Hello, everyone. Thank you for joining us, and Welcome to the On Holding AG Q3 2026 Results. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Liv Radlinger, Head of Investor Relations. Liv, please go ahead.
Good afternoon and good morning to our investor community. Thank you for joining On's third quarter earnings conference call and webcast. With me today on the call are Caspar Coppetti, Founder and Co-CEO, and Frank Sluis, CFO. David Allemann, Founder and Co-CEO, will join us for the Q & A session. Before we begin, I will briefly remind everyone that today's call will contain forward looking statements within the meaning of the federal securities laws. These forward looking statements reflect our current expectations and beliefs only and are subject to certain risks and uncertainties that could cause actual results to differ materially. Please refer to our annual report on Form 20-F for the 2025 fiscal year, filed with the SEC on March 3, 2026, for a detailed discussion of such risks and uncertainties. We will further reference certain non-IFRS financial measures, such as adjusted EBITDA and adjusted EBITDA margin.
These measures are not intended to be considered in isolation or as a substitute for the financial information presented in accordance with IFRS accounting standards. Please refer to today's release for a reconciliation to the most comparable IFRS measures. We will begin with Caspar, followed by Frank, leading through today's prepared remarks, after which we are looking forward to opening the call for the Q & A session. With that, I am very happy to turn the call over to Caspar.
Thank you, and a very warm welcome to everyone from Zurich. Seven weeks ago, we were thrilled to host so many of you here with us for our second Investor Day. You walked through our lab, our maker space, and our foam competence center. You watched a LightSpray upper come together in minutes, saw the design-led vision that will take our apparel business to the next level, and got a first look behind the curtain at our plans for new sports. No slide deck and no earnings call can ever bring On's culture of innovation to life quite like being here, and we are grateful to those of you who made the trip. On that stage, we made a clear commitment for the next three years: to redefine what a sportswear brand can be by running the On Premium Playbook.
We aim to grow faster than our industry and grow earnings even faster than sales, with the goal of making On the high-quality earnings compounder in our industry. Today, we report the first quarter of that plan, and we are thrilled with the progress that we are making. Net sales in the quarter grew close to 18% in constant currency to a record CHF 931 million, ahead of the latest expectation we provided you in September. For the first time, we have crossed CHF 900 million in a single quarter. That is more than 4x the size of the quarter in which we went public five years ago. At the same time, our underlying gross margin and adjusted EBITDA margin reached the highest levels in our history.
That is the On Premium Playbook doing exactly what it was built to do: growth and margin together, and not or. We delivered these results in what remains a highly promotional environment by staying true to who we are. That means leading with innovation, design, and resonant storytelling, giving our fans a unique offering that they do not find elsewhere. In a high-discount environment, there will always be some consumer choices based on price. It has never been our strategy to go for these. In such an environment, we are just as committed to premium as our highest principle. We are incredibly proud of what we have delivered this quarter, with our new technologies and styles selling strongly at full price.
This strategy is what allows us to reach record profitability while investing meaningfully in the three years ahead, in the technology that will run On at the scale of our 2029 ambitions, and behind football and golf ahead of their launches next year. Much of that investment lands in the second half of this year, and it is exactly what sets us up to deliver 2027 and beyond. Now, let me show you how the On Premium Playbook came to life in Q3 through the three strategic growth engines we set out in Zurich: performance led by run, lifestyle led by sneaker, and apparel led by her. In performance, we lead with run. In this quarter, the biggest innovation cycle in our history got off to a flying start, proving once again that running remains our origin and our core.
In Zurich, Scott told you about a day he and I spent in a run specialty store in the U.S., watching runners pick up our shoes and put them down again. We brought what we saw home, put every function around it, and built the shoe in record time, the first masterpiece of our new sensation-based franchise architecture, introducing On's breakthrough Surreal Superfoam combined with a new CloudTec geometry. That shoe is the Cloudsurfer 3, and in October, it launched with select run specialty partners. The early signals are exceptional. In its first week, the Cloudsurfer 3 sold through at more than 4x the rate the Cloudsurfer 2 did in its launch week.
It is already the number one model with several of our key run specialty partners, and we are pleased to see their teams so invigorated by it, introducing it to their fans with fittings, group runs, and in-store events. This momentum is fully echoed by key run influencers and industry media, who have praised the shoe as a premium leap forward for everyday runners. This is only the first shoe with our Surreal Superfoam. By the end of 2027, almost all our performance running franchises will run on one of our new supercritical foams. On's pinnacle product, the Cloudboom Strike 2, keeps showing the world what our innovation technology can do. Demand for the LightSpray version was six times greater than what we could produce, selling out in our U.S. online store on launch day. Our athletes have carried it through the autumn season.
