Okay, we're going to kick off. Hi, everyone. My name is Aneesha Sherman. I cover sportswear, apparel, and soft lines retail at Bernstein. I'm delighted to have this conversation with Martin Hoffmann, CEO and CFO of On. Morning, Martin.
Good morning.
Before we kick off, we're going to see a short video, and then we're going to jump into the Q&A. A lot of cool product in that video. I'm eager to ask you a little bit more about the pipeline in 2026. But maybe to start with, one of the things that really stands out about the On brand relative to most of the other sportswear brands that you compete with is the premiumness. And this is something you're really passionate about. You recently described it as On's superpower. So let's start with that. Maybe you can talk about what that actually means in terms of how you manage the business, the decisions you make, and then in particular, as you're scaling up this company, is there a point at which you reach a trade-off between premium positioning and scale? Are those at odds with one another?
Yeah, very happy. Hello, everyone. So the premium refers to the vision of the company, which is to be the most premium global sportswear brand. And now, premium is something we can talk a lot about as a brand, but ultimately, this is something that you experience as a customer. It's an emotion that you, as a customer, or we, as customers, have towards a brand. So just think about brands that you perceive as premium, not as luxury, but as premium. And then think about what this does for you. So maybe you have a desire to have a product. Maybe once you have a product, it gives you a certain identity. It elevates your identity. Maybe you think about amazing brand campaigns from those brands. And so our task is to curate this feeling with the customer.
What it really does, it really sets ourselves apart from the mass market, where I feel today's world, there's a lot of competition there. This allows us to actually chart our own path and not just fish in the same pond like everyone else. Now, the second piece of our vision is the vision of a growing company, of a growth company. What we are doing and continue to do is to expand our addressable market. So ultimately, you can think about this. How can we bring more people into our products for a longer period of their day? This has to do with growing our brand awareness, bringing products that are exciting for the customer, leading with innovation. The premium recipe is something that we expand to, or basically apply to, all those communities that we want to be relevant with.
This starts with the product. It needs investing in the product, in the innovation, quality, into the design, into the sustainability. It's then about who are your brand ambassadors, who speak about the brand. How do you distribute this? Discounting doesn't fit to a premium brand. Certain channels don't fit to the brand. Others do very well. Then ultimately, the margin power that you gain from this comes from the position, which is a strength and allows us to reinvest into the business and the team, into the innovation.
So coming out of 2025, it's been a tough year for the sector. Many of your competitors have cut guidance, pulled guidance. You've had some remarkable performance. You've raised multiple times. You are now tracking ahead of your 2026, or you're tracking at your 2026 margin targets. You're on track to exceed your sales targets. Talk about what has driven this outsized growth of the brand relative to what you anticipated three years ago when you set these targets.
Yeah, I mean, you set targets and you have aspirations, and I think the beautiful thing really is that everything that we set out to do is working, and this gives us so much confidence, and it's linked back to what we were just talking about. The DNA of the brand has been there from the very beginning. This is what you do if you are a Swiss brand. You are building a premium brand. Switzerland is not really good in building a mass market brand, and so be it dominating in running. We brought amazing running franchises out, first, the Runner, the Surfer, the Monster. Our expansion in On retail works. Our expansion in apparel works. China became the second largest market for us. Asia Pacific is clearly outgrowing our expectations, so everything is working.
This is the beauty where we are now, that we can make a check on this. We can look at this and say, okay, what are the pieces that will carry us much further in the future? And where do we need to add more things in the near term to continue the growth journey? But we do this out of a very clear understanding of who we are as a brand and what is the superpower that we ultimately have.
Let's talk about holidays. You sounded bullish into the holidays on your last earnings call. Can you give us an update on what the holiday performance was like, any key takeaways, and how do you think the consumer is doing?
It's always important. If you are a premium brand, the holiday period is a moment in time in the year. And you are not existing the rest of the year just to perform in the holiday period. So this is super important. So for us, it is an important moment in terms of sales. But it's not a moment to buy sales. It's a moment to stay true to who we are. So focus on full-price sales. Don't discount inline products. And we had an amazing holiday season last year. We spent even more work going into the holiday season this year to work with our retail partners, our wholesale partners, to ensure that we have all the same mission going into the sales season. We are not discounting. We are promoting the right products. Ideally, we are promoting in a way that everything is additive.
In the end, you harvest in the holiday season what you see throughout the year. I think we have done a lot of great work. Last year, we brought a lot of amazing products. As a result, we also had a really good holiday season. It gives us the confidence going now into 2026. The brand is hot. Our full-price share is very high. We are actually elevating even more on the premium side. Yeah, it's a confirmation of the past that we have. Really, all the channels did really well. Wholesale partners had a really strong sell-out and then also sell-in. Also on our own retail stores, it was like the first time that we really understood the holiday season as a holiday season. We're activating our retail stores as well, which elevated that part of the business.
