On Holding's (ONON) Strategic Execution and Margin Expansion: A Case for Outperforming the Sportswear Sector

The sportswear sector has long been dominated by giants like Nike and Adidas, but On Holding AG (ONON) is redefining the competitive landscape through a combination of operational discipline, DTC-driven margin resilience, and strategic market expansion. With a full-year 2025 adjusted EBITDA margin of 16.7% and a gross margin of 60.6%, On is not only outpacing peers but also demonstrating a unique ability to scale profitably in high-growth markets. This analysis examines how On's disciplined capital allocation, premium innovation, and geographic diversification position it as a compelling long-term investment.

Operational Discipline: The Foundation of Margin Expansion

On's financial performance in 2025 underscores its commitment to operational efficiency. In Q3 2025, the company reported a gross profit margin of 65.7%, a 510-basis-point increase year-over-year, driven by cost optimization and premium pricing power. This aligns with its full-year guidance of a 62.5% gross margin, reflecting structural improvements in supply chain management and product mix. Meanwhile, adjusted EBITDA surged 49.8% year-over-year to CHF 179.9 million, with the full-year margin now projected to exceed 18%-a significant leap from the 15.5% reported in 2023.

A critical enabler of this margin expansion is On's disciplined capital allocation. In 2024, capital expenditures accounted for 2.8% of net sales, a figure maintained in Q3 2025 at 2.6% of sales. This frugal approach ensures that investments are directed toward high-return initiatives, such as expanding its global retail footprint and enhancing digital infrastructure. As CEO Martin Hoffmann stated, "We prioritize investments that align with our premium positioning and long-term profitability goals."

DTC-Driven Resilience and Brand-Led Growth

On's Direct-to-Consumer (DTC) strategy has been a cornerstone of its margin resilience. By 2023, DTC sales accounted for 46.2% of total revenue, a record high driven by direct engagement with consumers and a robust e-commerce platform. In Q3 2025, this share likely increased further, given the 86.9% year-over-year growth in the apparel category and the 109.2% constant currency growth in the Asia-Pacific region. DTC not only enhances gross margins but also provides valuable customer data, enabling hyper-personalized marketing and product development.

The brand's premium positioning is equally vital. On's focus on innovation-such as its CloudTec cushioning technology and collaborations with elite athletes-has allowed it to command premium pricing without sacrificing volume growth. For instance, the Americas region saw a 21% sales increase in Q3 2025, fueled by demand for new categories like tennis and training sneakers. This blend of product differentiation and brand loyalty creates a flywheel effect, where higher margins fund further innovation and market penetration.

Strategic Expansion in High-Potential Markets

On's geographic diversification is another key differentiator. While the Americas and Asia-Pacific have been standout performers, the company's long-term ambitions extend to China, where it aims to elevate its brand presence through localized marketing and retail expansion. In Q3 2025, the Asia-Pacific region delivered four consecutive quarters of triple-digit growth, a testament to On's ability to scale in emerging markets without compromising profitability.

The Americas, meanwhile, have become a strategic growth engine. With a 21% sales increase in Q3 2025, the region benefits from On's focus on premium innovation and expanding its retail footprint. The company's plan to open 19 new stores globally in 2024 laid the groundwork for this momentum, and its 2025 guidance of 34% constant currency sales growth suggests sustained traction in these markets.

A Thesis for Outperformance

On's strategic execution is underpinned by three pillars: disciplined capital allocation, DTC-driven margin resilience, and targeted expansion in high-growth markets. These factors position it to outperform peers in a sector where margin compression and inventory overhangs are persistent risks. While Nike and Adidas grapple with inventory challenges and lower gross margins (typically in the mid-40s), On's 65.7% gross margin in Q3 2025 highlights its structural advantage.

Moreover, On's long-term financial ambitions-doubling net sales by 2026 and achieving an adjusted EBITDA margin of 18%+-are achievable given its current trajectory. The company's ability to balance growth with profitability, coupled with its premium brand equity, makes it a rare combination in the sportswear sector.

Conclusion

On Holding AG's strategic execution and margin expansion are not accidental but the result of a disciplined, data-driven approach to growth. With a 16.7% adjusted EBITDA margin, 60.6% gross margin, and capital expenditures of 2.8% of sales, On is demonstrating that it can scale profitably while maintaining its premium positioning. As it accelerates retail expansion in China and the Americas, the company is well-positioned to outperform the sportswear sector and deliver sustained shareholder value.