ON Q4 2024 Earnings Report

ON EPS Results

• Actual EPS: N/A
• Consensus EPS: $0.20
• Beat/Miss: N/A
• One Year Ago EPS: N/A

ON Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $594.30 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

ON Announcement Details

• Quarter: Q4 2024
• Date: 3/4/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, March 4, 2025
• Conference Call Time: 8:00AM ET

ON (NYSE:ONON) engages in the development and distribution of sports products such as footwear, apparel, and accessories for high-performance running, outdoor, and all-day activities. It sells its products worldwide through independent retailers and global distributors, its own online presence, and its own high-end stores. The company was founded by David Allemann, Olivier Bernhard, and Caspar Coppetti in January 2010 and is headquartered in Zurich, Switzerland.

ON Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Thank you for standing by. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to the ON Holdings AG Q4 and Fiscal Year twenty twenty four Results Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

[Operator]

I would now like to turn the conference over to Jared Peter, Head of Investor Relations. You may begin.

[Jerrit Peter, Head of IR at On Holdings AG]

Good afternoon. Good morning to our investor community. Thank you for joining on twenty twenty four fourth quarter and full year earnings conference call and webcast. With me today on the call are ONCE Executive Co Chairman and Co Founder, David Olyavan CFO and Co CEO, Martin Hoffman and Co CEO, Mark Maurer. Before we begin, I will briefly remind everyone that today's call will contain forward looking statements within the meaning of the federal securities laws.

[Jerrit Peter, Head of IR at On Holdings AG]

These forward looking statements reflect our current expectations and beliefs only and are subject to certain risks and uncertainties that could cause actual results to differ materially. Please refer to our 20 F filed with the SEC earlier this morning for a detailed discussion of such risks and uncertainties. We will further reference certain non IFRS financial measures such as adjusted EBITDA and adjusted EBITDA margin. These measures are not intended to be considered in isolation or as a substitute for the financial information presented in accordance with IFRS. Please refer to today's release for reconciliation to the most comparable IFRS measures.

[Jerrit Peter, Head of IR at On Holdings AG]

We will begin with David followed by Martin leading through today's prepared remarks after which we are looking forward to opening the call for a Q and A session. With that, I'm very happy to turn over the call

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

01/06/2010, my cofounders, Olivier Bernhardt, Kasper Kopetti, and I founded ON on a cold winter day in Switzerland. This was in the morning. In the afternoon, I boarded a plane to Asia to oversee the production of the ON Cloud Server model, our first two. We just got started to dream on. Looking back, zero to one was a tough race.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

It would not have been possible without an incredibly talented and optimistic team that, together with us founders, made On grow into the global sportswear brand it is today. Our gratitude goes to this highly spirited sports team. While every single year has been a new adventure, 2024 was particularly defining as we solidified our global brand presence. This strength translates to the growth we have publicly committed. One point five years ago, we shared our strategic direction for the three year time frame from '24 to '26 with you on strategic ambition to grow into the most premium global sportswear brand and the financial ambition to achieve a 26% net sales CAGR, a gross profit margin of north of 60% and an adjusted EBITDA margin of over 18%.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

Looking at 2024, I'm thrilled to report that we are tracking very well and exceeding our expectations in both top line and profitability. With a very strong constant currency growth rate of over 33%, we have reached CHF2.32 billion in net sales. This includes an expansion of our D2C share by more than three percentage points, extending our superpower to connect deeply with our fans through our own channels. This has further supported premium margins with gross profit margin reaching 60.6% and an adjusted EBITDA margin of 16.7%, validating our path towards our midterm targets. Zooming now, in 2024, ON experienced a new level of global brand loss from its community.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

ON is resonating with millions of consumers across more than 80 countries on all continents. Our collaboration with Robshaw Federer, Zendaya, FKA Twix and ON's presence as one of the most talked about brands in Paris last summer have propelled ON's global brand awareness and earned it the prestigious Brand of the Year award by Footwearyus. Above all, we are truly humbled by the immense love consumers have for ON, their strong engagement and the countless On fans we all encounter everywhere running on trails in cities and while traveling. The boost in brand strength even over indexes on Gen Z consumers where awareness in The U. S.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

More than doubled in one year and has elevated On to one of the top most wanted sports shoe brands among teams in The U. S. No wonder that On ranks amongst the hottest brands in our industry on social media. We manage our brand strategy in three areas: premium product offerings, strategic partnerships and an impactful presence in global markets. First, premium product brands.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

To build our parent brand on, we are supporting it with a family of product offerings and brands, each with their own personality and purpose. Take the Cloud Monster, the Cloud Surfer, the Cloudrunner and the Iconic Cloud. These aren't just shoes their brands in their own right, allowing us to connect with diverse communities and tastes, building lasting loyalty to a franchise even as our products innovate and evolve. Speaking of the cloud, we just soft launched the Cloud six. It's a refresh of an icon, keeping its signature comfort, versatility and functionality.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

The cloud has grown from a running shoe into an everyday essential and one of our most beloved franchises. It's become synonymous with us, strengthening our overall brand. And with the full release just days away, we're already seeing strong momentum. Or take the emerging light spray franchise as an example of a product range brand that will support the innovation positioning of the main ON brand. In other words, ON is building a portfolio of strong product brands that support ON as the parent brand.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

Second, strategic partnerships. We're building the law for the ON brand through lasting partnerships with exceptional talents and brands. As you know, we started with Roger Federer joining ON as a partner over four years ago. Zendaya is now the voice of the next generation and of On. Brand moments like the Air Tennis match between her and Roger, a film highlighting our brand promise to dream on and product campaigns have been incredible so far.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

