On Holding AG’s Margin Resilience Validates Premium Growth Play Amid Global Trade Crosswinds

The global sportswear market faces headwinds: currency volatility, trade tariffs, and supply chain disruptions. Yet On Holding AG (ON) has emerged as a rare bright spot, with its first-quarter 2025 results underscoring a 28% constant currency sales growth target and adjusted EBITDA margins of 16.5%–17.5%—a testament to its ability to convert premium brand equity into durable profitability. Investors should take note: On’s direct-to-consumer (DTC) dominance, operational discipline, and strategic pricing are not merely weathering macro challenges but turning them into opportunities. Here’s why this stock deserves a place in growth portfolios now.

The DTC Engine: Fueling Margin Expansion

On’s DTC channel now accounts for 38.1% of total sales, up from 33.6% in 2024, and grew 45.3% year-over-year in Q1. This channel’s premium pricing and full control over the consumer experience are driving higher gross margins (60.0%–60.5% projected for 2025). Compare this to competitors like Lululemon or Nike, which rely more on wholesale distribution, where margins are thinner and control is diluted.

The DTC push isn’t just about sales volume—it’s about owning the customer relationship. On’s Asia-Pacific sales surged 130% in Q1, fueled by its 200+ new stores globally and localized marketing campaigns. This geographic expansion, paired with its LightSpray™ technology and celebrity partnerships (e.g., Zendaya), reinforces its premium positioning.

Margin Resilience in the Face of Macro Risks

While On’s net income dipped to 7.8% of sales in Q1 (down from 18% in 2024), this reflects non-operational headwinds:
- Currency Volatility: The Swiss Franc’s strength eroded reported sales and margins.
- Trade Tariffs: U.S. duties continue to pressure costs, though On has factored these into pricing strategies.

Yet adjusted EBITDA margins rose to 16.5% (vs. 15.2% in Q1 2024), proving operational levers can offset external pressures. The company’s supply chain efficiency—including localized manufacturing and inventory optimization—has reduced logistics costs, while its premium pricing power allows it to pass on tariffs without sacrificing demand.

The Case for Buying Now: A Sustainable Moat

On’s raised 2025 guidance—28% constant currency sales growth—is no accident. It reflects:
1. Product Pipeline Dominance: The Cloudsurfer 2 and Cloud 6 are selling out globally, with apparel and accessories now contributing 93% sales growth, diversifying revenue.
2. Pricing Discipline: Unlike peers chasing volume, On is maintaining its $180–$250 price points for flagship shoes, leveraging its “innovation premium.”
3. Scalable Model: With DTC margins averaging 65%+, every incremental sale in this channel boosts profitability disproportionately.

Analysts often overlook geographic diversification: On’s Asia-Pacific growth (130% in Q1) signals untapped potential in markets like China and India, where sportswear penetration lags Europe and the U.S.

Valuation and Catalysts: A Buying Opportunity at Current Levels

On’s shares have lagged peers in 2025 due to near-term net income volatility and macro fears, but this creates a valuation asymmetry:
- Forward P/E: 28x (vs. Lululemon’s 45x and Nike’s 22x), despite faster growth.
- EV/EBITDA: 25x (below industry averages), reflecting skepticism over its margin sustainability.

Catalysts to Watch:
- Q2 2025 Results: Confirming DTC momentum and margin stability beyond Q1’s volatility.
- Store Expansion: 50 new stores planned in Asia-Pacific, deepening brand presence.
- Tariff Resolution: A potential U.S. trade deal could remove a key overhang.

Conclusion: A Premium Growth Story with Margin Armor

On Holding isn’t just growing—it’s proving it can grow profitably even as macro risks intensify. Its DTC-led model, innovation-driven premium pricing, and operational agility form a moat that competitors cannot easily replicate. At current valuations, investors are being compensated for near-term noise while owning a stake in a brand poised to dominate the global sportswear renaissance.

The raised 2025 guidance isn’t just a number—it’s a strategic affirmation that On’s moat is widening, not shrinking. For investors seeking sustainable growth in a choppy market, this is the time to buy ON.

Disclosure: This analysis is based on publicly available data and does not constitute personalized investment advice.