Prepared remarks
Hello, everyone. Thank you for joining us, and welcome to the On Holding AG Second Quarter 2026 Earnings Call. I will now hand the conference over to Liv Radlinger, Head of Investor Relations. Liv, please go ahead.
Good afternoon, and good morning to our investor community. Thank you for joining On's second quarter earnings conference call and webcast. With me today on the call are David Allemann, Founder and Co-CEO; and Frank Sluis, CFO. 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 2025 fiscal year filed with the SEC on March 3, 2026, for a detailed discussion 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 David, followed by Frank, leading through today's prepared remarks, after which we are looking forward to opening the call for a Q&A session. With that, I am very happy to turn the call over to David.
Good afternoon, and good morning to our global investor community. Thank you so much for joining us today. When we started On 16 years ago, we were told that the sportswear industry operated on a rigid set of rules, standard molds, standard distribution and standard ways of doing business. We politely chose to carve our own path. When told it was physically impossible to put holes into the rubber sole of a running shoe, I took those industry standard molds and broke them. This is how CloudTec was born. That single act of defiance forged our permanent innovation culture. At On, we are reinventing the mold again and again because it is the only way to build a premium global sports brand that will prevail for decades. Stepping into the roles of Co-CEOs just over 12 weeks ago is a strategic commitment to our founder-led DNA. As On continues to scale into a multi-decade global company, we approach our growth with the precise focus of innovators and operators, but with the long-term patience of founders. We are not sprinting for short-term volume. We are deliberately engineering for the multi-decade value of a premium brand. Alongside our President and COO, Scott Maguire; and our CFO, Frank Sluis, this leadership structure unifies our strategic intent with disciplined operational and financial execution. Relentless product innovation, a unique design culture and brand equity remain at the very center of every decision we make. This commitment delivered another exceptional quarter of premium growth. For Q2 '26, net sales reached CHF 850 million, a powerful 22% growth at constant currency. At the same time, we delivered industry-leading profitability, over 65% gross profit margin and close to 20% adjusted EBITDA margin. The strongest proof of the connection we are building is the extraordinary strength of our direct-to-consumer channel, the most premium expression of our brand, which delivered exceptional momentum in Q2, growing 34% at constant currency. This was driven by deep toe-to-head consumer demand across all regions with On's brand awareness increasing to 30% as a whole new generation of fans discovered the brand. We are proving that a brand can achieve global scale without eroding premium positioning or margin ambitions. We do not create exclusivity through artificial scarcity or hype. We scale by bringing superior technology, engineering, unique design, and cultural relevance to millions of consumers, capturing market share while fiercely protecting our margins. On ultimately creates a highly defensible, scalable financial profile of a premium growth compounder. Our actions in wholesale this quarter are perhaps the clearest example of our premium strategy at work. Momentum in our own channels was remarkably strong with growth ahead of our expectations in all regions. On the other hand, in wholesale, the sellout of some of our everyday running franchises tracked below our ambitions in a highly promotional multi-brand marketplace, particularly in the Americas. Clearly, this is something we are not pleased with, but our response is where the premium standard proves itself. We have been intentional and disciplined on managing sell-in to the channel within this environment. Most importantly, we choose not to build in-channel inventory that could compromise our full price integrity. This commitment, discipline, and focus on driving high-value accretive growth will continue into the second half of the year and be evident in our premium financial profile. We expect our full year net sales to grow in the low 20s at constant currency with a higher gross margin outlook and reiterated adjusted EBITDA margin. On this basis, we are on track to close 2026 as the fastest-growing global brand with the highest gross margin in our industry. This is a continuation of the premium strategy that makes us who we are. Let me give you a personal example of where we saw that strategy at work. Early in our journey as a public company, we made the tough choice to prune over-distributed channels in EMEA and protect our full price integrity. Many questioned us then. Today, that discipline is delivering exceptional 21% constant currency growth and record Q2 group margins. EMEA proves that premium growth isn't bought through volume, it's forged through restraint. In the wholesale channel, this discipline does more than protect our margins. It clears the runway for an acceleration of our innovation cycle. We are not just releasing new models. We are deploying a step change in performance engineering. Franchises like the Cloudmonster 3 Hyper, the Cloudsurfer 3, and the Cloudboom Strike 2 are the direct beneficiaries of this strategy. By ensuring a clean premium marketplace today, we allow these breakthrough technologies to land with maximum impact, driving full price demand. So now let's step into