Amer Sports Inc (AS) 2024 Q2 法說會逐字稿

Thank you for standing by, and welcome to the Amer Sports Second Quarter Fiscal 2024 earnings conference call. (Operator Instructions) Thank you. I'd now like to turn the call over to Omar Saad, Vice President of Finance, and Investor Relations. You may begin.

Hello everyone. Thanks for joining Amer Sports earnings call for the second quarter of fiscal year 2024. Earlier this morning we announced our financial results for the quarter ended June 30, 2024, and the release can be found on our IR website investors.amersports.com

A quick reminder to everyone that today's call will contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements reflect our current expectations and beliefs only, and are subject to certain risks and uncertainties that could cause actual results to differ materially.

Please see the safe harbor statement in our earnings release and SEC filings. We will also discuss certain non-IFRS financial measures. Please refer to our earnings release for important information regarding such non-IFRS financial measures, including reconciliations to the most comparable IFRS financial measures.

We'll begin with prepared remarks from our CEO James Zheng and CFO Andrew Page, followed by a Q&A session, until approximately 9:00 AM Eastern. James will cover key operational and brand highlights, then Andrew will provide a financial review at both the group and segment level, and also walk through our updated guidance. Arc’teryx CEO Stuart Haselden will join for the Q&A session. With that, I’ll turn the call over to James.

Thanks Omar. We are pleased to announce strong second quarter results with sales, margin, and EPS ahead of our guidance. The momentum behind our unique portfolio of premium sports and outdoor brands continues, and we are generating top-tier growth and margin expansion within our industry. Our global end markets are healthy and growing, and we are taking market share, positioning us to deliver another record year in 2024.

We generated 16% sales growth in Q2, or plus negative 18% on a constant currency basis led by our flagship brand, Arc'teryx. Although we benefited from a 2-point shift of wholesale shipments from 3Q into 2Q, our underlying growth momentum is clear.

We achieved nearly a 3% adjusted operating margin, also well above our expectations, as we continue to enjoy strong gross margin expansion driven by the pricing power of our brands and a healthy mix-shift toward our highest-margin franchise, Arc’teryx.

Looking forward, several factors give me confidence for the rest of 2024 and beyond. First, we own and operate a unique and valuable portfolio of premium outdoor and sports brands. Each one is fueled by technical innovation and positioned at the pinnacle of its respective segment. Our brands have high engagement, conversion, and satisfaction with consumers everywhere, but are still relatively small players on the global stage with significant room to grow.

Second, Arc’teryx is a breakout growth story with unprecedented growth and profitability for the outdoor industry, and is charting new territory with its disruptive DTC model and strong competitive position. Arc'teryx's world-class products plus the authentic and deep connection with consumers is allowing us to have strong success in large new categories, such as footwear and women's and also incredible momentum across all major geographies.

Third, Salomon, Wilson, and all of our other brands are also healthy. They have long-standing authentic heritage, premium positioning, and high performance products. Both Salomon and Wilson have leading market share within their heritage equipment businesses, but still have very small soft goods franchises with large growth opportunities ahead, especially in Salomon footwear.

And fourth. While other consumer companies are having challenges in Greater China, we generated more than 50% growth there as we continue to well outperform the market. Importantly, we are seeing strong momentum across all of our big 3 brands. A few reasons I would like to highlight, why we are doing so well in China.

Number one. Our brands compete in one the healthiest and fastest-growing consumer segments in China: the premium sports and outdoor market. The outdoor trend in China is very strong. Even beyond the traditional male consumer, the outdoor category is attracting younger consumers, female consumers, and we also see more luxury shoppers spending in our categories.

Second. The China consumer landscape today has evolved into a market of winners and losers, with some brands doing extremely well, and others underperforming. Our still small, specialized brands with deep expertise and high quality and performance resonate strongly with Chinese shoppers.

Thirdly and most important. We believe we have the best team in China. Our deep expertise and unique, scalable operating platform gives us a significant competitive advantage across portfolio.

Before Andrew's financial discussion, I would like to share some key highlights from our segments in Q2. Starting with Technical Apparel, which is led by our fastest growing, and now largest brand, Arc'teryx. Arc'teryx delivered another very strong quarter with healthy growth across all regions, channels, and categories, especially footwear, women’s, and hardshell jackets. Arc'teryx's brand momentum was most evident in the very strong omni-comp performance against a very difficult growth comparison from last year.

Globally, Arc'teryx is well executing its retail expansion plan, opening 17 net new brand stores in 1H, including 13 net new locations in 2Q, bringing the total owned brand store count to 125. Key new locations this quarter include Bloor Street in Toronto, as well as Le Marais and La Madeleine in Paris, which have emerged as standout locations with high engagement from local consumers in France. We also opened three stores in Greater China, and one Los Angeles store in Brentwood. All of these new stores have performed exceptionally well.

We are also excited to open our New York Soho flagship this week with grand opening set for early September. This new Alpha store will feature our most pinnacle expression of ReBIRD yet, including shoppable REGEAR in-store for the first time, a large ReBIRD Service Centre facility for care and repair, and much more.

