On Holding Stock Jumps. Earnings Showed Strong Demand for Premium Sneakers.

On management says people are still eager to buy its products despite higher prices. (Courtesy ON Running)

Key Points

• On Holding’s stock increased by 24% after reporting better-than-expected results and raising financial forecasts.
• Net sales rose approximately 25% year over year to 794.4 million Swiss francs, surpassing consensus estimates.
• The company raised its full-year net sales growth forecast to 34%. It expects a gross profit margin of around 62.5%.

On Holding stock surged after the sneaker maker turned in better results than expected and raised its financial forecasts, showcasing how its ability to sell activewear at a premium is helping offset tariffs.

Shares were up 24% to $43.56 in early morning trading Wednesday.

For the quarter ended in September, net sales rose about 25% year over year to 794.4 million Swiss francs ($994.3 million), ahead of consensus estimates for CHF 763 million.

Footwear remains On’s biggest source of sales, contributing upward of 90% of the company’s third-quarter sales. But apparel and accessories are growing quickly as On emphasizes the new categories.

Apparel sales grew by just under 90% year over year last quarter, while accessories sales more than doubled. Both segments gained traction among younger consumers.

Adjusted earnings of 0.43 francs per share were better than projections for 0.26 francs. Profit margins were higher than expected, partly because of lower freight costs and favorable foreign exchange rates. A lag between when the company raised prices to take account of tariffs and when the full impact of the levies actually hit helped as well.

Customers haven’t balked at higher prices, management said. “Demand remained incredibly strong for our premium offerings,” said co-CEO and Chief Financial Officer Martin Hoffmann.

He added that the quarter’s strong performance gave the brand confidence heading into the holiday season. On doesn’t plan to offer Black Friday deals this year because it has committed to selling items at full price, a move often taken by brands marketing themselves as luxury or premium goods.

“3Q results make it clear ONON stands out in athletic footwear and its premium positioning/operating structure is driving significant leverage in the business,” wrote Paul Lejuez, an analyst at Citi.

On also raised its financial guidance for the full year. The company expects net sales will grow by 34% year over year on a constant-currency basis, up from a prior projection of at least 31%. Gross profit margin is expected to be around 62.5%, compared with a past forecast for 60.5% to 61.0%.

Write to Sabrina Escobar at sabrina.escobar@barrons.com