Zendaya effect helps sportswear maker On lift 2026 profit margin goal

On raised its 2026 operating profit margin outlook to 19.5%-20% from 18.5%-19% and kept its 2026 sales growth target at at least 23% after first-quarter sales rose 26.4% to 831.9 million Swiss francs, above the 822.5 million franc consensus. Operating margin expanded to 21% from 16.5% a year ago, helped by strong product launches, including Cloudtilt sneakers and apparel tied to Zendaya. Shares fell about 4% as investors focused on slowing U.S. growth, with Americas sales up 17.1% versus 28.6% last year.

Analysis

On is executing the classic premium-sportswear flywheel: faster product turnover, stronger brand heat, and higher gross margin before scale efficiencies even fully show up. The bigger second-order implication is that it is taking share not just from Nike/Adidas, but from the mid-tier wholesale ecosystem that depends on those incumbents’ weaker sell-through; when a challenger becomes the “must-have” SKU at retail, channel inventory resets can pressure the rest of the category for multiple quarters.

The margin upgrade matters more than the headline sales beat because it signals pricing power is still intact despite a softer U.S. growth rate. That said, U.S. deceleration is the key fragility: if Americas growth keeps slowing toward low-teens, the market will start to value On less like a secular share gainer and more like a fashion-driven growth brand with a narrower runway, which compresses the multiple quickly. Asia is the offset, but Asia-led growth usually comes with lower visibility, higher marketing intensity, and more FX translation noise.

For Nike, the read-through is not immediate collapse but continued pressure on product freshness and sell-through discipline. The risk is that management teams respond by discounting or over-launching, which would worsen gross margin for the whole athletic apparel complex. For suppliers and logistics partners, stronger premium demand should hold unit volumes, but any tariff refund benefit is a one-off; it cannot offset a prolonged U.S. consumer slowdown if discretionary spend deteriorates into summer.

The contrarian view is that the stock’s drawdown may already reflect too much skepticism about U.S. growth. If the new leadership team can keep margins above 20% while apparel scales, the market could re-rate the name back toward growth-premium territory over 6-12 months. The setup is asymmetric because expectations for Nike remain low, but any evidence that On’s share gains are structural rather than novelty-driven would extend the underperformance gap.

Key Decisions for Investors

• Long ONON on a 3-6 month horizon on pullbacks, using a staggered entry near recent weakness; target a re-rating if gross margin holds above 64% and U.S. growth stabilizes. Risk: if Americas growth decelerates again next quarter, the multiple likely compresses further before Asia can offset.
• Pair trade: long ONON / short NKE for 1-2 quarters. Thesis is continued share gain and better margin resilience at On versus slower product momentum at Nike; stop if Nike shows clear sell-through acceleration or On’s U.S. growth re-accelerates less than expected.
• Buy ONON call spreads 3-6 months out to express upside while capping premium paid. Best when implied vol is elevated after a selloff; payoff improves if the market starts treating current weakness as temporary rather than structural.
• For relative value, consider shorting a basket of traditional wholesale athletic retailers against ONON if channel inventory data weakens. This isolates the risk of premium brand share gains forcing markdowns elsewhere in the category.