On (ONON) Q3 2026 earnings review
On reaches record profit margins, but its sales growth slows
Swiss sportswear maker On achieved record profit margins on full-price shoes even as its sales growth cooled for a fourth straight quarter. Revenue rose 18% at constant currency to 931 million Swiss francs, while underlying gross margin reached 67% before a one-time US tariff refund. Co-chief executive Caspar Coppetti and finance chief Frank Sluis raised the full-year gross margin target again, kept the underlying operating profit target unchanged, and projected faster sales growth in the fourth quarter.
| Constant-currency sales growth | +17.8% +21.6% last quarter (+17.2% reported to CHF 931.4M) |
|---|---|
| Gross margin, excluding tariff refunds | 66.9% record high; +3.2 percentage points like-for-like |
| Adjusted EBITDA margin, excluding refunds | 21.9% 27.6% including CHF 52.6M US tariff refunds |
| Full-year underlying gross margin outlook | Raised to ~66% previously at least 65%; sales and EBITDA plans held |
⚖️ Verdict: ⚪ Neutral
The standing case is unchanged because wider factory margins offset slower store sales and rising shop expenses. Full-price demand and a fading currency drag lifted gross margin well above what the prior plan implied. The caution is that direct-to-consumer growth cooled from 34% to 25% and every region slowed, while store staffing costs absorbed the gross margin raise and left the full-year operating margin plan implying about 16% in the fourth quarter by our math.
The question now is whether slowing growth in the Americas comes from deliberate shipment curbs to protect prices or cooling demand for older running shoes. If it is deliberate restraint, the Cloudsurfer 3 launch and holiday shopping will lift growth back above 20% as planned; if demand is cooling, unsold inventory will force discounts. Fourth-quarter sales growth and holiday gross margin will settle it.
🐂 Bull Case
Full-Price Sales Lifted Gross Margin to a Record
On makes most of its profit by selling shoes and clothes without discounts. Finance chief Frank Sluis said full-price buying, more sales through On's own stores and website, and scale efficiencies "delivered the highest gross profit margin in On’s history, even before U.S. tariff refunds." After a US court struck down emergency duties in February, customs refunded 52.6 million Swiss francs to the Zurich sportswear maker this quarter.
- Reported gross margin: 72.6%, up 6.9 percentage points from a year ago
- Gross margin excluding tariff refunds: 66.9%, up 3.2 percentage points after stripping out a 2-point freight benefit from last year
- Cost of making products: fell 6.1% to 255.5 million Swiss francs even as revenue grew 17.2%
The numbers back Sluis up because the underlying 66.9% rate beat last quarter's 65.4% and topped the 65.2% second-half floor implied by the previous outlook. On raised its full-year gross margin target before refunds to about 66%, its third increase this year. What to watch: fourth-quarter gross margin before refunds, which the new plan puts above 67% by our math; holding that level during holiday discounting would prove its pricing power.
Apparel and New Running Shoes Broaden the Brand
On is trying to grow beyond its original running shoes by selling clothing and everyday sneakers to younger buyers. Co-chief executive Caspar Coppetti said the new Cloudsurfer 3 running shoe "is the first proof point of our biggest innovation cycle - and it is just getting started." During the quarter, the Swiss group pre-launched the Cloudsurfer 3 in specialist running shops, released a clothing line with actress Zendaya, and expanded its Cloudtilt everyday sneaker.
Clothing sales rose 38.0% at constant exchange rates to 69.5 million Swiss francs, while accessories grew 40.2% to 18.1 million Swiss francs. Together they reached 9.4% of revenue, up from 7.9% a year ago, which reduces On's reliance on footwear (up 16.0%). What to watch: wholesale revenue growth in the first quarter of 2027, when the Cloudsurfer 3 launches across all retail partners in January; an upturn from 13.2% would show broad store demand.
Currency Headwinds Faded in the Third Quarter
For the past year, a strong Swiss franc reduced On's reported revenue growth by about 8 percentage points compared with constant-currency rates. On January 1, the parent company switched its internal accounting currency to the US dollar to reduce exchange-rate swings, and the dollar strengthened against the franc by September.
That shift plus lapping last year's currency moves closed the gap between constant-currency growth (17.8%) and reported growth (17.2%) to 0.6 percentage points. The company also booked a 14.3 million Swiss franc foreign-exchange gain, reversing a 6.1 million loss a year ago, and its full-year outlook implies reported growth of 21.2% in the fourth quarter by our math. What to watch: fourth-quarter foreign-exchange gains or losses, which will show if the accounting switch keeps earnings steady.
🐻 Bear Case
Direct Sales Slowed While Store Costs Rose
On relies on its direct-to-consumer (DTC) channel—its own retail shops and website—to drive growth and lift profit margins, while bulls and bears debate whether direct buyers are new fans or just shoppers switching from wholesale partners. Direct sales grew 24.8% at constant currency to 393.3 million Swiss francs (42.2% of revenue), down from 34.3% growth in the second quarter.
- Selling expenses (store staff and shop leases): 10.3% of revenue, up 2.1 percentage points from a year ago
- General and administrative overhead (staff and IT): 16.7% of revenue, up 0.5 percentage points
- Total overhead excluding share-based pay: 49.8% of revenue, up 2.7 percentage points
Sluis said gross margin gains give On the strength to invest behind its three-year plan, but store costs are eating up the factory savings. Even after raising the full-year gross margin target by a point, On kept its full-year adjusted EBITDA margin target (operating profit before depreciation and share pay) unchanged at 19.5% to 20.0% before refunds. By our math, that leaves fourth-quarter adjusted EBITDA margin around 16.4%, down from 17.6% last year. What to watch: fourth-quarter selling expenses as a share of sales; another rise above 2 percentage points would mean new stores are dragging down operating profit.
