Amer Sports - Earnings Call - Q1 2025

Transcript

Operator (participant)

Thank you for standing by, and welcome to the Amer Sports Q1 Fiscal 2025 Earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a Q&A. If you'd like to ask a question during this time, simply press Star, followed by the number One on your telephone keypad. If you would like to withdraw your question, again, press Star One. Thank you. I'd now like to turn the call over to Omar Saad, SVP Capital Markets and Investor Relations. You may begin.

Omar Saad (SVP Capital Markets and Investor Relations)

Welcome, everyone. Thanks for joining Amer Sports' earnings call for the Q1 of fiscal year 2025. Earlier this morning, we announced our financial results for the quarter ended March 31st, 2025, 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 A.M. Eastern. James will cover key operational and brand highlights, and Andrew will provide a financial review at both the group and segment level and also walk through our guidance for the Q2 and full year 2025. Arc'teryx CEO, Stuart Haselden, will also join for the Q&A session. With that, I'll turn the call over to James Zheng.

James Zheng (CEO)

Thanks, Omar Saad. Amer Sports began 2025 with a great performance in the Q1, delivering sales, adjusted margin, and EPS well above expectations. We generated 23% sales growth or 26% ex-currency, and we also expanded our adjusted operating margin by nearly 500 basis points. Our performance was led by strong growth and profitability in both technical apparel and outdoor performance, as well as solid sales and margin results in ball and racket. In addition to the continued broad-based strength from our flagship brand, Arc'teryx, I'd like to highlight the growing momentum behind the Salomon sneakers. We are really starting to see consumers all around the world respond to their unique performance and style attributes. Furthermore, our market-leading high-grade equipment franchises delivered better-than-expected results for both winter sports equipment and the Wilson ball and racket. Although we are off to a great start in 2025, given macro uncertainty related to U.S.

Tariffs, we are operating our business with discipline and flexibility. Andrew Page will provide a more detailed discussion of our tariff exposure, mitigation strategies, and the financial impacts. I would like to emphasize that I believe we are very well positioned to manage through a wide range of tariff scenarios, given our premium brands with pricing power, secular growth trends, and a relatively low U.S. revenue exposure. Looking near and Long-term, we believe Amer Sports is a uniquely positioned company within the global sports and outdoor space. Several factors give me confidence for the rest of this year and well beyond. First, we own and operate a unique portfolio of premium outdoor and sports brands. Each one is empowered by our technical innovation and is positioned at the pinnacle of its segment. Our brands have high conversion and satisfaction, but are still small players with room to grow.

Second, Arc'teryx is a breakout growth story with great growth and profitability for the outdoor industry, driven by its disruptive direct-to-consumer models and a unique competitive position. It's still very underpenetrated globally and still has a tremendous long-term growth opportunity. Third, we believe Salomon sneakers have unique performance and design attributes, and the brand is experiencing accelerating momentum globally, but still has a small market share of the global sneaker market. Fourth, Wilson and our winter sports equipment brands have authentic heritage, premium positioning, higher performance products, and leading market positions. These high-market share brands will deliver slower long-term growth in their core equipment businesses, but they still have large software potentials, especially Wilson Tennis 360. Fifth, we believe we have a very strong differentiated platform in Greater China, where we continue to deliver best-in-class performance with great momentum across all three big brands.

Before I turn over to Andrew Page, allow me to briefly recap key brand highlights from our three segments. Starting with technical apparel, which is led by our fastest-growing and largest brand, Arc'teryx. Arc'teryx delivers another great quarter with strong growth across all regions, channels, and categories, especially for women and women, which continue to grow faster than the brand overall. We are encouraged to see the technical apparel momentum continue in the direct-to-consumer channel, where we generate a plus 19% omnicomp in Q1. Importantly, our direct-to-consumer growth was driven by strong performance in both stores and online. We believe Arc'teryx stores are very differentiated from both our product and experience perspectives, and they continue to be critical to our strategy, especially how we engage with local consumers and the community.

Arc'teryx net new store openings were flat in Q1, as four openings were offset by the closure of four legacy locations as part of our ongoing strategy to optimize the quality and the productivity of our store fleet. Key new store locations this quarter include two stores in China, one in Georgetown, Washington, D.C., as well as our new Chamonix location, which is our first mountain town store in Europe and has attracted great consumer interest since day one. Arc'teryx store expansion strategy includes a mix of different formats ranging from multi-level, large-scale alpha flagship stores to small format, very distinct mountain town shops. For 2025, we plan to open approximately 25 net new Arc'teryx stores globally, which incorporates a similar level of gross openings as in 2024, partially offset by the closure of certain outlets and other sub-optimal locations.

We are focused on positioning Arc'teryx for sustainable long-duration growth, and developing a high-quality store network is critical to our success, and much more importantly, chasing fast-paced new store expansion. For example, in Greater China, we will continue to focus on optimizing Arc'teryx retail footprint rather than pushing new store expansion. This year, we will have net store closure in China, including closing some legacy partner stores, but we'll grow our own store count, continue to open larger format, high-quality locations. We expect to grow revenue strong double-digits, driven by comp store growth and replacing small, less productive stores with large format, high-quality locations. In Beijing, we will soon open a brand store within the Peninsula Hotel, and we have plans to open two more shops at other Peninsula locations later this year.

