On Holding AG (NYSE:ONON) Q3 2025 Earnings Call Transcript

On Holding AG (NYSE:ONON) Q3 2025 Earnings Call Transcript November 12, 2025

On Holding AG beats earnings expectations. Reported EPS is $0.5, expectations were $0.34.

Operator: Good afternoon, and good morning to our investor community. Thank you for joining On 2025 Third Quarter Earnings Conference Call and Webcast. With me today on call are On’s Executive Co-Chairman and Co-Founder; Caspar Coppetti; and CEO and CFO, Martin Hoffman. 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 2024 fiscal year filed with the SEC on 4th of March 2025 for a detailed explanation 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 Martin, leading through today’s prepared remarks, after which we are looking forward to opening to the call to a Q&A session. With that, I’m very happy to turn the call over to Caspar.

Caspar Coppetti: Thank you, and a very warm welcome, everyone, to our third quarter 2025 earnings call. It is great to be back on this call with all of you and to give you an update on On’s global success, which is driven by the exceptional heat around the On brand, our product innovation pipeline and our accelerating profitability. Today, we’re thrilled to share another outstanding quarter for On. Our mission to ignite the human spirit through movement is resonating worldwide and across multiple categories. It is powered by an innovation engine that continues to unlock human potential and create champions on the world’s biggest stages. This quarter’s performance is the direct result of our premium strategy in action, delivering incredibly strong growth and record profitability.

Net sales in the quarter approached CHF 800 million, growing 24.9% year-over-year on a reported basis and by 34.5% at constant exchange rates. Through our commitment to premiumness, a commitment that runs from our products through our entire value chain and driven by our pursuit of operational excellence. We have also delivered exceptionally strong gross profit and adjusted EBITDA margins. Behind the results is a story of global momentum, how constant innovation, community building and culture relevance are coming together to elevate the On brand as the benchmark for performance and design in premium Sportswear. This success is exceptionally broad-based with significant growth contributions from across our portfolio, in performance and lifestyle footwear and apparel, proving the global appeal of our brand.

Q&A Session

The spirit of On was everywhere this quarter. from the crowd lining up for the openings of our new stores in Tokyo, Palo Alto or Zurich to the thousands of people who came to see how LightSpray products are manufactured during Berlin Marathon. To athletes winning major titles across our entire portfolio of sports from track and field to trail running to triathlon and tennis, On strongly connected with audiences around the world. Of nowhere was this connection and energy fell more strongly than in Asia Pacific, our fastest-growing reach. The momentum there is extraordinary, was the fourth consecutive quarter of triple-digit constant currency growth. In September, Tokyo became our showcase as the city hosted this year’s World Athletics championships.

On’s new Ginza store is one of the crown tools in our retail collection and the world cams provides the perfect opportunity to Express On’s innovation and ambition. [ Georgi Bemis, Ditashi Kambucci and Bella Vitiker ] claimed On’s first-ever track and field gold medals. These successes matter. Consumers are increasingly watching how brands perform in competition. And On is exceptionally well positioned. The On proof point for our advanced footwear technologies came 10 days ago when [ Helber ] [indiscernible] won the New York City Marathon against the stacked field of Olympic and world chains. Breaking the 22-year-old course record by almost 3 minutes. We’re incredibly proud that she chose to race in the Cloudboom Strike LightSpray. This win clearly demonstrates that our newest technology is being trusted and adopted by the world’s best athletes in the most iconic races.

Pictures like these define what we mean by athletes-first versus innovation. Our strategy is clear. Technology is proven at the highest level of competition and then refined to deliver the best experience for every type of run. This elite credibility flows directly to our core performance running franchises, Cloudsurfer, Cloudmonster and Cloudrunner. These are the engines that have won millions of fans and driven our significant sustained growth in the run category. 2025 has been a testament to this strategy. We successfully reenergized the Cloudsurfer franchise. First was the Cloudsurfer 2 in the spray and now with the new Cloudsurfer Max this summer. The commercial momentum is immediate and clear. The newly launched Cloudsurfer Max ranked among the top 5 selling models with key run specialty partners in its very first month.

This sets the stage for 2026. We are already seeing a strong order book for the new Cloudrunner 3 and Cloudmonster 3, launching in Q1, while Fall/Winter ’26, we’ll see the launch of the new [indiscernible] Max showcasing a significant lead in engineering and foam innovations. And on top of that, on most groundbreaking technology, LightSpray will help redefine the category and elevate our entire running assortment. In Spring/Summer ’26, we will bring this championship level technology to everyday runners for the first time with the LightSpray Cloudmonster Hyper. This is our innovation process in action, continuously and obsessively making the best possible products that push the limits of performance. Of course, On’s mission goes far beyond running.