And you're only seeing the beginning of this partnership they're in for the long haul. Then think about ONT's collaboration with FK Twix around the superpower of sport combined with cultural influences. It's scaling our training vertical. The marriage between sports and culture has created a unique space for powerful collaborations like the multiyear partnership between Lueve and ON. It's clear, meaningful and lasting partnerships build lasting brands.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

Third, high impact presence in global markets. Our world is more fragmented. Life moments and society transcending topics that once united us have become rare and golden. It's harder to combine these universal experiences that connect generations and cultures on a massive scale. ON is navigating the noise and distraction with more than just visibility, but with creativity, relevance and the right strategy.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

Brands that cut through are more valuable than ever. We have two key priorities for penetrating global markets: live sports moments and premium retail stores. First, live sport moments. Sport creates some of the last and rare life moments that inspire conversation across society. It transcends generations, cultures and backgrounds.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

It's where families gather, nations rally and the world watches as one. Now fashion and luxury brands are catching up. They're recognizing the power of sports and diving into the arena headfirst. From the Paris games to sponsoring major events like football and Formula one, they're all vying for a piece of the action. And that's where we come in.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

Only the premium sports brand perfectly positioned at the intersection of performance and cultural relevance. We're not just riding the wave, we're at the heart of it. On leverages these insights to cleverly build brand strength and achieve exceptional results. Take, for example, our recent Super Bowl ad featuring Elmo and Roger Federer captivating millions of Americans and bring on to the center screen. Through a playful conversation about our logo, the two literally put the name of our brand into everyone's mouth and on America's most watched morning show.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

Online spikes went to new levels and the marketing stunt even featured in The New York Times. Elmo perfectly embodies our core value of positive spirit and bridges generations. Roche and Elmo launched a broader campaign centered around softness and our new cloud server tool. In a world obsessed with pushing limits, we encourage runners to embrace soft wins and community. In running the On Athletics Club and its athletes put training together and winning on full display.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

These personalities inspire OnScore community. A few weeks ago, the beloved U. S. Athlete, Cerritt Nougous, set a new world record for the Venom Acre Mile at the Millarose Gaze. His smile and his win lit up the live broadcast and social conversations.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

Our approach to tennis involves creating brand moments around major sporting events and exceptional athletes. This strategy allows us to engage with a wider audience, both young and older. At the upcoming Miami Open, we're hosting the second edition of our On Clubhouse Night. This event celebrates tennis at the intersection of performance and culture. Set in the vibrant heart of Miami, it blends sport, club culture and community, creating a unique and immersive experience.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

You'll see Ben Shelton play against Joao Fonseca on the court, an exciting match set to the pulse of world class DJs at the ON Clubhouse Nights. The massive awareness growth with the young community serves as proof that ON is scaling the brand with live moments in sports that can reach across generations. Live sports moments build love brands. Second, premium retail stores. We are grateful for our online success, but we know the power of major city centers.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

They are the heart of nations and communities. They live in our global consciousness. This is why my first point is that we believe in physical own stores, not just for sales, but to give on apparel a broader presence and to build a beloved brand in the minds of communities. We're going beyond the traditional sports brand, creating premium store experiences that challenge the norm. In 2024, we launched 19 new retail stores in iconic locations.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

Think Champs Elysees in Paris, Vittorio Emanuele in Milan, Ross Street in Chicago and The Emporium, Melbourne. These aren't just stores. They're brand building hubs essential for our growth. And it's working. In cities like Paris and Milan, we've seen a significant increase in regional awareness, proving that a physical presence drives digital momentum.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

At the same time, we're also building retail presence in newer markets with our first distributor led retail stores opening in Santiago De Chile and Jakarta just a few months ago. A physical store acts as a flag in the ground, a linchpin for emerging markets for all. In 2025, we're looking forward to expanding our presence further in other parts of Southeast Asia as well as The Middle East. My second point is that building partnerships with premium wholesale remains a priority for us. Our partners have been instrumental in building the On brand.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

We have been very careful about growing our wholesale network. This deliberate approach has left us with plenty of room to grow our business and brand awareness with the right partners. A recent example, the street facing on Shop in Shop at Selfridges is attracting lots of eyeballs for on apparel. This leads me to my third point, the connection between scaling apparel and physical retail. Powered by our retail expansion, 2024 marked a significant year for ON's apparel business with elevated collections and brand building campaigns sanctioned around Zendaya and Traini.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

Proprietary research reveals that these efforts have significantly increased consumer perception of ON as a head to toe sportswear brand. The expansion of On stores is elevating the visibility and growth of the apparel category for On to a next level. In 2025, we will continue to drive apparel first categories such as training. Our latest training collection was launched in January with the Body is Art campaign featuring SK Twix to enhance our brand presence in jeans. The campaign highlights our approach to training apparel by showcasing an artist who integrates high performance movement with music, arts and culture.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

So bottom line, showcasing the On brand head to toe in landmark stores in major cities and in live sporting events remains a key to brand growth. To wrap up my opening remarks today, strong brands stand the test of time, which is what we're building it on, a premium global sportswear brand with long term value and resilience. Our 2024 financial results exceeded our expectations, filling us with confidence and excitement for the future. We believe that the best days are ahead of us. With our exceptional team, strong innovation and globally relevant brand, we're ready to take on the next fifteen years.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

We're incredibly grateful to our amazing community of ON fans

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

for their love, support and loyalty.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