We are very excited that Arc'teryx will be the first sports brand to sit alongside traditional luxurious brands inside this iconic hotel chain. We also recently opened another mountain town store in Banff, a popular mountain destination in Canada, and it's a great addition to our small but growing portfolio of authentic mountain town locations, including Chamonix, Shangri-La, and Whistler. Community engagement continues to be a key part of our strategy to raise brand awareness. In March, we hosted our first-ever Arc'teryx Academy in California at Mammoth Mountain. The event drew thousands of participants, achieved record-breaking rebirth sales, created 6 million media impressions, and saw a direct lift in sales in Arc'teryx stores in the Los Angeles areas, as well as e-commerce.

Shifting to product, footwear continues to be Arc'teryx's fastest-growing category in Q1, as consumers continue to respond positively to what we believe is the best line of technical performance footwear designed for mountains. This spring, we launched the Norvan LD4, an elevation of the popular silhouette made for long-distance mountain running. We also launched the Vertex Speed, which is a mountain running shoe designed to climb through technical vertical terrain. Looking forward, Arc'teryx has an exciting pipeline for shoe launch in the second half of 2025. We believe footwear will become a sizable and profitable growth avenue for Arc'teryx both in own retail, e-commerce, and in certain wholesale accounts over time. We have now structured footwear as a separate business unit with a dedicated P&L and a team focused on the category.

Women's also continues great momentum in Q1 with double-digit growth across all regions and channels, outperforming the rest of the brand in every region. We see a big opportunity to serve women in the outdoor differently through pinnacle design and performance. A great example of our design focused on women is the Clarkia pant, which has seen explosive growth in Q1, stocking out quickly. We are seeing rising brand awareness and affinity with women in the U.S. and Europe as we have improved fit, style, and function. ReBIRD also continues to be one of our priority strategies, which we believe will truly separate us from the market-price. Our products are long-lived and built for repair. We experience especially strong consumer engagement in all of our locations with a ReBIRD center. At the end of Q1, we had 25 ReBIRD service centers globally.

Lastly, onto Veilance, which we view as the city expression of Arc'teryx. Like footwear, Veilance also now has its own P&L and management team. Our new Veilance leadership is sharply focused on developing the best products, merchandising, marketing, and go-to-market strategies to drive Veilance's long-term growth opportunity. For the first time, Veilance was presented at Fashion Week in Paris, where the brand was positioned alongside the luxurious players and received very positive feedback from buyers, industry, and the media. Moving to the outdoor performance segment, which delivered an excellent quarter led by Salomon footwear and apparel, winter sports equipment results were also better than expected. Global brand momentum behind Salomon sneakers is accelerating. Not only is the Salomon footwear franchise continuing to grow very well in China and APAC, it's now also starting to impress in both the U.S. and Europe.

Our brand awareness has doubled the past couple of years, and we are now seeing very strong momentum in both sports style and our performance lines. Salomon sneakers surpassed $1 billion of sales in 2024, but it's still tiny relative to the $180 billion global sneaker market. We believe Salomon sneakers have an authentic and unique market position with technical features designed for athletes on a variety of terrains, but also great for everyday use. Our unique style and technical attributes are resonating with consumers at a time when they are more receptive than ever to wearing new sneaker brands. Long-term, we expect Salomon soft goods to grow strong double-digits annually. In Q1, Salomon footwear and apparel continues very strong growth in Greater China and APAC, while Americas accelerates and AMEA continues its solid growth.

Direct-to-consumer remained the fastest-growing channel for the brand, and the sports style offering continues to lead footwear growth. In addition to shoes, Salomon apparel, bags, and socks are also experiencing great momentum. A key brand highlight in Q1 was our first-ever global footwear launch with XT-WHISPER, a new addition to our sports style offering. This global synchronized launch has been a massive success and was welcomed with excitement by customers around the globe. We did XT-WHISPER collaborations with Kith and Sandy Liang in the U.S. and have seen great results from our Whisper Go campaign in China. On the performance side, we have been very pleased with the launch of the low-running shoe, Aero Glide 3, one of the best footwear launches in Salomon history.

Aero Glide 3 uses a foam called Optim Foam Evo, which we believe represents a disruptive new generation material offering the runner a new level of rebound and comfort for running on load or trail. We are also very excited by the Gravel launch this month, a new line that offers consumers a more versatile than ever running shoe that performs great on various types of terrain from pavement to parks and trails. Regionally, Salomon soft goods is continuing to experience great sales through and solid out of books in Europe, both for sports style and performance. Sales through for retailers continues to be strong, which is translating to healthy growth in our out of books. In Asia, direct-to-consumer continues to be the critical growth channel for Salomon.

Our Salomon compact shop format developed in China works very well, and we believe these stores generate significantly higher sales per sq ft versus industry average and continues to improve. We are continuing to expand our compact shop in Greater China, opening 22 net new Salomon shops in Q1, including both owned stores and partner stores, bringing our total count to 218. We are on track to reach near 300 Salomon shops in Greater China this year. We believe Salomon has the opportunity to grow to several hundred locations over time in just Tier I and II cities from only eight stores four years ago. Our new Salomon flagships in Shanghai have continued to perform very well in the first few months. We will open a second Shanghai flagship in August, which will be located in the former French Concession District, known for its boutique shopping.

In the U.S., we continue to lay the groundwork to support significant future growth, and we are seeing more and more signals that the brand is gaining momentum in the world's largest sneaker market. Our first U.S. store in New York City continues to show incredible traction with our consumers, and the brand is seeing strong buzz with key sneaker retailers across the city. We plan to open three to four more Salomon shops in the greater New York area this year, as well as continue to expand our presence in key wholesale accounts. Beyond New York, we also focus on San Francisco and Los Angeles as epicenter markets for Salomon sneakers. In addition to the success of Salomon sneakers, our winter sports equipment brands deliver a better-than-expected end of the ski season with strong sales through at retail, leading to better-at-once re-orders.