We are witnessing a unique moment where performance and innovation are key drivers for fashion and the cultural side guys. On is uniquely positioned to both drive and benefit from this trend. This quarter, our collaboration with Zalando introduced the Cloudstone Moon lending on design innovation was refined expressive style. In tennis, our partnership with Roche Feder has already connected the sport to a much broader audience. This quarter, we welcomed the music artist Burner boy to our tennis lifestyle brand, who is resonating strongly with the young demographic. These cultural moments are accelerating our connection and traction with Yum!, aspirational consumers, including teams cementing on as a global symbol of modern performance in style that resonates deeply with both her and him.

To summarize, as ever, On is carving its own path. Our premium strategy is working, and we are executing on our vision with precision and discipline. Our relentless focus on innovation has built a durable multidimensional growth engine, an engine that is built for the long run. Fueled by our accelerated global brand heat and awareness, the foundation for our next chapter of premium growth is stronger than ever. With that, Martin will share more on our strategic and financial highlights in the quarter and our significant raised outlook for the year.

Martin Hoffmann: Thank you, Caspar. By staying true to our vision in executing this discipline, we are delivering remarkable, consistent success. This is expiring to experience. Whether on the road to track, the trail or the court, in the term or in the streets, whether on the feed or on the body, On has become a true toe-to-head partner in our customers’ lives. That connection makes our entire team incredibly proud and grateful. What sets us apart is our premium position. Our vision is and will remain to be the most premium global sportswear brand. Premium is an emotion formed in the minds of our sands. We earn it by consistently exceeding their expectations in the moments that matter. They know premium where they find it because they see it.

This quarter, Tokyo protect vision to life. The atmosphere was electric. It was 3 years since my last visit and in that time, the team has more than doubled in size and even further elevated how we show up in this vital market. What I saw in Japan was the clearest expression yet of On’s premium strategy, a brand that feels completely at home in a culture defined by craftsmanship, precision and design excellence. At Harmony is perfectly captured in our new flagship store in Ginza. It opened a record demand, delivering the highest monthly sales across our entire retail set in October. The space embodies what premium means for On, performance elevated through design and delivered with care and consistency. While Japan’s set the tone, the broader Asia Pacific region demonstrated the sheer scale of what’s possible.

Across China, Korea and Southeast Asia, we are connecting with a new generation of younger deeply design conscious customers, proving the global appetite for On’s premium performance approach. We saw this again in Bangkok, where our first store opened to the highest daily sales of any store opening in our history. The global demand is a direct result of our customer strategy. Our community is growing but also deepening becoming more diverse, more active and more connected across all our verticals. While brand awareness is accelerating, the clearest metric of our success is loyalty. Engaged fans are returning at higher rates and crucially buying across more categories, embracing the full breadth of our product universe. [ Parallel ] is an important driver of this evolution.

It’s fundamentally reshaping how people view and enter our brand. It’s becoming a key acquisition channel attracting a growing share of first-time customers by also building lasting value as apparel shoppers buy more frequently and with bigger baskets. We are also seeing a clear shift towards younger customers in apparel highlighting a sizable and well-defined long-term opportunity. Importantly, we are not building apparel as an add-on to our footwear business, but as a company within the company. Serving the same communities, but with a unique product offering and customer experience. As a result, apparel is driving incremental high-value growth across all our channels. Operating at this level with such broad-based strength sets an incredible high standard, and it requires flawless execution.

This is where our focus on operational excellence and technology is delivering profound results. We are transforming the way we work. We have structurally reduced lead times and enhanced how we plan and run the business with intelligent tools powering our integrated planning. We are building a faster and more agile company that is a stronger partner for suppliers, retailers and consumers. More and more AI becomes a core component to how we operate across all areas of the business and engage with our fans. All of this is deeply rooted in our culture of innovation and excellence, and it’s the daily passion of our amazing team that makes all of this work. from the cheering zone at the Marathon in New York with a LightSpray innovation lab from case shows to the shop floors of front specialty partners.

