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Date

Tuesday, November 12, 2024 at 8 a.m. ET

Call participants

  • Co-Founder and Executive Co-Chairman — Caspar Coppetti
  • Co-CEO and CFO — Martin Hoffmann

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Takeaways

  • Net sales -- CHF635.8 million, up 32.3% reported and 33.2% constant currency, setting a quarterly record for the company.
  • APAC region sales -- CHF74.6 million, representing growth of 79.3% reported and 85.7% constant currency, with APAC comprising 11.7% of total business.
  • Gross profit margin -- 60.6% for the quarter, up 70 basis points year over year, marking the highest figure since going public.
  • Adjusted EBITDA margin -- 18.9%, rising from 16.9% in the prior year period, reflecting adjusted margin expansion above prior guidance.
  • D2C channel share -- 38.8% of total net sales, a more than 450 basis point increase over the prior year for the quarter; D2C sales reached CHF246.7 million.
  • Wholesale channel growth -- CHF389.1 million, up 23.2% reported and 24% constant currency, with most growth from existing and new product franchises.
  • Footwear sales -- CHF603.7 million in the quarter, rising 32.1% with core franchises such as Cloud Monster and Cloudrunner leading volumes.
  • Apparel sales -- CHF26.8 million, up 33.3%, with expectations for reacceleration in Q4 based on preorders and operational focus.
  • Americas sales -- CHF395.5 million, up 34.1% reported and 34.5% constant currency, driven primarily by US brand strength and retail expansion.
  • EMEA sales -- CHF165.8 million, growing 15.1% reported and 15.2% constant currency, with France as the fastest-growing market for the region in Q3.
  • Inventory -- Lowest level in the past twelve months at quarter-end, with net working capital at CHF540.1 million.
  • Operating cash flow -- Over CHF105 million generated in the quarter, with a year-to-date positive cash flow of over CHF250 million; cash balance near CHF750 million at quarter-end.
  • Store openings -- 20 new retail stores expected for 2024, on target with the company’s annual 20-25 store opening ambition, reflecting significant retail channel expansion globally.
  • Brand awareness -- In the US, awareness of the On brand has doubled since last year, now reaching close to 20%. In the city of Paris, the home of the Olympics, Coppetti said, "our brand awareness almost tripled year over year. All of this confirms our efforts are paying off, but also that we have a lot more room to grow."
  • FX impact -- Unfavorable FX movement resulted in an unrealized loss of CHF37.2 million, primarily due to Swiss franc/US dollar fluctuations.
  • Guidance update -- Full-year constant currency net sales growth target raised to at least 32% from at least 30%, with reported net sales expectation of at least CHF2.29 billion.
  • Gross profit margin outlook -- Upgraded to approximately 60.5% for 2024, 50 basis points above previous outlook, with expectations for the strongest margin in company history.
  • Adjusted EBITDA margin outlook -- Now anticipated at the upper end or above prior 16%-16.5% guidance for the full year.
  • Product innovation -- LightSpray technology and franchise launches such as Cloudsurfer Next and Cloudrunner 2 cited as having "immediate blockbuster potential"; early 2025 launch of Cloud 6 confirmed.

Summary

On Holding (ONON 0.52%) delivered record quarterly net sales and profitability, driven by exceptional APAC growth, a higher direct-to-consumer (D2C) mix, and expanded retail presence. Management emphasized a structural increase in brand awareness, citing Olympic exposure, celebrity partnerships, and targeted marketing as key drivers. Updated fiscal 2024 guidance reflects higher constant currency net sales growth and improved profitability metrics, with the company prioritizing APAC expansion, new store rollouts, and continued product innovation as strategic pillars for future growth.

  • D2C channel outpaced wholesale growth, contributing to both margin improvement and elevated brand-controlled sales, with management prioritizing this shift for sustainability.
  • APAC’s outperformance was attributed to new retail buildout in China and Japan and digital channel growth, with stated plans for further premium positions and entry into emerging markets.
  • Wholesale growth was driven by shelf-space gains from core footwear franchises and expansion into new categories, supported by a multichannel strategy.
  • Hoffmann stated, "We see our mission to ignite the human spirit through movement coming to life around the globe," underscoring alignment of operational execution with long-term vision.

