On Holding (ONON): A High-Growth Play in Global Premium Athleticwear

The global premium athleticwear market is undergoing a transformative shift, driven by the rise of direct-to-consumer (DTC) strategies and the relentless pursuit of margin expansion. At the forefront of this evolution is On Holding AG (ONON), a Swiss-based innovator in performance footwear and apparel. With a 2025 Q3 DTC revenue surge of 27.6% year-over-year (CHF 314.7 million) and a gross profit margin expansion to 65.7%-a 510-basis-point increase from the prior year-On has demonstrated a compelling ability to leverage its premium positioning and operational discipline to drive long-term shareholder value. This article examines how On's strategic focus on DTC growth, margin resilience, and competitive differentiation positions it as a standout player in a rapidly evolving sector.

Accelerated D2C Expansion: A Catalyst for Sustainable Growth

On's DTC model has become a cornerstone of its growth strategy, enabling tighter control over customer relationships, pricing, and brand experience. In Q1 2025, DTC net sales surged 45.3% year-over-year to CHF 276.9 million, accounting for 38.1% of total sales. This momentum has only intensified, with Q3 DTC revenue reflecting a 37.5% constant currency growth rate. The company's expansion into high-growth markets, particularly the Asia-Pacific region, has been a key driver. For instance, Q4 2024 APAC sales rose 124.6% year-over-year, fueled by new retail store openings in China and a robust e-commerce presence.

On's DTC success is underpinned by its ability to blend physical and digital experiences. Flagship stores in cities like Chengdu and Shenzhen serve as "brand hubs," fostering community engagement while driving full-price sales. Meanwhile, digital channels benefit from targeted marketing campaigns and a seamless omnichannel strategy, which together have elevated customer retention and average order values. As stated by On's management, "Our DTC model is not just about revenue-it's about building a loyal customer base that values innovation and premium quality."

Margin Expansion: Operational Excellence and Premium Pricing

On's margin expansion in 2025 has been nothing short of remarkable. The company's gross profit margin hit 65.7% in Q3, up 510 basis points year-over-year, while adjusted EBITDA margin expanded to 22.6%, a 370-basis-point increase. This outperformance relative to peers like Lululemon (58.3% gross margin in Q1 2025) and even Nike (65.7% DTC margin in Q3 2025) underscores On's unique ability to balance premium pricing with cost efficiency.

Several factors drive this margin resilience. First, On's DTC model inherently supports higher margins by eliminating wholesale markups. Second, the company has capitalized on favorable foreign exchange effects and operational efficiencies, such as its LightSpray technology, which reduces labor costs and accelerates production. Third, strategic pricing adjustments-such as planned U.S. price hikes for fall/winter 2025-help offset tariff pressures while reinforcing its premium brand identity.

Competitive Positioning: Innovation and Brand Equity

On's differentiation in the premium athleticwear market lies in its dual focus on product innovation and cultural relevance.

Flagship models like the Cloudsurfer 2 and Cloudmonster have redefined performance footwear, blending cushioning technology with sleek design. Apparel sales, which surged 93.1% year-over-year in Q1 2025 to CHF 38.1 million, further illustrate the brand's ability to attract first-time buyers and cross-sell into footwear.

The company's brand ambassadors, including Roger Federer and Zendaya, amplify its cultural cachet, while strategic partnerships with influencers and athletes ensure sustained visibility. This premium positioning allows On to command higher prices without sacrificing demand-a critical advantage in an industry where commoditization risks are ever-present. As noted in a Q2 2025 earnings call, "Our customers are willing to pay a premium for innovation and sustainability, which aligns with our long-term value proposition."

Long-Term Sustainability: Navigating Tariffs and Market Dynamics

Despite macroeconomic headwinds, including U.S. tariffs that have raised apparel prices by 17%, On has maintained confidence in its margin sustainability. The company's proactive approach includes passing on a portion of tariff costs to consumers through price increases and optimizing its supply chain to mitigate volatility. For 2025, On projects a gross profit margin of 60.5%-61%, with full-year guidance raised to reflect its ability to navigate these challenges.

Moreover, the global premium sportswear market is poised for robust growth, projected to expand at a 8.9% CAGR through 2034, driven by demand for sustainable, high-quality athleticwear. On's focus on eco-conscious materials and efficient production aligns with this trend, ensuring its relevance in an increasingly sustainability-driven market.

Conclusion: A Compelling Investment Thesis

On Holding's strategic execution in DTC expansion, margin optimization, and brand differentiation creates a compelling investment case. With a raised full-year 2025 guidance (34% constant currency net sales growth and adjusted EBITDA margin above 18%) and a clear roadmap for global expansion, the company is well-positioned to capitalize on the premium athleticwear boom. For investors seeking exposure to a high-growth, margin-driven business with a strong moat, On represents a rare opportunity in the sector.