On Holding is now trading at \~16x forward earnings against a historical average closer to 30-40x, while expected to grow between 18-20% for the next two years, and while maintaining the best gross margin in sportswear of \~65%
Management cut guidance this year, down from at least 23% to low 20s growth, citing that the sector is drowning in inventory and aggressively discounting to clear. Foot Locker (Dick Sporting Goods) revised their guidance in August to a $40–80M operating loss, down from $110–150M of expected profit, exactly because of this.
On's management decided to limit shipments into wholesale as they do not want retailers aggressively discounting On's shoes and hurting the premium brand position.
In Q2: wholesale only grew 12.7% at constant currency, but Direct-to-Consumer (DTC) grew a healthy 34.3% at constant currency, Gross margin also hit a record high of 65.4%
So, management is deliberately sacrificing wholesale growth to protect margin, which means that this deceleration is a calculated choice instead of a reaction to weakness.
But the market does not seem to believe that DTC can offset wholesale lower growth, especially in the Americas. Management did claim DTC accelerated in the Americas, but gave no numbers.
To be fair, inventory levels are up \~31% YoY while net sales grew 13.5%. So at the moment, DTC is not yet fully absorbing weakness in wholesale. Management guidance cut means that they don't expect to be able to do this in 2026.
Management said the remaining wholesale actions land in Q3, which they guided below Q4. Would be worth watching what management will say especially in Q4.
...
I think this is a very interesting situation happening in the sportswear industry. We've all seen what happened to Nike recently. But there is an argument that On is a strong player in this highly promotional market as management is taking the correct steps to protect margin and premium brand identity.
The obvious risk is that estimates continues to come down, growth disappoints, and DTC growth not being able to offset the weakness in wholesale while the market stays promotional for longer than expected. But I think at this valuation, the risk-to-reward is attractive.
Wondering if anyone has looked into On or has any thoughts.
Full analysis: [https://economiyaki.substack.com/p/on-holding-still-hot?r=2wzuop](https://economiyaki.substack.com/p/on-holding-still-hot?r=2wzuop)