Shifting to product. Recall that Arc’teryx recently launched its first footwear line that was designed, developed, and sourced by our in-house footwear team. We continue to be extremely pleased with the reception to what we believe is the best line of technical performance footwear designed for the mountain athlete.

Since the launch, penetration of footwear to Arc’teryx total revenues has jumped from 6% to 10%, often selling out of our most popular styles, especially the Kragg. Because of the unique position of Arc'teryx footwear in the market, the strong sales in our DTC channel, and enthusiastic interest from key wholesale accounts, our confidence is growing that footwear will become a very sizeable and profitable growth avenue for the brand both in own stores and brand-relevant wholesale accounts.

Women's continues to perform extremely well, growing faster than the brand overall. Women's outperformance is driven by Softshell and Windshell, particularly the Gamma and Squamish franchises. Women's share of sales is already more than 20% of the business, and we see great upside in the category as we add more colorways, models and style options that resonate with her.

In May, Arc’teryx also recently opened a cutting edge creation center in Tokyo. This design space will serve as an innovation hub reflecting local creativity, culture, and the outdoor community. A quick update on our new ePE product, which complies with the ban on PFAS forever chemicals traditionally used in waterproof materials.

Sales of our iconic Beta Jacket have accelerated since switching to compliant materials. Our customers love the look, feel and performance of the new material. Arc'teryx also continues to execute cutting edge community engagement programs.

This summer, Arc’teryx launched gym residencies in climbing gyms from New York to Paris to San Francisco, as part of the brand’s Summer of Climb. Investments in brand awareness and activations that feed off the global excitement and the popularity of climbing is driving awareness and positioning Arc'teryx, which is at the heart of this phenomenon.

Moving to the Outdoor Performance segment, which also delivered upside to our expectations led by Salomon footwear, partially offset by softer trends in Winter Sports Equipment. A quick reminder that Outdoor Performance is comprised of two businesses that operate in unique environments. First Winter Sports Equipment, which includes ski, snowboard, and snow sport equipment across the Salomon, Atomic, and Armada brands.

These are longstanding Winter Sports Equipment franchises that already have high market shares, a very strong competitive position, and industry leading scale and profitability although less growth runway ahead given the already high market shares.

Then we also have the Salomon footwear and apparel franchise, which is a higher margin, faster growing business, but still with very low market share of the global sneaker market. Today it represents approximately 66% of Outdoor Performance segment sales, up significantly from 54% in 2022.

We believe Salomon sneakers have an authentic and unique market position with technical features designed for the mountain, but also great for everyday use. Salomon shoes offer consumers unique style and technical attributes at a time when consumers are more receptive than ever to wearing new sneaker brands. Looking forward, we expect Salomon Soft goods to grow double-digits annually over the long-term.

In the second quarter, Salomon footwear showed especially strong traction in Greater China and in APAC, where consumers love our Sportstyle offering that combines a distinct trendy look with high technical features.

In China, we have created an entire new category, called Outdoor sneakers, which especially resonates with young consumers. We opened 27 Salomon shops in Q2, including both owned stores and licensed stores, in Greater China, bringing our total count to 136. We expect to end 2024 with about 200 owned and licensed Salomon stores in China, with the opportunity to grow to several hundred locations just in tier 1 and 2 cities.

In 2Q we also opened a new shop in Osaka, Japan, which has become one of our highest productivity shops, well received by both local consumers and the tourists. In the brand's home market of France, ahead of the recent Paris Olympics, we opened a Salomon flagship on the Champs Elysee in addition to our recent store opening in Le Marais.

Both new stores have performed extremely well in the first months, and represent the high demand consumers have to engage with the Salomon brand in its own environment. The Champs Elysee store has created a landmark presence to showcase the breadth and depth of Salomon's unique offering in its home market, while Le Marais shop is a footwear-only concept store, which has proven to be a particularly successful model that we will replicate across EMEA with three more stores in Paris, two in London, and two in Milan.

We are also excited to share that we will open in October a pop-up shop in New York City in Soho, which will seed the market with our first brand store in the city ahead of our plans to open 1-2 permanent New York stores in 2025.

As you know, we are undergoing a management transition at Salomon and I am operating as interim brand CEO while we perform a comprehensive search for the next brand leader over the next 12 months. Over four months in the role, I am confident in the Salomon brand and our team, as we continue to optimize the go-to market strategy and sales structure to maximize the potential of Salomon footwear.

Moving on to Ball and Racquet highlights. We were pleased that Ball & Racquet returned to growth in 2Q as we expected driven by improving sell-in to the retail channel. While still in its early stages, our tennis 360 strategy is proving to be a key driver for the Wilson franchise led by apparel and footwear growth, accelerating expansion of Wilson tennis-360 shops in China, and key new product launches.

