On (ONON) Q1 2026 earnings review
Record Profitability Masks a Sharp Deceleration in the Americas
On delivered a highly polarized first quarter. On the bottom line, it was a blowout: Gross profit margin accelerated to a record 64.2%, easily absorbing new U.S. tariffs, while Net Income soared 82% to CHF 103.3 million. However, the top-line story reveals a growing reliance on international markets. While total revenue grew a healthy 14.5% (26.4% in constant currency), reported sales in the core Americas region crawled to just 3.1% growth. Management's confidence remains unshaken, raising FY26 guidance for both gross and adjusted EBITDA margins while managing a massive C-suite transition as the founders step into Co-CEO roles.
🐂 Bull Case
Gross margin expanded 430 basis points YoY to 64.2%, and Adjusted EBITDA margin reached 21.0%. The company is successfully leveraging its premium pricing, full-price discipline, and lower air freight costs to structurally elevate profitability.
The Asia-Pacific region surged 44.4% reported (61.4% constant currency), confirming massive international brand heat. Concurrently, Apparel grew 45.1%, validating On's transition into a multi-category sportswear house.
🐻 Bear Case
The Americas—On's largest market—saw reported growth decelerate dramatically to just 3.1% (17.1% constant currency). This raises concerns about brand fatigue or macro headwinds in the U.S. consumer market.
The simultaneous departure of the long-time CEO/CFO Martin Hoffmann and the appointment of the two founders as Co-CEOs alongside a new CFO introduces significant leadership transition risk during a critical scaling phase.
⚖️ Verdict: 🟢
Bullish. While the deceleration in reported Americas revenue is a glaring red flag, the company's ability to drive a 64.2% gross margin in the face of a 20% U.S. import tariff demonstrates elite pricing power and operational discipline.
Key Themes
Gross Margin Defying Gravity
Profitability is accelerating. Despite absorbing a 20% incremental tariff on products imported to the U.S. from Vietnam, On's gross profit margin expanded from 59.9% in 25Q1 to 64.2% in 26Q1. This structural improvement is driven by premium pricing power, a shift toward higher-margin DTC sales (now 38.7% of mix), and reduced air freight. Management raised FY26 gross margin guidance to an exceptional 64.5%.
Americas Growth Hits a Wall
Growth in the Americas is rapidly decelerating. In 26Q1, reported net sales in the region grew a mere 3.1% (CHF 450.7M). Even adjusting for currency, the 17.1% constant currency growth is a notable step-down from the 21.3% constant currency growth seen just one quarter ago in 25Q4. If On's largest market is reaching saturation or facing macro exhaustion, the global growth narrative rests heavily on APAC.
Apparel Expanding the Addressable Market
Apparel is accelerating as a critical entry point for the brand. The category surged 45.1% to CHF 55.3M (57.5% on a constant currency basis). This multi-dimensional expansion proves On is no longer just a footwear company and validates investments into its Performance Running and Performance All Day verticals.
Executive Overhaul
A sudden and significant management shift is underway. Outgoing CEO and CFO Martin Hoffmann is handing over the reins. Founders Caspar Coppetti and David Allemann are stepping into Co-CEO roles, while Frank Sluis takes over as CFO. While framed as a natural scaling evolution, swapping the primary financial and operational architects simultaneously introduces execution risk.
LightSpray Commercialization
On's 'LightSpray' automated manufacturing technology—previously restricted to elite athlete validation—is officially moving to a broader commercial platform with the launch of the LightSpray Cloudmonster 3 Hyper. Scaling this technology represents a significant leap in both product innovation and potential future supply chain efficiency.
Functional Currency Change Mitigates FX Noise
Effective January 1, 2026, On changed its functional currency from CHF to USD. This drastically reduced the volatile foreign exchange hits that plagued prior periods (foreign exchange loss dropped to just CHF 0.3M from CHF 14.5M a year ago). However, translating back to CHF for presentation will now shift that volatility into other comprehensive income.
Other KPIs
Accelerating slightly vs wholesale. DTC grew 16.4% YoY (28.7% CCY), pushing its share of total net sales up to 38.7% from 38.1% a year ago. This channel mix shift is a primary driver of the company's gross margin outperformance.
Stable as a growth engine. Marketing expenses increased to 13.1% of net sales, up from 11.1% in the prior year. Management is consciously reinvesting distribution and logistics savings (which fell to 10.0% of sales) into upper-funnel brand building and digital innovation.
Stable. Increased 14.1% from December 31, 2025, moving perfectly in tandem with the 14.5% reported net sales growth. Inventory levels actually decreased slightly (-3.3% to CHF 406.0M), signaling excellent sell-through discipline and lean stock management.
Guidance
Stable. The company reiterated its full-year revenue target, implying reported net sales of at least CHF 3.51 billion at current spot rates. This indicates management expects the 26.4% CCY growth seen in Q1 to remain relatively steady throughout the year despite tougher comps ahead.
Accelerating. Upgraded from prior long-term models. This implies sequential improvement through the rest of the year from Q1's 64.2%. It includes the full brunt of the 20% U.S. tariffs, highlighting massive underlying structural profitability.
Accelerating. Raised significantly from previous historic norms, reflecting the flow-through of gross margin expansion. Q1 over-delivered at 21.0%, giving the company flexibility to reinvest heavily in H2 while easily clearing this annual hurdle.
Key Questions
Americas Deceleration
Reported sales in the Americas grew just 3.1%, and constant currency growth was 17.1%—both step-downs from Q4. How much of this is driven by macro exhaustion among U.S. consumers versus deliberate moderation of wholesale expansion?
Tariff Refund Potential
You noted the U.S. Supreme Court invalidated specific IEEPA tariffs and a refund system is online, but you've excluded potential refunds from guidance. What is the estimated timeline or probability of recovering the CHF ~55 million in previously paid tariffs?
Leadership Transition Dynamics
Transitioning the CEO and CFO roles simultaneously while scaling operations past the CHF 3.5 billion mark introduces unique risks. How will operational responsibilities be divided between the Co-CEOs and the new CFO to ensure no loss of execution discipline?
LightSpray Margin Economics
As the LightSpray technology moves to a commercial platform with the Cloudmonster 3 Hyper, how do the unit economics and gross margins of this automated manufacturing process compare to your traditional footwear lines?