when it implemented USA price increases and when higher tariffs took effect. This led to a modest and temporary margin headwind that will revert next quarter. Third, FX boosted GPM by a point. In terms of how much of the Y/Y leverage is structural, here's how I think of it:

The GPM and EBITDA margin raises were helped by the same mix of structural and temporary factors discussed above. They will not be playing the holiday discounting game that competitors are currently leaning into.

Initial 2026 guidance offered on the call got a lot of people rightfully excited. They committed to “at least” 23% Y/Y constant currency revenue growth. With how the relevant currency trends look today, it's safe to assume they're not baking in a 2026 FX tailwind. I'd assume they're including a modest headwind if anything. That means 23.4% Y/Y nominal growth estimates for 2026 should at least be stable following the report. Considering how fluid the macro backdrop is and how conservative this team is with initial annual guidance, I found this highly encouraging. If history is any indication, they've set these targets to be sharply beaten throughout the year. All of this led them to boosting 2023-2026 constant currency revenue CAGR guidance to 26%+ to 30%+. On the margin side, they’re confident in exceeding a 60% GPM for 2026, which is above their 2026 target despite tariffs. This makes the 61.8% 2026 analyst GPM estimate a realistic number.

FX makes EBITDA a better metric than net income for ONON. It trades for 15x forward EBITDA. EBITDA is expected to grow by 43% this year, 19% next year, and 28% the year after. I expect upward estimate revisions in the coming days.

More on Gross Margin:

I’d like to expand on this metric a bit more. While there were temporary tailwinds, the multi-year trends are enabled by wonderful structural factors. This is the byproduct of their approach towards obsessive product innovation and quality. It’s also the result of consistent operational improvements across distribution and everything else that fosters fixed cost leverage. And? It’s the effect of their strict pricing and inventory discipline. They could be growing a lot quicker. They could be selling to a lot more wholesale partners that would LOVE to work with them. They could run promotions during the holidays to boost traffic and maximize revenue. But they aren’t interested. They want to build a generational brand with consistently healthy and margin-accretive growth. That requires tight inventory control and a refusal to participate in holiday discounting. This strategy (and again great products) is what fosters pristine brand quality. That’s why margins are so good and will be again in 2026 regardless of tariffs. This is how they can hike USA prices and witness zero pushback despite consumer inflation sensitivity. It’s not about growing faster for a quarter or two. It’s about “building the most premium brand in global sportswear” and reliably compounding for a very long time.

The team sounds and acts a lot like Shopify – another company I admire in a different part of the economy.

Apparel:

This business is rocking. ONON’s heightened focus on apparel innovation and go-to-market is rapidly bearing fruit and 2x Y/Y growth. Just like for the overall business and their core footwear niche, market share rose across every type of apparel they offer... and in every single market. That tends to happen when you’re enjoying fantastic momentum for a new business segment, but that doesn't make this ramp any less impressive. Apparel is also now directly supporting shoe cross-selling, instead of it only being the other way around.

Notably, all of this momentum coincides with high-quality growth. This revenue will be margin accretive, while these products are attracting younger customers with longer spend runways.

Partnerships & Brand-Building:

Beyond compelling products, it’s using targeted influencer partnerships to pour gasoline on the brand-building fire. Their Zendaya Cloudzone Moon shoe launched, while it added a new tennis lifestyle collaboration with Burna Boy (a rapper – I had to look it up). The arrangement is “resonating strongly with the young demographic.” Perhaps most importantly, athlete sponsorships and collaborations are going very well. They had a few runners win gold medals at the World Athletics Championships, while tennis star Joao Fonseca won the Swiss Indoors as the “youngest champ since 1989.” 

Furthermore, Hellen Obiri was wearing a cutting-edge, LightSpray-based shoe as she broke records at the New York marathon. That should greatly help with interest levels as the LightSpray technology moves from testing to broad release next spring. Generally speaking, the world seeing athletes set records with ONON gear matters a lot. Like Jordan for Nike or Messi for Adidas, seeing legends and icons win at the highest level makes consumers want to wear the same thing. It builds credibility and helps convince athletes that On’s gear is in style; this is directly contributing to momentum across all performance shoes.