Moving to ball and racket highlights, we are pleased that the ball and racket growth trends continue to be solid in Q1, with 12% growth driven by strengths in sportswear, racket sports, and golf. Our Tennis 360 continues to resonate very well with consumers, from performance rackets to soft goods, especially in Greater China. Wilson's performance rackets, Venice, continue to shine, including the January launch of the Clash V3, which is off to a solid start. In pickleball, we are experiencing strong response to our Vesper paddle launch. Wilson Tennis 360 soft goods also continues its excellent growth, nearly doubling in Q1 2025. We have seen very strong response to the Intrigue women's tennis shoe. We also continue to excel in China, and we'll open approximately 50 more Wilson Tennis 360 shops in China this year, including both owned and partner stores, bringing the total to almost 100.

In North America, the new Tennis 360 concept store in the Dallas North Park Mall is off to a very good start. This is also true of our tennis footwear and apparel test in 50 Dick's Sporting Goods locations, where we are selling through better than our competitors. Lastly, we were pleased to see Wilson Golf have a solid improvement in sales and the margins in Q1, led by the Dana Powell launch this spring, which has received positive reviews in the golf influencer community. With that, I will turn it over to Andrew Page.

Andrew Page (CFO)

Thanks, James Zheng. Before I start, I want to take the time to thank our more than 13,000 Amer Sports employees around the world. Our passionate teammates are critical to developing innovative products, engaging with consumers, and building our brands for the Long-term.

They've done an amazing job navigating the ever-changing macro environment with discipline and flexibility. I will discuss tariffs in detail when I provide guidance, but I want to start by saying that we are very confident that our fundamental business momentum, diverse global footprint, clean balance sheet, and strong brand portfolio with pricing power will give us significant flexibility and firepower to manage through a variety of tariff scenarios. Let's go through Q1 results first. Amer Sports grew 23% in Q1 on a reported basis and 26% in constant currency. The strong group sales performance was led by both technical apparel and outdoor performance, while ball and racket also delivered very solid growth in the quarter. By channel, the group continues to be led by DTC, which grew 39%, led by Salomon footwear in Greater China and APAC.

We also saw solid wholesale growth of 12%, led by Arc'teryx. Regional growth was led by Asia Pacific, which increased 49%, followed by China, which grew 43%. AMEA accelerated to 12%, and the Americas also grew 12% in Q1. We continue to achieve very strong growth in Greater China, and there are several reasons why we are doing so well there and are also confident in our future growth in this important consumer market. Number one, our brands compete in one of the high-quality and fastest-growing consumer segments in China, the premium sports and outdoor market. The outdoor trend in China continues to be very robust, attracting younger consumers, female consumers, and luxury shoppers. Additionally, our still small specialized brands are known for their expertise, high quality, and technical innovation, which resonates with Chinese shoppers. Third and most important, we have a great team in China.

Our deep expertise and unique scalable operating platform gives us a significant competitive advantage across the portfolio. Turning to profitability, adjusted gross margin increased 330 basis points to 58% in Q1, primarily driven by favorable channel, geographic, and product mix, as well as lower discounts compared to prior year. Going forward, we expect our highest gross margin franchise, Arc'teryx, to continue to be the biggest underlining driver of our ongoing gross margin expansion. Adjusted SG&A expense as a percentage of revenues leveraged by 160 basis points represented 42.6% of revenues in Q1. Both the technical apparel and outdoor performance segments achieved SG&A leverage on very strong growth. This was partially offset by slight deleverage at ball and racket due to the ongoing investment in Tennis 360 and DTC growth.

Driven by both gross margin expansion and SG&A leverage, we generated 490 basis points increase in our adjusted operating margin from 10.9% last year to 15.8% in Q1 of the current year. Adjusted corporate expenses were $19 million, up from $17 million in Q1 of last year. Depreciation and amortization was $78 million, which includes $36 million of ROU depreciation. Adjusted net finance cost in the quarter was $17 million, which comprised $22 million of interest expense, partially offset by $5 million of FX gains and other items related to the weakening U.S. dollar. In the quarter, our adjusted income tax expense was $64 million, which equates to an adjusted effective tax rate of 30%, better than expected, primarily due to our overdelivery of operating income. Adjusted net income in Q1 was $148 million compared to $50 million in the prior year period.

Adjusted diluted earnings per share was $0.27 compared to adjusted diluted earnings per share of $0.11 last year. Turning to segment results, technical apparel revenues increased 28% to $664 million, led by Arc'teryx. Growth was fueled by 31% DTC expansion, including a 19% omnicomp, a very good result comparing against a 36% omnicomp in the Q1 of last year. Arc'teryx DTC momentum continues to be fueled by both new and existing consumers across all regions, channels, and product categories. Technical apparel wholesale revenues grew 22%, driven by Arc'teryx. Although it is a small part of the technical apparel segment, it is worth noting that we are making good progress with Peak Performance and cleaning up the marketplace in AMEA and the Nordics, shifting to a more full-price DTC oriented brand.