A double victory in the Frankfurt Marathon was followed by a milestone in the New York City Marathon. The first time On athletes reached the podium in both the men's and the women's race at the World Marathon Major. In the Cloudmonster franchise, the laced and LightSpray Hyper, the most advanced expressions, keep taking a larger share. Runners can feel the difference the technology makes for them, and they are choosing the very best of it. These successes and the generational updates coming to our core franchises through 2027 give us strong confidence in our ability to win meaningful share in premium running, a market that continues to grow faster than the industry around it. In lifestyle, we lead with sneaker. This quarter, the Cloudtilt was again one of the fastest-growing sneaker franchises in the whole industry, and every new expression is bringing in new fans.
The Cloudtilt Arc launched in September and beat our plan in all three regions in its first days. In Asia Pacific, by more than 4x . In Europe, the Cloudtilt is fast becoming a Gen Z staple, taking significant share with this important consumer. The story is much bigger than one franchise. The Cloud, which also featured in our football edits, continues to show strong momentum, a true evergreen product and icon franchise. By seamlessly connecting this classic silhouette with our high-profile entry into football, we are driving significant cross-category brand heat and introducing our performance heritage to a whole new generation of lifestyle consumers. In October, two new silhouettes joined the lineup: the Cloudnova Moon Mary Jane, created with Zendaya, and already trading well above retail on resale platforms, and the sleek, lower-profile Cloudmuse, which has beaten our forecast since launch.
Next year comes the Cloudswift 5, our first sneaker designed from street codes up. The Cloudtilt was just the start. In apparel, we lead with her. Apparel grew 38% at constant currency, and we are on track with our goal to triple net sales over the next three years while extending our share of wallet with existing customers. Winning with her is a long game, and this quarter showed exactly how we will win it. Product designed for her in environments built around her. On the training floor, we launched new Train Tights in FormTec, a fabric developed to sculpt and shape, and backed them with our women's training campaign, and women's share of our train collection rose meaningfully.
Then in October came our latest collection with Zendaya, a bold design statement in python prints, and the most visible apparel moment in our history, a reach of 2.5 billion, close to 90% positive sentiment, and top styles selling out across markets within days. Retail continues to be the engine that drives our apparel ambition. In our new generation fleet, apparel share is already at least 50% higher than in our existing stores, and apparel productivity is growing faster than footwear across the whole estate, a strong validator as we look to more than double our store apparel productivity over the three-year horizon. Per product, per moments, per store. It is early, but it is working. Beyond our three strategic growth engines, we showed you in Zurich how we are building for the decades to come with new sports.
We are only weeks into their journey, but the earliest signals from football have been remarkable. Our announcement post became the most seen story in On's history, and in the days that followed, e-commerce sales of our campaign products more than tripled in France and more than doubled in Germany and Spain. That is the halo before we have launched a single boot. Golf follows in the first half of next year, and we will build both sports deliberately. We are thrilled with everything we have seen so far and even more excited about what lies ahead. The On Premium Playbook everywhere. That conviction ran through every channel and every region this quarter. In the Americas, the work we did with our wholesale partners over the summer, enhanced storytelling, more tech rep education, more shop-in-shops, paid off. Sellouts strongly improved from the second quarter.
Our partners' inventory is healthy, and the Cloudsurfer 3 has landed successfully into exactly the market we wanted. In Asia Pacific, we are building a brand that not only lasts, but is loved. That means expanding deliberately and elevating as we go, upgrading select locations, opening in some of the most in-demand premium mall locations, and adding incredible new stores in the region's greatest cities. It means the same discipline in every channel and every market, and it means engaging our fans even more directly through more than 1,000 tweet events a year. Japan shows how powerful that combination can be. In one of the world's most premium and culturally influential markets, demand for On continues to outpace supply. When our latest drop with Kith landed in September, it sold out almost immediately.
The very next morning, we took it to the streets of Shibuya with a community run that reached well over 1 million people organically. Every decision we make is the On Premium Playbook in action. Market-leading growth at remarkably strong margins. That margin funds investment into the superfoams, the robots, the stores, and the athletes that create the next wave of demand, enabling us to keep growing at pace from a bigger base. The margin funds innovation, the innovation earns the margin, and the loop turns again. As we said at the Investor Day, simple in principle, demanding in practice. Powerful because it compounds. Seven weeks into the plan, it is already compounding. Frank, please take us through the numbers.
Thank you, Caspar, and good afternoon, good morning, everyone. This is the first quarter of the plan we set out at our Investor Day and embodies the On Premium Playbook that we showed you there, growth and margin together. Net sales of CHF 931.4 million, a new record. A gross margin of 66.9%, excluding tariff refunds, the highest in our history. Cash of CHF 1.34 billion, up more than CHF 300 million since the start of the year. I am very pleased to walk you through the results in more detail. Net sales grew 17.8% at constant currency and 17.2% reported, and every region, every channel, and every category contributed meaningfully. Wholesale grew 13.2% at constant currency and 12.2% reported to CHF 538.2 million, and this is where much of the work we did with our partners over the summer showed up.