We are particularly excited that Roger Federer is back and active with the Wilson brand again. Roger will have his own line of premium performance racquets, bags and accessories at Wilson called the RF, which launched on his birthday, August 8. As you know, Roger is a living legend in tennis and this new product line has been met with a very enthusiastic response from the market.

Wilson is also launching the first tennis shoe designed explicitly for female tennis players, called the Intrigue. This shoe combines the comfort and the support of modern foam technology without loosing any of the side-to-side stability required for tennis. Our 360 tennis athlete Marta Kostyuk will wear it for the first time in the US Open later this month.

Wilson tennis and Wilson China had a big moment recently during the Summer Olympics when Qinwen Zheng won Gold playing with her Wilson racquet. This feat did not go unnoticed in her home country, as sales of Wilson racquets rose 20 times that day. There are 19 million tennis participants in Greater China.

Last but not least, Caitlin Clark is also elevating brand heat as the face of Wilson Basketball. Her signature basketball collection, sold exclusively online so far, sold out in record time. And we expect our Caitlin Clark franchise to accelerate in H2 with the launch in select wholesale accounts.

With that, I’ll turn it over to Andrew.

Thank you James. I am excited to discuss our strong Q2 performance and the set-up for the remainder of the year. Our underlying results exceeded our guidance on sales, gross margin, operating margin, and earnings per share, giving us confidence to raise full year guidance.

Before diving in on our financial performance in Q2 and going through our updated guidance, I want to quickly discuss two timing items that affected Q2 and the cadence of our guidance for the rest of 2024. First, there was 2-point top-line benefit from early shipments of certain wholesale orders that moved into Q2 from Q3, driving approximately $0.1 of the EPS upside.

Second, we had a $0.4EPS benefit in Q2 related to the resolution of uncertain tax positions that were contemplated in the full year guidance that we previously provided, but were expected to be resolved in Q3 and Q4 this year. Excluding these timing shifts, our underlying operations still drove a strong beat in the quarter, which is reflected in our full year top- and bottom-line guidance raise.

With that, let me focus on Q2 results and guidance. The fast growth of our high-margin Arc’teryx franchise is elevating the financial profile of Amer Sports Group in total. This dynamic allows us to deliver strong profitable growth for shareholders while reinvesting in the many long-term growth opportunities across our portfolio.

At the Group level, Amer Sports grew sales 16% in Q2, or 18.3% at constant-currency — well ahead of the expectations we set back in May, even excluding the 2-point wholesale shift from 3Q. The strong group sales performance was led by Technical Apparel and Outdoor Performance.

By channel, the Group continues to be led by DTC, which grew 40% led by Arc'teryx. Group wholesale revenues improved plus 2% year-over-year. Regional growth was led by Greater China, which increased 54%, followed by Asia Pacific, which grew 45%. EMEA grew 1% and Americas returned to slight growth with sales up 1%.

Turning to profitability, adjusted gross margin increased 200 basis points to 55.8% in Q2, primarily driven by positive segment, product, channel, and regional mix shift. The company’s highest gross margin business, Arc’teryx, continues to grow significantly faster than the other brands, the biggest driver of gross margin expansion.

As expected, adjusted SG&A expenses as a percentage of revenues increased 210 basis points and represented 52.9% of revenues in Q2, mainly driven by SG&A deleveraging at Ball & Racquet and higher spend related to DTC investments, including new store openings and higher retail personnel costs.

We were pleased to achieve an adjusted SG&A rate in 2Q that was better than what was contemplated in our guidance last quarter, a reflection of the expense leverage in our business model when we deliver meaningful sales upside to our forecast.

These factors allowed us to generate a 50 basis point increase in our adjusted operating margin from 2.4% last year to 2.9% in 2Q24, above our guidance of approximately 0%. Adjusted corporate expenses were $25 million, versus $6 million in Q2 of last year driven by higher personnel costs due to increased headcount and share-based compensation.

Depriciation and amortisation was $63 million which includes $29 million of ROU depreciation. Adjusted net finance cost in the quarter was $45 million, at the low end of the range of $45 million $50 million we guided to on our last call.

In the quarter we had an adjusted income tax benefit of $42 million, which included the resolution of certain discrete tax items that I mentioned above, resulting in a $20 million benefit to net income, or approximately $0.04 per share.

Adjusted net income was $25 million in Q2, compared to an adjusted net loss of $86 million in the prior year period. Adjusted diluted earnings per share was $0.05compared to adjusted diluted loss per share of $0.22 last year.

We exceeded the mid-point of our Q2 EPS guidance by about $0.10, but please keep in mind this includes the $0.05 of timing shifts I discussed, that were already contemplated in our full-year guidance. Now turning to segment results, Technical Apparel revenues increased 34% to $407 million led by Arc'teryx.

Growth was fueled by 39% DTC expansion, including a 26% omni-comp, a great result comparing against an 80% omni-comp last year in the second quarter. Our omni-comp metric incorporates growth from both owned retail stores and e-commerce sites that have been open at least 13 months.