Peak's healthier core franchise has a solid base for the new President, Stefano Saccone, to lead the brand through the next phase of its journey. Regionally, technical apparel growth was led by Asia Pacific, followed by Greater China, the Americas, and AMEA. All regions grew strong double-digits, fueled by Arc'teryx. Technical apparel adjusted operating margin expanded 110 basis points to 23.8%, driven by SG&A leverage, thanks to strong growth. Moving to our outdoor performance segment, which saw revenues increase 25% to $502 million, driven by strong performance in Salomon Soft Goods and good results in Winter Sports Equipment. The DTC channel grew very healthy double-digits, driven by new store openings in Asia Pacific and Greater China, as well as solid comps from existing Salomon stores.

Outdoor performance growth also benefited from a solid performance in Winter Sports Equipment in Q1, following a slow start to the winter season. By channel, outdoor performance DTC grew 68%, led by Greater China and APAC, and wholesale grew 9% from the prior year period. The wholesale results were driven by both Salomon Winter Sports Equipment and Salomon Soft Goods. Regionally, outdoor performance growth was led by Greater China and APAC, followed by accelerating growth in AMEA. The Americas was roughly flat, but only because of the Envy divestiture in 2024. Salomon Soft Goods saw very good growth in the Americas. As James Zheng alluded to, the popularity of Salomon footwear is inflecting globally, and we are well positioned to appropriately and fully develop this unique opportunity over time.

We believe we have very significant growth in all three major consumer regions and have the right talent and team structures in place to take a more meaningful share of the global sneaker market over time. Our winter sports equipment business finished on a high note as a good end-of-season snow helped boost retailers' sell-through and reorders. The Nordic, or cross-country market, remains more challenged, but we were able to move a significant amount of inventory at reasonable discounts, leaving us in a very clean position at the end of the winter. Our assumption is that the winter sports equipment market will grow low-single-digits in 2025 and over the long-term. The ski and snowboard industry is healthy and, given advanced snowmaking capabilities industry-wide, as well as the growing attraction of winter mountain vacations, demand for on-piste skiing is strong.

Winter sports equipment now represents 1/3 of the outdoor performance segment, and the share is shrinking as Salomon Soft Goods grows faster. Outdoor performance adjusted operating profit margin expanded 990 basis points from last year to 14.7% in Q1, driven by strong gross margin expansion thanks to channel, region, and product mix, as well as favorable product costs. This margin expansion was also driven by SG&A leverage on high growth. Moving to ball and racket, revenue increased 12% to $306 million, driven by soft goods, racket sports, and golf. The strong growth was also helped by easier comparisons from Q1 last year when Wilson was still going through some liquidations to normalize inventory levels. We are pleased with the continued rebound, but we would caution that double-digit growth is not sustainable long-term, and we continue to expect ball and racket to grow low to mid-single-digits long-term.

By category, the growth was led by soft goods, which now represents 10% of ball and racket sales in our marquee racket sports franchises. We continue to see very strong momentum in Tennis 360, especially in North America, Greater China, and APAC. Golf achieved positive growth thanks to a successful Dana Powell product launch, as well as improving sales in pro golf clubs. Inflatables and baseball were both roughly flat as baseball bats returned to growth, offset by softer ball glove sales. Ball and racket segment adjusted operating profit margin increased 270 basis points to 6.6%, primarily driven by higher gross margin thanks to favorable product mix, channel, and region mix. We had slight SG&A deleverage due to the continued investment in Tennis 360 and DTC.

Turning to the balance sheet, we ended the quarter with $515 million of net debt, down from $591 million at the end of Q4. Using the mid-point of our 2025 adjusted operating profit guidance, our net debt to Adjusted EBITDA ratio was approximately 0.5 times at the end of Q1. Following our $1 billion equity raise and debt paydown last December, our balance sheet is in a healthy position to support our company as we navigate terror and other external uncertainties. Looking forward, using excess cash to pay down debt, which carries non-deductible interest, remains a high-return usage of excess cash. We also exited the quarter in a solid inventory position, up 15% year-over-year, well below our 23% sales growth. Driven by strong profit growth and disciplined working capital management, we generated $164 million of operating cash flow in the Q1 of 2025.

For the full year of 2025, we expect to generate solid operating cash flow growth from the 2024 levels. Now moving to tariffs and guidance, there are several factors that give me confidence that we are well positioned to manage through a variety of tariff scenarios, both near and long-term. First, we have low exposure to the U.S., only 26% of revenues, and we enjoy meaningful exposure to high-end consumers. Also, the high functional nature of our products creates personal engagement and a strong value equation for consumers. Thirdly, we believe the brands in our portfolio have significant untapped pricing power. The vast majority of our growth the last several years has come from more units and not higher prices. Lastly, our clean balance sheet and strong cash flow dynamics give us the financial flexibility to weather macro challenges as they arise.

Given the upside in the Q1 and our continued operating and financial momentum, and despite higher tariffs, we are raising our full-year revenue and EPS expectations. This updated guidance assumes the current 30% tariff on goods arriving to the U.S. from China and 10% tariffs on goods coming in from the rest of the world will stay in place for the remainder of 2025. Given the mitigation strategies we already have underway, we expect the impact to our P&L from higher tariffs to be negligible this year. Our updated guidance implies slower growth in the second-half than in the first-half. However, as we've said before, should strong trends continue and better-than-anticipated demand materialize, we believe we will be well positioned to deliver financial performance ahead of these expectations.