Their energy is what sets us apart. Thank you so much, team. Our incredible brand momentum and precise execution continued through Q3, delivering another exceptional set of results. We achieved record net sales of CHF 794.4 million, growing 24.9% year-over-year on a reported basis and 34.5% at constant currency. This outstanding top line growth fueled record profitability. The gross profit margin of 65.7% and adjusted EBITDA margin of 22.6% and nearly 50% year-over-year adjusted EBITDA growth. Our DTC channel once again delivered exceptional growth while driving superior profitability. Net sales reached CHF 314.7 million, an increase of 27.6% year-over-year on a reported basis and 37.5% at constant currency. Our success is driven by strong synergies between our e-commerce and retail ecosystems.

Omnichannel customers are more loyal and deliver materially higher lifetime value. Validating our seamless premium experience. This experience is proud to life in our flagship stores. A recent highlight for me was the opening of our new Zurich flagship. A celebration of our Swiss heritage in a stunning downtown location. Alongside our new stores, our established fleet continues to excel. We saw standout contributions in Q3 from key locations, including [ Capstead ]in Tokyo, Miami and the Champs [indiscernible] in Paris, proving the productivity and longevity of our retail investments. Our brand strength is mirrored in our wholesale channel. Net sales reached CHF 479.6 million increasing by 23.3% year-over-year on a reported basis and by 32.5% at constant currency.

This performance reflects sustained elevated demand from our key account partners. The enthusiasm for our future pipeline is clear. The fall/winter 2026 sell-in has kicked off with ongoing strong momentum. And our building order book for 2026 already reflects our partner’s deep confidence in our rentless innovation. Turning to our regional development. In the Americas, net sales reached CHF 436.2 million growing 10.3% year-over-year on a reported basis and by 21% at constant currency. This quarter was a pivotal test of our premium strategy as our U.S. price increases came into effect. The results confirmed our view. Demand remained incredibly strong for our premium offerings, clear validation of our brand’s pricing power and the impact of our full price strategy.

This gives us tremendous confidence heading into the holiday season where our premium positioning and unwavering commitment to full price selling will be a significant competitive advantage. Europe, Middle East and Africa delivered an outstanding quarter with net sales reaching CHF 213.3 million up 28.6% year-over-year on a reported basis and 33% at constant currency. Our performance highlights the breadth of the brand heat in the region. We are seeing exceptional demand in the U.K., which has firmly established itself as one of our largest global markets. Incredible momentum in newer markets like France and Italy, and the sustained reacceleration in growth across the German-speaking region. Asia Pacific continues its phenomenal growth, delivering net sales of CHF 144.9 million, up 94.2% year-over-year on a reported basis at an incredible 109.2% at constant currency.

APAC is now approaching 20% of our total sales. What was once a new frontier has become a major engine for the brand. The remarkable demand is broad-based. With continued triple-digit growth in Greater China, South Korea and Southeast Asia, amplifying the success we see in Japan. This increasing regional balance is a core strength, a direct reflection of our global strategy and proof of our ability to drive high-quality growth across all markets. Moving to performance by product. Both remain our core engine of growth. Net sales from this category reached CHF 731.3 million, an increase of 21.1% year-over-year on a reported basis and 30.4% at constant currency. This access confirms our expanding role in the lives of our sales across every part of their day.

In performance, the Cloudmonster continues to win new fans. And our latest innovations like the Cloudsurfer Max and Cloudboom Max are off to exceptional starts, driving strong results in key sporting goods and run specialty distribution. Meanwhile in lifestyle, the Cloudtilt, Cloud and the Roger continued to see tremendous demand. This combination of elite performance products and the distinctive edge in the Lifestyle segment is what sets on a part. Our apparel category is rapidly establishing itself as a significant stand-alone growth pillar. Net sales reached CHF 50.1 million an increase of 86.9% year-over-year on a reported basis and an amazing 100.2% at constant currency. This performance was kept by a major operational milestone as we sold over 1 million apparel units in a single quarter for the first time.

This success is rooted in a global and multichannel expansion. With a meaningful and balanced increase in apparel share across all channels and regions. Now we will move down the P&L. We delivered an outstanding 65.7% gross profit margin, up 510 basis points year-over-year. This result is materially ahead of our expectations. And reflects the power and momentum of our premium brand position. Yet, it is important to understand the components of this result, as it also includes some temporary and one-off factors that should not be extrapolated. First, the quarter includes a positive onetime adjustment of approximately 200 basis points. This relates to lower-than-anticipated freight and other costs. Throughout half year 1, we saw these lower costs emerging, partly from successful negotiations and scale benefits, but we prudently continue to accrue at our higher prior levels.