I would like to thank you all for your support. Your probing questions, your insights elevate our thinking. And with that, Martin, on to the next fifteen years and over to you.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

Thank you, David. I can't wait to celebrate our fifteenth birthday with our team in a few weeks. Before I talk about our plans and the outlook for 2025, let me expand a bit more on 2024. '20 '20 '4 has been the first year of our three year strategic roadmap that we had presented at our Investor Day in October 2023. During this first year, we have made tremendous progress along each of our strategic building blocks.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

And we have proven that each building block will elevate the on brand over the next years and towards our mission to be the most premium global sportswear brand. Our financial results are clearly validating our financial aspirations for 2026 and at the same time 2024 already allow us to start dreaming on beyond 2026. At the core of our strategy is to win in the running community. During the last eighteen months, we have introduced an explosion of new highly innovative products. We have built new levels of credibility through the wins of our athletes and our presence at the largest running events.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

We have reached millions of new and existing fans. Our top three running franchises, Cloudmonster, Cloud Surfer, and Cloudrunner, have grown between 60140% during 2024. We reached more younger customers than ever before. The share of products sold to customers 35 and younger has increased between six and eight percentage points for these three franchises. After tennis, running has seen the strongest growth of all communities.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

2024 has been a breakout year for our new verticals, tennis and training, establishing ON as the brand of choice for consumers seeking the unique combination of performance, design and sustainability beyond our running core. Our ambition to be a true head to toe sports brand is solidified in the fact that we have reached more than CHF100 million in net sales from apparel. During 2024, we renewed the vast majority of our products, expanded our product offerings across running, tennis and training. We introduced different fits and elevated the consistency of our sizing. And we significantly invested into our capabilities to drive sales growth in selected key accounts and our D2C channels.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

While overall apparel net sales on a constant currency base grew 51% in 2024, apparel in our D2C channels grew by 67%, resulting in a significantly higher D2C mix compared to our footwear category. With that, apparel is set up to drive strong growth combined with a strong margin profile going forward. Our success in apparel directly correlates to our successes in own retail that David already spoke about. We're now operating in more than 10,000 square meter retail space. And during 2024, we validated that own retail will not only allow us to drive growth around the world, but also drive an even higher share of more premium products.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

Alongside retail, we also continued significant investments into our multichannel distribution, including but not limited to customer data insights, AI driven automation, online marketplace management and omni channel experiences. During 2024, we became an even more global brand, executing towards our aspiration to grow China to 10% of our sales beyond 2026. We expanded our brand and distribution networks throughout the country, elevated the team and started to develop more China centric products. And last but not least, we took big steps forward on our mission to be an industry leader in sustainability. We will share more in our impact brokers report, which will be published in a few weeks.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

All of the incredible work our team has done across brand product and execution is reflected in the outstanding full year financial performance, lending ahead of our latest outlook provided in November across all measures. With a constant currency growth rate of 33.2%, we closed the year at CHF2.32 billion. Our gross profit margin reached 60.6%, reflecting our premium brand positioning and dedication to full price growth. And we've reached an adjusted EBITDA margin of 16.7%, showcasing our commitment to durable growth while investing for success in the long term. With this, we have also proven the ability to drive significant positive cash flow, increasing our cash position to close to CHF1 billion at the end of twenty twenty four.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

Looking at Q4 in isolation, we see the foundations we have built coming into effect, allowing us to achieve the strongest quarterly growth rate of the whole year. We converted on the incredible brand momentum, benefiting from the increased brand awareness and continued acceleration coming out of the summer and the third quarter. Importantly, we were in a position to execute operationally across the entire supply chain to fulfill the strong demand while remaining disciplined to protect the high share of full price sales. Net sales grew by 35.7 on a reported basis in the fourth quarter and even 40.6% on a constant currency basis, reaching CHF 606,600,000.0. We We had ended the holiday season with the ambition to drive significant growth through our own channels.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

Both our online and retail formats drove record traffic and highest ever quarterly transaction volumes, resulting in an overall record DTC share of 48.8% and CHF296.2 million, significantly higher than any previous quarter in our history. Growth in our D2C channel versus the prior year was 43.4 on a reported and 48.2% on a constant currency basis. Wholesale grew by 29.1% on a reported basis and 34.2% on a constant currency basis in Q4, reaching CHF 310,400,000.0. This growth continues to be driven by our selective expansion with key accounts like DICK'S, JD and Foot Locker as well as the expansion of shelf space and market share with many of our existing partners. While our own channels were able to capture a record high share of demand in the overall marketplace, we are thrilled that our partners similarly saw exceptional sellout growth during the holiday season, a further validation for the brand momentum we are seeing.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

Let me now move on to the developments by region. Net sales in The Americas grew by 28.1 in Q4 and 33.9% on a constant currency basis, reaching CHF 385,100,000.0. The front building efforts outlined by David have led to visibly increasing traffic and very strong performance in both channels. And we continue to be incredibly happy with how our controlled wholesale expansion supports ONS reach and accessibility in the region. At the same time, we observe a meaningful acceleration and contribution from high growth markets in Latin America.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

Our largest market in the region, Brazil, more than doubled net sales compared to the prior year. Some might say this is a result of the Joao Fonseca effect, the latest Brazilian superstar and member of the On Tennis roster, with particularly strong growth visible in the apparel business. In EMEA, Q4 marked the final quarter of lingering year over year impacts from the strategic store closures at the end of twenty twenty three. We're therefore thrilled to see the significant acceleration in EMEA in the quarter, showing the potential of the region to contribute even more strongly to our growth path going forward. Net sales reached CHF147.4 million in Q4, growing by 31% year over year and 33.1% on a constant currency basis.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