Stores & Structural Growth:

On’s thoughtful store builds continue to resonate. It’s the little things… from clean, minimalistic design to its “magic walls” that more neatly organized shoes. In some locations, athletes can be tested for running styles to be matched with the perfect shoe and boost customer satisfaction. Furthermore, these stores emulate community hubs that host running events and so much more. They are so important for brand building. It’s no wonder why all of these things, paired with excellent innovation, are powering great results amid a shaky macro backdrop for consumer discretionary. Brick-and-mortar is supporting better omni-channel shopper frequency, with new and existing stores all contributing to the strong momentum. They’ve just entered Saudi Arabia and opened their first location in Seoul too. 

Things like store growth will provide a wonderfully structural growth offset to the cyclical ebbs and flows of this sector. They have fewer than 100 total locations and stores in fewer than 10 states. There are so many more markets to enter here and around the globe. And they plan to keep opening 20-25 new locations annually in the years ahead. Between this, rising brand awareness and the rising market share coinciding with that awareness, ONON is about as insulated from macro as any other scaled player in public markets. They’re certainly not immune, but as I said in the Discord earlier this week, they should fare better than everyone else... like they did this quarter.

Core Performance Running Shoes:

Every shoe is doing well. The Cloud Surfer 2 and Cloud Surfer Max launches in recent quarters drew “immediate and clear commercial momentum.” The Max product even joined the top 5 running shoes with specialty partners in its first month. That’ll work. Trends should continue, considering it has “strong order books” for the 2026 Cloud Runner 3 and Cloud Monster 3. More launches will continue throughout the year as leadership pushes ahead with their innovation roadmap. This all may sound corny for a shoe, but it’s clearly working based on consistent financial trends (despite a worsening backdrop).

“Next year, if you look at the product side, you can expect a firework of innovation.” – CEO Martin Hoffmann

Americas:

The only source of demand concern surrounding ONON recently has been in the USA. That's mainly tied to macro. The consumer is weakening and many brands are struggling. On’s affluent skew and the structural growth tailwinds mentioned help, but there has still been some worry. Encouragingly, Americas growth is set to accelerate next quarter with only a little help from easier comps. And for 2026, leadership bluntly said they could not give such a healthy initial annual guide if they didn’t expect the Americas to stay strong.

Wholesale:

No changes to their wholesale approach. They are consistently prioritizing a small number of high-quality retailers to grow with. For 2026, order books are “strong” and “reflect partner confidence in On’s innovation.” Leadership reminded us that they’re only in 40% of stores for their major partners. Long runway for growth for this channel, just like everywhere else.

Fantastic quarter. Demand was robust across every single market and product. Margins (excluding temporary help) were excellent and product innovation traction was palpable. The backdrop is not good. Don’t let these results convince you otherwise. They’re just that good.

They're also at a highly compelling phase of their potential growth curve, while obviously being able to take advantage. The mix of store growth, rising brand awareness, rising market share, superb product design and compelling brand partnerships is clearly working. I’m confident in saying this will turn out to be the most impressive report in apparel this quarter, and it’s because their team has created an operational machine capable of cutting through volatile macro. 

The hefty macro resilience won’t last forever. As their store footprint matures and their brand becomes more ubiquitously known, those structural boosts will wane and macro cycles will impact their results a lot more noticeably. Every maturing apparel/shoe company deals with this. At the same time, I think these structural tailwinds all have years and years left to go. They’re not slowing down any time soon. ONON has DTC stores in only 6 states while just 25% of the world currently knows what this brand even is. For these reasons and its stellar leadership, I think ONON’s growth and margin trajectories are quite promising. Its multiple is (still) reasonable too. This quarter and the last few reviews make it clear why I recently bought this name (despite not loving the category). Great job, On Holdings.