Now in Q3, we have confirmed these efficiencies are sustainable and are updating our cost assumptions. This onetime adjustment therefore, represents the release of those accruals related to the first half of the year. Second, the timing lag between our U.S. price increases and the full impact of additional U.S. tariffs led to a slightly positive margin effect in Q3, which should be considered a temporary benefit. Third, the current devaluation of the U.S. dollar compared to the Swiss franc since early April, drives a positive gross profit margin impact of approximately 100 basis points. Crucially, even after accounting for these effects, our underlying gross profit margin is significantly above our communicated long-term target. This is the result of the structural strength of our business and the great work of our team.

Our increasing DTC share, our premium positioning, durable operational efficiencies and economies of scale. These structural effects are expected to be sustained are expected to be reflected in our future results. We also delivered an outstanding Q3 adjusted EBITDA margin of 22.6%, up 370 basis points year-over-year, corresponding to an absolute adjusted EBITDA of CHF 179.9 million. SG&A, excluding share-based compensation, was 47.1% of net sales in Q3, up from 46% in the prior year. reflecting a deliberate decision to invest in future growth through marketing and our global retail expansion. Importantly, we are funding these strategic investments largely through our operational efficiencies. Our focus on excellence has structurally improved our distribution cost baseline, which continues to decline as a percentage of net sales.

This demonstrates our flexibility to thoughtfully reinvest in high-return areas that fuel our long-term brand growth. While the current FX environment positively impacted our gross profit margin, negatively impacted SG&A and ultimately, also our adjusted EBITDA margin. Moving to our balance sheet. We continue to demonstrate exceptional capital efficiency. Capital expenditures were CHF 20.5 million or 2.6% of net sales, an improvement of 3% in the prior year. As of the end of Q3, our inventory stood at CHF 380.6 million. As in Q2, inventory volume grew faster than value. Ensuring we are fully prepared for Q4 by reflecting our new operational efficiencies. The proof of this new efficiency is in the results. Our cash conversion cycle improved again year-over-year.

This disciplined working capital management, combined with our strong operational performance, fueled substantial operating cash flow of CHF 157.3 million in Q3. As a result, our cash balance grew substantially, ending the quarter in an exceptional strong position at CHF 961.8 million. With that, let’s look ahead. The consistent success, our strategic focus and exceptional execution has delivered throughout the year, fuel our confidence to deliver a strong finish to the year. Our brand momentum is undeniable, and the first weeks of Q4 have already shown our strategic gains. Alongside major athlete victories, including [ Solvay lobes ], Ironman World Championship win in Kona and Jaana [indiscernible] becoming the youngest tennis champion at the Swiss indoors since 1989.

We have created moments that continue to elevate the brand globally. We launched the Cloud solo, our first ever co-created product with LOEWE and introduced a new capsule collection with Sky hike Farms standard around the Cloud VI. We entered the GCC market with the opening of our first store in Riyadh, Saudi Arabia, just yesterday and opened our first store in Seoul, securing a beautiful ultra-premium location in the Hyundai Mall. We were thrilled with our performance during Golden Week in [ China ] and our global holiday campaign. Gifting movement is off to a great start, confirming our momentum as we head into the end of the year. This is how our vision comes to life. Winning in performance elevating our brand and showing up in a credible, consistent and aspirational way of our ever-expanding communities.

Therefore, we are raising our 2025 guidance across all 9 items. We now expect constant currency net sales to grow by 34% year-over-year, well ahead of our previous guidance of at least 31%. At current spot rates, our constant currency growth guidance implies reported net sales reached CHF 2.98 billion. Alongside this top line raise. We now expect a gross profit margin of around 62.5%, a meaningful increase versus our previous guidance of 60.5% to 61%. As outlined before, this new ambition reflects our commitment to full price sales during the holiday season. Sustainable structural efficiencies rooted in our elevating premium positioning, economies of scale, and increasing DTC share as well as the current FX, tariffs and freight cost environment.

On adjusted EBITDA, the exceptional gross profit generation allows us to do three things at once. Absorb material foreign exchange headwinds on our more Swiss franc heavy cost base simultaneously accelerate strategic investments into our brand, technology and innovation pipeline and to raise our profitability forecast for the year. We now expect an adjusted EBITDA margin of above 18%, a clear step up from our previous guidance of 17% to 17.5%. Looking beyond 2025, the proven impact of our strategic building blocks and clarity of our long-term strategy provide us with the baseline for continued exceptional momentum. This is first supported by the strength of our product pipeline, validated by our existing order book, driving a trajectory well ahead of the targets outlined at our Investor Day in October 2023.