Sellout stepped up from the second quarter, including a strong back-to-school campaign led by our new exciting launches. In addition, several key accounts in the Americas took holiday deliveries in the final week of September that had been planned for October, business that would otherwise have landed in the fourth quarter. Through all of it, we kept selling disciplined, exactly as we said we would, and our partners are heading into the holiday season with healthy inventory levels. They can also see what is coming. The spring 2027 order book has built well, and our partners are backing our innovation pipeline with real conviction. Direct-to-consumer grew 24.8% at constant currency and 25.0% reported to CHF 393.3 million, almost twice the rate of wholesale, and another exceptional quarter. Our DTC share reached 42.2%, up 2.6 percentage points year-over-year.
You know we always set an extremely high bar for ourselves, and this quarter, we landed slightly below it. Throughout our markets, we held full price discipline despite online traffic being a little softer in a promotional environment, and a few new stores, Munich and Miami among them, now open in the fourth quarter rather than the third. With this in mind, we are very pleased with how our strategy is driving strong, high-quality growth. The share of our online customers under 24 almost doubled year-on-year, with strong increases among both men and women. In a quarter when the market around us was promotional, the youngest, most culturally influential consumers came to On, while our full price share and resulting gross margin remained market-leading. That is the next generation of fans arriving on our terms.
In retail, we opened some spectacular new stores across the globe, from Copenhagen to San Francisco. Productivity rose again, strongly led by apparel, and the store initiatives we told you about at the Investor Day drove another increase in customer satisfaction across the fleet. Turning to our regions. The Americas grew 12.4% at constant currency and reported rates to CHF 490.1 million. In North America, growth accelerated from the second quarter. We grew shelf space with our key partners and won younger consumers through back-to-school. We held our position as the brand with the highest ASP and lowest discount rate in the industry, a direct reflection of the strength of our strategy and execution. Our key accounts grew both in their existing doors and through new ones, and there is a great deal of runway left in both.
Further south, Brazil is becoming one of the most exciting stories in the region. The two stores we opened in Sao Paulo this quarter traded at more than double our forecast. When the LOEWE Cloudtilt Cosmic launched in October, Sao Paulo was the second largest city in the world for it. EMEA grew 19.1% at constant currency and 17.9% reported, and passed a CHF 0.25 billion in a single quarter for the first time in our history. We still sometimes read EMEA described as a mature region. Look at this quarter. Every sub-region grew, and Southern Europe and the Middle East, in particular, ran well ahead of our expectations. Our Paris, Madrid, and Milan stores now trade consistently in our global top 10, alongside our London flagship.
This is a region with a lot of potential for growth, and as we set out in September, the runway ahead is long. Asia Pacific grew 31.9% at constant currency and 31.1% reported to CHF 189.9 million. This is the deliberate control pace at which we are building Asia Pacific, expanding and elevating at the same time. This includes being even more selective about how we show up with our partners in the most premium way. That is why, over the coming quarters, we expect growth closer to the mid-to-high 20s corridor we set out for the region through 2029 than in the past two years. You can already see the brand we are building. In Japan, our key partners came back to us for significantly more product through the quarter on the back of strong sellout, with reorders well ahead of what we had planned.
Both our Tokyo stores delivered exceptional results. In Korea, every store beat our expectation by at least 30%. In Sydney, we opened our first store at Bondi Junction, the epicenter of Australia's activewear movement, in an apparel-first format, and apparel took almost 30% of the sales in its opening weeks. Turning to our categories. Shoes grew 16%, apparel 38%, and accessories 40.2%. Apparel and accessories together now make up more than 9% of sales. Caspar told you the run and the sneaker stories. I want to add training, because it is one of the best examples of how authentically this brand can expand. Three years ago, training barely existed for us. This quarter, the Cloud X became our fourth-largest footwear franchise, driven by the Cloud X 5 and the Tempo, and the momentum carried into apparel.
Training apparel grew particularly strongly in the U.S., and the share of new apparel customers who found us through training nearly doubled quarter-on-quarter. Training is one of the fastest-growing sports in the world, and we have only just started. Moving down the P&L. Gross margin, excluding the tariff refund, was 66.9%, the highest in our history. Including CHF 52.6 million of U.S. tariff refunds, as we flagged in September, reported gross margin was 72.6%. Last year's third quarter included a one-time adjustment of roughly 200 basis points related to lower anticipated freight and other costs. So on a like-for-like basis, this is an exceptional underlying expansion of 320 basis points. This is first and foremost the underlying strength of our business model, as well as a modest FX tailwind. We would be proud of that margin in any quarter, but especially in such an environment.