our innovation lab. Our premium position is anchored by our innovation engine, and that engine starts with running. Patented performance engineering is our permanent antidote to promotion. This past June, we hosted our inaugural On Running Summit in Paris, bringing together our top 100 global run specialty partners. We gave them an exclusive look at our next-generation marathon racing shoe, the Cloudboom Strike 2, featuring our new CloudTec Sphere geometry paired with Helion HF superfoam. An independent landmark study confirms that the Cloudboom Strike 2 delivers a 1.6% improvement in running economy over the industry's leading super shoes. We are offering the Strike 2 in both a precision laced upper and our revolutionary robotic LightSpray upper. LightSpray is no longer an elite prototype. It's a fast-scaling commercial engine. With our automated facilities in Busan and Zurich fully cranking, LightSpray is driving extraordinary momentum across our running lineup, demonstrated by immediate sellouts for the Cloudmonster 3 Hyper LightSpray that launched in March this year. Crucially, elite breakthroughs must benefit the broader running community. In Paris, we also previewed our Spring/Summer '27 collection, featuring SURREAL foam technology in the Cloudsurfer 3 and the Cloudsurfer Max 2. While the legacy footwear industry accepts a compromise between impact absorption and rebound, we engineered advanced CloudTec structures directly into a superfoam, combining unique chemistry with the physical advantage of dynamic cavities. This represents a first for On, and we expect it to define the industry. On's innovation advantage is tearing up global record books. Zaynab Dosso captured world indoor gold in the 60-meter sprint. To solidify this technical authority, we officially launched the On Athletics Club Sprint Squad in Los Angeles. Led by Coach John Bolton, this elite team is built to dominate short distance track and spark the imagination of a young global audience leading up to the 2028 L.A. Olympics. Let us expand the view across all our sports verticals. Tennis brings On to the most premium spectator sport. At Roland-Garros, Flavio Cobolli captivated millions with an unforgettable underdog run to the final. A 19-year-old Brazilian, João Fonseca, sent shockwaves through the sport by defeating Novak Djokovic in the third round. This isn't just visibility. It's revenue. Tennis is our fastest-growing apparel vertical with sales nearly tripling this quarter. In training and hybrid fitness racing, a hypergrowth category we intend to scale, our training powerhouse, Alex Roncevic, completely redefined what is humanly possible. Bearing an advanced prototype of our Cloud X Tempo Pro, he became the first human in history to shatter the 52-minute barrier, stopping the clock at a blistering 51 minutes and 59 seconds and setting 2 world records in a single race. Our training vertical showed a 40% growth rate as a result. This intersection of performance engineering and cultural relevance is winning what we call the movement class, a generation that treats health, vitality and longevity as the ultimate status symbol. They are expanding our addressable market drastically. Today, consumers under the age of 34 represent over 1/3 of our total customer base and keep growing fast. This massive generational step-up fueled a stellar 190% year-over-year growth for our Cloudtilt franchise within the premium sneaker channel. We are clearly winning in sports lifestyle. A defining moment for this movement was seeing Cloudtilt models take 3 of the top 5 selling positions at Foot Locker Europe last quarter, unseating current incumbents that had held top spots for years. This is not just a statistical win, it is a profound validation of our design language and our ability to capture the zeitgeist. We back this momentum with elevated storytelling. In April this year, Zendaya's co-created collection was a phenomenal commercial success that sold out well ahead of expectations, with 60% of buyers being women under 34. Our Shape of Dreams campaign film, directed by Spike Jonze, won 3 Cannes Lions, reinforcing our strategy to earn consumer attention through entertainment rather than just buying ad space. Furthermore, our Paris Fashion Week installations alongside Loewe and Post Archive Faction prove that On's design language commands a premium position entirely untouched by legacy sportswear. This brand heat validates our strategy of selective expansion, unlocking highly calculated sequential growth across entirely new product categories, channels and geographies. Apparel is hitting its stride. Our proprietary SenseTec fabric is helping us engage further with female customers worldwide, a key priority for us. At the same time, the expansion of our Volt Running collection saw apparel achieve a record 28% share of our running campaign net sales in Q2, proving our ability to complete the runners' uniform from toe to head. Our own retail ecosystem is spearheading this complete uniform. Take the Paris retail flywheel. Our elite visibility during Roland-Garros translated immediately into exceptional apparel and footwear performance. Our Champs-Élysées flagship was our strongest performing store globally this quarter, driving exceptional growth in traffic, conversion and average item values. In Stockholm, our new flagship in the historic Golden Triangle has been opened just 2 months and is already performing at twice our expected level. None of this execution is possible without our global team. We approach our talent architecture with extreme intention, pairing founder vision with world-class operational leadership. To steer our next chapter