As you will recall, we communicated our goal to top up net sales by 2026, implying a 26% net sales constant certainty growth CAGR over the 3 years. We are on track to complete the first 2 full years of our 3-year plan with in excess of 33% constant currency growth each year. This sustained and material overachievement gives us the confidence and visibility to update our long-term outlook as we look ahead to the final year of our plan. We now expect a 3-year constant currency CAGR from 2023 to 2026 to reach at least 30%. This implies at least 23% growth in 2026. Based on our current outlook for 2025. This isn’t just about exceeding targets. It’s a testament to the unparalleled momentum of our brand. the strength of our strategy and the incredible dedication of our entire team.

We are not just meeting expectations. We are redefining what’s possible in the sportswear market. As we look at our midterm profitability ambition, the significantly higher gross profit margin achievement expected for this year provides us with a strong baseline and increased confidence in our ability to exceed our stated gross profit margin target for 2026 despite the full impact of tariffs next year. Importantly, this allows us to continue to invest meaningfully into the brand, fueling our global momentum by driving even more progress around new technologies and AI. And ultimately, to build an even stronger foundation for continued growth in 2026 and beyond. In line with our established guidance cadence, we will provide a formal guidance update in March when we share our Q4 and full year results.

To summarize, we are thrilled with the continued strength of our brand. We head into the holiday season with high momentum and conviction in our plan, which allows us to look beyond the immediate horizon towards our next phase, where as we like to say, to 3 months. Again, a huge thank you to our teams around the world for their incredible execution and for making all of this possible. And with that, Caspar and I are happy to take your questions.

Operator: [Operator Instructions] First question comes from the line of Paul Lejuez of Citi.

Paul Lejuez: Curious if you could talk about the traction that you’re seeing in apparel with any detail that you can give about regional acceptance of that product? And curious how it’s performing in DTC versus wholesale accounts? And then just within your wholesale doors, you talk about 1% carry apparel? And any opportunity long term that you think? And when you think about the percent of accounts that carry our footwear, what percent ultimately will cover include apparel.

Caspar Coppetti: Thank you, Paul, for the question. We’re very excited about the apparel performance. As you’ve heard on the call just now. We sold over 1 million items now in Q3 for the first time. And apparel excesses together account for about 8% of our total business. That’s a new record, and we’re well on track of hopefully getting quickly into the double digits there. So traction is really strong. What drives this is we’re really executing on all fronts. So on the distribution side, our own stores play a very important role because we need to be able to showcase the breadth and the beauty of this product. So if you’ve been to any of our newly opened flagship stores, you’ll see that come to life. But we’re also doing that, for example, at department stores, wherever we have shop-in-shops we usually lead with apparel, and it’s a great way to tell the brand story.

As we break down a bit into which parts of apparel are seeing the most traction, happy to give you a bit of color there. We have an exceptional strong running, training and tennis business in apparel. And within running we clearly see that whenever we do something from the performance side, so we work with our athletes and we bring some of these latest material innovations to broader audiences that resonates very well. In training. It’s all about winning with [indiscernible]. And so the sweet spot there for on seems to be where we have light resistance works, so you had the gym or you’re in a class and On brings performance innovation like [ Sensetech ] that we’re rolling out now across the lines, but we’re also bringing a bit more elevated aesthetic that resonates with our affluent customer.

And then, of course, tennis maybe category even a bit underestimated, just a tennis look whether it’s actually the performance here or athlete to air and competition like [ Chovanec ] [indiscernible], the Brazilians are crazy about it. All the way to the lifestyle looks, and you’ve probably seen what we’ve done with [ Burna Boy ] just now bringing the tennis lifestyle to wider audiences. All these things resonate extremely well. Over time, we will definitely attack in additional categories there, bringing it more to movement and stuff that can be worn every day, always with the performance and innovation core. And we also have a very strong jacket business that is mostly reflected in our outdoor and running collections.

Unknown Executive: Maybe just at a point here because I think it’s very important for where we are taking our business model. We said it on the call that really the way we look at apparel as a company in the company and it follows a slightly different distribution model approach. It will be much more heavy, which doesn’t mean we are not working with great wholesale partners, as Caspar just said, but retail will play a much stronger role in the physical presence of of apparel. And as a result, our apparel business is expected to drive also superior margin profile into the brand. So we are not only adding additional customers, but also additional profitability.