Arc'teryx DTC momentum was fueled by both new and existing consumers, and both strong traffic and conversion trends in stores and on-line. The Arc’teryx brand continues to experience broad-based strength, and is outperforming across every region, channel, and category. DTC remains the core growth engine, but we also experienced strength in the wholesale channel, which grew 24% for the segment.

Regionally, Technical Apparel growth was led by Asia Pacific, followed by Greater China, and the Americas, which were partially offset by declines in EMEA. Arc'terx is generating strong results in Europe, especially new store openings, but this is off a small base, and was offset by a decline in Peak Performance, which continues to go through a brand reset to focus on greater full-price selling.

Technical Apparel adjusted operating margin expanded 110 basis points to 14.2%, driven primarily by gross margin from favorable channel and geographic mix. The Technical Apparel segment margin also benefited from modest SG&A leverage on Arc'teryx's strong sales growth, while continuing key growth investments.

Outdoor Performance Segment revenues increased 11% to $304 million driven by strong double-digit top-line performance in Salomon footwear & apparel and in the DTC channel, particularly in Asia Pacific and Greater China. This was partially offset by a decline in Winter Sports Equipment. Outdoor Performance sales also benefited from earlier-than-anticipated shipments that shifted from 3Q into 2Q.

By channel, Outdoor Performance DTC grew 55%, while wholesale sales declined slightly, negatively impacted by slower pre-orders in the North America sporting goods and ski channels, which increasingly relies on replenishment orders.

2024 will be a slightly softer year for Winter Sports Equipment due to slower trends in North America where ski equipment sales are rebasing after a strong run through and beyond COVID. This is in addition to cautious orders in EMEA after two tough snow seasons in Europe. Given our great brands and scale advantages, we expect to take market share.

Although we don't expect Winter Sports Equipment to be a high-growth business, the industry remains healthy, and consumer demand for ski vacations remains consistent and strong irrespective of weather, especially as resorts have become adept at making their own snow. Winter Sports Equipment now represents one-third of Outdoor Performance, and long-term we expect this business to grow low-single digits annually.

Regionally, Outdoor Performance sales growth was led by Greater China, APAC, and EMEA, offset by a decline in the Americas, which has been affected by softer pre-orders, as retailers increasingly rely on replenishment.

The Outdoor Performance segment adjusted operating profit margin expanded 380 basis points to negatice 2.1%. This was driven by a combination of gross margin gains and SG&A leverage. Gross margin gains were mainly driven by a favorable region and channel mix, lower discounts, and we also leveraged expenses, including payroll, administrative, and IT costs.

Moving to Ball & Racquet. Revenue increased 1% to $283 million as Wilson returned to growth as expected after a double-digit decline in Q1, driven by improving wholesale sell-in. Our tennis 360 strategy continues to be a key driver for the Wilson franchise led by footwear & apparel growth, accelerating expansion of Wilson tennis-360 shops in China, and some of the new footwear and racquet product launches James mentioned.

Golf also returned to growth driven by the Americas and EMEA, led by premium clubs. The growth in Sportswear, Racquets, and Golf was partly offset by declines in Baseball and inflatables. Ball & Racquet segment adjusted operating profit margin contracted 160 basis points compared to the second quarter 2023 to 1.1%.

This margin compression was due to SG&A deleverage which was driven by retail investments in the US, China and Korea, Footwear & apparel investments and timing of advertising and promotion spend. Generating consistent margin performance is a key management priority for Ball & Racquet given it's low-single digit growth profile.

We are pleased by our lean inventory position in Ball & Racquet, which is down significantly versus last year and positions us for much better profitability in the second half, especially in Q4 when we cycle against high discounts last year.

Looking ahead, we are confident that our market leadership position and flow of innovative products positions Ball & Racquet well as market inventories reach balance and retailer orders reaccelerate in second half, especially in Q4 when we face our easiest comparison and also have our strongest pipeline of new products .

Turning to the group balance sheet and cash flow. We ended the quarter with $1.8 billion of net debt. Using the midpoint of our 2024 implied adjusted operating profit guidance, our net-debt-to-adjusted-non-IFRS-EBITDA ratio is already approximately 2.6 times. Deleveraging our balance sheet remains a priority, and our goal is to reduce our leverage ratio to 1.5 times or better over the next few years through both EBITDA expansion and debt pay down.

Also, our focus on inventory discipline is paying off as inventories finished Q2 in healthy condition, up only 2% year-over-year versus 16% sales growth. Within our target to grow inventories in-line with, or slower than, sales. Now turning to guidance.

Given our strong second quarter results and confidence in our brands and their financial outlook, we are raising our guidance for full-year sales, adjusted operating margin, and adjusted diluted EPS. As we've said on previous earnings calls, should strong trends continue and better-than-anticipated demand materialize, we will be well positioned to deliver financial performance ahead of our expectations.

For the full year, we now expect revenue growth of 15% to 17% which incorporates greater than 30% growth in Technical Apparel, mid-to-high-single-digit revenue growth in Outdoor Performance, and low-to-mid single-digit growth in Ball & Racquet.