Looking beyond 2025, we are confident in our ability to offset the vast majority of higher import tariffs under a wide range of scenarios through pricing, vendor renegotiations, and supply chain maneuvers. Since the ultimate tariff outcome is still unknown, we thought it would be helpful to frame our U.S. sourcing exposure. In 2024, U.S. revenues represented 26% of group revenues. Sourcing from China to the U.S. was approximately 8 points of the 26. Vietnam was also 8. The rest of Asia was 6, Europe 3, and the rest of the world 1. By brand, slightly more than half of the tariff exposure is in the ball and racket segment, around 30% in technical apparel and the remainder in outdoor performance. All three segments, including ball and racket, are already implementing and executing measures to offset higher tariffs.

In addition to partnering with vendors, retailers also understand the landscape and price increases are being accepted and implemented in the second-half for those product categories most affected. One last perspective I want to share on tariffs. Even if the higher tariffs had remained in effect for the rest of the year, or if they do return, i.e., China at 145% and the rest of the world at the higher rates from before the 90-day pause, we were only anticipating a 5% impact from tariffs for the full year 2025 EPS after mitigation, or approximately 100 basis points annualized. Over time, we believe we will be able to mitigate the majority of even the higher tariff rates. For the full year of 2025, we are raising our expectations for reported group revenue growth from 13%-15% to 15%-17%.

We are now assuming a 150 basis point drag from unfavorable FX impact at current exchange rates compared to the 250 basis point drag incorporated in our prior guidance. We are raising our technical apparel revenue growth guidance from approximately 20% to 20%-22%. Outdoor performance from low-double-digits to now mid-teens, and ball and racket from low to mid-single-digits previously to mid-single-digits currently. We are keeping our adjusted gross margin expectations at 56.5%-57% for the full year. We are maintaining our adjusted operating margin guidance of 11.5%-12%. For the segments, we continue to expect an adjusted operating margin of approximately 21% for technical apparel, approximately 9.5% for outdoor performance, and 3%-4% for ball and racket. You should assume full-year net finance costs of approximately $120 million and an effective tax rate of 30%-32%.

Other operating income and non-controlling interest will be approximately $10 million each. We now expect adjusted diluted EPS of $0.67-$0.72 versus our prior guidance of $0.64-$0.69, which is based on approximately 560 million fully diluted shares. Also, we are assuming D&A of approximately $350 million, including approximately $180 million of ROU depreciation. CapEx is expected to be approximately $300 million, primarily to support new store expansion, ERP optimization, and distribution and logistics investments. Turning to the Q2, we expect reported revenue growth for the group in the range of 16%-18%. We expect adjusted gross margin to be approximately 57%-58% in Q2 and adjusted operating profit between 3%-4%. Our net finance costs for the quarter should fall between $25 million and $30 million, and the effective tax rate should be 30%-32%.

We expect adjusted diluted EPS of 0%-2% per share. As we've said in the past, should strong trends continue and higher-than-expected demand materialize, we will be well positioned to deliver financial performance ahead of these expectations. With that, I'll turn it back to the operator for questions.

Operator (participant)

Thank you. We will now begin the Q&A. If you'd like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. Your first question comes from a line of Matthew Boss from JPMorgan. Your line is open.

Matthew Boss (Equity Research Analyst)

Thanks, and congrats on another great quarter. James Zheng, on your broad-based strengths, as we think about the competitive advantages, could you walk through operating from a portfolio approach in this backdrop and just what that provides?

Could you elaborate on momentum at Salomon and white space you see to scale this brand? And Stuart Haselden on Arc'teryx, any change as we think about the omnicomp strength into the Q2 relative to high teens you saw in the Q1?

James Zheng (CEO)

Okay, thanks, Matthew Boss. Okay, first of all, I will say Amer Sports is really a unique portfolio company, sporting goods company on a very unique portfolio of brands in the market. We are different from other sporting goods companies. All the brands we own, they all got the distinguished proposition in the markets and with a very strong high technical product pipeline offered to the market to address the different level of the sports participants' needs. I think this kind of a unique proposition gives us a very strong competitive edge in the markets.

Also, especially on the premium segment in outdoor categories, we really see a strong demand in cross-border in the world, especially in Asia and China, and more and more consumers participating in outdoor activities. Our products, Arc'teryx and Salomon, really address the strong demand from the market. We feel very good on our overall proposition today in the markets. On the other side, really look at the Salomon in Q1 result, and we are also really happy to see our soft goods business growing from Salomon brands, and especially on our footwear. Okay, we created a new category we call the modern outdoor sneakers, which really address very special needs in the market. This kind of a unique position helps us to attract kind of a new group of outdoor lovers, I mean, especially for female, younger female consumers' groups.

We created RideBus and are very unique on our sneaker markets, and we receive tremendous positive feedback not only from Asia Pacific, but also in Europe and the U.S. at the starting base. The people are looking for the kind of attractive offers we do to the markets, and they really enjoy the products we offer to them. We call it real technical products with very nice designs to address the kind of the needs for our consumer for both on the sports activities and also the lifestyle environment. I think it's a quite unique position, and we see a very—we also see a very strong runway for that. Stuart Heselden, you also can come on some—

Stuart Haselden (CEO)

yeah, thanks, James. Yeah, Matt, the comp in the quarter was really solid. You know, plus 19% omnicomp, that's comparing against a 36% last year.

That is the highest comparison that we'll have in 2025. The comp comparison is moderate for the balance of the year. I would just add it was a traffic-driven comp. We had really strong, solid conversion, but the upside is really driven from traffic increases, which we think reflects the momentum of the brand and just the investments we've made in community and brand marketing and the expansion of our store fleet. The brand stores continue to perform well. We're seeing expansion and productivity across every region. We're really pleased with how our stores are performing, also pleased with the traction that we're seeing in e-commerce. Every signal from the market is positive. Yeah, and we're excited for what the balance of the year looks like.