of scale, we promoted Rebecca Cai to Chief Global Markets Officer, following her stellar growth execution across APAC, our most premium region. We are equally excited to welcome Alice Delahunt as our Chief Customer Officer, injecting profound consumer brand and digital ecosystem expertise directly into our D2C strategy. They join an elite leadership bench ready for our next horizon of growth, and you have the opportunity to meet them face-to-face very soon. On September 21 and 22, we will host our 2026 Investor Day right here at our own labs in Zurich. It has been 3 years since we last shared our long-term road map. We cannot wait to show you up close and personal how we intend to keep pushing the boundaries of what sportswear can be and deliver sustained premium growth for the years and decades ahead. With that, it is my great pleasure to hand the call over to Frank Sluis for his first earnings call as a CFO. Frank brings over 2 decades of global consumer finance leadership, managing multibillion operations in Europe, the Americas and Asia. As an avid marathon and triathlete, he fundamentally understands what it means to build for long-term endurance. Over the past few months, he has brought remarkable discipline, operational rigor and an unwavering conviction in our premium path. He will now walk you through our Q2 performance and how we are calibrating our financial outlook for the balance of the year. Frank, over to you.
Thank you, David, and a very warm welcome from my side as well. It's a real pleasure to be speaking with you all for the first time. I've spent my first months at On listening and learning, spending time with our teams across the regions, with our partners and naturally diving into the strategy and the numbers. I want to mention 3 things that have impressed me the most. Firstly, the obsession with disruptive innovation, which runs throughout the company and is supported by excellent R&D capabilities and supplier partnerships. Secondly, the huge ambition and growth mindset of our 4,000 team members and the still untapped potential in so many areas, including retail and apparel to just mention a few. Thirdly, the founder-led culture and commitment to building the most premium sports brand for many decades to come. This requires discipline every day in the choices we make to drive long-term and sustainable value creation with a unique earnings model. This is the thread I would like to ask you to hold on to throughout my remarks when going through the financials. Let's now dive further into the details of a strong quarter 2. Net sales this quarter reached a new high of CHF 850 million, growing 21.6% at constant currency and 13.5% on a reported basis. As ever, the composition tells you more than the total. Growth was strongly led by direct-to-consumer, our most elevated channel, our highest margin channel and the clearest read we have on our brand momentum. The strength ran through both e-commerce and retail. Net sales in DTC reached CHF 388 million, up 34.3% at constant currency and by 26.0% on a reported basis, lifting DTC to a second quarter record of 45.7% of sales. This is the channel where we fully define our brand experience. So to see this powering our business is one of the results we are most pleased with this quarter. E-commerce growth exceeded our expectations in every single region. Last quarter, we spoke about deliberately widening the conversation to new communities. We continued to pursue this strategy, and the signals of our commitment to this approach are encouraging. Those newer visitors are already moving deeper into the journey, evidenced in increased engagement. And we did it while driving a further increase in full price share year-on-year. To me, that is the whole strategy in 1 data example. We are broadening and elevating the brand at the same time. Our own stores also performed very well with continued strong growth, both in new doors and comp sales. David mentioned our Champs-Élysées flagship. I would add our 2 Tokyo stores, which both continue to perform exceptionally with no signs of cannibalization, clearly telling us that with the right format in the right location, we have real room to expand even in cities where we are already present and at very attractive economics. Our retail KPIs continue to strengthen from an already high base, proving the incredible value of our deepening consumer connections. Let me turn to wholesale because it is where the choices David spoke about showed up in the numbers. Growth was more moderate, 12.7% at constant currency and 4.8% reported, with DTC outperforming wholesale in every region. As David explained, that is deliberate. With sell-out softer in some of our everyday running franchises in a highly promotional environment, we chose to hold back sell-in rather than ship volume that would build inventory in the channel and put a full price integrity at risk. It costs us some wholesale growth, but it protects our partners' inventory health, our premium positioning and ensures the best position for launching what we believe are outstanding innovations in 2027. Switching to our regions. In the Americas, net sales grew 13.0% at constant currency and by 4.5% on a reported basis, reflecting the wholesale dynamic I just described. Within DTC, momentum accelerated in both North America and Latin America. We also continue to attract younger consumers with the share of e-commerce customers under 24, up by more than 1/3 versus quarter 1. I find this really exciting because it means we are attracting the next generation of On consumers without discounting our way to them. Our stores in the region performed well, too, particularly