We are increasing our adjusted gross profit margin guidance from approximately 54% to approximately 54.5%. We also are raising our guidance for our full-year operating margin, and now expect adjusted operating margin toward the high-end of our previous 10.5% to 11.0% range.

Our net finance costs for the year will be $200 million to $220 million, including approximately $15 million of non-recurring finance costs in the first quarter 2024. We still expect to have an effective tax rate on adjusted pretax income of approximately 38% for the full year 2024.

But the rate will be higher in back half, approximately 50% to 55%. We continue to be very focused on designing and implementing strategies to reduce our effective tax rate. And we are confident that we will be able to reduce our effective tax rate to a level that is consistent with other global consumer companies over the next few years.

We now expect to achieve full-year adjusted diluted EPS in the range of $0.4 to $0.44 versus our previous guidance towards the high end of $0.3 to $0.4 . Please keep in mind the $0.5 timing shift into Q2 from the second half as you incorporate our revised full year and initial Q3 guidance.

Looking at the segments, we expect a 2024 adjusted operating profit margin slightly above 20% for Technical Apparel, high-single digits for Outdoor Performance, and a low-to-mid single-digit adjusted segment margin for Ball & Racquet.

Now looking to Q3, we expect Q3 adjusted gross margin to be approximately 54% driven primarily by the mix shift towards Technical Apparel, and an adjusted operating margin between 11% and 12%. Based on current interest rates, our net finance costs for the quarter will be $45 million to $50 million and we will have an effective tax rate on adjusted pretax income between 50% to 55%. We expect adjusted diluted EPS of $0.8 to $0.1 per share. With that, I’ll turn it back to the operator for Q&A

Thank you. We will now begin the question and answer session. (Operator Instructions)

Brooke Roach, Goldman Sachs.

Good morning. And thank you for taking our question. I was hoping you could elaborate on the strength that you're seeing at the Arc'teryx brand and provide color on the growth that you're seeing by region. How are you thinking about the sustainability of this outsized comp growth for this brand? And in the near term, what trends have you seen with customer traffic and conversion as you've entered the third quarter in your most important China and North American markets ? Thank you.

Hi Brooke. It's Stuart. So let me try to address your questions. You had a you had a number there that allowed it to speak to. So as we look at the performance of our tariffs by region, we were very pleased with how balanced we saw our growth in the second quarter, the North America business continued to see good momentum with -- as we mentioned on the prepared remarks, Asia Pacific outside of China saw the fastest growth of the four regions in which we operate.

We saw also saw very strong growth in China via the business in Europe grew a bit slower, but we're still very encouraged by the success of the new stores we opened in the Europe market. The stores we opened in Paris in particular, has really performed ahead of our expectations, which gives us a lot of confidence to continue to lean into our Europe expansion.

So we're really pleased across every region where we're operating with those results that we're seeing both from a brick and mortar standpoint as well as from an e-commerce business standpoint. The sustainability of the momentum in our [cherax] business, we really see this as the early innings of our growth story. We are far from reaching penetration potential in really any region in which we operate. And so we'll have around 60 stores in North America at the end of the year.

We could see the total potential for North America being well over 200 just for an example and we're even earlier in the development of the Europe market and the Asia-Pacific market. China were farther along with our store count, but you still see a really exciting runway of growth there as we continue to optimize our real estate portfolio and the success of the Shanghai museum store is really helping us reset what we see as the potential for the business in China.

Then as we look at some of the other KPIs and customer performance related matters or trends , we were pleased to see a very healthy double digit guest file growth in the quarter, and that was reflected in really strong traffic. As we look at the results, the Omnicom that Andrew mentioned, just the overall sales trajectory of the business, it's really a traffic story.

We saw very modest improvements in conversion. But the main key KPI that is driving the sales increases in our DTC business has been traffic. And so we see that as a very healthy indicator of the momentum of the brand as we're building brand awareness. And we also saw healthy growth in average spend per customer. So really strong customer metrics and very healthy and balanced KPIs across our channels. So, and I'd also add that we feel confident that we're taking share in every market in which we operate.

James, maybe you could address your first question ?

Yes, I add as certain comments based on Stewart explanation, okay. I think Arc'teryx in China, it's a still, I mean paying a clear leadership law in the segment. I mean, we are sitting but not only on the segment, but also the whole industry. So we really grow tremendous our sales through in Q2 in the first half and diluted up outperformed amount or the sports brands in the markets and that the trend we see it's continued to carry on and it's not slowdown.

Okay. The overall especially on the [comp shop] growth pattern in China. So it's though, obviously the Q2 I mean, second quarter, it's a still lead to be soft season among the four quarters, but we also see a timing we are in the middle of Q3 already. So we also see a big growth patterns in China market. So I think it's a -- so as Stuart mentioned, it's still at a preliminary stage for us and not only in China and the rest of the world. So we have a very good confidence to continue to grow the apparel business cross-border indoors.

Great. Thanks so much. I'll pass it on.

