Will On Holding achieve FY2026 gross margin at or above 63%?

FY2025 achieved 62.8% gross margin while absorbing 20% incremental tariffs. Q4 2025 hit 63.9%. FY2026 guidance of 'at least 63%' includes tariff impact and was given with confidence. DTC mix shift (41.8% and growing) is structurally margin-accretive. Management noted tariff reduction would provide 'upside to guidance.' The only risk is further tariff escalation beyond current 40% or a sudden loss of pricing power, both of which seem unlikely in the base case.

The trajectory is clearly positive: 59% FY2023 → 60.2% FY2024 → 62.8% FY2025, with Q4 at 63.9%. Note that Q3 2025 margin of 65.7% included ~200bps one-time accrual release — not all margin expansion is structural. Still, even excluding one-times, the underlying margin is expanding driven by premium mix shift and scale. The risk is tariff escalation or a macro-driven consumer pullback forcing discounting. Probability is well above 50% but not certain.

Management's track record on margin guidance is strong. They guided FY2025 to ~61% and delivered 62.8%. The FY2026 guide of 'at least 63%' follows the same conservative pattern. US price increases absorbed without demand destruction validate pricing power. LightSpray manufacturing could provide additional cost efficiency. Full-price selling discipline (no Black Friday discounting) protects margin integrity. Only severe external shocks (tariffs above 50%, recession forcing discounting) would threaten this.

The margin trajectory and management guidance track record both support 63%+. Q4 2025 at 63.9% demonstrates the exit rate is above target. Key risk is FX — if USD weakens significantly against CHF, it could create margin headwinds on translated costs. Tariff risk is manageable at current levels. Apparel expansion at 'superior margin profile' is accretive. Overall: likely to achieve but not certain.

While the trajectory supports 63%+, I note that full-year guidance of 'at least 63%' requires maintaining margins across all 4 quarters. Seasonal mix effects, product launch costs, and potential tariff timing could create quarterly volatility. Q3 2025 had a 200bps one-time benefit — if Q3 2026 doesn't have a similar boost, the quarterly profile might create a tight full-year outcome. Still more likely than not to achieve given the structural drivers.

Management has never missed a gross margin guide since the IPO. The 63%+ target was given with visibility into Q1 order book and current tariff levels. DTC mix expansion, premiumization (consumers trading up within On's range), and distribution efficiencies all support continued margin expansion. The main risk is an external shock (tariff escalation, severe recession) that management couldn't anticipate when guiding.

Q4 at 63.9%. Management guided 63%+. Clear margin expansion trajectory. Premium pricing power proven. DTC mix accretive. Very likely to achieve.

Strong margin trajectory and management track record support achievement. Tariff and FX risks are real but manageable. Balance of evidence favors meeting 63%+ target.

Three-year margin expansion trend, Q4 exit rate above target, and management's conservative guidance pattern all support 63%+. Only a severe external shock would prevent achievement.