Miami and our New York Flatiron flagship with higher average basket sizes reflecting the resonance of our premium offer, including a strong performance of our Loewe and Zendaya launches. EMEA was a real standout. Net sales up a very strong 20.5% at constant currency and by 15.4% on a reported basis and all the more striking against a very demanding prior year comparison. DTC growth was in excess of 20% at constant currency across every single subregion, including DACH. The performance in Southern Europe was again exceptional, with France, Spain and Italy all tracking comfortably ahead of our expectations and building real momentum on an ever larger base. Our retail presence in these markets also goes from strength to strength with standout performances of our stores in Madrid and Milan. In APAC, net sales grew 54.7% at a constant currency and by 43.1% on a reported basis, broad-based across the region, making this another quarter of 20% global share. Japan and Korea continued to perform exceptionally well as did Greater China. This market exceeded our expectations in every channel with a great contribution from our stores and particular strength on Tmall despite our choosing not to participate in promotional activity. This quarter, we opened our first store in Macau, which is already matching the strong momentum of our remarkable Hong Kong locations. With the widest assortment in the region, the store achieved above-average conversion, reinforcing our conviction in the potential of larger format stores across the region. Across our categories, growth is increasingly driven by multiple engines. Net sales from shoes were up 18.9% at constant currency and by 10.9% on a reported basis. In performance running, the Cloudmonster 3 Hyper delivered strong sell-through and continues to be widely praised by retailers and consumers alike. We continue to scale LightSpray, which already contributed quite meaningfully to our performance running vertical this quarter despite being still early in the scale-up journey. As a runner myself, attending our inaugural Global Run Summit in Paris and spending time with our retail partners and innovation teams has left me even more excited about what is to come next year. This enthusiasm is clearly shared by our partners with Spring/Summer '27 orders for Cloudsurfer 3 from these retailers doubling after the event. If we turn to Lifestyle, David mentioned the performance of Cloudtilt, which saw strength across all versions, including the remix, which is resonating exceptionally well with the young male consumer. The strength of this vertical is particularly impressive in the context of a highly competitive environment where many brands resorted to promotions. Our authenticity in this space and the newness of our products really resonates with the consumer. Training was also a highlight with Cloudpulse and Cloud X both growing strongly and a great example of how we structurally build new franchises and credibility in new sports. Our tennis momentum continued to build on and off court through the Roger franchise, fueled also by our athletes' performances at Wimbledon and Roland-Garros. Apparel grew 56.2% at constant currency and by 47.7% on a reported basis, continuing to establish itself as a meaningful growth driver in its own right and increasingly an entry point into the brand. Performance running remained the anchor, supported by our established collections, the expansion of Volt and a highly successful limited drop with Air1. The Tennis Court collection delivered excellent growth and sell-through, taking a meaningfully larger share of our apparel business. And the co-created Zendaya collection significantly exceeded expectations. In the U.S., every style beats our forecast by triple digits. To summarize, across regions, channels, and categories, we are building an increasingly global and diversified business, one that remains firmly rooted in performance innovation, thrives at the intersection of sports and culture and continues to be built for the long term with a discipline that comes from founder-led leadership. Turning to the P&L. This is where all that discipline converts into profitability. Constant currency sales growth of 21.6%, coupled with adjusted EBITDA margin expansion to 19.8% drove absolute constant currency adjusted EBITDA growth of over 30% year-over-year. Bottom line margin expansion was primarily fueled by an outstanding gross margin of 65.4%, reflecting our strategy at its best, strong DTC momentum, disciplined execution and continued operating efficiencies. Together with a favorable freight mix and some positive foreign exchange effects, those efficiencies let us fully absorb external pressures, including higher U.S. import tariffs and still expand our gross margin. To be clear, these numbers do not include any tariff refunds, which we anticipate are likely to come throughout half 2. Our gross margin is a clear demonstration of the strength of our premium operating model. While freight mix and foreign exchange will naturally vary over time, the core drivers are in the base, disciplined full price execution, a higher DTC mix and sustainable operational efficiencies. These capabilities allow us to invest deeply into our premium product and consumer experiences, further differentiating our brand. Within SG&A, distribution expenses decreased to 10.0% of net sales, continuing to benefit from operational efficiencies, including in last mile fulfillment. As we have said before, those efficiencies create the capacity to invest where we see the strongest long-term returns for our future, this quarter in brand building and digital opportunities, including those