Industry glossary

  • D2C (Direct-to-Consumer): Sales channel where the company sells directly to customers, bypassing third-party retailers or wholesale partners.
  • LightSpray: On's proprietary footwear technology recognized as a 2024 innovation, involving a new approach to shoe manufacturing.
  • Cloud franchise: Family of On-branded running shoe models such as Cloud Monster, Cloudsurfer, and Cloudrunner, central to product strategy and volume growth.

Full Conference Call Transcript

A warm welcome from my side, and thank you for joining us today.

Caspar Coppetti: I am very excited to speak about this record quarter for ON. We have reached CHF636 million in net sales in Q3, growing by 33% on a constant currency basis. Very importantly, we also continue to deliver on our ambition to combine significant growth with ongoing profitability expansion. These strong results are supported by the incredible work that our team has done over the past months. Their efforts and dedication have first and foremost allowed us to make significant progress on the strategic building blocks that we outlined a little more than a year ago, as part of our Dream ON vision.

Ultimately, to position ON as the most premium global sportswear brand, with a long runway of profitable and durable growth in the years to come.

One of these core building blocks is centered around boosting global brand awareness amongst our core community. Of course, this included our presence at the Olympics and the inspiring stories our athletes have shared with the world through their achievements or heartbreaking journeys. Stories that have been amplified through traditional and social media surrounding this great event, reaching fans both locally and globally. With these upper funnel investments, we are also reaching new communities. Our authentic long-term partnerships, like the ones with Zendaya or FKA Twigs, are reaching younger demographics, bringing in a new group of fans who are connecting to ON through movement in a broader sense. We see this reflected in our quarterly proprietary brand survey.

In the US, awareness of the ON brand has doubled since last year, now reaching close to 20%. In the city of Paris, the home of the Olympics, our brand awareness almost tripled year over year. All of this confirms our efforts are paying off, but also that we have a lot more room to grow.

At the same time, our running community remains, by far, our largest, marking another big pillar in our strategic growth plan. We are thrilled to see how our presence at the Olympics and innovations like LightSpray continue to increase our visibility and engagement with runners. Recently recognized as one of Time's 200 Best Inventions of 2024, ON's groundbreaking LightSpray technology continues to turn heads. During Marathon Week in New York, thousands of people stopped by our ON Labs pop-up in Soho to see the spraying process in action. Only a few lucky members were able to secure a pair of the Hellen Obiri-approved Cloudboom Strike LightSpray, available for the first time in an ultra-limited production drop.

After her win in Boston and the bronze in Paris this year, Hellen topped off her one-of-a-kind season with a second place in the New York City Marathon. We are delighted to see how our core running franchises continue to develop and grow. In particular, our strategic focus on building the Cloud Monster, Cloudsurfer, and Cloudrunner families through clear product segmentation is paying off. With the all-new Cloudsurfer Next and the Cloudrunner 2 proving to have immediate blockbuster potential.

As you remember from ON's Investor Day, our growth plan includes three additional sizable building blocks: apparel, own retail, and Asia. In recent quarters, you have heard a lot about our strategic vision for apparel and retail. So today, I would like to spend some more time on that third area, the incredible growth and momentum we are experiencing in our fastest-growing region, APAC, led by both Japan and China. Both for Q3 and year-to-date, we have massively increased our APAC business and are ahead of our plan, growing over 85% on a constant currency basis in the first nine months. The consistency of execution and exceptional momentum in the region are making it an increasingly meaningful part of our business.

In fact, for the third quarter in a row, APAC has contributed over 10% to our global net sales number. Still, with a very small base of close to CHF75 million in Q3, the opportunities for growth are palpable.

In China, this strong expansion is driven by own retail stores and e-commerce. The vast majority of our new store openings this year have been in China, and we continue to accelerate the rollout given the broad-based success of our store formats. Allowing us to dream bigger, so much so that we have decided to bring our proven and larger global formats to at least two premium locations in China next year. In China, we are further reaching a notably younger and mobile-first consumer, visible in the meaningful e-commerce share from the livestream channel.

During the recent Double Eleven shopping festival, we have continued to see incredibly strong online results, including our all-time China single-day sales record during the first peak of the event. We achieved this despite remaining committed to a full-price strategy in this very promotional environment, a testament to ON's exceptional brand strength.

