On Holding: Navigating Tariff Headwinds While Delivering Premium Growth in a Competitive Sneaker Market

In the fiercely competitive sneaker market, where global supply chains and trade policies can swiftly disrupt margins, On Holding AG (NYSE: ONON) has emerged as a standout performer. Despite facing significant tariff-related challenges in 2024—most notably a 10% to 20% U.S. tariff hike on Vietnamese imports, a critical manufacturing hub—the Swiss-based brand delivered a staggering 33.2% constant currency revenue growth in 2024, with net sales reaching CHF 2.32 billion. This resilience underscores On's ability to balance strategic agility with financial discipline, positioning it as a compelling case study in brand resilience amid macroeconomic uncertainty.

Financial Performance: Profitability and Margin Discipline

On's 2024 financial results were nothing short of exceptional. The company achieved a record gross profit margin of 60.6% for the full year, up from 59.6% in 2023, while net income surged 204.5% to CHF 242.3 million. These figures reflect a combination of pricing power, operational efficiency, and a shift toward higher-margin direct-to-consumer (DTC) sales. In Q4 alone, DTC sales grew 43.4% to CHF 296.2 million, contributing to a 48.8% DTC share of total sales—a testament to the brand's direct engagement with consumers and its ability to command premium pricing.

The company's cash flow generation further solidifies its financial strength. Cash and cash equivalents ballooned to CHF 924.3 million by year-end 2024, up 86.9% from 2023, while operating cash flow hit CHF 510.6 million. These metrics provide a buffer against near-term volatility and support On's ambitious 2025 guidance: at least 27% constant currency growth, translating to CHF 2.94 billion in net sales.

Strategic Resilience: Mitigating Tariff Risks and Scaling Innovation

The U.S. tariff increase on Vietnamese imports threatened to erode On's gross margins by 150–200 basis points annually. However, the company mitigated this risk through a dual strategy of pricing adjustments and supply chain diversification. By leveraging its premium brand positioning, On absorbed some cost increases without sacrificing demand, while also accelerating investments in automation and logistics to offset rising production costs.

Innovation has been another cornerstone of On's resilience. The launch of the Cloud 6, a next-generation running shoe, is expected to drive 2025 growth, particularly in North America and EMEA. The brand's focus on “performance lifestyle” footwear—blending athletic functionality with everyday wear—has allowed it to carve out a unique niche in a market dominated by Nike and Adidas.

Macro Risks and Long-Term Outlook

While On's 2024 performance is impressive, challenges loom. The U.S. remains a critical market, and macroeconomic headwinds—such as slowing consumer spending and potential further tariff escalations—could pressure growth in 2025. Additionally, the company's reliance on DTC channels, while profitable, exposes it to inventory risks if demand falters.

However, On's balance sheet and operational flexibility provide a strong foundation. With a cash hoard exceeding CHF 900 million and a gross profit margin consistently above 60%, the company is well-positioned to invest in R&D, expand its retail footprint, and explore strategic acquisitions. Management's emphasis on “operational excellence” and its 17.0–17.5% adjusted EBITDA margin target for 2025 further signal confidence in navigating near-term uncertainties.

Investment Implications

For investors, On Holding represents a high-conviction opportunity in the premium sneaker sector. Its ability to outperform peers in both revenue growth and margin expansion, despite external headwinds, highlights a management team adept at balancing innovation with fiscal prudence. While the stock's valuation—trading at a premium to peers—reflects these strengths, the company's long-term growth trajectory and brand equity justify the premium for those with a multi-year horizon.

Key Takeaway: On Holding's strategic resilience and financial discipline make it a standout in a volatile market. Investors should monitor its ability to sustain DTC growth and manage tariff-related costs in 2025, but the company's track record and innovation pipeline suggest it is well-equipped to maintain its upward trajectory. For a diversified portfolio, On offers exposure to a premium brand with a clear path to outperforming macroeconomic headwinds.