The growth is strongly supported by exceptional growth in some of our more nascent markets in Southern Europe, particularly in France and Italy, where the retail stores in Paris and Milan have created a noticeable halo effect. APAC reached net sales of CHF74.1 million in the fourth quarter, representing a reported growth rate of 117.5%. On a constant currency basis, growth was even stronger at 124.6%. The incredible growth is visible across the entire region with Japan and China continuing to be the key drivers in the region. From a smaller base, South Korea, Australia, Hong Kong as well as markets in Southeast Asia are accelerating significantly and further contributing to the broad based momentum and success.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

The standout moment for Q4 was the opening of our second Hong Kong store in November, quickly growing to be on par with our first location and ranking among the top performing stores in our global portfolio. In December, we also kicked off a brand campaign in connection to Lunar New Year in China, introducing a limited edition collection celebrating the year of the snake. The lineup featured fresh colorways and designs and apparel alongside regional favorites like the Cloud X4 and Cloud Tilt and has shown strong sell through well into 2025. Turning to performance by product. In Q4, net sales from shoes grew by 33.6% up to CHF 568,800,000.0.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

Growth continues to be driven by our performance running products. As touched on earlier, 2024 has been the year of deepening our focus on key franchises. This clearly paid off in Q4 with the Cloudmonster and Cloud Surfer contributing significantly to the growth. Running is in our DNA, and we are extremely excited to continue to drive our market share with the great product lineup in 2025 kicked off by the Cloud Surfer two launched a couple of weeks ago. As you heard from David, we're also extremely excited to further elevate our most iconic all day silhouette with the launch of the new Cloud6.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

After a period of successfully focusing on the diversification of our product portfolio and expanding our performance running share, the latest iteration of this classic all day franchise will return to being a significant contributor to growth in 2025 and beyond. While the full scale launch will happen in a few days, demand from our partners over the past months has been amongst the highest we have seen yet. Adoption is definitely not just about shoes anymore. Apparel grew by a very strong 77.5% in the fourth quarter, reaching CHF 32,600,000.0. In a D2C heavy quarter, this resulted in an apparel share of over 5% of net sales.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

Moving down the P and L. Reflecting the record high D2C share, the premium position of the brand and our disciplined full price approach and favorable FX developments, we reached the highest gross profit margin in our history. 62.1% in Q4 marked 170 basis point increase year over year, bringing us to an exceptional 60.6% for the full year and well ahead of our midterm ambition. SG and A expenses, excluding share based compensation, were 50.5% of net sales, up from 48.9% in the same period last year. In order to drive even more print momentum into 2025, we invested a higher share of net sales into upper funnel marketing campaign, which is the primary driver for this increase.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

In addition, we continue to invest into light spray as well as our IT and tech capabilities. We also saw a structural shift from selling expenses into G and A as a result of the consolidation of some of our technology teams and resources into a centralized cross channel setup. The resulting Q4 adjusted EBITDA margin was 16.4%. For the full year, we were able to drive a strong adjusted EBITDA margin of 16.7%, up from 15.5% for the full year 2023 and well ahead of our latest guidance in November. We are very happy with our strong operational profitability, also visible in a very strong net income levels.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

First is supported by the strengthening of the U. S. Dollar versus Swiss franc throughout the fourth quarter and the resulting favorable foreign exchange gain of CHF 38,000,000 in our net financial results. Net income in the quarter reached CHF89.5 million. Moving on to our balance sheet.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

We slightly increased the level of capital expenditure to 2.8% of net sales in 2024 compared to 2.6% in 2023. This was largely a result of our ongoing retail expansion. One position I'm particularly proud about is net working capital. As percent of net sales, net working capital improved from 27.7% in the prior year to 21.5% in 2024. This is the reflection of our culture of innovation excellence and the ability of our team to drive financial strength across the P and L and balance sheet.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

We achieved an operating cash flow of CHF 510,600,000.0, more than doubling year over year. And as a result, our total cash balance stood at CHF 924,300,000.0 at the end of the year, significantly up from CHF 494,600,000.0 at the end of 2023. In summary, 2024 marked a truly exceptional year for ON and one that we will not forget anytime soon. Most importantly, it offered numerous proof points that our core strategic building blocks are paying off, validating the ongoing path towards our vision to be the most premium global sports footprint built on innovation, design and sustainability. All of the achievements and unique moments in 2024 give us an incredible amount of energy for 2025.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

As we enter into the second year of our Tremont Twenty Twenty Six strategy, we're excited to pick up from the foundations built in 2024 and to build on the broad based momentum our team has generated. You can expect another year with big and bold ambitions to tell our story and continuously expand our reach across new and existing communities worldwide. This will include a strong lineup of new product launches. As we take running to the max in the second half of twenty twenty five, fans will be wowed by the launch of the Cloudpoom Max, the first super shoe for the everyday runner. The year will see continued collaborations with talents to inspire across generations, include the launch of Zendaya's first co created footwear and apparel.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

As we build our presence in new markets, as we build our physical spaces to deepen brand connection and expand globally with elevated tech capabilities, we are driving an even more premium experience at every touchpoint. Light spray will be at the core of our innovation efforts in 2025. Our focus will be on building the foundation for rapid scale up and long term profitable growth of the light spray innovation. In spring, we will ramp up our production capabilities in Zurich while building a more scaled production facility in South Korea. An additional focus for 2025 will be on operational excellence, investing into our infrastructure to set ourselves up for long term growth and success.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