At the Investor Day, I told you that premium is not the objective in our model, it is the mechanism. This quarter showed what that means. Our margin is the output of the On Premium Playbook, innovation that consumers choose at full price, athletes who prove it on the world's biggest stages, and experiences in our own channels that On can deliver. Execute each of those steps, and the margin follows. Full-price discipline led by our newest technologies, the sourcing and manufacturing efficiencies that come with strong execution, and the scale and the higher DTC share. That margin gives us the strength to invest in our future. SG&A, excluding share-based compensation, rose 270 basis points as a percentage of sales, and underlying adjusted EBITDA margin expanded 130 basis points to a record 21.9% when excluding one-off tariff and freight items mentioned earlier.
Every part of that investment maps back to our three year plan. Selling expenses grew with our store estate, and that is largely a mix effect. As more of our sales come through our own stores, we earn a higher gross margin and carry higher selling costs at the same time. The net effect is clearly positive. As we showed you in Zurich, retail profitability, including those costs, sits comfortably above the group margin. G&A reflects our investment in technology and expertise, the capabilities to run On at the scale of our 2029 plan. We are building the single customer view and the omnichannel capabilities Alice described at the Investor Day, and we are embedding AI deeply into how we work. That build continues in the fourth quarter. Marketing was 12.1% of sales, a bit below the run rate for this year and reflecting phasing.
Some production costs associated with our football launch, along with a number of grassroots events and partnerships, are landing in the fourth quarter. Put together, 2026 carries the upfront investment in our new sports and our technology foundations, and the material SG&A leverage in our plan builds from 2027. Turning to the balance sheet. I already mentioned our exceptional record cash position. Inventory increased to CHF 495.7 million, up 30.2% year-over-year. Within this, volumes were up just 16%, below our sales growth and a step down from the 20%-25% growth in recent quarters. The difference is largely currency translation at period end, after the U.S. dollar strengthened in September. We are well-positioned for the holiday season and for the Cloudsurfer 3 rollout in January, and weeks of supply in our partners' inventory are healthy.
Before I turn to the outlook, one more thank you to all of you who joined us in Zurich and to the On team who made it happen. Two days is a lot to ask of anyone's time, and we are very appreciative. The Investor Day was the result of a massive team effort, and it is the same team with the same spirit of collaboration that will now deliver the plan we set out there. Looking ahead, the fourth quarter has already brought some of our biggest brand moments of the year. Our latest collaborations with LOEWE and Sky High Farms, our first capsule with Burna Boy, and our athletes on the podium from Frankfurt to New York and Beijing to Kona. The openings of Miami and L.A. stores have drawn huge crowds and stellar demand.
We are reiterating our outlook for full-year net sales growth in the low 20s at constant currency. We are planning for growth to accelerate in the fourth quarter, with our holiday campaign now live and the biggest innovation cycle in our history gathering pace. We will run the holiday season the way we have run the whole year. In an expected promotional environment, we will stay true to who we are. We are excited for the important weeks ahead. The On Premium Playbook is our standard, and we will always choose the long-term health of our brand. On gross margin, we are raising our outlook from at least 65% to around 66%, excluding tariff refunds, reflecting our full price commitment, our higher DTC share, and the efficiencies that come with scale.
We will keep investing meaningfully into technology, innovation, and marketing to support the many opportunities we see ahead of us, and we expect an adjusted EBITDA margin in the range of 19.5%-20%, again, excluding tariff refunds. Including tariff refunds, we expect a gross margin of around 67.5% and an adjusted EBITDA margin in the range of 21%-21.5%. Let me close where I closed at the Investor Day. On is a high-quality earnings compounder. This was a quarter in which much of our industry traded price for volume. We did the opposite and delivered record sales, our highest underlying margins, and strong cash generation while doing it. In Zurich, growth and margin, and not or, was something we said on stage. Today, you can see it in our results. Our biggest product cycle has begun to land.
We are investing to scale it, and we are even more excited about this plan today than on the day we presented it. Thank you. Caspar, David, and I look forward to your questions.
We will now begin the question and answer session. For the Q & A, David and Frank are joined by Caspar Coppetti, founder and Co-CEO. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q & A roster.
Your first question comes from the line of Laurent Vasilescu with BNP Paribas. Your line is open. Please go ahead.
Good morning. Thank you very much for taking my question. I wanted to follow up, Frank. Thank you very much for the color on Asia Pacific. I think you called out that Asia Pacific should grow in the mid to high 20s corridor. I am curious to know what you are seeing in I know you called out Japan as very strong, but curious to know what you are seeing broadly across Asia, China. What does that imply, if you could, what does it imply for the fourth quarter for the other two regions as we kind of look for acceleration in the fourth quarter?
