On (ONON) Q4 2025 earnings review
Operational Brilliance Masked by FX Noise
On surpassed the CHF 3.0 billion annual revenue milestone with an impressive 30% YoY growth, driven by aggressive DTC expansion and skyrocketing demand in APAC. The underlying business is booming: Gross margins reached a record 63.9% in Q4, and full-year Adjusted EBITDA surged 46% to CHF 567M. However, investors glancing only at the bottom line will see a 16% YoY decline in full-year Net Income. This optical illusion is entirely driven by a massive CHF 173.2M non-operating foreign exchange loss resulting from a strong Swiss Franc. Operationally, the company is executing flawlessly, boasting incredibly tight inventory control and setting robust guidance for 2026.
🐂 Bull Case
Gross margin expanded to 63.9% in Q4 (up 180 bps YoY), reflecting high full-price realization and a favorable channel mix shift. On is successfully resisting the promotional discounting trends plaguing the broader footwear sector.
Despite growing net sales by 30% YoY, On kept its inventory completely flat (+0.1% YoY) at CHF 419.8M. This clears out working capital bottlenecks and practically eliminates the risk of future obsolescence write-downs.
🐻 Bear Case
The Americas region, representing 58% of total sales, grew 12.8% on a reported basis in Q4 (21.3% constant currency). This is a noticeable deceleration from the >30% growth rates seen in late 2024 and mid-2025, signaling market maturation.
On still sources ~90% of its footwear from Vietnam. With the U.S. implementing new 20% reciprocal import tariffs on Vietnamese goods, the company faces an acute, concentrated geographical risk to its cost of goods sold.
⚖️ Verdict: 🟢
Bullish. The drop in reported Net Income is a non-cash FX accounting artifact, not a fundamental deterioration. With gross margins approaching 64%, zero inventory bloat, and an aggressive 23%+ growth guide for FY26, On is executing on its premium playbook better than almost any peer in the sector.
Key Themes
APAC is the New Hyper-Growth Engine
While Western markets mature, Asia-Pacific is accelerating violently. APAC net sales surged 70.8% YoY in Q4 (85.1% constant currency) and nearly doubled for the full year (+96.4%). Driven by rapid physical retail expansion in China (now at 38 locations) and strong adoption in Japan, APAC is evolving from a geographic afterthought into a primary growth pillar.
Direct-to-Consumer (DTC) Flexes its Muscle
On's strategy to outgrow its wholesale channel via owned retail and e-commerce is succeeding. DTC sales grew 33.7% in FY25 to reach 41.8% of total net sales (up from 40.7% in FY24). This channel mix shift is the primary catalyst behind the company's soaring gross margins, capturing the full retail markup.
Apparel Transitioning to a Meaningful Category
On is successfully shedding its 'shoes-only' reputation. Apparel sales leaped 68.2% YoY in FY25 to CHF 169.9M, vastly outpacing footwear growth (27.5%). Accessories also surged 124%. As physical retail footprint expands, consumers are adopting the 'toe-to-head' aesthetic, increasing average basket sizes.
Americas Core Market is Cooling
Despite management's positive narrative, the data shows deceleration in On's largest market. Americas reported Q4 net sales growth of 12.8% YoY. While constant currency growth was 21.3%, this is a material step down from the 33.9% CC growth posted in Q4 2024. The brand is inevitably hitting the law of large numbers in the U.S.
Tariff and Supply Chain Exposure
On's manufacturing footprint remains highly concentrated, with ~90% of footwear sourced from Vietnam. The new U.S. reciprocal import tariff of 20% on Vietnam introduces a structural cost headwind. While current brand heat allows On to push through price increases, prolonged trade friction could eventually test consumer elasticity.
LightSpray Automation & Robotics
On launched its first LightSpray manufacturing facility in Zurich in 2025. This proprietary technology fuses robotics and materials innovation to spray shoe uppers in minutes, radically reducing waste and labor. Scaling this near-shore manufacturing capability over the next few years could fundamentally alter On's supply chain economics and mitigate Asian tariff risks.
Fixing the FX Accounting Mismatch
To address the extreme volatility in reported net income caused by holding USD cash balances against a CHF functional currency (which caused a CHF 173.2M paper loss in FY25), On is changing its parent and trading entity's functional currency to the US Dollar starting Jan 1, 2026. This will clean up the P&L and align reporting closer to operational reality.
Other KPIs
Calculated as operating cash flow (CHF 359.5M) minus capital expenditures (CHF 78.6M). While down from the massive CHF 445.6M generated in FY24 (which benefited from favorable working capital unwinds), this remains a highly robust cash conversion profile that fully funds the company's aggressive retail expansion.
Stable. Core operating expenses as a percentage of sales slightly improved from 48.4% in FY24. The company achieved leverage in Distribution costs (down to 10.7% from 12.4% due to automated warehouse efficiencies), which funded increased investments in Selling (retail stores) and Marketing (12.5% of sales).
Decelerating. SBC expense actually declined 12.5% YoY from CHF 71.5M in FY24. At just 2.1% of net sales, On's stock-based compensation is exceptionally disciplined for a high-growth consumer brand, preventing excessive shareholder dilution.
Guidance
Stable. While a slight deceleration from the 35.6% CC growth achieved in FY25, guiding for 23%+ on a multi-billion dollar base is highly aggressive and signals management's confidence that brand heat is not fading.
Accelerating. Up from the 62.8% printed in FY25. This implies that On expects its shift toward DTC and Apparel to fully offset any anticipated friction from global tariffs and freight costs.
Stable. Essentially in-line with the 18.8% achieved in FY25. Management is choosing to reinvest gross margin gains back into the business (marketing, retail stores, LightSpray) rather than letting it all flow to the bottom line.
Key Questions
Americas Deceleration
Reported sales growth in the Americas cooled to 12.8% in Q4, lagging the rest of the world. Is this a function of wholesale inventory timing, macro consumer weakness, or is the brand naturally reaching a maturity plateau in its oldest core market?
Tariff Mitigation Execution
You are guiding to gross margins expanding to 63%+ next year despite the 20% U.S. reciprocal tariff on Vietnamese goods. Specifically, what pricing actions and supply chain renegotiations have already been locked in to protect this margin?
Apparel Margin Profile
Apparel sales surged nearly 70% this year. As apparel becomes a larger portion of the revenue mix (approaching 10%), how does its gross margin and return profile compare to your established footwear franchises?
LightSpray Commercialization
You've successfully launched the LightSpray robotic manufacturing facility in Zurich. What is the timeline and capital requirement to scale this technology to a point where it represents a financially meaningful percentage of global production?