We experienced some challenges in 2024, in particular in the first half of the year, which does not allow us to reach our full potential. We are progressing well on the fully automated warehouse solution at our Atlanta facility and continue to expect the solution to go live towards the end of the first half twenty twenty five. While we expect a transition period and potential for incremental costs during that ramp up phase, this continues to be a key cornerstone of our ability to operate at much higher volumes in the future, generating economies of scale over time. With that in mind, I'm happy to move to our financial outlook for fiscal year twenty twenty five. As David pointed out, in 2024, we have tracked ahead of our planned twenty six percent three year net sales CAGR, achieving a 33 constant currency growth rate for the year.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

Driven by the significant momentum we have seen in the business, including a particularly strong second half of the year 2024 and a strong start into 2025, we expect to continue to outgrow our three year plan and to grow ahead of the 26% growth algorithm for 2025 while compounding at a higher base. For the full year 2025, we expect to achieve a constant currency growth rate of at least 27%. At current spot rates across all currencies, we do not expect a sizable FX impact. And therefore this translates to an outlook of at least CHF2.94 billion for the year. On a quarterly base, assuming current rates, we expect some top line FX tailwinds in Q1 and Q4 and some headwinds in Q2 and Q3.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

While we do not provide quarterly guidance, I will point out that we expect a slightly higher half year one growth rate versus the second half of the year 2025. This outlook is based on the impact of the operational disruptions that we had in half year one twenty twenty four as well as the initial sell in of our largest franchise, Cloud6, in Q1. We currently anticipate a gross profit margin of around 60.5% ahead of our midterm ambition of 60% plus. This already implies an anticipated headwind to our reported gross profit margin from the current U. S.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

Dollar to Swiss franc FX levels, which is expected to offset a further margin improvement driven by the continued expansion of our D2C channel as well as the ongoing premiumization of our brand. Throughout 2025, we will continue to invest to drive long term durable growth, while we expect to further increase our adjusted EBITDA margin to 17% to 17.5% and with that to validate our 2026 target of 18% plus. A huge thank you and congratulations goes to our team for another incredible year, fifteen years and counting, and for the opportunity to think bigger than ever before. Thank you all for being a part of our journey, and we look forward to further partnering with you during 2025 and beyond. Let's stream on.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

With that, David, Mark and I would like to open up the session to your questions. Operator, we're ready to begin the Q and A session.

[Operator]

Your first question comes from the line of Aubrey Tieniello of BNP Paribas. Your line is open.

[Aubrey Tianello, Analyst at BNP Paribas]

Hey, thanks for taking the questions and congrats on the results. I wanted to touch on, Cloud6. Martin, you mentioned it returning to being a significant contributor to growth in 2025. Could you maybe elaborate on that point a bit in terms of some of the segmentation work you've been doing there and the difference between the launch this year compared to the Cloud5 launch in 2022? Thanks.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

Aubrey, this is David. I'm happy to take this question. So, you know, the cloud has become an iconic staple that resonates across generations. And we've also seen that the cloud is increasingly resonating with young consumers as a utilitarian part of their uniform. So it's back to that basic staple, and, we're actually gonna celebrate this in the Cloud six campaign that starts in the next weeks.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

So if you look back in shoe history, comfortable, easy slip in shoes have a history of becoming internal classics, and that's what we're really focusing on. So, we see an incredible momentum right now, as Martin mentioned before, from our retailers and also kind of early signs before actually the launch in the next two days.

[Operator]

Thank you. Your next question comes from the line of Jay Sole of UBS. Your line is open.

[Jay Sole, Managing Director at UBS Group]

Great. Thank you so much. Martin, my question is on the guidance, the full year guidance for sales. Can Can you give us an idea of how you're thinking about growth by region? And then just secondly, you mentioned you expect the first half of the year to be stronger than the second half.

[Jay Sole, Managing Director at UBS Group]

There's a lot of talk that the overall consumer environment in The U. S. Has been a little bit weaker since the end of twenty twenty four, since the end of the holiday season, maybe because of weather or whatnot. But have you seen that? And can you just talk about generally what you've seen in The U.

[Jay Sole, Managing Director at UBS Group]

S. So far here in Q1? Thank you.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

Yes. Thanks, Jay. So let me elaborate a little bit on the full year journey and then Mark will dive a bit into the region, including what we're currently seeing in on the demand side. So as I pointed out in the remarks earlier, we come out of an incredible 2024. There's a lot of momentum and we have already seen two very strong months across both channels.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

So we also said that we expect slightly stronger growth rates in half year one compared to half year two. So based on the first two months and the strength that we have seen there, we expect our Q1 growth rate somewhere in the low to mid-30s. And we really expect that our D2C share remains at a similar level than in Q1 last year, which implies that our wholesale channel will grow very strong, which is driven by the launch volume of the Cloud6, but also many other models. And we are seeing a significant sell in volumes there. And at the same time, we continue to see very strong demand in our D2C channels.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

And so we also expect that D2C continues to strong to grow strongly. If you look at the rest of the year, we imply a certain level of prudency in our guidance given the macroeconomic environment, the discussions that we are seeing there and the uncertainties that comes from it. At the same time, if you look at our preorders that we have already for spring, summer and for fall, winter, they point out two strong growth rates. And currently, their growth is above what is implied in our guidance. But as I said, given what we are seeing on the macro side, we want to stay prudent here.