The only thing I would say is in the Q1, there was a drag on the omnicomp as it relates to our outlet sales. Our outlet sales were lower in both China and North America as we had a stronger full-price business, and we chose to pull back on how much inventory we were pushing through our outlets. We view that as a very positive factor. It speaks to the high-quality full-price nature of our business that we want to continue to increase.

Matthew Boss (Equity Research Analyst)

It's a great color. Best of luck.

Operator (participant)

Your next question comes from the line of Brooke Roach from Goldman Sachs. Your line is open.

Brooke Roach (VP of Equity Research)

Good morning, and thank you for taking our question. It sounds like your confidence in broad-based growth for Salomon is growing.

Are there any technical reasons that are attributed to the outside growth in one queue, or do you believe that the momentum observed in the quarter is sustainable? As you look on a multi-year horizon, what margin profile do you think that this business can achieve? Thank you.

Andrew Page (CFO)

Hey, thanks, Brooke, It's Andrew Page. Yeah, I mean, we are on track and doing what we had always set ourselves up to do. I mean, to your question around do we believe it's sustainable, I mean, we've raised our guidance for the full year as it relates to Salomon outdoor performance. So we're pretty excited about it. We always understood that we had great product. We obviously had to operationalize our commercial go-to-market strategy, get our teams in place. You saw the brand really driving momentum in Asia Pacific and Greater China, and it's continuing with both of those regions up over 60%.

In Europe, you continue to see the brand picking up momentum there as well. It is outside of not only our performance, but as well as our sports style. We are doing more with our key strategic partners. We talked about this kind of in May of last year, signing up some key strategic partners that we are able to do more with. As you move regionally to North America, that continues to be our less mature market, but we definitely have the leadership team in place, and we are starting to penetrate key accounts that we would like to continue to see the brand continue to grow at. As we talked about, I mean, our DTC is a leading indicator for what we think that brand can do, and the conversion there and the attachment to the consumers is pretty strong.

We're excited about what we see for Salomon footwear.

Brooke Roach (VP of Equity Research)

Great.

Operator (participant)

Your next question comes from the line of Laurent Vasilescu from BNP Paribas. Your line is open.

Laurent Vasilescu (Managing Director)

Good morning. Thank you very much for taking my question. I'm going to be the third person to ask about Salomon. You've raised your outdoor performance category to grow mid-teens for FY 2025. With winter goods, I think, Andrew Page, I think you said you guided to grow low single-digits for this year. Is it fair to assume that it implies that soft goods can grow 20% this year? And longer-term, James Zheng, you called out that Salomon sneakers reached $1 billion in sales last year. You mentioned it's still tiny relative to the market. Can Salomon sneakers double over the next five years?

Andrew Page (CFO)

Yeah, great question. I appreciate it.

We're not necessarily given specific long-term growth targets, but what I will say is that we have a great product. You can see the margin profile of Salomon footwear, Salomon soft goods really starting to inflect. We talked about the fact that as soft goods within the outdoor performance grows, you're going to see margin accretion, which you saw strong margin accretion, gross margin in the Q1, and even operating margin. Operating margin up almost 1,000 basis points in outdoor performance, 2/3 of that was in gross margin, about 1/3 of that in SG&A, which continues to speak to the fact that as we overdeliver top line, you have a really strong effect coming down to the bottom line. The billion dollars that Salomon is, that's a billion dollars on a $180 billion sneaker market.

We believe that we have the product, we have the team, and that can disrupt and take meaningful share within this business, I mean, within this market. We are excited about it. Again, you will continue to—you saw the margin inflection as we grow that soft goods business, and we believe that that margin inflection reflects the longer-term profile that we will continue to benefit from.

Laurent Vasilescu (Managing Director)

Very helpful. Maybe just a follow-up question on housekeeping for the model. Andrew Page, you are maintaining your gross margin for the year, but underlying, I think you talked about 100 basis points on an annualized basis, the impact from tariffs. Maybe just unpacking a little bit, under the hood, what are the moving pieces versus 90 days ago? Is it like 50 basis points from tariffs and then 50 basis points just better performance in the overall business?

Andrew Page (CFO)

Yeah, thanks for the question.

Let me just kind of reiterate some of my prepared remarks on tariff. Our assumptions for 2025 guidance is that the 30% tariff on China and 10% rest of the world remain in place. The burden on our 2025 P&L is negligible. We have, after our mitigation initiatives, I thought it would be prudent to kind of contextualize had the higher tariff stayed in place or if things go backwards, i.e., China at 145%, rest of the world at 30% and 40%, that's where the 100 basis point annualized drag would come from. Over time, we believe that the levers that I talked about, whether it be pricing, re-resourcing, vendor management, that over time we could neutralize the 100 basis point drag. When you look at our gross margin for the remainder of the year, obviously we had a strong Q1.

There is a meaningful amount of uncertainty still left in the market, and we believe that the guidance for the rest of the year is prudent. It's responsible given the uncertainty that's out there. Like I said, I mean, we felt convicted and confident in our mitigation initiatives, and from a bottom-line perspective, the impact on tariffs based upon where tariffs stand today is negligible.

James Zheng (CEO)

Thanks, Laurent.