Matthew Boss, JPMorgan.

Thanks and congrats on the nice quarter. So James, maybe a higher level. Could you speak to a runway that you see across brands in the portfolio to capture continued market share in the premium sports and outdoor market.

And then for Andrew, on the bottom line, maybe could you just help elaborate on the back half margin geography as we think about gross margin drivers relative to SG&A investments that are embedded this year relative to the past two were to SG&A leverage multiyear ?

Yes. Okay. Mr, thank you for your questions. I just want to highlight here, okay. We got a very unique position in the market for Amer Sports. We do they own to distinguish business franchise, which is a pocket where we call the equipment business as well as the soft goods. So I would say first of all, I mentioned about the hard goods business or equipment business for both Winter Sports Equipment and the worsen.

I mean, we all I mean, you guys all can tell we all got very strong market share in the segment we are sitting even the growth runway is still a bit small. We have a very good high level of confidence to secure, continue to amplify our market share in the future in the segment we are selling not only on the Winter Sports equipment, but also in bracket, pores and the also the increase we mentioned.

Okay. So I think that the team got a very good level of the company to continue to secure our leadership in these kind of delicate segments. For soft goods part, I think I mean, the great performance from Arc'teryx already demonstrate our unique proposition at the premium segment of the auto industry we are setting.

Okay. So Arc'teryx really about the very strong momentum in the Pinnacle sectors being outdoor segment and the continued to grow more than I think, 30% in a market and they're really leading the whole growth in the industry.

So I think it's a -- I would say it's a hero brand at this moment in the markets. And as we just mentioned, we will continue to drive Arc'teryx, which suggests that first I was the first phase for us. We are still a great runway for us to continue to Arc'teryx's growth in the future.

For Salomon, it's another new areas, as I mentioned for soft goods, Solomon, especially footwear. We are still at a preliminary stage and we are the leaders in charge running sectors. But and you guys all know about the market size of the trade running in latam limited versus the rest of the segments, footwear segments.

So Salomon, we got kind of a very unique opportunity to create a new categories. We just mentioned, we call the outdoor makers categories, okay? So it's kind of a new segment, and we had a tremendous successful story in the past two years. We run this in China and I really, I mean other shops that are, I would say, the Solomon footwear compact shop really create that upgrade path in China market and taking on the leadership laws on the outdoor segment in the markets and the last year, I mean, we literally we were double the count of our sharp penetration in China market.

By the end of year, we foresee it at 200 shops in China. In the meanwhile, I mean, we just opened the first Salomon footwear shop in France. Okay. In Paris, La Mer, Asia, the first compact shops also outperformed. [I loved] okay. When we opened in May and we also tried to have this kind of format ok, to check out the market acceptance.

Okay. So we will open another two sharpening London and three more in Paris and one more in Milano I and two more in Milano to further verify the models. So the footwear opportunity for Salomon is kind of the greatest opportunities for us to unlock in the future. So we will also see a growing momentum for us in the future.

[And for Wilson], I mean, as we just mentioned, we created the segment worsened tenants 360, while we continue to secure our leadership for racquet business. We also introduced Wilson sportswear, which is a western apparel and the footwear to the market. And we also see a good light when we introduced this kind of format, both in North America and in China, specifically in China. But it's still our infant state will continue to explore opportunities.

In Russia, we will see the soft goods business I mean, especially combine order of three major brands, we will see a tremendous growth potential for our business in the future.

(technical difficulty) Thanks for the question as well, As you think about the margin profile, I'll give you a little bit of perspective, both on gross margin and SG&A leverage. As you progress , we had a very, very strong gross margin quarter in the second quarter, over 55% on gross margin that's outstanding. As you move through the year, you will recall that third quarter is our largest wholesale shipment quarter and so you'll see gross margins somewhat compressed from Q2 and then return to those levels that you saw in Q2 and Q4.

And as we talked about our full year gross margin profile, we've upped our guidance to about 54.5%. So you're going to see strong gross margins in the third and fourth quarter with the third quarter being a bit more compressed because it reflects our largest wholesale shipments.

As you move from an SG&A leverage perspective, SG&A dollars, obviously, as we get into third and fourth quarter will increase as you go through the year. Some back half of the year is a meaningfully larger than the first half of the front half of the year, but you're going to see meaningful SG&A leverage when you compare that to Q2.

I would think about Q3 being meaningfully better than Q2 and Q4 being meaningfully better than Q3. So progressively as a percentage of revenue, SG&A will continue to go down as we move through the year. I hope it answers your question.

Paul Lejuez, Citigroup.

Hi guys. Can you talk about the stores versus e-comm channel in the China market? And how would you characterize the promotional environment in China? And did you see anything change as the quarter progressed? Thanks.

Hi Paul. I just want to mention here. So the China actually, it's a -- we got the two legs to run, okay? So both our physical shops and the e-comm growth extremely well in China markets. Okay. So they -- we grow the business more than 54% and the actuate is 54%. is that all coming from. It's kind of an average coming from the physical retail as well as our e-commerce business. It's done we let you be the same level to speed.

