Why On Holding Stock Is Falling 19% After Q2 Earnings

On delivered strong direct-to-consumer growth and record margins, but softer Americas wholesale demand and a lower full-year sales outlook overshadowed the quarter.

On Holding shares were down about 19% to roughly $31 at the time of writing Tuesday after the Swiss sportswear company reported second quarter results. Shares fell as much as 22% intraday.

The size of the decline looks strange when you first look at the quarter. On still grew quickly, direct to consumer sales accelerated, margins expanded substantially, and profitability was strong.

The concern was concentrated elsewhere: growth slowed in wholesale, particularly in the Americas, and management lowered its full-year sales outlook as it deliberately pulls back shipments to retailers.

That puts more attention on whether weakness in some of On's core running products is temporary than on what the company earned this quarter.

On's Q2 results were strong in several important areas

On generated CHF 850.3 million of Q2 net sales, up 13.5% reported and 21.6% in constant currency, according to the company's second quarter results. Sales, however, came in below the roughly CHF 878 million expected by analysts.

Several parts of the business remained very strong:

• DTC sales: CHF 388.4 million, up 34.3% in constant currency
• DTC share of sales: 45.7%, a Q2 record
• Gross margin: 65.4%, up from 61.5% last year
• Adjusted EBITDA: CHF 168.1 million, up 23.5%
• Adjusted EBITDA margin: 19.8%, up from 18.2%

Growth also broadened beyond On's core footwear business. Asia Pacific sales increased 54.7% in constant currency, while apparel grew 56.2%.

There is plenty in those numbers to like, which is why the wholesale commentary from management deserves more attention in explaining the selloff.

The real problem is Americas wholesale

Wholesale sales grew 12.7% in constant currency during Q2, down sharply from 25.1% growth in Q1. Americas growth also slowed to 13.0% from 17.1% in Q1.

More revealing was management's discussion of sell-through. Founder and Co-CEO David Allemann acknowledged during the company's Q2 earnings call that sales of some everyday running franchises through retailers were below the company's expectations, particularly in the Americas:

“The sell-out of some of our everyday running franchises tracked below our ambitions in a highly promotional multi-brand marketplace.”

Sell-through measures what retailers actually sell to consumers, while sell-in measures what On ships into those retailers. A company can temporarily keep wholesale revenue growing despite weaker consumer demand by continuing to ship inventory into the channel, but eventually excess inventory can lead to markdowns and discounting.

On is trying to avoid that outcome. CFO Frank Sluis said the company has deliberately held back shipments:

“It costs us some wholesale growth, but it protects our partners' inventory health, our premium positioning.”

For a premium brand, there is logic to the decision. Shipping more shoes simply to support near term revenue would risk creating the promotional environment On has spent years trying to avoid, even if pulling back means accepting lower wholesale growth for now.

On lowered its 2026 sales outlook

Last quarter, On expected at least 23% constant-currency sales growth for 2026, implying reported sales of at least CHF 3.51 billion at then-current exchange rates.

The company now expects growth in the low 20% range on a constant-currency basis, corresponding to approximately CHF 3.47 billion to CHF 3.56 billion in sales at current rates.

The earnings call removed much of the ambiguity around the change. BNP Paribas analyst Aubrey Tianello asked whether the lower revenue outlook was essentially coming from wholesale, and Sluis called the company's actions in Q2 and Q3 the “key factor” behind the revised top line guidance. DTC, meanwhile, remained strong and exceeded expectations across regions.

Most of the remaining wholesale adjustments are expected in Q3, which is also why management expects Q3 growth to come in below Q4 growth.

The divergence between channels is important. Consumer demand through On's own stores and website remains strong, while a portion of the Americas wholesale business is having a harder time in a promotional market.

The margin story is actually getting better

On raised its full year gross margin outlook to at least 65%, from at least 64.5%, while maintaining adjusted EBITDA margin guidance of 19.5% to 20%.

A rising DTC mix helps because On keeps more of the selling price when consumers buy directly from the company. Avoiding excess retailer inventory should also make it easier to maintain full price sales rather than clearing unwanted shoes through promotions.

Management has shown little interest in responding to the current environment by moving downmarket. During the earnings call, founder and Co CEO Caspar Coppetti said On continues to see substantial demand at premium price points. The company's everyday running products start around $160, but it is seeing attractive demand around $210 to $250, while some LightSpray products can reach $290.

Accepting some lost near term wholesale volume can work if On continues to grow DTC, preserve pricing and bring consumers into higher-priced products. The question is whether wholesale demand begins improving as the next product cycle reaches stores.

Needham cuts its price target

Needham lowered its price target on On Holding to $37 from $45 on Tuesday while maintaining a Buy rating.

The target reduction is notable because the rating itself did not change. Needham is still positive on the stock, but the lower target reflects a reset in the amount of upside the firm sees after the quarter.

What today's ONON selloff means for investors

On's Q2 results do not look like a business whose brand suddenly stopped working. DTC grew more than 30%, APAC remained exceptionally strong, apparel continued scaling quickly, and gross margins reached 65.4%.

The part worth watching is everyday running products sold through Americas wholesale partners, particularly in the US.

Management considers the weakness transitory and pointed to encouraging early Q3 trends, with Cloud X 5 and Cloudrunner Max performing well. A broader product refresh is also coming over the next several quarters. Cloudsurfer 3 begins rolling into specialty stores in October, followed by a broader launch in January, with additional updates behind it.

That product cycle should provide a much better read on whether On is dealing with a temporary distribution issue or something more persistent. Improving wholesale sell-through would support management's argument that it is cleaning up distribution during a promotional period before its next wave of products arrives. Continued weakness after those launches would make it harder to dismiss the slowdown and raise questions about how quickly On can keep growing in its largest market.

For now, Q2 looks like the first meaningful test of whether On can protect its premium positioning without giving up the premium growth rate investors have come to expect.

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