Operator: Your next question comes from the line of Jay Sole of UBS.

Jay Sole: Great. My question is just is the growth was obviously very strong in the quarter. At the same time, the gross margin expanded a lot. And the same time your inventory looks very lead. Can you just talk about how you balance driving top line growth versus protecting margins, your premium position, maintaining that scarcity model and just delivering an algorithm, I think it’s right for the brand for the long term. but also in a way that is — allows the company to grow without having any operational issues.

Unknown Executive: I mean I think this is the result of the amazing work that the team is doing and that we pretty amplified capabilities in the organization across every part. And so we are really able to manage all the three areas that you mentioned in sync. I mean I think on the gross profit margin is just super important to understand that the premium business that we are building is the driver behind the gross profit margin. And of course, building a premium business also requires incredible discipline in your inventory management in order to protect the high share of full price sales. So this is the essence of what we are building. And you have already seen the power of that business model coming to life in the last 2 years with our gross profit margin expanding constantly.

And this has really been the result of the pricing power, the full price discipline, a more DTC focused channel mix, operational improvements and then also economies of scale. And now in the last months, this has really amplified given the power of our team, our strong team that we have in Vietnam working with the factories. And so we have now really achieved a new level on gross profit margin that we also consider sustainable. And that’s, I think, a great place to be given the environment around tariffs. So we are fully in control of our future. We will digest our — the tariffs and still be well above our long-term target. And at the same time, we can reinvest into the business. We can invest into the brand into technology. But we are fully in control on pricing on doing the right things and also investing into the product.

So this is the power of that premium position that we are building.

Operator: Your next question comes from the line of Alex Straton of Morgan Stanley.

Alexandra Straton: Thanks so much for all the calls and nice results. Maybe just on the 2026 initial guidance, a 23% rate. Was that a constant currency number? And then can you just elaborate a little bit more on how you kind of get confidence there by region and channel I’m just curious if any geographies or channels or categories should decelerate more than others or what the kind of composition of how you’re arriving there is?

Unknown Executive: Thanks for the question, Alex. Yes, it’s a constant currency number. So also the 30% that we gave as a CAGR at a constant currency. I mean I think it’s important and we had it in the script already to always be clear on what is our strategic aspiration. And this is to become the most premium global sportswear brand. And — so the first focus of what we are building is to increase our addressable market. I mean about 75% of the people in our markets don’t know about on. So increasing brand awareness, is a key first step. But we are not using a shot can approach to do this, but instead, we are extremely conscious about the different communities and customer groups we are targeting. So if you take [ Burna Boy ] and Zalando, they speak to a Gen Z customer.

If you take Helene [indiscernible] , she builds credibility with all kinds of runners. [indiscernible] Fonseca drives a hype in the brand in Brazil, and I could go on forever. But what is most important is that we are not fishing in the same pond as everyone else, instead, one is really expanding the market of sportswear because in the end, our products give our fans an identity that is really rooted in the innovation and the design that we are bringing to the product. And so we are bringing fans into our shoes and into the apparel that have basically not used sneakers or performance-inspired apparel before. And so ultimately, we are becoming a bigger part of the life of our consumers. And I think it’s very important that this strategy is to set ourselves apart from everyone else in the industry.

And it also clearly defines on what we are doing as a next step going into ’26 when it comes to products, channels and regions. So there’s — out of that strategy, it’s very clear. If you look on the product side, you can expect a firework of innovation. So we mentioned it on the call early next year, we will update two of our key franchises, the Cloudrunner, the Cloudmonster. Lightspray will become big and it will really revolutionize running. And then we still have a few surprises further down the road for next year. And then you already see the success of apparel and how this is really incremental to the business. Then in retail, we are continuing to add about 20 to 25 stores on an annual basis as we have done this year. At the same time, we are heavily investing into our wholesale partners.

So really, if you will experience on in the physical space in a year from now, it will look very elevated to where it is today. And all of this will drive strong growth in each of our region because that strategy will be working in each of our regions. And of course, we could not give such a strong outlook for next year if we would have doubts about the growth opportunity that we have in our largest regions, Americas. So this is fully embedded in there. And so I think this is the confidence and the strategy that is sitting behind the outlook and the strong increase that we have given on the 3-year plan.

Operator: Your next question comes from the line of John Kernan of TD Cowen.