However, no engagement on our various e-commerce channels can get anywhere close to the level of engagement with the ON brand that bringing our partner Roger Federer can. During his visit to the Shanghai Tennis Masters in early October, we invited a group of kids from the Wild Elephant Tennis Club to meet their idol in Shanghai. The club is based in a rural mountain region and allows children from ethnic minority groups with limited resources to chase their tennis dreams. Roger coached, played, and even got challenged by the kids on the court, truly creating a moment they will never forget.

The event captured unprecedented attention for the ON brand in some of the largest domestic media and spread across the globe from there.

Key markets Japan and China will continue to lead their growth journey in the region. We are rapidly increasing our scale in South Korea. Next year will be the first complete year that our own distribution will be fully up and running in the country, and we are incredibly excited about the opportunities that this brings. Finally, we are also planting seeds for the future in emerging growth markets like Indonesia and the Philippines. Looking forward, we are excited to continue to co-create and pioneer our culture in the region. As the sun sets on this Olympic year, we are setting our sights towards Tokyo, home of the World Athletics Championships in 2025.

You can expect this to be a big global priority for ON next year, including the opening of our second Tokyo store. And you can also expect the ON team to be ready once again when the fastest runners hit the track in our fastest-growing market. We hope you can feel it as well. We are incredibly excited about the momentum in the region and the huge opportunity that it presents. ON's journey of significantly scaling our presence and brand awareness has just begun.

Overall, one year after announcing ON's strategic three-year plan through 2026, we are happy to report that we are well on track on all core strategic building blocks, which in turn will be the key drivers for ON's sustained growth in the coming years. With that, I am happy to hand over to Martin, who will share more about the incredible energy that we have experienced in New York and, of course, provide a detailed review of the quarter. Congrats on your New York Marathon finish, Martin.

Martin Hoffmann: Thank you, Caspar, and welcome from my side as well. I wish I would have been able to accelerate my speed in the second half of the race in the same way we are able to accelerate our net sales growth in the third quarter of the year. Over the past weeks, our team has done an amazing job improving our operational execution, which allowed us to capture the very strong brand momentum that we have built through so many incredible highlights during the summer. As a result, we have achieved all-time quarterly records across top line and profitability. As you know, our culture and our team are at the core.

We invest into a culture of innovation and excellence with the goal to provide our customers with the best products rooted in performance, design, and sustainability, and with the best premium experience. We view innovation and excellence as the two foundational pillars that fundamentally guide the way we work. Innovation is at the heart of what we do. We fuse our dreams, which allows us to explore different paths and find new solutions. Groundbreaking technologies like LightSpray are a great example of what the culture of innovation can achieve. Excellence is about how we bring our vision to life today and in the future.

It is the consistent attention we put into every detail and the way we approach our work to ensure we reach the goals we set out to achieve.

The third quarter offers a great case study of how we strive for excellence in all aspects of our execution. It is no secret that we were not entirely happy with our level of operational excellence during Q2, but in a very short time frame, the dedicated work of our team has allowed us to do a much better job at fulfilling the incredible demand for ON products and to deliver our by far biggest quarter in history in Q3. We are convinced that we have the right team and culture in place to succeed in the areas that will define our long-term success.

Whether it is disruptive manufacturing processes, new product innovations, premium brand executions, or supply chain and warehouse efficiency, it will all require the right mix between innovation and excellence, and we are excited for the growth journey ahead of us. On this journey, we are focused on our mission to ignite the human spirit through movement. Our efforts are centered around the goal to lift, educate, and enable movement. The marathon in New York always offers a particularly powerful reminder of the transformative impact of movement, but it also highlights the fact that access to sports and physical activity is not a given. It is a right to run.

Our social impact partnership program, I had the chance to meet with a number of partners in New York to understand how we can amplify the transformative, inspiring work they are doing to break down barriers to movement. An example is our partner Equity Design. Equity Design closely works with schools in the Bronx to create programs that encourage physical activity for both kids and adults. Their work focuses on reducing health disparities and closing the gap between health and wealth in underserved communities. Elsewhere, our senior leadership team recently spent the day getting to know another one of our Right to Run partners, whose mission is to enable access to sport and movement in long-term refugee camps.

The efforts and dedication of our partners were a huge inspiration for myself and our entire team. While it is a huge privilege for us to partner with them, it comes with an obligation to think about how we can further elevate the impact that Right to Run can have in the future and how we can promote the importance of movement and the access to it.

