On Holding (NYSE:ONON) shares fell 19% after the company reported second-quarter net sales below expectations and issued full-year growth guidance at the lower end of forecasts, overshadowing strong direct-to-consumer growth and an expansion in gross profit margin.
The Swiss sportswear company reported second-quarter net sales of CHF 850.3 million, up 13.5% from a year earlier, but below expectations of about CHF 878 million. On a constant-currency basis, sales increased 21.6%.
Adjusted earnings per share came in at CHF 0.35, slightly above expectations of about CHF 0.34.
Direct-to-consumer (DTC) sales increased 26% to CHF 388.4 million, or 34.3% on a constant-currency basis. Wholesale sales rose 4.8% to CHF 461.9 million, with constant-currency growth of 12.7%.
By region, sales in EMEA increased 15.4% to CHF 228.2 million, while sales in the Americas rose 4.5% to CHF 451.6 million. Asia-Pacific sales increased 43.1% to CHF 170.5 million. On a constant-currency basis, growth in the three regions was 20.5%, 13.0% and 54.7%, respectively.
Gross profit increased 20.6% to CHF 555.7 million, while gross profit margin expanded to 65.4% from 61.5% a year earlier.
On reported net income of CHF 105.0 million, compared with a net loss of CHF 40.9 million in the prior-year quarter. Net income margin was 12.3%, compared with negative 5.5% a year earlier. Basic and diluted Class A earnings per share were CHF 0.31, compared with a loss of CHF 0.12 per share in the year-ago period.
Adjusted EBITDA increased 23.5% to CHF 168.1 million from CHF 136.1 million, while adjusted EBITDA margin rose to 19.8% from 18.2%. Adjusted net income was CHF 117.6 million, compared with an adjusted net loss of CHF 29.7 million a year earlier. Adjusted basic and diluted Class A EPS was CHF 0.35, compared with a loss of CHF 0.09.
David Allemann, founder and co-CEO of On, said the results reflected sales growth across markets, expansion of the company's own channels and a higher gross profit margin.
"We are proving that a brand can achieve global scale without compromising its premium brand positioning," Allemann said.
Looking ahead, On said it was approaching the second half of 2026 with a focus on its premium growth model. The company said direct-to-consumer momentum remained strong, while it was deliberately managing wholesale sell-in to protect full-price integrity in a promotional marketplace.
For full-year 2026, On expects net sales to grow in the low-20% range on a constant-currency basis, with DTC sales expected to strongly outperform wholesale in the second half. At current spot rates, the company said that outlook implies absolute net sales of CHF 3.47 billion to CHF 3.56 billion.
The guidance excludes any benefits from anticipated tariff refunds in the second half of the year.
Jefferies wrote that the second-quarter results showed a global wholesale channel that is moderating, particularly in the US, while SG&A costs are accelerating to drive new customers into the DTC funnel as core customer retention wanes.
The firm noted that while gross margin had improved, it did not view the expansion as sustainable as the business slows, while also pointing to what it described as a heavy inventory balance sheet.
"We see USA business decelerating significantly in 2027 while SG&A costs keep rising and gross margin percentage fades, which means negative revisions ahead," Jefferies wrote. "Stock will stay under pressure, and we remain the only ‘Underperform’ rating on the Street."