We are very happy. I think it's always very interesting. Many people think the holiday season is a very discount-driven season. If you look at our share of last season product versus in-season product, it's relatively stable throughout the year. It's not so much elevated during the holiday season. Even so, of course, Black Friday, Cyber Monday are big sales days for us, but with a lot of full-price product.
That's interesting. And the in-season product is not discounted, right? Was not discounted through the holiday.
It's not discounted, yeah.
OK, I want to jump into your core offering, running. This has been a very controversial and competitive area recently. Can you remind us how important is the running category to On's business today? And then as you look at the competitive landscape, a lot of brands are trying to vie for this market share. What do you think about On's ability to continue to grow and gain share in the running category going forward?
Yeah, we were born in running. So we want to stay extremely relevant in running. Our aspiration is still to be the leader in running. We have built amazing franchises: the Cloudmonster, the Cloudsurfer, the Cloudrunner. Two of them are updating this year in 2026. So there's amazing innovation coming to the market. At the same time, we bring LightSpray now. That's a product that really revolutionizes running, but also how products are made. We will launch the first product also on a more commercial platform that is relevant for an everyday runner like you and me as of March. We will do this together with Swiss run s pecialty. The other element is really what we are seeing at the moment is there's a lot of innovation happening around foams. At TRE, we really showed our latest innovation to the market.
What no one else has done so far is being able to combine the superfoams with engineering. We have now brought our CloudTec technology into the age of superfoams. The first product that will have this is the Cloudsurfer 3, which we'll see a pre-launch in October, again, with run s pecialty, because this is the channel that is creating the reputation for the product and the authenticity for the product. It's a very important category for us. At the same time, it's only a part of the business, right? We expand into many different sports. We always embrace that duality of performance and lifestyle and ultimately being a bigger part of your daily life. It's just the life insurance of the brand. That's how we look at this.
A lot of cool product coming out. For those of you who haven't seen this, you should watch the video of the LightSpray shoe being spun together by a robotic arm. Very cool, so I want to talk about non-running as well. You alluded to you've expanded into a number of other verticals the last couple of years. As you look at other categories, what are the characteristics you look for in terms of which categories to enter, and looking forward, where do you see the biggest growth opportunities for On beyond running?
It always comes back to how can we expand the addressable market for On and how can we be relevant for more customers for a bigger part of their day? We expanded from running into tennis, outdoor training over the last years, which really made us relevant with a wider range of customers, with new demographics. Take our entrance into training and the collaboration with Zendaya around this. This has led to a massive growth of our share that we are doing with the 18-35-year-old female customer. Tennis makes apparel extremely visible on court, off court. Our apparel business in the tennis segment is the fastest growing part of our apparel segment. The sports that we find most attractive are the sports that live at its intersection of performance and life, because we want to tap into both markets.
The areas where we are in provide a lot of opportunity for growth in the near-term future. At the same time, I think we can all dream very big about what's still out there. A lot of sports where On is not yet present today. Those are all big opportunities for the future to make the brand much bigger, but also more relevant with an even wider customer group.
So I want to pick up on your point about being at the intersection of sports and lifestyle. It's a point that you've made before as well. Sometimes when we see this mixed shift towards lifestyle, there's obviously increasing exposure to the fashion cycle, more volatility in sales and margins. We've seen other brands go down this path. How do you think about that risk for On?
I think we are extremely aware, and I think there's a lot to learn from history, and this is why that focus on premiumness is so important, because ultimately this is how you avoid this by having the DNA of a premium brand very deep in your organization. And that's why I said before, the performance part is the life insurance of the brand, and you win in performance by bringing innovation and by really disrupting the market, by getting the credibility for your products from people who wear the product at the highest level of competition or challenge the brand in the most fashion-forward way, for example. And at the same time, in today's world, I think it's just so blurry what is performance and what is lifestyle, and that's why I'm saying in the end, it's life. It's our life.
I think many of us can't define anymore. It's like, do I do sports now, or do I move, or do I walk? That's the nice thing about our category that is expanding so much and that fashion really becomes, or sports becomes the new fashion. That's where we want to be. On has a unique opportunity to be standing out here from many other brands because of the design DNA that we have, the innovation DNA. When we think about, also when we think about our apparel business, we think much more about how can we elevate that performance, that fit, that nice comfort with just much more style than other brands are providing. I think it's a, yeah, it's just a big market opportunity. We are very clear how we want to play in there.
What about the channel dynamics? Many of your competitors are going aggressively into wholesale. You've been very controlled about your wholesale growth. You're in very few retailers in the U.S., even within them, not in all doors. Can you talk about the balance of where you see the wholesale growth coming from? Is it new partners, new doors, same-store sales?
I think it's all of this, and again, we always need to start with the customer. On has a brand awareness between 25%-30%, depending on the market that you're looking in. So 75% of the customers don't know us, so they also don't know us when they are in the store. By growing our brand awareness and growing then our relevance with those customers that don't know us yet, or also with the customers that know us today but don't really consider us as a buy, we are growing also the pull that our wholesale partners are experiencing from our brand.
