Amer Sports, Inc. Q2 FY2025 earnings call

Key brand highlights: Arc'teryx had broad-based strength, opened 7 net new stores, footwear and women's segments grew. Salomon footwear and apparel accelerated, opened 16 net new shops in Greater China. Wilson management transition, Ball & Racquet growth solid with Tennis 360 resonating. Tariff exposure: Well positioned with premium brands, pricing power, and low U.S. revenue exposure. China market: Strong growth, premium sports and outdoor market, authentic brands, and great team.

Technical Apparel: Revenues increased 23% to $509 million, led by Arc'teryx. DTC expanded 31%, wholesale grew 4%. Adjusted operating margin declined 10 basis points to 13.9%. Outdoor Performance: Revenues increased 35% to $414 million, driven by Salomon. DTC grew 63%, wholesale 18%. Adjusted operating profit margin expanded 720 basis points to 5.1%. Ball & Racquet: Revenue increased 11% to $314 million, driven by soft goods and racquet sports. Adjusted operating profit margin increased 200 basis points to 3.1%.

Raised full-year revenue and EPS expectations. Technical Apparel revenue growth raised, Outdoor Performance from mid-teens to 22%-25%, Ball & Racquet from mid-single digits to 7%-9%. Adjusted gross margin and operating margin raised. CapEx, D&A, and other financials updated. Third quarter guidance: Reported revenue growth ~20%, adjusted gross margin ~56.5%, adjusted operating profit margin 12%-13%, adjusted diluted EPS $0.20-$0.22.

Tariff uncertainties, including termination of steel and aluminum exemption, higher actual tariff rates, and unfavorable shipment timing. Market conditions challenges for Ball & Racquet segments like inflatables and baseball gloves.

Q: Congrats on another nice quarter. So James, could you elaborate on the momentum that you're seeing in the third quarter, supporting the 20% outlook. Speak to drivers of the growth inflection at Salomon and the accelerated back half opportunity. And then, Stuart, could you expand on the raised expectations at Arc'teryx? Maybe specifically trends you've seen third quarter to date relative to the second quarter 15% omni-comp.

A: Thanks, Matt. Okay. I -- so based on the very strong Q2 results and we see our growth momentum still carry on in Q3 and especially for Salomon footwear, okay, so cross-border, as we just introduced to you guys our strategy work and especially our new products really resonate in the market. And I say, okay, so we created a very unique category we call the outdoor sneakers, which really give us a very strong competitive edge in sneakers markets and especially for female consumers, younger female consumer sector. So we really created a white space for us, and we see very strong growth trend for Outdoor Performance segment. And on the other side, I also will say that Arc'teryx is also on the right track. And the momentum still carry on. Stuart will give you more detailed elaboration on that. So I mean, Wilson 360 -- Tennis 360 formats continue to work both. And the -- especially in China and Southeast Asia, we see a very clear growth pattern for our Wilson Tennis 360. And in the U.S., we're also on the way to really test a different format in the market we are sitting. And we also have a very good confidence to unlock the potential for our Wilson's Tennis 360 in the United States. So pretty much like this. Stuart?

Q: Can you speak to the next levers of growth at the Salomon brand following the recent inflection? How should we be thinking about the pace and magnitude of additional distribution point expansion in the U.S. relative to your other key international regions, both on an owned door and partner wholesale door basis?

A: Yes. Thank you for your questions. And I -- first of all, Salomon is really on a fast-growing pattern and driven -- I mean, in the past 2Q, I mean, obviously, mainly driven by strong momentum in China and Asia Pacific, together with EMEA. And in U.S., we are still -- literally, we are still on the way to build the foundation. So we -- right now, we only got one shop in New York City. We plan to open 4 to 5 shops by the end of the year to -- in New York, Chicago and Los Angeles, and to further validate our so-called Salomon compact shop format, which had been prove -- proven in China and Europe. So we have a very good confidence because in terms of the retail format and the product assortment, we already got a very solid base to support our U.S. market. Meanwhile, we also continue to try to find a good way to strengthen our B2B business in the United States. Especially, we are underway to build a very strong partnership with the top accounts like REI and Nordstrom. And that will give us a good more good place to continue to see what's the right model for us to accelerate our business in the U.S. And we also -- together with a very strong performance line we introduced in the market, we also -- right now, we also try to find a good model in our running specialty in the United States. So in summary, I will say we are still -- in Salomon in U.S., we are still on a preliminary stage. We are still on the way to build out the foundation. But given the successful model we built up in Europe and China, we have a very high confidence to build a very strong business model for Salomon footwear in the United States in the future.

Q: I wanted to get your views on pricing at each of the brands. What type of price increases are you embedding to mitigate the tariffs? And what has the customer response been to those?

A: Yes. Thanks, Lorraine. Yes, with regard to price increases, I mean, we have -- across the brands, we would have leaned into some pricing increases in the Wilson brand. We talked about that a little bit earlier this year. But as far as Salomon and Arc'teryx, we continue to acknowledge that we have untapped pricing flexibility that we will definitely lean into should we need to. But we've been able to navigate and mitigate the tariff impact without taking price thus far in those other 2 brands. With regard to Wilson, for certain products, it's been approximately 10%.

Q: Stuart, can you talk about how Arc'teryx stores are comping the full-price stores versus how much of a drag you're seeing on comp from the outlet stores? And then just separate. Inventory in terms of dollars versus units, and if you can give any color to places you might be too light, you might be restricting sales versus any regions or categories that you might be a bit too heavy.

