Key Points
On grew revenue by 32% in the second quarter, with particular strength in direct-to-consumer sales.
Foreign currency fluctuations tanked the bottom line, but gross margin and operating profit both improved.
The company raised its full-year revenue outlook to reflect its increasing confidence despite a tough economic backdrop.
Here's our initial take on On Holding's (NYSE: ONON) fiscal 2025 second-quarter financial report.
Key Metrics
| Metric |
Q2 2024 |
Q2 2025 |
Change |
vs. Expectations |
| Revenue (Swiss francs) |
567.7 million |
749.2 million |
+32% |
Beat |
| Earnings per share (adjusted, Swiss francs) |
0.14 |
(0.09) |
N/A |
Missed |
| Gross profit margin |
59.9% |
61.5% |
+1.6 pp |
n/a |
| Direct-to-consumer sales (Swiss francs) |
209.4 million |
308.3 million |
+47% |
n/a |
Powering Through a Tough Environment
You wouldn't know there was intense global economic uncertainty based on On Holding's Q2 results. Revenue for the Switzerland-based premium footwear, apparel, and accessories manufacturer soared by 32% year over year, or by 38.2% adjusting for currency, while direct-to-consumer sales rocketed 47.2% higher. The wholesale channel was strong as well with 23.1% revenue growth.
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Geographically, On reported solid growth across the board. Revenue was up 42.9% in Europe, Middle East, and Africa, up 16.8% in the Americas, and up 101.3% in the Asia-Pacific region. Revenue from shoes soared 29.9% to 704.9 million Swiss francs, accounting for most of On's sales, while revenue from apparel jumped 67.5% to 36.7 million Swiss francs.
On seemingly missed analyst expectations for adjusted earnings per share, but currency fluctuations were to blame. Gross margin improved to 61.5%, up 1.6 percentage points year over year, while operating income nearly doubled. The issue was a 139.9 million Swiss franc foreign exchange loss, which led On to report an adjusted net loss of 0.09 Swiss francs per share.
With a strong second quarter in the books, On raised its outlook for full-year sales. The company now expects to produce at least 31% constant-currency revenue growth, up from previous guidance calling for 28% growth. Gross margin is now expected between 60.5% and 61%, a half-point bump, and adjusted EBITDA margin is expected between 17% and 17.5%.
Immediate Market Reaction
The share price of On was up around 15% in premarket trading with 90 minutes to go before the market opened. While On fell well short of earnings expectations, the miss was due to currency fluctuations.
What to Watch
The strength of On's sales against the backdrop of tariffs and global economic uncertainty speaks volumes about the company's brand. That said, the Americas was the slowest-growing region for On in the second quarter, and the situation could deteriorate as the year goes on.
On's apparel business is growing quickly, but it remains a small part of overall revenue. On has found incredible success with its footwear, but there's no guarantee that it will achieve the same result in related businesses.
On is navigating a tough environment with ease, which should give investors some confidence that tariffs aren't going to derail the company's growth story.
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Timothy Green has no position in any of the stocks mentioned. The Motley Fool recommends On Holding. The Motley Fool has a disclosure policy.