Unknown Analyst: This is [ Krista Zuber ] on for John. Just one on gross margin. You raised the fiscal ’25 gross margin expectation it kind of implies a modest expansion for 4Q against your toughest year ago compare. Can you walk us through the various sort of tailwinds, headwinds that support the outlook into 4Q? And separately, I think in the release, you mentioned favorable product costing benefits in 3Q and kind of what is the long-term outlook for that line item. .

Unknown Executive: Yes. As I just said, I think it’s super important to understand that a big part of the upside that we have seen in Q3 or the strong margin that we have seen is really based on the power of the business model that we have built, and we consider this to be long term. If we look into Q4, I think there is still upside in the margin. We put some prudence in here. And then going into next year, that sustained uplift will still be there. And it will help us to more than offset the additional impacts that are expected from the tariffs to come into the P&L. And on top of that, we are benefiting from the current FX environment from the current freight environment. which will drive additional margin into the gross profit. But really, the important piece is that we have taken a big step above our target that we communicated by improving the business that we have built.

Operator: Your next question comes from the line of Sam Poser of William Trading.

Samuel Poser: Real quick. The — you said at a conference that you said that the U.S. that you might tone down the U.S. growth, how much of what’s going on right now of sort of with the really strong growth in APAC and EMEA. How should we think about the U.S.? And how much is that sort of more controlled growth. It sounds like you’re going to do going forward reflected in the gross margin and the outlook for the gross margin?

Caspar Coppetti: Thank you, Sam. That’s a very thoughtful question. Look, executing a premium strategy takes a lot of discipline. And the comment that we’ve made repeatedly also on these calls is that we’re not chasing growth by adding especially wholesale doors that don’t make any sense. We’re also not chasing growth by discounting. And I can maybe give you a bit of color around the U.S. We’re very happy to see that the price increases that we’ve done now in July of this year have been very well received, and we see continued demand growth, implying that our affluent consumers are not price sensitive. So I think that’s a very important fact as a lot of people seem to be concerned about the tariff impact. Secondly, our global brand tracker for the U.S. shows that it’s one of the regions where we’ve been the most awareness and we’re also gaining with relevance, especially with high income teens and affluent demographics, combined with a high relevance in running.

So all the things we do around running, [ Miceli ] [indiscernible] being in the New York City Marathon, these things translate into more demand from consumers. And thirdly, as you have heard on the call, Q3 saw less season sales. I mean you always have a very small percentage anyway, but we saw even less than we had last year. And we’re going into this holiday season with a full price strategy. So we have no discounts coming up. And that’s against the backdrop of a very price competitive environment. So we’re really staying true to the discipline that the premium strategy demands.

Samuel Poser: Then when we think about your initial look at ’26 and the raise of the 3-year plan, is that would that sort of mean on an FX-neutral basis, that ongoing sort of ongoing double-digit growth in the U.S., but significantly higher growth in Asia and EMEA.

Unknown Executive: I mean will — it includes strong growth across all the different regions. As I just said, a lot of the things that we are building they will amplify the opportunity that we have as a brand, the reach that we have as a brand in all the different regions. So our assumption is based on the continued strong growth of the U.S. And so it is on a continued strong growth of Europe and Asia Pacific. I mean just take apparel, for example, this is a global story. Apparel is as much underpenetrated in the U.S. as it is in Asia Pacific and the growth opportunity is massive in each and every region. We will expand on retail in all the different regions. And then at the same time, we will not change the philosophy that Caspar just mentioned on expanding wholesale.

So we still have about 60% of the key account doors from Foot, Dick’s and Shady where one is not yet present. And so that’s a multiyear opportunity. But again, very much with a focus on building the brand in a very meaningful and controlled way.

Operator: Your next question comes from the line of Wendy Liu of JPMorgan.

M. Liu: Congrats on the excellent quarter. I have two questions. One is in APAC, very impressive triple-digit growth. You mentioned super digit in Greater China, South Korea. I was wondering if you could share how much of that comes from space versus same-store sales growth or like-for-like growth? And then secondly, just a quick clarification question. I think you had your raised guidance implies a mid-20s growth in Q4. We know the tough comps here, but I just wanted to track what are the considerations behind this outlook, which still looks pretty conservative. What are you seeing in trigonal market since October.

