Dive Brief:
- Days after announcing its entry into soccer, On outlined a $1 billion share buyback and a series of growth plans for the next three years, including an expectation to nearly double net sales over that time period to 5.6 billion Swiss francs ($6.8 billion).
- To achieve that, net sales will need to grow at a high-teens constant currency rate (for 2026, the brand is projecting sales growth in the low-20% range). Gross profit margin is expected to remain at 65% or higher over the next three years, On said, while the brand is aiming for an adjusted EBITDA margin of more than 22% by 2029.
- Growth will be driven primarily by running, sneakers and apparel, though the activewear brand is also counting on the success of new ventures like soccer and golf. Overall, On said it expects “strong growth across all verticals through 2029.”
Dive Insight:
On is plotting out another three years of high sales growth even as analysts begin to question its momentum.
Jefferies analysts led by Randal Konik on Tuesday noted that growth has decelerated from 36% to 13% over the course of six quarters and that On is expecting Q3 to come in at 17% constant currency growth.
“Long-dated targets set against a decelerating base raise the hurdle rather than lower it, and guidance credibility, not vision, is what gets tested today,” those analysts wrote.
Jefferies expects On to grow at a 3% rate from 2026 to 2027 and generate a 2027 EBITDA margin of 14.8%, which is 700 basis points short of the 2029 goal.
“Closing that gap means the algorithm has to inflect almost immediately, in a promotional US market, without markdowns and paid traffic doing the work,” Konik wrote. “We would rather see a beatable bar than a bold one.”
Needham analyst Tom Nikic predicted Friday that On would set a low-teens compound annual growth rate for the next three years, and warned of skepticism of any overly bullish targets.
“The external environment has become far more challenging, which is impacting athletic industry fundamentals and hurting investor sentiment to an even greater degree,” Nikic wrote. “That said, we believe [On] has done the smart thing by reining in wholesale sell-in and avoiding the discounting that has become pervasive in the athletic space, protecting the brand's long-term health.”
Executives at On’s investor day Tuesday highlighted the company’s reliance on science-based innovation and its close collaboration with brand partners, including actor Zendaya and runner Hellen Obiri. The retailer is investing in credibility with its entry into soccer as well, luring superstar Kylian Mbappé away from competitor Nike.
On Chief Design Officer Thilo Brunner noted that the internet is already abuzz with AI-generated possibilities of what On’s soccer cleats could look like and people are getting it “pretty much right.” To Brunner, this means that On has created a distinctive design language that customers recognize.
The On team is working closely with Mbappé, Thierry Henry and Sydney Schertenleib to create products for the new category that are distinctive and also perform well. Chief Marketing Officer Alex Griffin also noted, though, that there are knock-on effects from entering soccer that will give more visibility to categories like lifestyle.