At the same time, with our premium position, we allow to just convert more sales out of the volume that we are selling, which I think is very important in today's world where, especially in the U.S., in parts of Europe, I think a lot of people already use sportswear for a big period of part of their day. So maybe volume growth is more contained in the future than the opportunity to grow basically the sales.
OK, I'm going to ask you a CFO question because you do wear both hats. You have prioritized reinvesting into the business to drive growth. Can you talk about how you manage that toggle between growth and margins? And then as those reinvestments wind down, do you see a big margin opportunity looking forward for the brand?
When we look at margin, both gross profit and EBITDA, I think you need to look at two sides. If you have high margin, it can be the result of two things that you are doing. So the one thing is you build an amazing business that can scale, that have economies of scale, where you build a very healthy margin environment. And we want to do this. And we will make use of every opportunity that we have. On the other side, a high margin can be the result that you simply don't have any ideas anymore where you spend your money. And we have a lot of ideas. And we have a lot of big dreams. And I don't want to have too high margins because then we are not investing enough into the business. We are not following on our dreams.
The philosophy that we had over the last years will be the same also in the future. We want to steadily increase our margin because it gives us the discipline to do the right things and not to do too many things at the same time. We want to keep on investing into the brand. We want to be an exciting brand. We want to invest in marketing. We have big dreams how to invest even more in bigger stories and bigger activations. We want to invest into the team because this is the team that needs to build the future. Ultimately, we are a growth company. We want to continue to be a growth company. The same is true also on the product side. As a premium brand, you need to invest into your product.
Otherwise, your customer at one point will see through this and will say, well, but look, I pay much more, but you give me the same quality that I maybe get from other partners. So a high gross-profit margin is not just the result of a good business. It's also a risky position that you maybe put yourself in. So we also need to find the right balance. And especially in the running business, the customer is demanding innovation. And it's demanding investments into your product. And we can do this while continuously driving higher margins.
OK, another one on margins. There's been a lot of speculation in the last couple of weeks about what might happen with U.S. tariffs. You have put in some mitigation moves this year: pricing, supply chain efficiencies. Do you view those as permanent structural changes that will stay on the P&L regardless of if tariffs get rolled back or not?
Yes. I mean, the nice thing of our premium position is that even before tariffs, we have done so many things right that created a much stronger margin profile that we started to show also in Q3, where we had 65% gross profit margin. So we are digesting the tariffs. And we don't need to basically cut down on our ability to invest in the growth, into marketing, into the people. We can continue to do this. Now, if tariffs will be reduced, we have even more to spend, which is a good thing. And I feel also towards the customer, the structural changes that have happened, they will probably stay. At the same time, you can't overstretch the customer. So you also need to be always very careful with pricing and cannot be driven out of a moment. It needs to follow a long-term strategy, which we are doing.
But I think ultimately what we will see in our industry is a bigger push towards automation. And this is where LightSpray comes in again, because we cannot rely for so much longer just on manual labor being cheap enough to basically run our business model. And I think we are lagging so much behind in our industry in terms of automating how we manufacture product compared to many other industries that maybe the tariffs are a good moment in time, because it allows many brands to spend a lot of money into automating manufacturing, which I think is a good thing for the industry. It doesn't mean that then the manufacturing itself needs to happen closer to home market, but it just makes us much more independent from all kinds of impacts in the world.
Okay, I think that's a good segue into my next question. So taking a step back, your business has doubled in the last three years.
Guidance is to grow over that three-year period with 30% while still having 23% growth next year, at least. And as we were talking about this in the beginning, we have a lot of confidence in how we can continue to grow the brand. And we want to continue to grow the brand. And we are already developing product now for 2028. So we are very clear in the organization where we want to go on our plan for 2028 and how we are able to grow our addressable market. And that's what we are focusing on. And as said, the pillars of growth are very clear. And they will evolve. And the next five years will not be a revolution, but an evolution. But yeah, with a brand that is hot globally and has a lot of momentum, which I think is super exciting for everyone to build.
OK, so just to wrap up then, coming off this three-year plan where you're running ahead of your targets, you've had great operational performance. As you look ahead, what do you think the market is misunderstanding or underestimating most about the brand and about the business?
I don't know if the market is underestimating anything, but usually what I think is underestimated in our industry is the importance of the people, because product and the brand and everything that's around is the result of the team. There are not many other assets that make this work. It's the team. We are extremely proud of our culture, of our team. Last year, we had 200,000 applications for like 600 hires that we did. We're not only a strong consumer brand, but we're also a strong and attractive brand for talent. I think this is another superpower that needs a lot of focus and that needs a lot of work to protect that. Ultimately, only with the right team, you can keep a brand momentum hot and strong. I think we are very clear about that.
Okay, Martin, thank you so much for the time. This has been really informative. Thanks.