A: Yes. Thanks, Paul. Yes, the comp store trends in our full-price stores is robust. It's probably a mid-single-digit drag on the overall comp based on the outlet sales declines that I mentioned. So we're happy to see that shift happening. We're happy to see a stronger full price mix, even though it may weigh on the headline comp number. And from an inventory standpoint, the -- in certain of our footwear categories, we've stocked out quickly, especially new models that we're introducing, where we're still trying to find the edge of demand. The Clarkia pant that James had mentioned is a good example of that. We're still chasing the market there. Much of our spring/summer apparel line, also, we're still painfully out of stock in a number of regions. And so we really don't know how high is high yet in that part of the business, and it gives us encouragement for the spring/summer period, specifically. We're in a good position, I would say, from a fall/winter as we head into -- as we're now in the third quarter. And what I had mentioned in terms of the trend quarter-to-date in Q3 gives us confidence in the guidance that we had given. And I would further say, if demand continues to materialize, there's the potential to outperform. And so we think we're well positioned. Nothing structural that would prevent us, and we're in a strong inventory position at this point. So that's the most color we can give right now.

Q: A 2-part questions. One, Stuart, just talk about the women's business at Arc'teryx and how you've seen that develop over the last 90 days. And on Salomon, just with the super strong growth, you're probably above what you talked about at the time of the IPO. What's really gone better, big picture at Salomon, that's allowed you to deliver this big inflection and the big growth?

A: Jay, yes, thanks for the question. The women's business, we saw continued strength in the second quarter. Revenues in women's was up over 30% in the quarter. We saw continued increases in our penetration, our mix of business. So we're pleased to see just the strength of our women's business growing in importance, some explosive growth in certain models. James has mentioned the Clarkia. We also introduced recently a couple of new models, the Nia pant and the Altira Cropped hard shell, they're seeing fast sales out of the gate as well. So we're excited to see women's only specific models performing well as we expand the assortment for women's. This is an important sort of validation of the product strategy, while we're seeing our core products continue to sell well also with our female guests. So we really feel like we're just getting started. So more to follow, and we look forward to sharing more at the Investor Day in September our women specifically.

Q: Outdoor Performance is implied to grow 20% in the second half. Can you unpack that a bit more? Any nuances between 3Q and 4Q revenues, especially heading into the Winter Olympics? And then, Andrew, should we still assume that winter goods grow low single digits for the year? And then I have a quick follow-up on margins.

A: The last part of the question, I missed the last part. The last part of your question, the second part. The Winter Sports Equipment will continue to be a low single-digit grower for the rest of the year. The Outdoor Performance implied 20% growth in the second half is -- it's pretty level between the third and fourth quarter. So there's no cadence that you need to build in that we're signaling.

Q: Stuart, just 2 follow-ups, if I could. The outlook drag on comps for Technical Apparel or Arc'teryx, should we expect that to continue equally throughout the year? And then maybe could you frame up a little more of the opportunity you see bringing the Korea business fully in-house? And then just separately. Andrew, you raised the operating margin again. It was a little bit less than the raise to the gross margin rate. So could you maybe just share where you're driving incremental investment and some of the payoffs that you expect to see?

A: Yes. Thanks, Jonathan. Stuart. So the outlet drag, yes, I don't expect it will get worse than what we have seen in the first half of the year. There could be an opportunity for that to moderate to a degree, but probably more like what we've seen in the first half than not, if that makes sense. So probably more consistent into the back half than any change per se. The Korea opportunity, we believe, is exciting. It's an incredible outdoor market. We've had a strong relationship for a number of years with our partner there, but we believe we can invest in the business in a new way and really capture meaningful upside, building on the strong start that our partner had created there. So we see upside, for sure, in Korea. We think it could be bigger than Japan even in terms of revenues, and we've got a great start so far.

Q: Can I just ask? Stuart, just 2 follow-ups, if I could. The outlook drag on comps for Technical Apparel or Arc'teryx, should we expect that to continue equally throughout the year? And then maybe could you frame up a little more of the opportunity you see bringing the Korea business fully in-house? And then just separately. Andrew, you raised the operating margin again. It was a little bit less than the raise to the gross margin rate. So could you maybe just share where you're driving incremental investment and some of the payoffs that you expect to see?

A: Jonathan, yes, really excited about the performance in the second quarter. And so think about it, really strong momentum as we go into the third quarter. We're going to seize this opportunity to continue to invest in the growth of the business. As you think about things like new store openings, marketing, there was a previous question around Salomon footwear growth and that inflection and continue to invest in that inflection brand awareness, and with all of those key initiative investments, we're still going to deliver 100 basis points of expansion to the bottom line. So it's thoughtful and it's prudent and it's responsible growth.

Q: Can I just ask? Stuart, just 2 follow-ups, if I could. The outlook drag on comps for Technical Apparel or Arc'teryx, should we expect that to continue equally throughout the year? And then maybe could you frame up a little more of the opportunity you see bringing the Korea business fully in-house? And then just separately. Andrew, you raised the operating margin again. It was a little bit less than the raise to the gross margin rate. So could you maybe just share where you're driving incremental investment and some of the payoffs that you expect to see?

A: Yes. I mean, the business is still 90%, 85% equipment. That's number one. Number two, it just really depends on the velocity of our Tennis 360. As James talked about, we've really found a nice format in APAC and Greater China. We're still searching for it in the early stages of that format in North America.