On (ONON) Q2 2026 earnings review
Sacrificing Volume for Premium Profits
On delivered a masterclass in brand discipline. While constant currency (CCY) revenue grew 21.6%, the real story is profitability. Facing a highly promotional U.S. wholesale market, management deliberately choked off sell-in of everyday running shoes to protect full-price integrity. This strategic top-line hit caused a slight guidance downgrade (from 'at least 23%' to 'low-20% range' CCY growth for FY26). However, the payoff was immense: fueled by a booming Direct-to-Consumer (DTC) channel, gross margins reached an industry-leading 65.4%. On is proving it can scale globally without diluting its premium aura.
🐂 Bull Case
Gross margin expanded 390 bps YoY to 65.4%, fully absorbing higher U.S. import tariffs without any refunds. The brand's full-price strategy is working flawlessly.
Direct-to-Consumer sales surged 34.3% CCY, hitting a Q2 record of 45.7% of total sales. Consumers are flocking directly to On's ecosystem, improving customer lifetime value and shielding the brand from wholesale markdown pressure.
🐻 Bear Case
Sell-out of some everyday running franchises tracked below ambitions in the Americas. While restricting supply protects the brand, it acknowledges softer-than-expected organic demand at wholesale partners.
Reported growth of 13.5% is a significant step down from the 30%+ levels seen in 2025. Persistent FX headwinds and the wholesale pullback are creating friction as the company scales.
⚖️ Verdict: 🟢
Bullish. Management's willingness to accept lower revenue growth to protect gross margins and brand heat is exactly what builds multi-decade compounding compounders. The underlying DTC momentum proves consumer demand remains rabid.
Key Themes
Americas Wholesale Stalling Out
A clear contradiction to the 'global momentum' narrative emerged in the Americas wholesale channel. Management admitted that sell-out of everyday running shoes tracked below ambitions due to a promotional multi-brand environment. By deliberately limiting sell-in to prevent discounting, Americas CCY growth decelerated to just 13.0%—a sharp drop from 23.6% a year ago. This structural drag will persist into Q3.
DTC Outperformance and Retail Expansion
The DTC channel is accelerating the brand's profitability. DTC grew 34.3% CCY to CHF 388.4M, far outpacing wholesale's 12.7% CCY growth. The brand's owned retail stores are highly productive, with new flagships in Paris, Stockholm, and Tokyo performing well above expectations without cannibalizing e-commerce. E-commerce visitors are skewing younger and engaging deeper.
Scaling Disruptive Innovation
On's R&D engine is validating its premium pricing. The new Cloudboom Strike 2, featuring the robotic LightSpray upper and Helion HF superfoam, was independently proven to deliver a 1.6% improvement in running economy over leading competitors. Furthermore, the upcoming SURREAL superfoam will debut in the Cloudsurfer 3 later this year, ensuring the 2027 product pipeline remains highly differentiated.
Gen Z and the 'Movement Class'
On is successfully shedding its older-skewing 'dad shoe' reputation. Consumers under 34 now represent over one-third of the customer base. The Cloudtilt franchise took three of the top five selling spots at Foot Locker Europe, and the co-created Zendaya collection beat internal forecasts by triple digits in the U.S. Apparel overall grew 56.2% CCY, completing the 'toe-to-head' uniform.
Persistent FX Headwinds
While CCY growth was 21.6%, reported growth was only 13.5%. The strength of the Swiss Franc continues to severely mask the underlying volume growth. This 800-bps gap heavily impacts the Americas, where reported growth was a sluggish 4.5%.
Implied Q3 Deceleration
Because management is taking the remainder of its 'deliberate wholesale actions' in Q3 to clear the runway for 2027 innovations, Q3 top-line growth will decelerate further before a re-acceleration in Q4. This timing could create near-term optics of stalled momentum.
Other KPIs
Stable and highly disciplined. Inventories grew just 12.7% YoY (to CHF 472.9M), lagging the 13.5% reported sales growth. In an industry plagued by inventory gluts, On's ability to maintain tight stock levels is exactly what allows them to avoid the promotional discounting trap.
Accelerating dramatically from CHF 89.1 million in H1 2025. This massive cash generation boosted the balance sheet to CHF 1.2 billion in cash and equivalents, providing ample dry powder to self-fund the aggressive retail rollout and automated manufacturing capabilities.
Accelerating. Grew 47.7% reported (56.2% CCY). While still a small portion of total sales (6.3%), it acts as a high-margin entry point for younger consumers and demonstrates On's successful transition from a footwear company to a holistic sportswear brand.
Guidance
Decelerating. Management subtly walked back the previous 'at least 23%' CCY guidance to the 'low-20% range' (implying CHF 3.47B - 3.56B). This explicitly factors in the strategic decision to suppress wholesale sell-in during H2 to maintain brand purity.
Accelerating. Raised from the previous 'at least 64.5%' target. This is a structural upgrade driven by the surging DTC channel mix and full-price execution, achieved even while fully absorbing elevated U.S. import tariffs.
Stable. Reiterated previous guidance. Management is purposefully allowing the gross margin upside to fund aggressive brand-building investments (marketing hit 14.0% of sales) rather than letting it all flow to the bottom line.
Key Questions
Americas Wholesale Recovery
You are deliberately restricting wholesale sell-in in the Americas due to a promotional environment. What specific channel inventory metrics or macro signals will give you the green light to re-accelerate wholesale distribution in this region?
Gross Margin Ceiling
With gross margins now exceeding 65% despite tariff headwinds, how much higher can this go as DTC approaches 50% of the mix, and do you see a long-term structural ceiling for gross profitability in the sportswear sector?
LightSpray Capacity Allocation
With the Zurich and Busan automated LightSpray facilities 'fully cranking,' what percentage of total footwear volume do you expect this robotic manufacturing method to represent by the end of 2027?