[Marc Maurer, Co-CEO at On Holdings AG]

So let me dive a bit into the regions and probably very much come from our long term strategy that we already elaborated on a lot. So I think what's very important for us is that we're staying true to our strategy to be the most premium global sportswear brand rooted in performance design and sustainability. And this is truly resonating with our consumers. I think we are less exposed to the normal competitive set that some of the other brands are. And we're able to capture basically the potential that comes from our very unique position that we've created over the last years.

[Marc Maurer, Co-CEO at On Holdings AG]

So that has been now reinforced by a doubling of brand awareness in almost all regions. So we spoke about it in the last earnings call. We're seeing it in Asia Pacific. We're seeing it in Europe, not exactly double, but at the higher level already. And we're seeing it in U.

[Marc Maurer, Co-CEO at On Holdings AG]

S. And then it's reinforced by the product launches and innovation stories that we're able to tell and it's reinforced by the retail expansion that we're very much focusing on. And so this causes a lot of positivity now already coming from Q1, but then also looking into Q3 and Q2, Q3 and Q4. When you look into the region specifically, Asia Pacific is very, very strong. You saw our Q4 growth rate of over 100%, Very positive outlook on the preorders, super strong demand going into our own retail stores also outside of China.

[Marc Maurer, Co-CEO at On Holdings AG]

We're looking forward to opening, for example, Tokyo Ginza, which is very important for us in Q2, Q3 this year. In Europe and The Middle East, we're specifically proud of the growth that we're seeing in countries like Paris and Italy, where we focused a lot. So countries that have historically been relatively small start to gain traction and start to contribute significantly. And then in The U. S, I think it's very much a continuation of the brand awareness journey that we're on.

[Marc Maurer, Co-CEO at On Holdings AG]

And we're looking forward to bring many more stores to The U. S. Consumer, own retail stores over the next twelve months and to continue to focus on a very strong full price sell through, which you also saw as part of our Q4 numbers and results in the gross margin that you're seeing right now.

[Operator]

Got it. Thank you so much. Thank you. Your next question comes from the line of James Duffy of Stifel. Your line is open.

[James Duffy, Managing Director at Stifel Financial Corp]

Thank you. Hello, David, Mark, Martin. Compliment to the team on the inventory and working capital management. We're very interested in the investments in consumer insights and some of the data you shared on uptake with younger consumers. The metric on increased uptake of running franchises from consumers 35 is really encouraging.

[James Duffy, Managing Director at Stifel Financial Corp]

Can you speak to where you stand with respect to more youthful penetration and distribution and marketing strategies in 2025 and 2026 to continue that development?

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

Very happy to do that, Jim. So, we are as you mentioned, we have seen a very, very strong acceleration of brand loss for on a global level across 80 countries. And that has been especially true among Gen Z where awareness actually doubled in The U. S. And increased by more than 50% on a global level, so very strong momentum and followership in use and, of course, then as a result of that on social media as well.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

We credit that to our strength of blockbuster partnerships with Zendaya, SKTwix, with Roger Federer and a whole roster of young tennis players, Ben Shelton, for example, Nikos Viatek, Schwozfonzeka. But then also, we feel that live sports moments now you have seen at the Super Bowl. Elmo and Roger talk about ALM and the name of ALM across generations, the upcoming clubhouse nights, track nights that are very much geared at the young community, a young athlete team of the Olympic club. So all these life moments, which are also heavily discussed then on social media, play into that awareness. So these are lasting partnerships.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

It's not de dating, so we're really creating cultural relevance for younger demographic for years to come. And I probably also have to mention the on store expansion that Mark touched on, just kind of the consciousness of city centers, New York, LA, Miami, London, Milan, Paris, Berlin, Tokyo, Hong Kong, Shanghai. This is something that really taps into the minds of young consumers as well and creates a lot of brand visibility. So all of this is contributing to ON, the global love brand across more than 80 countries. And as you know, brand love not only drives loyalty within our existing consumers, but it, of course, also adds a lot to referral, which happens especially within young consumers.

[Marc Maurer, Co-CEO at On Holdings AG]

Kim, let me probably very quickly also elaborate on your 26 question. I think what we're doing is we're trying to be very intentional with how we bring product, brand and channel together to reach the communities that we want to reach and eventually drive an even younger consumer into our product. And so one example is if you take a launch of a lower profile silhouette like the CloudSone, then the question is who is the perfect partner we want to launch this product with and what are the right channels to launch this product with. And so I think what you can expect over the next two to three years is beyond just brand build to really lift the products that we create to bring that together with the right authenticator with this young community and then use the channels that have the credibility to cater to that younger community.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

And, also one coming from my side on the number side. If you look into 2024, the power of the business model that we are building really comes to shine. So we have achieved very strong growth. We have achieved profitability ahead of our expectations. And at the same time, we have invested into brand building and marketing at the highest level of the last three years.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

And so this clearly shows that the premium position and the margin that we are driving allows us to continuously invest into building the brand forward. So there is a higher share than last year that went into upper funnel investment along the strategies that David and Mark were talking about. So this was not spot volume, but it was really upper funnel investment into the future. And I think this is the direction that we are going and where we also commit ourselves towards for the future and which will drive growth beyond '26.

[James Duffy, Managing Director at Stifel Financial Corp]

Thank you so much.

[Operator]

Your next question comes from the line of Alex Stratton of Morgan Stanley. Your line is open.

[Alex Straton, Analyst at Morgan Stanley]

Great. Thanks so much for taking the question. Congrats on another great quarter and year. I wanted to focus on full year apparel hopes, great momentum in 2024 out of that category. And I think that the assortment will be fully repositioned here in 2025.