Good morning, Laurent. This is Caspar. Allow me to take the first part of your question before I hand over to Frank. As you are aware, we are running the On Premium Playbook across all our regions. If I had to pick one region where that playbook is almost like a match made in heaven, it is Asia with its aspirational consumer, its brand-savvy consumer. At the same time, Asia Pacific is our youngest region, so there is a lot more demand than we can actually at the moment fulfill. I will give you a bit of color around that. Take South Korea, for example. We see a booming economy there. We currently have three stores, three On stores that we are operating there. That is well, well beyond the potential that we have. We have a fourth coming online pretty soon, maybe Q4, maybe Q1.
That is just one example. I spoke to this in the prepared remarks. In Japan, we have seen a tremendous demand, especially also for our running product. In Japan wholesale, say the Alpen Group, we are now the number one running brand. When we look into China, and you look at where our own stores and our partner store are, we are still focused on the tier 1 and tier 2 cities. So there is also a lot of untapped demand there. As a matter of fact, a third-party study just showed that we have become now the number two premium footwear brand in China. So we are- The consumers are really looking for what we have. So what you are seeing in the numbers is it is a really paced growth. We could go much faster, but we do not see a need for it.
Of course, we are not willing to lean in, say, in a period like now, Double 11, when it is highly promotional, we are not necessarily want to waste our marketing dollars to spend against basically more promotions when we want to sell full price. With that, I hand over to Frank for the bridge on the numbers.
Thanks, Laurent, for the question. Yes, as Caspar explained, we are, of course, really happy with the Q3 growth in APAC with 32%. It has been strong, right, on an ever-growing base. The mid to high 20s refer to the Investor Day, the plan period 2027- 2029. In that sense, of course, we are not giving an outlook for Q4 per region, but I think it will gradually move as the base is growing in APAC, of course, like in any other region, will steadily get to that growth rate across the plan period, as we described in the Investor Day.
Very helpful. As my second follow-up question, I would say it was very helpful, the Investor Day. I think you called out that you are currently at 60% of Dick's Sporting Goods doors and 50% of Foot Locker and JD, with the ambition to get to 75% for 2029. I think you called out additional doors for this quarter. Curious to know, how do we think about this 75% target? Is it a steady progression over the next three years, or is there a material step in next year as you continue to have strong orders from these key accounts?
Yeah. Yes, thanks. That is an excellent question. First off, I also want to share the good news that the strong progress in wholesale sellout in the U.S. that we have seen and we reported on in Investor Day, that has continued for the whole quarter. I think the numbers we outlined and that you just repeated reflect also the investments that especially Dick's are making in upgrading their fleet. They are opening quite a large number of House of Sport stores. They are elevating some of their existing doors. This means that we have a wider field to play with our On Premium Playbook, right? Do not look at this number as a fixed number, but more of a kind of like a well-aligned number with our key partners of what is the premium environment that they can provide to them.
Very helpful. Thank you very much, and best of luck.
Thank you.
Thank you.
Thanks.
Your next question comes from the line of Adrienne Yih with Barclays. Your line is open. Please go ahead.
Great. Thank you very much. My first question is going to be on the LightSpray, obviously, technology. What have you learned from the early reads on it? In the Investor Day, you had talked about a 10% penetration target, but it was unclear about when we would get to that, and how that changes the supply chain, the investments that you need to make over that horizon, and how you might accelerate that to get to a higher number on a shorter time period. Thank you very much.
Thank you so much for your question. We love talking about the innovation. LightSpray is well on track. We just saw quite a big uplift in demand for LightSpray after the football announcement, because obviously, the technology that the football boot is based on is LightSpray. That actually translated over to LightSpray sales of our existing models, mostly the LightSpray Cloudmonster Hyper. Unfortunately, production is still quite below demand, and we are ramping up production very quickly. So, we have the two facilities, the one in Switzerland and the scaled factory in Korea. We are just about to bring online a factory in Vietnam. Some of the football boots, most of the football boots will be made in Portugal. So, by mid-year next year, we will have four LightSpray locations in production.
What is very encouraging is to see as we scale this technology, that our margins are becoming very attractive. One of the things that we have to manage, and as every manufacturer has to manage, is the defect rate. We have made fantastic progress towards a 5% defect rate, which is in line now with other technologies. I also want to give a shout-out to the technical team on our end that has managed this in a very short period of time. If you look a bit ahead, and that is to your 10% question, that is directional. Whether we hit that by 2029 or 2030 or 2028, I would not go too deep. What you can expect, though, is that we are going to roll out LightSpray not just to our performance franchise, but it will also start to show up in our lifestyle or sneaker franchises.
We have quite a deep pipeline of how the technology becomes more vivid, has more optionality, has more color options, and more texture, and so on. I would say expect some of that to land in 2028, where we will, for the first time, see the full potential of the technology.
Okay, great. Thank you. My follow-up question is on AI and the investments that you are making there. There is some discussion about a future world where Muse somewhat disintermediates some of the brands. I am just thinking about how are you philosophically thinking about maintaining that customer connection, the brand, and the experience in order to mitigate that risk. Thank you.