Unknown Executive: Okay. I think in Asia Pacific, we talk about very different markets. Japan is a market where we ended in 2015. We have a strong presence with our wholesale partners. We are very carefully expanding with additional retail stores as we just have opened the one in Ginza. But this is a playbook of growing brand awareness and being where the customer is shopping. If we are looking at most of the other regions, and I include China in that I think on is very much at the beginning of the journey. And here, we see massive same-store growth. And at the same time, we are extremely disciplined in opening additional stores. So the 20 to 25 store numbers that I gave earlier, that was a global number. So it includes China, which means — we take the same approach as in every other region to very carefully go from one city to the other to build the brand in the right way and to really make sure that there’s also a strong performance credibility.

And I think that approach just hits an environment where the demand for premium sportswear brand is incredibly high. And we could easily sell more product there, but we see this as a multiyear journey. If we I think if we look into Q4, and we already gave some color in the prepared remarks. It’s always very important to understand what does the holiday season mean for on. For us, the holiday season is a moment to connect with our brands about the right gear for the season that we are in. It’s to shop for gifts. But it’s absolutely not the moment for us to drive sales through discounts. And as Caspar said before, our commitment to full price sales is first and foremost, the commitment to build the brand long term. So when we look into Q4, we had a very strong start into October and into November.

We spoke about China single days for yesterday 111 and we have seen incredible momentum in Tmall. Our traffic there has been up by more than 250%. And again, it’s a full price environment. We achieved our apparel target much earlier than the end of 11/11. And if we’re looking into Americas, we had a very strong holiday season last year and we are now expecting that region to be in line or even slightly accelerated in terms of growth compared to what we had seen in Q3. So there’s a lot of momentum on a global level.

Operator: Your next question comes from the line of Aubrey Tianello of BNP Paribas.

Aubrey Tianello: I wanted to ask about profitability. Your EBITDA margin guidance for this year puts you a year ahead of schedule versus your 2026 target. How should we be thinking about the progression of EBITDA margin longer term now that you’re surpassing some of these targets, especially, Martin, with your comment that there’s structural improvement on the distribution expense line.

Martin Hoffmann: Yes. I think — it’s always important to recall the philosophy that we have when it comes to managing our business around profitability. So for us, it’s a person for most about investing into the business, investing into long-term growth, which means investing into brand building, into building capabilities, the team technology. And, at the same time, drive additional profitability year-by-year. And we keep on doing this unless there is a moment where ourselves just exceeds expectations, and we can’t invest into the business in a meaningful way. And this is a bit what we have seen now in Q3, we were really sales came in much stronger than expected and has driven together with a strong gross profit margin, a high profitability.

So our philosophy of approaching that profitable growth has not changed. And so we will approach next year very much with the same mindset. So how can we invest into the brand? How can we maybe accelerate some of the trends that we are having that will continue to drive growth well beyond 26%. Given the fact that we have a stronger gross profit, we have a solid sales outlook, and we have an improved distribution line. And at the same time, how can we drive profitability beyond the outlook that we gave 3 years ago. So this is the mindset that we are approaching ’26 first and then we’ll give a precise outlook in March.

Operator: Your next question comes from the line of Rick Patel of Raymond James.

Rakesh Patel: You touched on the opportunity with the younger consumer. Can you expand on that? Like what do you define as a young consumer? And how big is that business today? And then can you unpack your go-to-market strategy to acquire these consumers as we think about categories and geographies?

Caspar Coppetti: Yes. So we entered the space with running and the running categories is typically a bit older. At the same time, we entered the running category with an entry prevention technology, which made it even older, right? And so really over the last, I would say, about 6, 7 years, we have gained a lot of traction with the young consumers. The — working with generational talent like Zalando has, of course, helped a lot. And you’ve seen recently, we started a collaboration with [ Bernard Boy ], to add something more on the — something that is appealing to male teens as well. So if you’re going across high school in the U.S., especially in a more affluent neighborhood, you’ll see the cool kids wearing one, right? That’s a relatively new phenom.

That’s not something we’re chasing. It’s not that we depend on the market. But it’s, of course, very inspiring that we were able to connect to this younger target group. And this start gives us a very long — very strong LTV. You may have also seen that we have launched a kids line. That is going phenomenally well. It’s really hard to keep it in stock. Of course, for the small children, it’s the moms and dads buying the product. So we basically leveraging that appeal. But then we have also a kids line, so basically young teams, where we are also seeing very, very strong results.

Operator: And that concludes our question-and-answer session for today and also the conclusion of our session. Thank you so much for attending today’s call. You may now disconnect. Goodbye.