Every Region Slowed as Americas Curbs Continued
Constant-currency sales growth has slowed every quarter for a year, dropping from 34.5% a year ago to 17.8% this quarter. In the Americas, its largest market at 52.6% of sales, On held back shipments to retail chains—what it calls "selective sell-in actions with partners, particularly in the Americas"—to avoid discounting in a promotional US market, and it said those curbs continued into the fourth quarter.
The slowdown went beyond US retail chains because every region grew at a slower constant-currency pace than in the second quarter: Americas slipped from 13.0% to 12.4%, Europe, Middle East and Africa (EMEA) from 20.5% to 19.1%, and Asia-Pacific from 54.7% to 31.9%. Despite that broad deceleration, On said it "plans for net sales growth to accelerate in the fourth quarter" to reach its low-20% full-year target, which requires about 20.6% constant-currency growth in the final quarter by our math. What to watch: fourth-quarter constant-currency sales growth in the Americas; a drop below 12% would show US demand is weakening even during the holidays.
Inventory and Retailer Bills Outpaced Sales Growth
Coppetti said On "stayed true to who we are and held full price" during the quarter. Holding back wholesale shipments while keeping prices high is tying up more cash in unsold shoes and unpaid bills from retail chains. At the same time, while On collected 52.6 million Swiss francs in old tariff refunds and claimed another 4.5 million after September, the US government imposed new Section 301 trade tariffs in July 2026 that On expects will raise duty costs again.
Inventories rose 30.2% from a year ago and 4.8% from last quarter to 495.7 million Swiss francs, nearly double the 17.2% reported sales growth. Trade receivables—bills wholesale partners have not yet paid—climbed 41.7% since December to 432.8 million Swiss francs, even though nine-month wholesale revenue grew 10.2%. What to watch: year-end inventory and receivables after the holiday season; if inventory stays near 500 million Swiss francs, On may have to discount older models in 2027.
👓 Other Themes
On Approved a One Billion Dollar Buyback
With cash and equivalents up 31.3% since December to 1.34 billion Swiss francs and no bank debt drawn on its 700 million Swiss franc credit line, On's board approved its first share repurchase programme in September. The plan allows the Swiss company to buy back up to 1 billion US dollars (834.7 million Swiss francs) of Class A shares through December 2029, though it bought no shares during the third quarter.
💲 Other KPIs
Current and non-current lease obligations rose 40.5% from 521.5 million Swiss francs in December, after climbing 7.9% in the first half. The jump comes from opening a large automated warehouse in Beringen, Belgium, and signing new retail store leases across all regions, which lifted depreciation on leased assets by 8.3 million Swiss francs this quarter.
By our math, third-quarter free cash flow—operating cash flow minus capital spending on equipment and software—fell 11.6% from 136.8 million Swiss francs a year ago, representing 13.0% of sales. Operating cash flow held steady at 158.3 million Swiss francs, but capital spending nearly doubled to 37.4 million Swiss francs as On built out new retail stores.
Income tax expense reached 48.9 million Swiss francs, or 23.1% of pre-tax profit, up from 11.0% in the first quarter and a slight tax benefit (-0.2%) a year ago. Last year's tax bill was near zero because of tax incentives and inventory adjustments between subsidiaries; the current rate matches what the group expects to pay going forward.
🔮 Guidance
Unchanged. The plan still calls for constant-currency sales growth in the low-20% range after On lowered the target from at least 23% last quarter. With nine-month sales up 21.8% at constant currency and 17.8% in the third quarter, the outlook requires fourth-quarter growth to speed up to about 20.6% constant currency (21.2% reported at the middle of the range) by our math.
Raised. On lifted its full-year gross margin target before US tariff refunds by a full point to about 66%, and added a ~67.5% target including the 52.6 million Swiss francs of refunds. It is the third raise this year: from at least 63.0%, to 64.5%, to 65.0%, and now 66.0%. By our math, that implies a 67.3% gross margin in the fourth quarter.
Unchanged before refunds. The sportswear group kept its underlying profit margin target at 19.5% to 20.0% despite raising the gross margin outlook, and introduced a 21.0% to 21.5% range including tariff refunds. Because nine-month adjusted EBITDA margin was already 20.9% before refunds (22.9% reported), the middle of the plan leaves fourth-quarter margin at about 16.4% by our math, down from 17.6% last year.
❓ Key Questions
Why did higher gross margin not lift the profit plan?
On raised its full-year underlying gross margin target by a full percentage point to 66%, yet kept its underlying adjusted EBITDA margin target at 19.5% to 20.0%. Which fourth-quarter expense line—store payroll, holiday marketing, or warehouse leases—absorbs the extra gross profit?
Why are unpaid retailer bills growing four times wholesale sales?
Trade receivables climbed 41.7% since December to 432.8 million Swiss francs while nine-month wholesale revenue grew 10.2%. Did On extend payment terms to retail partners while curbing their shipments, or were third-quarter wholesale deliveries heavily weighted to September?
How much will the July Section 301 tariffs cost?
The financial report notes that the US imposed new Section 301 tariffs in July 2026 that will increase duty expenses on On's products. What is the new tariff rate on footwear from Vietnam, and when will higher duty costs hit cost of sales?
What splits the 30% inventory rise between units and mix?
Inventories reached 495.7 million Swiss francs, up 30.2% from a year ago while reported revenue grew 17.2%. How much of that stock is new Cloudsurfer 3 and holiday apparel staged for the fourth quarter versus older running models held back from US wholesale?