to engage with new communities, driving marketing to 14.0% of net sales. Selling expenses increased as expected, reflecting the strong DTC contribution, while we also continue to invest behind future growth in G&A. Discipline earns the margin, and the margin funds the future. Our strategy and value creation flywheel in action. Turning to our balance sheet, where our earnings translated into another quarter of strong cash generation. Net working capital improved by CHF 14.9 million versus quarter 1 as strong receivable and payables management more than offset our inventory intake for the fall/winter season and our actions to recalibrate sell-in. Total net working capital remained strong at below 20% of sales. Capital expenditure was CHF 28.2 million, focused primarily on our selective retail expansion and the infrastructure to support our continued growth. Altogether, we increased our cash balance by CHF 185.2 million, ending with just over CHF 1.2 billion in net cash and a very strong financial position, one that lets us fund innovation, stores and brand building ourselves. Before I turn to our outlook, I want to thank the whole On team for their performance this quarter. I've spent time with many of you these first months, and the welcome has been wonderful. You've been open, generous, and quick to help. Those qualities are a part of the unique culture of On and key elements of what makes this company so special. This is just one more reason I'm even more excited today than when I joined about growing the company together. Let me close on the balance of the year. In Q3 so far, we have continued to execute on our strategic priorities and premium vision with conviction. In July, we again demonstrated our commitment to impact and sustainability with the launch of the Cloud X 5 with CleanCloud, the first EVA midsole made using captured carbon emissions. This technology has already scaled past 1 million pairs, 4 years ahead of our own target. Our pinnacle LightSpray Cloudboom Strike 2, made for our most dedicated running community, was, as David mentioned, independently validated as one of the very best race shoes globally. And we will begin scaling the Cloudsurfer 3, our first shoe with our new SURREAL superfoam in October with run specialty partners. The response to this innovation at our Paris Run Summit was incredible. We've also opened a number of key premium retail stores in the last few weeks, including in the United Arab Emirates, Copenhagen and São Paulo. When it comes to our outlook for the year, I want to share a bit of context on the philosophy behind how we are guiding. I mentioned it, but it is rare and an absolute privilege to work in an environment where every single team member has incredibly ambitious goals and dreams. But at the same time, it's very clear on the discipline required to build a differentiated premium brand for the long term. Strong growth and premium execution can absolutely go hand-in-hand as we proved this quarter, and doing it the right way is a nonnegotiable. So what you see in our outlook is our premium growth strategy in action. This is a model built on discipline on only pursuing the growth that protects and elevates our positioning. With the deliberate action already taken on sell-in in quarter 2 and early quarter 3 and the message that we will not shy away from taking further action to ensure we are setting up for success and a strong pipeline in 2027, we are committing to a 2026 constant currency net sales growth rate in the low 20s. This reflects our premium growth strategy, clear visibility on the wholesale action taken for the third quarter, including in our everyday running franchises, and the focus on continuing to manage sell-in deliberately where we deem it beneficial for our long-term success. With these actions relating to wholesale, it is important to understand that we expect continued very strong momentum in DTC and resulting significant DTC mix expansion for the rest of the year. I want to be equally clear about profitability because this is where the quality of our growth shows. The commitment to premium execution alongside the high DTC mix means we now expect a full year gross margin of at least 65%. And as we pursue high-quality growth and keep investing in our future, we maintain our adjusted EBITDA margin outlook of 19.5% to 20%. Note, this margin outlook does not include any benefits from tariff refunds. We expect to recognize some refunds in our quarter 3 results, and we'll update you when we have fuller visibility on the amount. You heard it today, we're on a journey to build the most premium sportswear brand of the coming decades. The discipline inherent in this is what makes this such a compelling earnings model, strong growth, industry-leading margins and a compounding financial profile. As a CFO, I could not be more excited and convinced of where we are going. I look forward to meeting many of you at our Investor Day in September to share in more detail how we bring this ambition to reality.
Questions and answers
For the Q&A, David and Frank are joined by Caspar Coppetti, Founder and Co-CEO. Your first question comes from the line of Jay Sole with UBS.
David, my question is for you. You mentioned in your prepared remarks about the global trend toward fitness and wellness. But at the same time, a lot of brands in the athletic wear space have seen slowing results over the past year. What gives you confidence that the industry growth rate that you envision can remain strong? And what gives you confidence that we're not seeing a real slowdown in athletic wear broadly on a global basis that maybe could cause more weakness going forward?