Thank you for the question. When it comes to AI and changing consumer service, you know that we have seen the whole transition from desktop to mobile to social, and that's just the latest change of the surface. We're very proactive about it, so a high percentage of our customer service conversations are already fully done with AI. That gives us a rich color on customers, and it's really a conversation. If you can imagine that this happens at scale, not just in customer service, but then also on the overall services that we give consumers through the website, through retail, through our app, that, of course, is an incredible potential to engage with customers at scale through AI.
We're definitely working on that, and you've probably seen that we've, in a more tech-focused area of migrating completely from AWS to a Google Cloud, that we used Agentic to fully do that migration. Originally, the plan was to do that in one and a half years. That whole process compressed down to three months, just through Agentic move from AWS to Google. That's been one of the case studies at the recent Gemini at Work conference of a complex process that is made much more efficient through agents. If it can happen there, you can imagine what that means then for the consumer-facing technology.
Your next question comes from the line of Aneesha Sherman with Bernstein. Your line is open. Please go ahead.
Thank you so much. I'm curious about the environment in the Americas. It's nice to see the stronger growth in that region. Can you give some color on, are you seeing an improvement in that promotional environment that you've now talked about for two quarters? What drives your optimism in Q4, where you say that partners are at healthy inventory levels? Do you expect the promotional environment to continue to improve? A quick follow-up on your comments on wholesale versus DTC. Can you talk about your expectations for the mix in Q4? It seems like you saw a pull forward in wholesale deliveries into Q3, while on the other side, it seems like you pushed out some of the DTC retail growth into Q4. Can you give some color on where you expect the balance to be on the channels? Thank you.
Thank you. I am happy to take the first part of the question. I would say, especially in U.S. wholesale, it is pretty much the same story as in Q2 and Q3 in terms of a promotional environment. We, of course, are a bit less affected by that, so we are leading with innovation and our stories, and we stay the course. So we are very much basically unaffected by that. We focus on what we can control, and that is trying to keep inventory levels and our supply in the right balance. In Q2, we spoke about that. We took measures to prepare for the upcoming generational shift in our running technologies. Some of that is now already in market. What we are very encouraged by is that these signals are, of course, right now, Cloudsurfer is only available in run specialty.
The strong sell-through signal has been noticed by our wholesale partners, so the bigger boxes, and they have actually increased their spring 2027 orders on the back of that. So we remain very, very confident that we will gain share in performance running in 2027. And of course, on the lifestyles, life sneaker side, there is a big trend away from the heritage styles to more innovation-led styles, and On is heavily benefiting from that. So already this year, we have been gaining quite a bit of market share in the sneaker space, and we expect this trend to continue into 2027.
Thanks, Caspar. I think Aneesha, to give a bit more sort of color on the numbers, I think first of all, what we have seen is that the first thing I would say in the U.S. is that the sell-out has been beyond the sell-in, and that is also why we are positive on the inventory developments. So that is an important factor. Of course, as we said in quarter two, we will spend a lot of time with our wholesale partners in order to drive the sell-out, and that has really worked. The meaningful step-up has been there in quarter three, and including a tight control of the sell-in. So we are positive on the inventory levels.
If we look further to quarter four, we will not, of course, guide specifically on the channels, but what we have said in the press release is that we expect an acceleration of quarter four growth versus quarter three, and that will be predominantly DTC-led. The other point is on the wholesale, what we saw in quarter three was that, something that we cannot really control is that we had a bit of extra pickups from retailers, meaning that our growth, we said in the Investor Day, we would land at about 17%. We were slightly ahead, which came predominantly for that, and that will have, obviously, a corresponding impact on quarter four. But again, that is why I think when we look at quarter four, we expect an acceleration, DTC-led.
Thank you so much.
Your next question comes from the line of Kelly Crago with BMO Capital Markets. Your line is open. Please go ahead.
Hi. Thanks for taking a question. Great quarter. I just want to dig into the U.S. wholesale channel a bit more. First, on the Run Specialty channel, you had some good call-outs there around the Cloudsurfer 3. So just curious how that channel has been trending for you, how it is trending now, and how you expect that to trend as we look ahead. Then I have one follow-up. Thanks.
Thank you. The Run Specialty channel for us is something that is very close to our heart because that is where we started, and we still believe that is where technology is validated. So, what we have done now with Cloudsurfer 3, this shoe was heavily, basically was developed with a lot of input from our Run Specialty partners, a lot of insights. We also have a panel of Run Specialty owners that then test the product. So, we said, to honor that commitment that the channel has to On, the channel has access to it for the first three months exclusively, right? That is obviously something that not a lot of brands have done or ever done, and so, we are getting a lot of love back.