With that, let's move on to the detailed financial review of the third quarter. Q3 has been, with quite some distance, the strongest quarter in our history. We reached record net sales of CHF635.8 million in Q3, growing by 32.3% on a reported basis and 33.2% on a constant currency basis. In the early years of the brand, we had the big dream to reach the magic number of one million pairs of shoes sold on an annual basis, which we reached in 2016. In Q3, we had the first single week in our history with more than one million pairs sold.

This illustrates the strong demand for the brand and even more the operational ability to continue our strong growth into the future. Q3 is another strong validation of the power of our premium position, our multichannel distribution, and our commitment to durable growth, both in terms of net sales and adjusted EBITDA. A 60.6% gross profit margin and an 18.9% adjusted EBITDA margin are the highest since going public. 38.8% of the record net sales came from our D2C channel, clearly exceeding our expectations. D2C net sales in Q3 reached CHF246.7 million in the quarter.

Our continued investments into our D2C channel, online and offline, together with our operational improvements, allowed us to capture a higher share of the strong consumer demand and to deliver our biggest e-commerce quarter in history.

Besides the success we already pointed out in China, in EMEA, this also includes the continued success of our marketplace on Zalando, bringing a younger community to the ON brand. Additional growth within D2C is driven by our own retail formats. We made significant progress in our retail footprint with the opening of several great and strategically important new stores in Q3. In the Americas, we celebrated the openings of our third New York City location and the first ones in Austin and Chicago. New York City Flatiron and Chicago mark our two largest stores in the region so far. In EMEA, we opened in Milan.

Following the two stores in Paris, France, we continue our expansion of our own retail as an important channel for growth in Western and Southern Europe. In APAC, we opened our first store in Australia in Melbourne and five new locations in China, with three of these locations having a significantly larger square footage than our historical fleet average. With three new stores expected in Q4, we will have opened 20 new stores in the full year 2024. This number is in line with our ambition to open 20 to 25 new stores annually, as outlined at our Investor Day.

We are extremely proud of our team establishing own retail as a new channel that is elevating our brand experience across the board, delivering strong top-line growth and profitability by driving a high share of apparel sales. By the end of 2024, we expect nearly 1,000 team members working in our retail stores, compared to just 380 at the end of 2023.

Our increase in brand awareness is not only reflected in our D2C channel growth but also in the continued momentum at our wholesale partners. In Q3, our wholesale channel grew by 23.2% or 24% on a constant currency basis, reaching CHF389.1 million. In line with our strategy, we have expanded our wholesale footprint in a very controlled way. The vast majority of growth is driven by the strength of our existing and new product franchises, our ability to convert more shelf space opportunities with our expanded offerings in running and in our new categories. In sum, we are very pleased to see our multichannel strategy in full effect.

In line with our strategic ambition, our D2C channel has significantly outpaced our wholesale channel this year. The result is an over 300 basis point D2C share increase versus last year, but looking at the year-to-date period, or even a 450 basis point increase for the third quarter specifically.

With that, let me move on to the developments by region. Net sales in the Americas grew by 34.1% in Q3, or 34.5% on a constant currency basis, reaching CHF395.5 million. While this great performance is certainly a reflection of the operational improvements, it is first and foremost a reflection of the strength of the brand in the region. As Caspar shared, our brand-building moments over the summer have converted to higher brand awareness and resulting transactions in the key US market in particular. At the same time, we are also very encouraged to see additional upside coming from markets like Canada and Brazil.

Net sales in the EMEA region reached CHF165.8 million in Q3, growing by 15.1% year over year or 15.2% on a constant currency basis. In line with the rapid rise in brand awareness, France climbed up to be our fastest-growing market in the region in Q3. This, of course, coincides with the Paris Olympics and the resulting great start of our Champs-Élysées store. We are encouraged by the ongoing momentum in the fall. APAC reached net sales of CHF74.6 million in the third quarter, corresponding to a growth rate of 79.3% or 85.7% on a constant currency basis.

With that, the APAC region made up 11.7% of our total business in Q3, driven by the continued momentum in China, Japan, but also in South Korea.

Turning to performance by product, in Q3, net sales from shoes grew by 32.1% up to CHF603.7 million. Our running vertical continues to be the key driver of volumes, with franchises like the Cloud Monster and Cloudrunner continuing to lead the way. As fall begins, many of us view this season as an opportunity for fresh starts, embracing new behaviors, habits, and activities. This inspired us to launch our new Back to Run campaign and with that, to further double down on our running core. The campaign showcased the all-new Cloudsurfer Next, which supported a three times increase in our Cloudsurfer franchise versus the prior year period. Apparel grew by 33.3% in the quarter, reaching CHF26.8 million.

