Hard to poke holes in a consumer company that raises guidance like this against a challenged macro-environment backdrop. Key point they made on call was this isn’t just flowthrough but rather they now have increased 2H25 expectations. And that’s even with them putting in some room to account for macro uncertainty.
The brand has “incredible momentum”. Q3 very strong start – very similar to what said on call last time. July strongest month in history of the brand. “Very strong order book.”
I talk a lot about “technical product” and “innovation” when discussing both athletic apparel and footwear. ON delivers a Masterclass every time they talk about this subject. “All about the long game and company innovating on product manufacturing” – Hallelujah! They dedicate significant time and investment into projects like Lightspray that will last several years before they ever see a benefit. Most of the brands people love to discuss on FinX today DO NOT really do this.
The continued strength in DTC (now 41.7% of the mix) should help limit the generic bear thesis that they might be overexpanding in wholesale. Clearly overall brand heat remains on fire now. Strength YTD gives them flexibility to more meaningfully think about adding additional doors and focus more on full price sales.
Today 9 distinct footwear franchises each contribute more than 5% to topline (was 7 at IPO). Likely one reason why they have such great gross margins. I do wonder how that relationship changes as they increasingly are forced to find growth in less scaled product. Of course, doesn’t seem to be an issue anytime soon.
Speaking of gross margin, the raise in gross margin guidance for the year indicates their confidence that they can navigate the tariff issue. Premium nature of their brand and the fast growth provides multiple opportunities to offset this pressure. Feel confident they don’t need an additional price increase (beyond July 1st) to meet the margin target. They are confident they can maintain a gross margin of 60%+ LT.
I remain skeptical of their efforts in apparel but applaud them for making these investments today while the overall brand halo is probably as good as it will ever get. Most brands can’t make the jump to other product categories because they do it too late in their brand popularity curve. Commentary was a bit generic but Fernandez and Binetti were all over this topic in Q&A. At least got them to say the word “innovation” in passing and talk a little about “doubling down” with influencer collaborations (FK Twigs, Zendaya). “Apparel comes from core performance, but sports is the new fashion. Core performance broadens out beyond sports. Won’t swim in a sea of sameness, will do it as a highly elevated premium product.”
*These are our unabridged quick thoughts and notes from the call. We get them out as soon as possible after the call ends. Management has given some topics to dig deeper into and will circle back in several days with a more comprehensive work up as well as detailed scenario analysis of how consensus numbers shook out.