Jay, thanks a lot for your question. This is David. What we are seeing, and you see that really broad-based growth for On in our direct-to-consumer channel that saw the stellar growth. And we are an innovation brand. So really kind of our core comes from innovation. And we're seeing that we have across channels, geographies but then also new verticals like, for example, tennis, training, now our new innovation that comes in running, like, for example, the recently launched Cloudmonster that we have incredible momentum. And we believe that what we call the movement class is a societal shift that brings a lot more consumers to sports, because it's not just about utility, but it's about identity. And identity is built through innovation, through cultural relevance and ultimately also through price point, because it's a differentiation factor. And so it's the perfect territory for a premium innovation brand. And that's why we're doubling down. We feel that's an opening TAM and that is supporting On's growth, and you've seen that at play in the second quarter as well.
Got it. Maybe, Frank, if I can ask one question. Just on the gross margin guidance increase, can you walk through the drivers? Is it mostly mix? Are any markdown increases baked into your gross margin guidance for the year?
Thanks, Jay. As we said in quarter 1 already, for this year I think the margin trajectory will be quite clean and there are no significant one-offs in our year-to-date results or in our outlook. In quarter 1 you saw roughly a mid-64% margin, and now a low-65% or mid-65% margin at 65.4%. Growth versus last year is a combination of a continued strengthening of our full-price strategy, an increased share of the DTC mix, and operational efficiencies. I think, as shown in the year-to-date margin, those factors will also be visible at a similar rate for the remainder of the year. Consequently, we lifted the outlook a bit from basically 64.5% to 65% plus as we now see that the DTC mix in particular is trending favorably, and we believe that will remain the case for the rest of the year.
Your next question comes from the line of Jonathan Komp with Baird.
Could you just maybe share a little bit more perspective? When you look at the divergence across channels right now, are you seeing a similar divergence in your everyday running platforms across channels? Or do you think there's some unique factors in the Americas wholesale segment currently? And do you have any insight on how long of a drag some of the intentional actions to limit sell-in into those channels in wholesale might continue here?
Jon, thanks a lot for your question. I think what we are seeing is a very, very loyal customer in our own channels. And actually, we also have a lot of new cohorts coming to our channel. Now 1/3 of our consumers are under 34. So it's also a next generation that is coming to us. And of course, they're coming to us as a premium brand, and they're not looking for price, but they're looking for innovation. They're looking for cultural relevance. So that's the primary driver in that channel. While in a wholesale channel, of course, you're more exposed to a very promotional environment. And so it's more of a choice that you have. So that's why we feel we have a very strong consumer. We have higher awareness now, 30% we have a young new cohort coming to us, and that's what drives the DTC growth that you have seen at more than 34%.
Jon, I can weigh in a bit on wholesale. We want to be quite clear: this is mostly an Americas wholesale topic where it's been a bit more volatile and the months are different. We had a very strong start to the year with our innovation hitting. In the second quarter, we were mostly comping some of our everyday running franchises, which we've still grown but not at the rate we expect going forward. Looking into the start of Q3, we're already off to a very good start with our innovations, most importantly Cloud X 5 and Cloudrunner Max, which are landing extremely well. We also had a very strong back-to-school. So even in the region where wholesale is a bit depressed for us right now, which we believe is transitory, we're seeing a lot of good signs. To your question about how long this will last, we're starting to roll out Cloudsurfer 3 to our own specialty stores first in October, giving them a three-month exclusive period to build credibility for our new technology. Cloudsurfer 3 will roll out broadly in January, followed by Cloudsurfer Max 2 in April. We're also relaunching Flow, which has been a strong franchise in the past. There is a lot of innovation happening in Q4, Q1 and Q2. This is the biggest and fastest accelerated product rollout we've ever had. All everyday running franchises will update to the new foams and new technologies and the Swiss Engineering precision fit within 14 months from now.
That's very helpful. And maybe more broadly, given the strength of the pipeline on the performance side, the strength and acceleration on the lifestyle side, and some of the additional drivers you have over the next few years, how would you frame thinking about the broader potential for On? Should we assume the growth rate will continue to moderate given your focus on quality and larger size, or do you have enough in the pipeline to sustain the types of growth rates you're projecting for 2026 for a while?