While we have put most of our initial focus on improving the product flow on the footwear side, the constraints on the apparel side tracked well into Q3, resulting in a growth rate tracking slightly behind our ambition. We are confident that we will see a reacceleration here in the fourth quarter. Based on the preorders for Spring/Summer 2025, we expect the strong momentum in this focus area to continue into the new year. Early this year, our team spent a full day in the Swiss mountains. The result was a beautiful campaign with full head-to-toe looks from our Fall/Winter season at the center.

With millions of impressions across our different channels, we are excited to continue building long-term brand awareness and momentum for our apparel category.

Moving down the P&L, largely driven by the exceptional D2C performance and resulting high D2C share of 38.8% in the quarter, we reached a very strong gross profit margin of 60.6%, increasing by 70 basis points year over year. SG&A expenses, excluding share-based compensation, were CHF292.8 million, equivalent to 46% of net sales and reduced from 46.4% in the prior year period. The main benefit resulted from more efficient distribution, reflecting our continued focus on achieving operational efficiency gains. This included a temporary strategic shift of volumes to our LA warehouse during the quarter, which we were able to secure at a favorable rate.

The resulting adjusted EBITDA margin for Q3 is 18.9%, significantly up from 16.9% in the prior year. This very strong profitability reflects the flow-through of the top line exceeding our expectations, together with a slightly more conservative cost plan in place, considering the operational challenges we had faced in Q2. While we continue to take measures to reduce the sensitivity of our results to FX fluctuations, the significant drop in the Swiss franc per US dollar between the end of Q2 and the low point at the end of Q3 led to a considerable unrealized FX loss during the period of CHF37.2 million.

We are pleased to have delivered a strong net income of CHF30.5 million even despite this impact, demonstrating the resilience of our business.

Which brings me to our balance sheet. Capital expenditures were CHF19.1 million in Q3, equivalent to 3% of net sales. Our net working capital balance at the end of Q3 stands at CHF540.1 million. This includes our lowest inventory position in the last twelve months, a further testament to the continued operational optimizations we have been focused on. This has, of course, contributed to continued strong cash flow, with a positive cash flow of over CHF105 million in Q3 alone, and a year-to-date positive cash flow of over CHF250 million. We have significantly increased our cash balance to close to CHF750 million at the end of the third quarter.

As I mentioned in our Q2 call, we do expect a higher inventory position at year-end as we increase our on-hand levels on key styles during the fourth quarter. This will include the inbounds for our Spring/Summer 2025 launches, including the all-new Cloud 6 that we are very excited about.

Now let me move on to our last outlook for the full year of 2024. We are extremely pleased with where we are today. We see our mission to ignite the human spirit through movement coming to life around the globe. We are successfully executing every dimension of our strategic plan, growing our brand awareness and presenting our reach to new communities. We already had a strong start this quarter, and we are heading into the holiday season with a lot of confidence and excitement and expect to see limited operational constraints to deliver against the continued exceptional brand momentum we are seeing globally.

For Q4, we expect a higher constant currency growth rate than Q3, even after exceeding our expectations in the third quarter. For the full year 2024, we are increasing our constant currency net sales growth ambition from at least 30% to at least 32%. On a reported basis, at current spot rates, our increased outlook reflects the expectation to reach at least CHF2.29 billion in net sales for the full year 2024. This impacts the sizable FX headwind that we expect in Q4 across all regions, with the Americas region due to see the biggest impact given the meaningful US dollar move versus the Swiss franc in recent months.

As a result of the D2C strength in Q3, we achieved a 60.1% gross profit margin for the first nine months year-to-date. Driven by the historical strength of D2C, our disciplined full-price strategy, the strong momentum, and our balanced inventory position, we expect an even stronger gross profit margin in Q4 and are confident in our ability to significantly overachieve our previous gross profit margin outlook for 2024. We now expect to reach a full-year gross profit margin of around 60.5%, an increase of 50 basis points versus our previous outlook. As communicated in the past, we execute in line with our philosophy of building long-term durable growth, which extends to both top-line and profitability expansion.

