Assessing On Holding AG's (ONON) Strategic Momentum and Earnings Performance in Q1 2025

The global running shoe market has long been dominated by titans like Nike and Adidas, but a new challenger-On Holding AG (ONON)-is reshaping the landscape. In Q1 2025, On delivered a performance that underscores its strategic agility and premium positioning, even as it navigates macroeconomic headwinds. This analysis evaluates the company's execution, guidance clarity, and competitive positioning, drawing on its earnings report, industry benchmarks, and analyst commentary.

Financial Execution: Strong Top-Line Growth, Margin Pressures

On Holding AG reported record quarterly net sales of CHF 726.6 million in Q1 2025, a 43.0% year-over-year increase, driven by robust demand across both direct-to-consumer (DTC) and wholesale channels. DTC sales, which accounted for 38.1% of total revenue, grew 45.3%, reflecting the brand's successful shift toward direct engagement with consumers. This strategy bolstered gross profit margins, which expanded to 59.9% from 59.7% in the prior year.

However, net income declined by 38.0% to CHF 56.7 million, primarily due to a significant unrealized foreign exchange loss. Adjusted EBITDA, a key metric for operational performance, rose 54.8% to CHF 119.9 million, with margins expanding to 16.5% from 15.2% in 2024. This divergence highlights the tension between top-line momentum and external pressures, particularly currency volatility and global trade policy shifts.

Management's Strategic Clarity and Guidance

On's leadership demonstrated a clear-eyed approach to navigating uncertainty. The company raised its full-year 2025 net sales guidance to at least 28% growth on a constant currency basis, projecting CHF 2.86 billion in revenue. This optimism is rooted in strong regional performance, particularly in the Asia-Pacific, where sales surged 130.1% year-over-year.

Yet, management tempered expectations by revising gross profit margin guidance to 60.0%-60.5% and adjusted EBITDA margins to 16.5%-17.5%, acknowledging the risks of supply chain disruptions and currency fluctuations. This balanced approach-celebrating growth while acknowledging constraints-reflects a mature understanding of the operating environment. Co-CEO Martin Hoffmann emphasized that "improved operational execution and supply chain efficiencies" underpinned the results, signaling confidence in the company's ability to adapt.

Market Positioning: Premium Innovation vs. Industry Benchmarks

On's success is underpinned by its premium brand identity and patented CloudTec cushioning technology. Its gross margin of 59.9% far exceeds the industry average of 51.26% for the Apparel, Footwear & Accessories sector in Q1 2025. Even compared to peers like Amer Sports (57.8% gross margin) and Caleres (45.4%), On's margins highlight its premium positioning.

Market share data further illustrates On's ascent. While Nike and Adidas collectively hold 58% of the global running shoe market, On's 2% share is growing rapidly, with 40% sales growth in Q1 2025. Hoka, another key competitor, reported 20% sales growth but faces slowing momentum in the U.S., where Deckers' stock has fallen nearly 50% year-to-date. On's Asia-Pacific expansion, including a 32% year-on-year sales increase in China, positions it to capitalize on regional demand for premium performance footwear.

Challenges and Opportunities

Despite its strengths, On faces headwinds. The company's reliance on premium pricing and a single brand aesthetic could expose it to shifting consumer preferences. Additionally, global trade policy shifts and currency volatility remain risks, as acknowledged in its revised margin guidance. Analysts note that while On's innovation (e.g., the Cloudsurfer 2 and Cloud 6) and brand campaigns featuring figures like Zendaya drive differentiation, it must sustain this momentum to outpace rivals.

Conclusion: A Premium Challenger with Clear Pathways

On Holding AG's Q1 2025 results reflect a company that is executing its strategy with precision, leveraging DTC growth and premium pricing to outperform industry benchmarks. Management's guidance, while cautious, is grounded in a realistic assessment of macroeconomic risks. As the running shoe market becomes increasingly competitive, On's ability to innovate and maintain its brand equity will be critical. For investors, the company's strategic clarity and market positioning suggest a compelling long-term opportunity, albeit with a watchful eye on external volatility.