[Alex Straton, Analyst at Morgan Stanley]

So how should we think about that growth in 2025? Is it distorted to any geography? And then bigger picture, how do you think about apparel, and what it can be as a percentage of total revenue over time? And also on kind of point of differentiation in that category? Thanks so much.

[Marc Maurer, Co-CEO at On Holdings AG]

Thank you, Alex. I think we're very proud that for the first time we've broken $100,000,000 in apparel sales. At the same time, the growth potential is still so big. So that number should be much, much bigger in the future. We communicated that in the long term we want to or in the midterm we want to bring apparel to 10% of our revenues.

[Marc Maurer, Co-CEO at On Holdings AG]

So I think this is the journey that we're on. What you can expect to see on how to get there is basically regions that have a stronger own retail presence will, in percentage of overall revenue, will potentially overperform on apparel because you see a very strong correlation between apparel success and own retail doors. So we often spoke about an apparel share of above 20% in our own retail doors. What you can also expect to see is a lot of investment that goes into our e comm engine so that we're able to communicate our apparel collections in the best possible way. We still feel we have a lot of potential to bring the offering in the most commercial way to our consumers.

[Marc Maurer, Co-CEO at On Holdings AG]

So there's a lot of focus going on elevating our apparel share on econ. And then I think the last thing that you can also you will also see is that through a more focused and streamlined approach on the collections, we should see a higher basically sell through share on specific items, which leads to an overall acceleration. So we feel right now that the offering is still a bit too broad and we want to streamline that, want to continue to work on the consumer promise and that should overall result in an even stronger sell through on the overall on some of the items. And with that, you'll see an overall acceleration of the apparel. So end of the apparel number.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

I'll let's probably also to connect that back to our marketing approach. You will also see that we connect our apparel and push much more to some of our most important partnerships. So you're going to see the first co created edit in apparel with Zendaya. You've seen the Body's Art campaign that we build around FK Twigs. So we really use these amazing ambassadors for pushing our apparel growth.

[David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG]

And so I think that's going to be important as well for the future of apparel that apparel really has a voice at all.

[Alex Straton, Equity Research Managing Director at On Holdings AG]

Thanks so much. Good luck.

[Operator]

Your next question comes from the line of Jonathan Komp of Baird. Your line is open.

[Jonathan Komp, Senior Research Analyst at Robert W. Baird & Co]

Yes. Hi, good afternoon. Thank you. Martin, can I follow-up on the outlook? I know you're building in planned efficiencies.

[Jonathan Komp, Senior Research Analyst at Robert W. Baird & Co]

Could you just talk about how you're planning the business and where you expect to see efficiencies that are helping to feel the marketing plus margin expansion? And then maybe just a bigger picture question tied in with apparel, but some of your other initiatives. As you think about the long term objectives to reach your 10% of revenue or more apparel, D2C, retail, China, how are you tracking overall to those longer term objectives?

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

Thanks again.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

Good. Hi, Sean. Let me start with the first part. Mark takes the second part. So in 2025, we expect leverage in our G and A line, which we currently see as the key driver to reach that range of 17% to 17.5 adjusted EBITDA margin.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

We spoke about our warehouse automation project in Atlanta and we spoke about the headwind that we expect during the first month of operation operating that warehouse from the fact that we simply have a high fixed cost base and over time move volume into that warehouse. So depending on the scale up of that solution, we will see benefits on the distribution side as well already in 'twenty five compared to the full year 'twenty four picture or that maybe comes in a little bit later into early twenty twenty six. So that will be a key driver of where do we end up in the range of our profitability target. And at the same time, we want to keep the marketing spendings on a high level, so in the range of 11% to 12% in order to continue to invest into the business going forward, continue into the younger areas that you just spoke about, so apparel, retail, but also in our key markets and continue to drive brand awareness there.

[Marc Maurer, Co-CEO at On Holdings AG]

On the more long term 10% target, I think that the reason also why we stated it together is because they are strongly interlinked, right? So I think how retail, how apparel and how China evolves is all connected. When we look at apparel, we're probably slightly behind than where we would have wished to stand today. But at the same time, we feel we very much know what are the key elements to accelerate. I think we spoke about the acceleration that we expect.

[Marc Maurer, Co-CEO at On Holdings AG]

So really linking back to the answer we already gave to Alex's question. And what's very important there is that with the retail space that we're now creating, we're really, really expecting for that number to continue to grow over proportionally. And so that takes a little bit of time as we want to allocate the right retail locations over time and want to make sure that we have enough space to bring the apparel collections in the right way to our consumers. On retail, I think we're super happy where we stand. It's really a question of how fast do we get access to which locations.

[Marc Maurer, Co-CEO at On Holdings AG]

Overall, we want to have bigger spaces than we have today, so you can expect an over proportional square meter growth versus store growth over the next years to come, but we're super happy where we stand and how profitable the channel is for us. And on China, we're currently standing at 58 stores, to give you an example, by the end of twenty four. So that's 30 owned retail and 28 franchise stores. We're growing that to roughly 40 owned retail and roughly 40 franchise stores, so to 80. And these stores will be bigger than what we have today.

[Marc Maurer, Co-CEO at On Holdings AG]

We're opening two flagship locations in Chengdu and Shenzhen this year. And so I think what you can expect to see is that in China, the consumer demand and the awareness that we're creating will be able to be captured in a better way through more point of sales that speak to the consumer in a more authentic way. And so very much very, very happy with where we're there. So I think overall and this is always important for us when we speak to the team as well, it's not just about the number that we reach. It's about are we doing the right things and are we really tracking on the initiatives that we set out as part of our LRP.