We always seek opportunities to drive additional meaningful long-term oriented investments for our brand and business when overachieving our net sales and gross profit expectations during the financial year. Given the proximity to year-end, we expect a higher flow-through of the strong gross profit into our adjusted EBITDA. We expect our adjusted EBITDA margin for the full year at the upper end of our previous guidance of 16% to 16.5%, potentially even slightly above. While we are incredibly thrilled with our Q3 results and this increased outlook for 2024, we are even more proud to see the progress we have made against our long-term ambition announced a little more than a year ago.

We are excited to continue to build on this for the long term and look forward to finishing the year 2024 on a high note. We look forward to being back with this audience in 2025. Thank you once again for your continued support and your trust.

Operator: Thank you. We will now begin the question and answer session. We would like to ask that you limit yourself to one question. Your first question comes from Christina Fernandez with Kessler Advisory Group. Please go ahead.

Christina Fernandez: Hi. Good morning, and congratulations on the results. I wanted to ask about the increases in brand awareness that you are seeing. Caspar, you gave some details on the US. Can you share where the increases are coming from? If you have any details you can share by demographic, such as in the younger cohort, gender, anything else there would be helpful. Thank you.

Caspar Coppetti: Hi, Christina. Thank you for this question. It has been a big focus for us to increase the brand awareness and to see that now come to life and flow through into Q3 results, that has been very, very positive. So one thing that happened was that Zendaya, FKA Twigs, and some of the investment into the younger community clearly helped. So we very significantly increased brand awareness in the younger community. But it is not limited to that. We were also able to increase brand awareness across the globe. So if you look, for example, at very penetrated countries like Switzerland, we increased brand awareness by 30 percentage points in an already relatively strongly penetrated country.

And when we look at the US, it was from coast to coast, so to say. So what we were able to do, you know, we were focused, but we saw some overflow from that into other regions and into other cities as well. And then lastly, besides Zendaya and FKA Twigs and tapping into the younger community, performance was a very, very important focus for us, so we really used the Olympics to continue to penetrate ON as an innovation brand but also the performance community. So when you look at our run counts, we were also able to increase share across all running routes across the globe.

And so we are very, very confident in how this is uplifting ON as a brand overall.

Operator: Your next question comes from the line of Aubrey Tianello with BNP Paribas. Please go ahead.

Aubrey Tianello: Hey. Thanks so much for taking the questions, and congrats on the results. I wanted to hear more if you could, you know, just kind of dive into some of the drivers of the 50% D2C growth in the quarter, maybe from a product perspective. And then what is giving you the confidence that constant currency revenue growth should accelerate in Q4? What are your early reads so far as we approach the holiday season?

Caspar Coppetti: Yeah. Let me quickly take the D2C question, and Martin will elaborate on the second one. So I think when you look at our recent quarters, then I think we, in most of the quarters, were able to execute on our growth plan and our strategy, which is basically to increase the D2C share over time. I think the last quarter was almost a bit of an outlier in the negative direction due to the operational constraints that we saw. And now we are really back to seeing the brand kind of tapping into this strength and being able to convert it.

So I think this is a reconfirmation of our long-term strategy and not just a positive outlier as a quarter. And now when we look into this quarter specifically, I elaborated on it a little bit before. So brand awareness was a very big driver, so the Olympics and Zendaya really, really helped. And it helped in all regions. So if we compare D2C growth in Europe versus the US, for example, they are at a very, very similar growth level. And then APAC has a positive outlier due to strength in Japan and China. Then I think we saw very successful product launches. That has been the second driver of that.

So they were really, really resonating, and it was not limited to one. It was the full kind of portfolio of launches that we brought to life, and obviously, LightSpray and sharing the innovation story and also converting that into our performance product like the Cloudboom Strike that really, really resonated with our consumers. Then lastly, we have invested a lot into the D2C environment over the last couple of months. So this is really allowing us to not only capture new traffic in a very efficient way but also to further continue to penetrate our existing consumer base in an even more meaningful way.

Martin Hoffmann: Yeah. And then those are also the drivers that give us the confidence into the holiday season. So we do not think they are exhausted yet, and we leave Q3 with a lot of momentum, and we also continue to see that momentum in the first weeks of the quarter. So take Asia Pacific, for example, which just had our record month there in October. So the momentum clearly continues. For China, October is a super important month leading into the Double Eleven season. And that positivity is reflected in the increased guidance that we have given. It will allow us to focus on our full-price premium business during the holiday season, which is important for us.