In terms of the promotional environment in China, it's a difficult market so far. I mean, for time being, okay. So but we see I mean, there's still a lot of discount activities in China market to get the brands tried to get more revenues, okay, with relatively high level of inventory. But the good thing for us, I mean, we are sitting there and seeing the outdoor segments, okay.

So that segment is quite still quite foresee at this moment, I would say. The brand of Arc’teryx and Salomon when we run the business at this moment and we are -- we keep the same level. I mean as that -- we our discount is very small and in our regular shop, okay?

So we don't literally we don't give it a discount in our regular shop. And we have the outlets. I mean that discount ratio is only 20% to 25% off from the regular price, still at a very safety check. So I mean our two brands and in the segment. So they all perform extremely well at the time being. We also incoming level of short of supply for both brands and the so I mean, we are quite confident, I mean to continue to have this kind of a trend in China for our two brands business.

Jay Sole, UBS.

Great. Thank you so much. Can you talk a little bit about your inventory position? Maybe tell us a little bit about inventory by brand and how you see inventory growth trending over the rest of the year, given that I think it was only up around 2% this quarter.

Thank you.

Jay, thank you. This is Andrew. Yes, inventory position, as we talked about, grew about 2% this year compared to 16% top line revenue growth. I just want to start off with saying that this was really set up as we exited 2023. As you recall, we had a -- we did a very intentional job in the back half, especially in the Q4 of 2023, cleaning up inventory across each of our brands.

And we came into 2024 with a very disciplined buying approach, merchandising approach and focus sell-through. And so we see our inventory levels, as James talked about some of our high velocity as we think about the Arc'teryx's crack shoe. And sometimes that we do are we are selling out quickly.

We are really, really strong relationships with our sourcing partners. So we feel good about being able to be responsive to elevated demand, but we feel good about our inventory. We -- you're going to continue to see the trends that you saw in second quarter with inventory growing below revenue. You're going to continue to see that trend as we go through the year.

It's a key KPI for us and this is not an aberration in the sense that we're short in inventory. We are lean in inventory by design and by discipline.

Got it. Thank you so much.

I want to add a little more color on this. So for the brand's part, okay all these three major brands they got the very healthy inventory position at this stage, okay. We don't have a we see the closed and we also P&L relevant inventory position to feed up the future growth, but it's all under good control right now.

Ike Boruchow, Wells Fargo.

Good morning, everyone. Congrats on the quarter. Wanted to dig in a little bit more on Europe. Can you just kind of talk about your expectations for the region, the rest of the year relative to your revenue guide, obviously it looks like it's not really showing much growth the past couple of quarters.

Would love to know just a little bit more about what you guys see in the market basically, what do you see at POS and comp growth for your retail stores versus what are the conversations with your retail partners? Are they getting more reluctant to take product ? Kind of just trying to get a flavor of the appetite out from a retail perspective in that region specifically.

Hi Irwin. Let me give you the high-level answer on this. Okay. So it's up a big we got to put multiple brands in doing business in Europe. Each brand got a different proposition. So I start with the Salomon, okay. So Salomon Europe, I do believe, okay. So this year, we will continue to grow our footwear business at the high level and while we also face the level of challenge from winter sports equipment. So that part, so it's kind of a barrier and so Salomon Europe's specifically, it's more or less mid to high single digit growth.

Okay. For our CapEx, I think we just started with a very small base. I think Arc'teryx we will grow meaningfully from Europe and but it's still small base for us and worsen at more or less, we will keep the mid to low single digit growth in for our business. Peak performance, we will face a level of that challenge. We want to find a good way to mitigate that risk.

Okay. So especially our business really focused on Nordic area. So a loss (technical difficulty) I think Europe business as a whole, I mean, when we look at it, it will be like a mid-single digit growth in Europe for the whole year. That's kind of outlook for the group for perspective.

So if I'm understanding, it's really a peak performance issue in the Europe region and all the other brands are posting some level of growth?

That's right.

Okay, thank you.

Yes, those performance reps still represent a very small percentage of the payments for us anyway. So as a whole, okay.

Okay. Thank you, guys.

Laurent Vasilescu, BNP Paribas.

Well, good morning. Thank you very much for taking my question and congrats again on strong results. James, I wanted to ask about the Salomon DTC strategy. I think you called out in your prepared remarks, you have 136 owned and franchised stores in China. Can you for the audience, maybe talk about the number of stores that you own and operate globally. And if I recall correctly, I don't think you have a store in the key North American market. Should we assume at some point in time that you're going to expand some stores into North American market?

Yes, I Lauren, I just want to rehash. I mean, we are just at the preliminary stage to expand our Salomon direct-to-consumer channels a mini fund, our own retail expansion in China first. We see a good example from China and then coming from that success, we also expand the model to Japan and Asia Pacific and we start the trial also in Europe from May this year, okay and in Paris first.