[Marc Maurer, Co-CEO at On Holdings AG]

And very happy to note that on retail and on China, we're definitely on track. On apparel, we're slightly behind, but we're very hopeful and positive on the future outlook.

[Jonathan Komp, Senior Research Analyst at Robert W. Baird & Co]

That's very helpful. Thank you.

[Operator]

Your next question comes from the line of Anisha Sherman of Bernstein. Your line is open.

[Aneesha Sherman, Analyst at Bernstein]

Thank you so much. So I appreciate you're not giving quarterly guidance, but I wonder if you could give some more specific color on the cadence through the year of some of the headwinds you faced last year. So there was the European store closures, there were some marketplace allocation shifts, there were supply chain disruptions in North America. Could you give a little color on the relative size of these headwinds and also the cadence where they all H1 weighted, which should help us model out the relative growth this year? And then I have a quick follow-up on door growth.

[Aneesha Sherman, Analyst at Bernstein]

You mentioned retail door growth, but for wholesale, last quarter you talked about 5% to 6% door growth over the coming year. Is that still your view into FY 2025? And is that true across regions? Thank you.

[Marc Maurer, Co-CEO at On Holdings AG]

I'm very quickly going to take the wholesale question and then Martin is going to take the other one. So yes, it's still true. So we ended last year at 10,700 wholesale doors and we are looking into expanding that to roughly 11,300 wholesale doors. So we're very much in line with what we've communicated. Very importantly, so you can expect to see additions with some of the key accounts that we're already working with.

[Marc Maurer, Co-CEO at On Holdings AG]

So you look at Foot Locker, you look at exporting goods, you look at JD, we're very much looking forward to really start a partnership with Snipes as well, especially in Europe. So it will be a set of the partners that we're already working with, but just slightly some additional doors with these existing partners. And Martin will take your other question.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

Yes.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

So really, for us, the focus is executing on our three year plan. And we, with the numbers that we have given, we are clearly tracking ahead of that three year plan. And we see that all the elements are really working and that we can fully focus on the execution of those growth drivers. And we pointed out last year that especially in the second quarter, we had seen impacts from the disruptions of our operations, especially out of the Atlanta warehouse. But we also pointed out that this was less so on the overall supply of products or customers, more so on the channel mix.

[Martin Hoffmann, CFO & Co-CEO at On Holdings AG]

So probably B2C was impacted in the second quarter. And so we expect, therefore, positive effect there on the growth rate. But really, for us, it's about the execution for the rest of the year and focusing on debt and less on the quarters. And at the same time, as said, our preorders indicate strong growth across the whole year. And at the same time, we want to stay prudent in the light of the uncertainties that are there.

[Operator]

Thank you. Your next question comes from the line of Cristina Fernandez of Telsey Advisory Group. Your line is open.

[Cristina Fernández, Managing Director & Senior Equity Research Analyst at Telsey Advisory Group]

Hi, good morning and congratulations on a strong finish. I would love to get your thoughts in general on the competitive landscape for 2025, how it compares to recent years and in particular some of the bigger brands are looking to reinvigorate their running franchises and penetrate further or go back to the specialty running channel. So, your thoughts there would be appreciated. Thank you.

[Marc Maurer, Co-CEO at On Holdings AG]

Thank you, Christina, for the question. I think we're very aware of the competitive landscape and we observe how our fellow, kind of competitors are looking at their innovation pipeline and how they're working with the wholesale partners. What's important for us is that and I think we have already tried to highlight that at the beginning of this Q and A. We feel that ON is in a very different position than many of our competitors because we are more premium, which allows us to capture different price points and allows also within the channel partners that we're in to capture a very specific consumer segment in this channel with these channel partners. We feel we're bringing innovation to the market that's very much rooted in performance design and sustainability.

[Marc Maurer, Co-CEO at On Holdings AG]

And if you look at the product like Light Spray, we feel it's very differentiated to what some of the other brands had. And with that, it allows us to tell very differentiated stories together with our athletes and influencers that we're working with. And so as a result of that, we can capture a lot of our consumers through our own channels as well. So you saw that reflected in our Q4 numbers. And these channels in return again allow us to basically focus very much on a full price sell through, which then results in a higher margin profile.

[Marc Maurer, Co-CEO at On Holdings AG]

And so we're very happy with where we stand as a brand with the strategy that we have. And what we currently see also looking at 25% is that that strategy is being appreciated and it allows us to not play in the field of where all the others are playing, but capture a different consumer with a higher margin profile.

[Operator]

Thank you. We have run out of time to take any further questions. So that concludes our Q and A session. We thank you for your participation. This now concludes today's conference call.

[Operator]

You may now disconnect.

Participants

Analysts

• Jerrit Peter, Head of IR at On Holdings AG
• David Allemann, Co-Founder & Executive Co-Chairman at On Holdings AG
• Martin Hoffmann, CFO & Co-CEO at On Holdings AG
• Aubrey Tianello, Analyst at BNP Paribas
• Jay Sole, Managing Director at UBS Group
• Marc Maurer, Co-CEO at On Holdings AG
• James Duffy, Managing Director at Stifel Financial Corp
• Alex Straton, Analyst at Morgan Stanley
• Alex Straton, Equity Research Managing Director at On Holdings AG
• Jonathan Komp, Senior Research Analyst at Robert W. Baird & Co
• Aneesha Sherman, Analyst at Bernstein
• Cristina Fernández, Managing Director & Senior Equity Research Analyst at Telsey Advisory Group