And at the same time, it will allow us to focus on preparing our important Spring/Summer 2025 launches, which includes the new Cloud 6, our key franchise, which will update in early next year. The holiday season clearly is go time for retail. So for the first time in...Martin Hoffmann: ...our history, we are entering the holiday season with a robust retail footprint, and we are well-prepared to capitalize on the increased foot traffic and consumer interest. Our new store openings and enhanced e-commerce capabilities are set to play a crucial role in driving sales during this period.

We are confident that our strategic initiatives and the strong brand momentum will enable us to deliver a successful holiday season and set the stage for continued growth into 2025.

Operator: Thank you. Your next question comes from the line of Michael Binetti with Credit Suisse. Please go ahead.

Michael Binetti: Hi, guys. Thanks for taking my question, and congrats on the strong quarter. I wanted to ask about the gross margin outlook. You mentioned some favorable factors contributing to the margin expansion. Can you elaborate on what specific elements are driving this, and how sustainable do you see these factors being as we move into next year?

Martin Hoffmann: Thank you, Michael. The gross margin expansion we have seen is primarily driven by a few key factors. First, our D2C channel has been performing exceptionally well, and as you know, this channel typically carries a higher margin compared to wholesale. The increased share of D2C in our overall sales mix has been a significant contributor to the margin improvement. Second, we have maintained a disciplined approach to pricing, focusing on full-price sales and minimizing promotional activity, which has supported our margin resilience. Additionally, our operational efficiencies, particularly in distribution and logistics, have helped us manage costs effectively.

Looking ahead, we believe these factors are sustainable. Our strategy to grow the D2C channel remains a priority, and we are confident in our ability to continue driving efficiencies across our operations. While we remain vigilant about potential headwinds, such as currency fluctuations and cost pressures, we are optimistic about maintaining a strong gross margin profile as we move into 2025.

Operator: Thank you. Your next question comes from the line of Alex Straton with Morgan Stanley. Please go ahead.

Alex Straton: Hi, everyone. Great quarter. I wanted to touch on the APAC region, which showed impressive growth. Can you provide more color on the specific strategies you are employing in this region, and how you plan to sustain this momentum?

Caspar Coppetti: Hi, Alex. Thank you for the question. The APAC region has indeed been a standout performer for us, and we are very pleased with the progress we are making there. Our strategy in APAC is multifaceted. Firstly, we are expanding our retail footprint significantly, particularly in key markets like China and Japan. This includes opening new stores and enhancing our presence in premium locations, which helps us reach a broader audience and strengthen our brand positioning.

Secondly, we are leveraging digital channels to engage with a younger, mobile-first consumer base. Our success during events like the Double Eleven shopping festival highlights the effectiveness of our e-commerce strategy in the region. We are also focusing on building strong local partnerships and collaborations, such as our association with Roger Federer, which has helped elevate our brand visibility and appeal.

Looking ahead, we plan to continue investing in these areas, while also exploring opportunities in emerging markets within the region, such as Indonesia and the Philippines. We believe that by maintaining a strong focus on local consumer preferences and leveraging our global brand strengths, we can sustain the momentum we have built in APAC.

Operator: Thank you. We have time for one more question. Your final question comes from the line of Tom Nikic with Wedbush Securities. Please go ahead.

Tom Nikic: Hi, thanks for squeezing me in. I wanted to ask about your product innovation pipeline. You mentioned some exciting launches like the Cloud 6. Can you give us a sense of what other innovations we can expect in the coming quarters?

Martin Hoffmann: Hi, Tom. We are always excited to talk about our product innovation pipeline. As you mentioned, the Cloud 6 is a key launch for us, and we are looking forward to its introduction in early 2025. Beyond that, we have a robust lineup of innovations across both footwear and apparel. In footwear, we are continuing to push the boundaries with new technologies and materials that enhance performance and sustainability. You can expect to see further advancements in our LightSpray technology, as well as new iterations of our popular Cloud series.

In apparel, we are focused on expanding our offerings with products that combine functionality, style, and sustainability. We are also exploring new categories and collaborations that align with our brand ethos and resonate with our consumers. Overall, our commitment to innovation remains strong, and we are excited to bring these new products to market and continue delighting our customers.

Operator: Thank you. This concludes today's conference call. Thank you for joining us, and we look forward to speaking with you again soon. Have a great day.