Your next question comes from the line of Alex Stratton from Morgan Stanley. Your line is open.

Hi, thanks for taking the question. This is [Chabert] now on for Alex. I'd like to touch on ball and racket. My first question is on store growth of 189% in the quarter. What portion of those store openings were in China, and how do you think about the sustainability of Wilson store openings beyond 2025 in the region?

Then my second question is on ball and racket profitability. You saw a nice improvement in margin in Q1. What pushes margin back to the mid-single-digit levels or beyond that you have seen in previous years? Thank you.

Andrew Page (CFO)

Yeah, the store growth related to ball and racket is primarily—mostly all of that is in Asia and Greater China. That is where you see the store growth. Remember, that is an environment that is very receptive to the monobrand retail format. It works very well. Our team is very astute at running that, and that is the store growth that you see. From a profitability perspective, I think what gets us back is continuing to scale our investment. We are investing in our Tennis 360 concept. We believe that we have the authority to play there, and we will continue to drive that business.

What's happening is once you see that reach scale, then you'll start to see the profitability in ball and racket return. Yeah, we're excited about the direction that we're going in.

Great.

Operator (participant)

Your next question comes from the line of Michael Binetti from Evercore. Your line is open.

Michael Binetti (Senior Managing Director and Fundamental Research Analyst)

Thanks for taking our question here. I'll add my congrats on a nice quarter. Maybe, Stuart Haselden, just another way to ask you about the omnicomp and 19% in technical apparel. I know it's slowed a little bit from last quarter, but you mentioned the big comparison from a year ago. You mentioned the outlet pullback.

I'm wondering if you could speak to whether there was any pull forward or change in the cadence of important product launches for the winter and maybe the progression of how you see that comp evolving through the year, including cadence of impactful launches for the brand for the rest of the year. I'm just curious on the comment that we're going to close some Arc'teryx partner stores in China to open larger format. Can you just talk about the strategy there from an ROI standpoint? Obviously, partner doors are probably capital light to run. Maybe just walk us through the opportunity or what the financial prize is for investors as you shift to larger format. Thanks.

Stuart Haselden (CEO)

Yeah, thanks, Michael Binetti. I think it's a good call out on the product and how it influences just revenue broadly, and that's obviously reflected in the omnicomp.

We're very confident in the outlook that we've shared for the year that Andrew Page described. We've made improvements in our in-stock positions across a number of categories. Footwear in particular, we've seen a stronger position as we entered the year. We learned a lot from last year. We were really excited to see strong footwear trends in the Q1. Footwear was at 41% on top of the launch of the three new models last Q1 with the success that we're seeing now and the Norvan LD4, which was up 163% to plan as part of the launch. That's easily our largest footwear model. Vertex Speed was also very successful in the Q1. That will continue to be an important part of the growth story, still leading our product category growth.

We'll have a couple of new models, launches later in the year, the Konseal approach shoe and the Nivalis trail shoe. The Kragg also continues to be a hot model as well. Much better position from a footwear standpoint. Where we've seen continued exciting demand, the Gamma franchise in particular, we really haven't found the edge of demand yet for the Gamma. It actually moved up. It's the second largest franchise behind the Beta now for us. It's exciting to see the momentum in the Gamma. It's a great product. It's versatile. It works in many different climates. We think this has a lot of room to continue to expand in importance in our overall assortment. As I said, we're fighting out of stocks in the Gamma. We see that as potential into the future.

Our women's business was up 38% in the Q1, second behind footwear. We're seeing great momentum there. You heard James Zheng mention the success that we saw in the women's pants. The Clarkia pant in particular was up more than double in the Q1. We're chasing demand there as well. Success in our women's strategy. Overall, we did see some out of stocks also in the Q1 in certain hard-shell jackets that we just did not buy enough into. Overall, I think our in-stocks are better this year than last year, but opportunities in the areas I just mentioned. Shifting to your other question around partner doors in China, that continues to be an opportunity for us to elevate the execution in China, to move to better locations that better represent the premium nature of the brand, expanding the square footage when we do that.

We see this as a theme of higher quality execution. And upside, as we convert those from essentially a wholesale to an owned location, you get multiple layers of benefit in terms of larger stores, more productive, better execution, and then just the accounting of going from wholesale to owned. That's a theme that we'll have for the next few years, actually, in China.

Michael Binetti (Senior Managing Director and Fundamental Research Analyst)

Okay. Really helpful. Thanks, Lester.

Stuart Haselden (CEO)

Thanks, Michael.

Operator (participant)

Your next question comes from a line of Jonathan Komp from Baird. Your line is open.

Jonathan Komp (Senior Research Analyst)

Yeah, good morning. Thank you. Andrew Page, I want to follow up on the full year outlook. When you look to the second-half and the implied performance, it looks like limited profit growth and a margin decline that's embedded.

I just want to ask how you're embedding after a pretty strong start to the year here versus a prudent approach to forecasting and some of the assumptions you made.

Andrew Page (CFO)

Yeah, thanks for the question. Jonathan Komp, Q1 was strong. As we look through how we're trending now, the trends continue to be strong. That being said, like I talked about, there's a meaningful amount of uncertainty out there. We believe that focusing on the things that we can control is really important. As you know, the macro uncertainties with not only the tariffs, but what could go on in the environment. We're focusing on the things that we can control. We believe that we put a guide out there that's really responsible, that puts more things in our control than the macro.