Jon, as we mentioned in the opening remarks, we've planted a lot of seeds and you can see them now fully sprouting. Our training vertical is growing 40% year over year, apparel is up over 56%, and tennis is also strong. Geographically, APAC is performing well, and I'm particularly excited about EMEA where we're opening new stores in a Nordic cluster including Stockholm and Copenhagen, as well as in Germany and Latin America. There are many opportunities for premium growth, so I wouldn't worry about running out of fuel.
And of course, there's a bit more to come in the Investor Day, yes, where we can really talk about the long term.
Your next question comes from the line of Aubrey Tianello with BNP Paribas.
I wanted to ask about the revenue guidance. And should we assume that the change in revenue guidance is entirely coming from a lower wholesale outlook? I think last quarter, you mentioned that the DTC growth we saw in Q1 in the high 20s was the right way to think about the full year for DTC. Is that still the case? Obviously, we saw a really strong DTC number in Q2. Did anything change in terms of the DTC outlook for the year?
Thanks, Aubrey. On DTC: the actions we're taking in wholesale in Q2 and Q3 are the key factor behind the revised top-line guidance. DTC growth in Q2 was very strong. Across industries, changes in the digital landscape caused a slight slowdown at the end of last year, but we're very positive about the actions we've taken and the strong e-commerce performance in Q2. As David said, we're exceeding expectations in all regions. We also plan to open a significant number of stores in the back half of the year. Overall, we are confident in DTC growth in H2 and expect it to remain strong, which is why the revised top-line guidance is closely linked to our wholesale actions.
Your next question comes from the line of Anna Andreeva with Piper Sandler.
We wanted to follow up on the sales guidance. You mentioned a couple of times that you're off to a good start in 3Q with the innovation. How should we think about the cadence of sales growth 3Q versus 4Q? And what's being implied for the Americas and the wholesale channel? And then secondly, inventory was up 30% ending the quarter. Can you talk about what's the composition in terms of units versus price?
Thanks, Anna. Looking at the balance of the year, the wholesale actions we began in Q2 will mainly be completed in Q3, which is why we expect the Q3 growth rate to be lower than Q4. Regarding inventory growth, the year-to-date increase has been primarily volume-led, which is the main driver. The second driver is foreign exchange movements, which have increased the value of inventory and explain the majority of the increase. These are the two factors.
Your next question comes from the line of Wendy Liu with JPMorgan.
My first question is actually related to the regional performance. You were seeing a bit of a decel in Americas. I think you mentioned about overall the environment being promotional. But EMEA looks still very solid, while I think some of your peers were warning about the market overall being a bit softer. How do you assess the gap between your performance in these 2 regions? And is there anything that you are doing sort of self-help that are helping your performance in EMEA that perhaps can be replicated to like North America and other regions as well?
Happy to take that question. Maybe David wants to add. EMEA is really a very bright spot for us. As some of you on the call might remember, about three years ago we took actions to completely move out of the comfort channel because we didn't feel it was premium enough, and that's now paying off. We have a very clean marketplace and our innovation is resonating very well. For example, running is growing for us in EMEA quite strongly. We also have some newer markets for On that are helping drive growth. We have established a very good presence now in France; David spoke to that, but Italy, one of the largest sporting goods markets in Europe, is also seeing very good results. For example, our Milan store has a line out the door every single day, and that translates extremely well.
We're also doubling down in EMEA with store openings. We've seen a store cluster in Germany come online. We also brought new stores to Stockholm and Copenhagen. There's a lot of energy in the market, and this is translating into strong lifestyle momentum. The Cloudtilt and the Cloudtilt outsole, which were originally born from running technology, are now seeing incredible growth. As I mentioned on the previous call, it's now taking three of the top five spots at Foot Locker Europe. We're seeing a very young cohort come to On to buy the Cloudtilt and many other franchises; that also crosses over into running and youth. In youth, year over year we've seen 40% growth, which represents additional potential. The brand has heat and is becoming younger, which is great momentum for EMEA.
Great. And then maybe a question to Frank. On guidance, I see that you increased your gross margin guidance to at least 65%, but you maintained your adjusted EBITDA margin guidance. Can you perhaps walk us through the different moving parts? And broadly, is growth from DTC accretive or dilutive to adjusted EBITDA margin?