So it's still infant stage for us in the outside of China. We are -- but the collateral into a shop and we opened boating, Osaka, and Paris, they all outperform. So gave us a good level of confidence to continue to try these kind of a format. We call the Salomon footwear compact shop, okay.

And in US, I would say we will open a pop-up shop in October this year in New York City in Soho areas. That's the first time for us. We will test that model to see how the market responds. And I hope next year we can open up I mean within five shops, maybe okay, one to two New York City and then the another one or two shops in the rest of the city in North America and to further verify the models we experienced in China, but it's still too early to tell in Latin America, specifically.

Very helpful. China .

I do we mention that we will quickly grow our penetration and by the end of the year, we will have a 200 dedicated Salomon footwear shop for our complex shops for both our own retail as well as the franchise shops.

That's great to hear James. Andrew, congrats on raising the full year guide on revenues just for the audience. I think it implies 4Q should grow about 20%. I know there's some compares. Maybe can you kind of just bridge it for the audience? How do we think about the acceleration into 4Q. And I think you mentioned there was a $20 million shift from 3Q to 2Q. Should we -- is that driven by one segment? And should we assume some size shifts also between 3Q and 4Q?

Yes. So let me start with the $20 million. The $20 million did have some variability between a couple of different segments, outdoor performance was a little bit more than half of that $20 million. And technical apparel was the remainder amount of all of the ship. It was from Q3 into Q2 and like I said, it had about a two point top line impact.

So if you think about Q2 growing 16%, really, it's kind of 14% if you exclude that. And you think about the implied guidance in Q3, it would have grown an additional 1.5% to 2%. So that's how you think about it. The shift was really Q3 to Q2.

As you think about the rest of the year, there's not meaningful shifts, but you need to build into your models out of Q3 and into Q4. We anticipate on a natural basis, Q2 would have been up about [14] Q3 up similarly. And then you're going to see the meaningful mark that we've talked about all year on Q4. Remember, Q4 is our biggest quarter by far it's going to be our easiest comp, given the fact that we had a lot of promotional environment activity in Q4 last year.

Very helpful. Thank you very much.

Thank you.

Lorraine Hutchinson, Bank of America.

Thank you. Good morning. But just wanted to elaborate a little bit on the macro climate. Are you seeing any change in consumer behavior in any of your key regions?

James, why don't you take that if you're seeing any consumer behavior (technical difficulty)

Yes, let me -- I think the overall, I mean, I think the overall I mean, the economic situation still got the level of the challenge, okay. So up by different regions, different situation for me, am I understanding China, it's a still overall it's getting through -- so people still need to figure out.

Okay. So how do we overcome a kind of a short term difficult. It's a challenge as a whole. But the other side, as I just mentioned, that the industry we are sitting and of course, the industry is still at a optimal situation. So and the people at the participant level from China markets continue to grow and that the overall industry-- sports industry, we believe still grow more than a modest 5% to 8% on [cegar] for coming three years. So I --so we think that the market size do there.

Okay. So and it just sort of how does have some brands doing extremely good job taking the shares from the some brands are doing so-so job. So it's a it's kind of a shifting okay. It's kind of a shifting. And Europe I think it's all about -- it's kind of my understanding, it's kind of a stable market, relatively stable markets, and it's all about how you create the kind of excitement, the level of excitement you created.

And they all come in that the market still welcome new players, which can create a distinguished value to the consumers. And the customers also love to try certain new brands, especially in the industry we are sitting. So we still see a good level with opportunities. Like while in North America, I still (technical difficulty)

Okay. So, yes, the macro situation to chat a bit level of challenge, but the consumer still looking for some, as I say, okay, so the some newcomers and with innovative type of tax hike, high technical products and in sports industries and we still see good opportunities for us. So I am a pretty optimistic still for the overall industry, I mean, in our industry and especially the segment we are sitting we still see a great runway for us to explore the potential in the market.

Hi, Lorraine, it's Stuart. I'll just add to James comment. I think what we're seeing is a bifurcation across the regions we operate. We're seeing a strong division between winners and losers and companies that have a strong market position taking share and companies that have are just participating in the market or are forfeiting share.

We also see that technical innovation as an important competitive advantage that is helping companies, I think like Arc'teryx continue to thrive in the marketplace and it is a focus for how we are building our product strategy. So at this point, our customer dynamics are very strong. The signal, the demand signal that we're seeing from all our regions is very strong.

But we're also we're reading the same headlines that you are around the world and we're very much building in the contingency plans as we might be ready for any sort of change in the macro signal. But at this point, it's quite robust. And we're taking it as an opportunity to play offense and take share from our competitors.

That concludes our question and answer session. I will now turn the call back over to Omar for final closing remarks.

Thanks, Rob, thanks, everyone, for joining. Just one quick mention. We're posting on our IR website, both the presentation slides that go with the prepared remarks as well as the script of the prepared remarks for those of you who are looking for it. Thanks, everyone, for joining. We'll see you again in three months .

This concludes today's conference call. Thank you for your participation. You may now disconnect.