If the macro should turn sour or some things that we are not anticipating out there, we believe that we will be able to navigate multiple scenarios out there. Our guide infers a slowdown. Our guide infers a slowdown in the back half, and we believe that that is responsible given the amount of uncertainty that we cannot control.

Jonathan Komp (Senior Research Analyst)

Okay. Understood. Thank you. Just one follow-up on Salomon. The wholesale business there I know had been negative for some time and just recently turned positive. Just any further color on the visibility you see in wholesale given the accelerating overall momentum? Thank you.

James Zheng (CEO)

Yeah. Jonathan Komp, the Salomon wholesale business is mainly driven by our core region, which is Europe. Okay? It is the last region for our Salomon footwear business.

We saw great momentum also at the beginning of the year in terms of our sales through the various channels in Europe, which gave very strong confidence for our retail partners. The reorder also accelerated in the Q1. Our future order booking also sees a very positive movement for the second half of this year. It is very encouraging. That kind of trend, we believe, will carry on because based on our new product offers to the market for both sports style and sports performance products, it is really resonating with the market trends and also gives us a good level of confidence for our partners.

Andrew Page (CFO)

Yeah. Just to double down on that, if you think about sports style as an example, our XT-WHISPER sports style was always a strong franchise.

Our XT-WHISPER was the most successful sports style launch within that franchise. Similarly, our Aero Glide 3, a very, very successful launch in our performance category. Not only are the strategic relationships and the wholesale relationships getting stronger with the brand in Europe, but also the franchises are resonating extremely well with consumers and giving us momentum and confidence to go forward. Operator, since we went over on the tariff commentary, maybe time for a couple more questions? Thanks.

Operator (participant)

Certainly. Your next question comes from a line of Jay Sole from UBS. Your line is open.

Jay Sole (Managing Director)

Great. Thank you so much. Stuart Haselden, maybe can you elaborate a little bit on the opportunity in the women's business? James made some comments that that business was really growing nicely.

Can you just maybe talk about what you've learned in the last 90 days and what kind of potential you see long-term for the women's business in Arc'teryx?

Stuart Haselden (CEO)

Yeah. We really see this as a strong growth driver for our business. We're underpenetrated in women's. As we have focused on improving our color, our fit, and our choice for our female guests, we're really seeing traction. The color investment in the Q1 really paid off. We saw a much stronger color presentation and higher sell-throughs as a result. I mentioned the Clarkia pant, which has been a runaway hit for us with our women's assortment and excited to chase that. It really could be exponential growth for us as we crack into a part of the assortment that's really a new add for us. The Gamma was really successful in women's as well as men's.

That's sort of right in our wheelhouse in outerwear and something that we've been able to find a fit and a model design that really appeals to our female guests. Something I would add is you heard James Zheng mention our Mammoth Academy in California. This was a huge success. We saw 49% of the participants in that were women. Over 70% of the content that we generated coming out of that was aimed at our female guests. There is a lot of momentum not only from a product category standpoint, but also just as we're building community and engaging with our female guests. We see this as a huge potential to have a more balanced business. Ultimately, we see the potential to see our guests 50/50 between men's and women. It's something that we feel we have good momentum.

As I said, 38% growth in women's in the quarter, second only to footwear, and we expect that to continue.

Jay Sole (Managing Director)

Got it. Thank you so much.

Operator (participant)

That concludes our question and answer set. Oh, I'm sorry. We'll have our last question from the line of Paul Lejuez from Citi. Your line is open.

Paul Lejuez (Managing Director)

Hey, thanks, guys. Curious if you could talk about your AURs in the Salomon footwear business and just where within that assortment you're seeing the greatest strength and growth. Then, second, curious if you saw any air pockets over the last several months in any of the businesses just tied to all the tariff news. If so, which segments, which regions? Thanks.

James Zheng (CEO)

Paul Lejuez, you're coming through a little bit muffled. Can you repeat? The first question was about Salomon AUR. The second half of your question?

Paul Lejuez (Managing Director)

Yeah, yeah, Salomon AUR.

Just where within the assortment you're seeing the greatest strength and growth? You got me online? Strength and growth?

Andrew Page (CFO)

Yeah. Yeah. With regard to the greatest strength and growth, I mean, we believe that both our performance category and our sports style category are very strong. From a growth perspective, we continue to see sports style as the biggest growth driver. Performance is more mature, but sports style is the biggest growth driver. Now, what I will say is that even within the performance category, our Gravel franchise, which both has a running and a Gravel platform, were very, very, very successful launches. So we're super excited about sports style as a category. We're super excited about Gravel and running as a performance within our performance section. You talked about our average units at retail.

I mean, we have not given that information, but what I will say is that both our AOV and our ASPs are ticking up with both of these franchises and going in the right direction. Paul Lejuez, there was a second part to your question related to tariffs. Did I hear that right?

Paul Lejuez (Managing Director)

Yeah. Just curious if you saw any air pockets over the last several months in any of your businesses just tied to the whole tariff news.

Andrew Page (CFO)

No. No. As we said, we continue broad-based strengths across the portfolio that you saw in the recent quarters, and especially this most recent quarter continues so far. I do not know that we are going to be the leading indicator on the macro, but we have not seen any air pockets yet.

Paul Lejuez (Managing Director)

Thank you, guys. Good luck.

Operator (participant)

Thank you. That concludes our Q&A.

I will now turn the call back over to management for closing remarks.

Andrew Page (CFO)

Thanks, everyone, for joining. Look forward to reconnecting in 90 days for our Q2 results. Have a great week.

Operator (participant)

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