We're definitely seeing that in the pull rates, how often On gets pulled, how other silhouettes or franchises are being sold, and we're seeing it in the order rates going into 2027. If you look back, maybe five years back, and you look at pure market share, On's market share was maybe a bit higher than it is today, but it was a very different product mix. at the time, the Run Specialty channel also sold our lifestyle footwear Cloud as a comfort shoe. We have kind of reset the distribution around our lifestyle product, and so, comfort is no longer part of Run Specialty. In fact, we're not doing comfort at all. If you compare the numbers, that explains part of the difference.
Right now, we're definitely seeing a very quick acceleration and a strong belief of the channel in us, and I'm personally going to travel out to the biggest trade show for the channel, The Running Event in San Antonio, later this month, to also check in and get some feedback that we then can use again to build better product in the future.
Great. Thank you.
You still had a follow-up?
Yes. Just on the lifestyle piece within the wholesale channel, as we've seen the market slow and the promotions step up, and some big players out there having some challenges, I guess, how have the conversations gone with your retail partners? Are you seeing shelf space gains based on the market dynamics here, and has that impacted your order books as we look to 2027? Thanks.
Yes, absolutely. So, again, the overall, the lifestyle market is down. We're very significantly up, and maybe as a result, we've gained a lot of market share. And of course, that is reflected in the shelf space that we're getting. Our goal as On is to basically stand on several legs in that channel. Obviously, the Cloudtilt is an absolute blockbuster. In Europe, it's the number one selling sneaker. In the U.S. and in Asia, it's in the top three. What we're very encouraged by now in this Q3 is that we're starting other styles to be picked up heavily. First of all, the youth is discovering the Cloud, one of our original staples that's now 12 years old, and they're almost like rediscovering it and giving it new meaning. So we've seen a lot of demand for that, especially in lighter colors.
We also see, in addition to the high stack trend that we've seen for quite a long time now in the market, we're seeing a sleeker silhouette emerge, especially for the female customer, and we have just launched two styles that cater to that. The Cloudnova Moon Mary Jane that we launched with Zendaya, and the Cloudmuse that we just launched, both are getting really, really good pickup rates. So this continues to be a good story for us. And of course, as some of our competitors have not so strong innovation pipelines, also our key partners, so Foot Locker, JD, Snipes over here in Europe, they're willing to trial things with us. You can imagine if a consumer comes back into, say, a Foot Locker store, and they see a new style from On, it's a discovery process.
That's how we're hoping to broaden our appeal with that consumer.
Your next question comes from the line of Jay Sole with UBS. Your line is open. Please go ahead.
Great. Thank you so much. I think on the last call, you talked about acceleration in sales growth, and we are seeing that in fourth quarter from Q3. But I think, with the broader rollout of the Cloudsurfer 3 starting in January, the strength of the Cloudtilt, that is where you talked about strong order rates and order books. Do you expect to see a further acceleration into Q1? I think that was sort of the thinking, if we go back last call. If you could talk about that would be great. Thank you.
Yeah. Thanks, Jay. For quarter one, we will not give yet guidance on the quarters for next year, but I would not necessarily, as of course, Run is one variant, I would say. So I would not assume a strong acceleration, a further acceleration in quarter one, long story short. Yeah, as of course it is, it is one part of the full portfolio. I think what is more important, if we look at the backend or the second half of 2027, then of course we will bring the superfoams to the entire running franchise, including the Cloudrunner and the Cloudmonster, and that effect is probably more meaningful, because then it will be the full running franchise.
Got it. All right. Frank, that is very helpful. Thank you. And maybe, can you talk about how you are raising your gross margin guidance? It also sounded like you are making some incremental investments, taking the opportunity to reinvest some of that gross profit into the business. What were the incremental investments that you decided to make over the last few weeks? And can you talk about how you continue to plan to grow sales, obviously, and grow earnings above sales, given, there are higher costs out there is inflation across different commodities and things like that. Can you talk about how you are handling both those issues? Thank you.
Yes. Thanks for asking, Jay. Indeed, the gross margin has been trending really favorable, of course, being a direct result of the, I think, of the full price strategy that we have, the commercial policies, but also continued efficiencies coming through scale in the manufacturing and supply base. We have indeed decided recently to invest some of it into the business, because of course, the new sports are coming in new. We did not know that at the beginning of the year, we will have a bit of production costs, for example, for the football launch in 2027. Also, I think on the technology front, we just see meaningful progress, as David just elaborated on. So we also don't want to take the foot off the gas on that front.
Most important is that the investments are completely aligned with our Investor Day narrative, as we explained. Secondly is that we are still maintaining our earnings outlook. Yes.
Your next question comes from the line of Anna Andreeva with Piper Sandler. Your line is open. Please go ahead.