So starting with the gross margin guidance. The uplift, basically, in the guidance is really, I would say, fully attributable to a higher, basically, DTC mix. Yes. And on the rest of the assumptions, I think, as we said before in quarter 1, and I'll repeat it now, is that the rest of the gross margin, I think, is sort of is clean in the sense of no major one-offs. So I think the other key drivers of, basically, our pricing and the full price, basically, strategy we have, et cetera, is all and also the FOB rates, et cetera, are all, basically, consistent. So the gross margin fully linked to the DTC mix change. Indeed, we have, basically, had the EBITDA margin is unchanged, I think, with 2 big factors in there. One, of course, is the gross margin. The other one I would also say is that, of course, we have a little bit of deleverage coming from the revised top line guidance. And that also, of course, is a factor. And the third one, we want to continue to invest in the business. We want to make really sure that we continue to pursue growth. We see a lot of opportunities, as David and Caspar explained, and we just want to make sure that we continue to have the funds to invest for future growth. And that's why we, basically, decided to maintain the EBITDA margin as it is today.
Your next question comes from the line of Paul Lejuez with Citi.
You mentioned some slower sell-through in the running channel. And I'm curious if you could talk about maybe more broadly what you're seeing in terms of sell-through in other channels and other regions and how that compares to your DTC growth in those regions? And also, just bigger picture, should we think about the second half wholesale growth rates as the go-forward growth rate? Or is this something that you look at as being temporary before we see a reacceleration of growth rates in the first half of '27?
Let me probably take the first part of the question, and then Frank will take the second part of the question. So if you're referring to what we are seeing in DTC, we are seeing actually strong growth, ahead of our expectation in each region. So it's really a positive momentum that's driven by overall brand heat and brand demand. I talked about the 30-plus awareness. It's about new consumers coming to On, and it's very broad. I mean it's our channel where we are doubling down and running, but also where apparel is growing even more than in the rest of the market. So in our own stores in DTC, we have a higher apparel share. So we're really growing toe-to-head, but then also our new verticals. I mean you can imagine during Roland-Garros in France, there were long, long lines in front of our Champs-Élysées store. And then when we recently signed Alex Roncevic in HYROX, we just saw how training has been exploding. So it's a 40% growth. And even innovation in apparel, like, for example, SenseTec has proven to be one of the most important pathways for bringing new female consumers under 24 to On really in training apparel. So we see that momentum across the board in DTC.
Yes. Paul, to address the second part of your question about whether this is a long-term impact: we've been clear that our intent is to ensure it is not. The wholesale adjustments are primarily in the U.S., and we manage sell-in as part of our premium strategy. We do this to protect our full-price strategy and keep inventories at the right level because we are defending very strong innovations in the running space that are coming up. Caspar and David can speak more about the technology, but we fundamentally believe it is very strong. Therefore we want marketplace inventory levels to be healthy so those innovations can land well at the back end of this year and into 2027. That's why we are taking these actions—to ensure the long-term trend in wholesale remains strong.
And just to clarify, is it fair to say that you're happy with the sell-through in the wholesale channel in regions outside of the Americas?
That's correct, yes.
Your next question comes from the line of Aneesha Sherman with Bernstein.
I have 2, please. The first one is on ASP. Last quarter, you talked about strong ASP growth of about mid-single digit per year on average over the last 3 years. As you're now seeing slow performance of everyday running in the U.S., do you believe there's some price resistance in that channel? And how does that shape your view of pricing strategy this year? Is it going to be different across your higher-end products versus your everyday running segments? And then a follow-up on the actions to limit sell-in. Frank, you mentioned a lot of actions taken in Q2. I'm curious, are you seeing any improvement in wholesale sell-through in the U.S. as a result of these actions in the early weeks of Q3?
Happy to take the first one on pricing. Generally, what we're seeing in the market is that runners are really willing to invest against the latest technologies. For On as a premium brand, lowering prices has never been part of the playbook, and you do not expect that from us. What we are going to do, and we spoke to it already on the last call is we're going to open up the aperture of our pricing range. So our entry-level price point, if you want to call it that, that is $160 for everyday running. And in the past, we've maybe had increase of $10 to $20 between models or levels of performance. We're seeing quite a lot of demand in the higher area. So $210 to $250 for us are very attractive price points where we can actually move significant volume. For example, the Cloudmonster Hyper range is doing extremely well. We cannot make LightSpray fast enough, and those SKUs can be up to $290. So in the future, think about maybe 3 price levels for On, the entry level at $160, which is still higher than our competition, something around $200, $210, and then something towards $300 or even above.
Yes. Aneesha, to come back to the second part of the question, we are keeping a very close eye on performance, particularly in the U.S., and we are working closely with our retail partners to drive sell-through. For now the trend is in line with our outlook and initial signs are positive.
We have reached the end of the Q&A. This concludes today's call. Thank you for attending. You may now disconnect.