On Holding Posted a Loss. Why the Stock Still Jumped.

On Holding’s revenue rose 32% year over year. (Courtesy On Running)

While On Holding swung to a loss in the company’s second quarter, the Swiss sneaker-maker’s stock surged on Tuesday, rallying in response to stronger-than-expected sales and increased financial guidance from management.

On posted an adjusted loss of 9 centimes a share (11 U.S. cents), falling short of the consensus call for a profit of 19 centimes among analysts tracked by FactSet. The loss was largely attributed to unfavorable exchange rates, given the strength of the Swiss franc.

“The continuous weakness of the U.S. dollar versus Swiss franc in the second quarter, closing near multidecade lows at 0.79 led to a meaningful, unrealized foreign exchange impact in our net financial results,” said Martin Hoffman, On’s CEO and chief financial officer, on a call with investors Tuesday. The currency effect “does not impact or reflect the financial health” of the business, he said.

On a reported basis, On’s sales rose 32% year over year in the quarter ended June to 749.2 million francs ($923.9 million). That was ahead of expectations for 703.1 million francs. On a constant-currency basis, revenue rose by 38%.

On stock was up 10% at $50.40 in early trading. The shares have lost 8.3% this year.

“The sales beat was significant enough net of the currency impact that we believe the Street is more inclined to look through the implications of a stronger franc,” wrote Dylan Carden, an analyst at William Blair. He rates the stock Outperform.

The strong sales performance helps assuage one of the biggest fears analysts had heading into On’s earnings—that the company’s momentum may be slowing, particularly because demand for sneakers and activewear has been choppy in recent quarters. On’s results suggest the company continues to buck the trends.

“Given elevated fears of slowing growth (which did not come to fruition in 2Q), we expect shares to trade higher today,” wrote Citi analyst Paul Lejuez in a research note Tuesday. He rates the stock at Buy with a $60 price target.

The company’s outlook for the year was also boosting the shares. On expects net sales to be up at least 31% on a constant currency basis, better than its past projection for an increase of at least 28%. At current currency rates, this translates to sales of at least 2.91 billion francs ($3.6 billion), higher than prior guidance for 2.86 billion francs and roughly in line with analysts’ estimates calling for 2.92 billion francs.

On also tweaked its guidance for its adjusted margin on earnings before interest, taxes, depreciation, and amortization. It is now expected to range from 17% to 17.5%, compared with the prior range of 16.5% to 17.5%.

The forecasts include the effects of the various tariffs imposed by the Trump administration.

“We’re one and a half years into our three-year strategic plan, and the results of our consistent execution and unwavering focus are clearly visible in the outstanding numbers we report today,” Hoffman said. “Our premium positioning is coming to life across every consumer touchpoint, with product innovation, storytelling and distribution all working together to elevate the brand further.”

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