Great. Thank you so much for taking our question, and congrats. You mentioned earlier the expectation for DTC to accelerate sequentially in the fourth quarter. Can you talk about just what's giving you that confidence? Are you seeing acceleration already quarter to date, and how should we think about that across the geographies? Just as a follow-up, you mentioned the factory in Vietnam for LightSpray coming online shortly, which is super interesting, and you talked about 2026 capacity increase by, I think, a 30-fold. So maybe talk about what can we expect from capacity from this new facility. Thank you so much.
Anna, thank you very much for your question. This is David. You are right. I mean, DTC grew 25%, almost twice as fast as wholesale, and gained 2.6 points of share year-over-year. I feel very few brands in our industry are growing their own channels at that rate. We did that, and I think that is important. We did that at full price, which is why our gross margin hit the record 66.9%. We also achieved this despite high productivity flagship openings shifting into Q4, for example, Munich and Miami Aventura, so we had to offset that. The more interesting question, and I think that is where you are pointing to, is what is driving the growth?
We are putting even more energy into our DTC engine, younger customers, bigger baskets that mix footwear and apparel, and a stronger presence and preference for the brand through our retail stores, which of course is part of our long-term strategy. It follows our On Premium Playbook, preference is earned, and definitely is not bought, and that is also what you saw from us in the last quarters. If I can give you a few examples. Younger customers, our online customers under 24 almost doubled year-over-year, and that is both men and women. There are bigger baskets. People who come to us through apparel come back sooner and buy more. So we are really kind of growing share of wallet as well. Then just the sheer presence through retail, 10 new stores in Q3 from Copenhagen to San Francisco, Sao Paulo, and so we spoke about that in the call.
If you think about how this goes into the next year, we basically told you that in Investor Day that we are going to scale over the next three years to 180 doors roughly. We are currently closing in on 100 doors over the next months, so that is of course then a whole lift for an overall DTC business. So, it is really an incredible energy, and that also shows in our latest brand tracker that shows that nearly one in three heavy sneaker buyers says that they now prefer On, and our gain in preference was the biggest of the 12 brands that we tracked. So it is really our On Premium Playbook at work. Earn preference, protect the price, and then economics compound.
Yes, Anna, to your second question, a lot of these consumers are looking for a LightSpray product, and currently we cannot make them fast enough. So that is why the additional capacity in Vietnam will be very, very welcomed. Once fully built, this will more than double our capacity. There is also another reason why we are opening it in Vietnam for this stage, because we want to. As I said earlier, we want to have more product variety, so more expression of what a LightSpray product can look like. So we are searching the proximity to our tier 2s in Vietnam to pilot these things, and then we can take them. The goal with LightSpray, of course, is to be closer to consumers with our manufacturing.
The things we have learned in Korea are now going to Vietnam, and these things can then go to other locations that are still to come.
That sounds great. Thank you so much.
Your next question comes from the line of Alex Straton with Morgan Stanley. Your line is open. Please go ahead.
Great. Thanks so much. Just a couple for you here. One final one just on DTC. Did that fall slightly below plan across geographies, or was that concentrated more heavily in one geography or another? Then separately, just on the high teens revenue growth target from the Investor Day, can you just talk about how we should think about the shape of that over the three years? Thanks so much.
Thanks, Alex. On DTC, I think as David said, we just see a lot of bright spots, really, and we believe there is a lot of positive momentum, in particular also the younger consumer coming into our ecosystem. I think there's a couple of ways to look at it. The reality is that quarter two was a bit, I think, above our expectations, and quarter three was slightly below. But I would not necessarily read it really as a trend, but a bit more as just probably fluctuations that you always see in a business, more than any of that. That's also why we are quite confident on the acceleration that we'll see in quarter four, back to in the range of that running rate year to date. That's how I would mostly look at it. We also gave in the commentary a couple of additional colors, right?
There were two stores that came in a little bit late, instead of quarter three, launched in quarter four. Some of these details. Of course, in e-commerce, you also have marketplaces that are inherently a bit more promotional. But all in all, I would stick to that sort of volatility that you typically see over the quarters. If we then go to the second question on the outlook, the phasing of the growth in the high teens, the way we see it is that we'll expect that we'll be at the high end of that range in the beginning of the period and end at the lower end of the range. So, not linear, but maybe somewhat linear, and there are a couple of reasons for that.
I think the first one is that the full renovation of the run air, the launch of the superfoams across the full portfolio will be in half two 2027, so that will also have a positive impact in 2028. The second factor to call out is, of course, Los Angeles 2028 is going to be a big event also for us, and we expect upside there. The third element is that the new sports, we will only launch them gradually in 2027, and there'll be increased returns and growth coming from that in the second half of the plan period. That's why the growth we'll see is as described, starting at the upper end of the range and ending a bit at the lower end of the range. Hope that helps, Alex.
Thanks a lot.
We have reached the end of the Q & A session. This concludes today's call. Thank you so much for attending. You may now disconnect.