Amer Sports - Earnings Call - Q4 2024

Transcript

Operator (participant)

Thank you for standing by. At this time, I would like to welcome everyone to today's Amer Sports Fourth Quarter Full Year 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw your question, simply press star one again. Thank you. I'd now like to turn the call over to Omar Saad, SVP, Capital Markets and Investor Relations. Omar, please go ahead.

Omar Saad (SVP of Capital Markets and Investor Relations)

Hello everyone. Thanks for joining Amer Sports earnings call for the fourth quarter of fiscal year 2024. Earlier this morning, we announced our financial results for the quarter and year ended December 31st, 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 certain 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 statements 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 9:00AM 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 guidance for the first quarter and full year 2025. Arc'teryx CEO, Stuart Haselden, will join for the Q&A session. With that, I'll turn the call over to James.

James Zheng (Board Executive Director and CEO)

Thanks, Omar. Fourth quarter was a very strong finish to a remarkable year for Amer Sports, and we continue to enjoy strong momentum across all brands and geographies. Led by Arc'teryx, our unique portfolio of premium technical brands continues to create white space and take market share, and it still has significant room for growth. In the fourth quarter, Amer Sports delivered sales, adjusted margin, and EPS above expectations. We generated 23% sales growth and more than 300 basis points of adjusted operating margin expansion, led by strong growth and profitability in both the technical apparel and outdoor performance segments. For the year, we generated 18% revenue growth to $5.2 billion and 130 basis points of adjusted operating margin expansion to 11.1%, both new records for the company. In Q4, all three of our big brands, Arc'teryx, Salomon, and Wilson, saw accelerating momentum.

Regionally, Greater China and APAC continue to deliver strong growth, while both EMEA and North America accelerate. Looking forward, we believe Amer Sports is a very uniquely positioned company within the global sports and outdoor space, and several factors give me confidence for 2025 and beyond. First, we own and operate a unique portfolio of premium outdoor and sports brands. Each one is fueled by 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 model and a unique competitive position. The brand is still very under-penetrated globally, with tremendous long-term growth paths ahead.

Third, we believe that Salomon sneakers have a unique performance position and design within the global sneaker market, but still very low market share and growth potential ahead, especially at this time when consumers are open to trying new sneaker brands. Fourth, Wilson and our winter sports equipment brands have authentic heritage, premium positions, high-performance products, and leading market positions. These high market share franchises will deliver lower long-term growth in their core equipment business, but they still have large soft goods potential, especially the Wilson's 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 strong momentum across all three brands. Before I turn over to Andrew, allow me to briefly recap key highlights from our three segments, starting with technical apparel, which is led by our fastest-growing and largest brand, Arc'teryx.

Arc'teryx achieved over $2 billion of sales in 2024 and delivered another great result in Q4 with strong growth across all regions, channels, and categories, especially footwear and women, which grow faster than the brand overall. We were encouraged to see the brand momentum in technical apparel, which generated a strong 29% omni-comp in Q4. Our differentiated stores continue to be at the heart of Arc'teryx's growth strategy and are critical to how we engage with consumers and the community. Arc'teryx opened the net eight new retail stores in Q4, bringing the total net new store opening in 2024 to 33. Key new locations include six openings in China, an Alpha store in Japan, and a new store in Salt Lake City. Arc'teryx's store expansion strategy includes a mix of different formats, ranging from multi-layer large-scale Alpha flagship stores to small-format mountain town stores.

For 2025, we plan to keep a similar opening pace with 25 - 30 net new stores. This includes a similar level of gross brand store openings as 2024 and closing certain outlets and other suboptimal locations. In Q4, we opened a four-level Alpha store in Shinjuku, Tokyo, which is located in the heart of the city with an estimated 3.5 million people walking by daily. The store features the full range of Arc'teryx and Veilance, and our first-ever Beta launch in the country, offering unique concierge service, and the top level has a ReBIRD Service Center, our platform for repair, trade-in, and upcycle gear. In New York City, our Soho Alpha store continues to exceed expectations since its opening in September. Notably, guests are responding very well to the largest Arc'teryx outerwear offering in the city, as well as the store's unique ReBIRD Service Center.

ReBIRD continues to be an important strategy for Arc'teryx, driving strong guest engagement and elevating their in-store experience. Globally, in 2024, we opened 11 new ReBIRD Service Centers. In January, we opened our first European mountain town shop in Chamonix, France, and we are very excited by initial results there. Chamonix is one of the largest mountain resorts in the Alps and attracts a range of visitors from all over the world, from mountain enthusiasts to hardcore mountain athletes. This store comes after 13 years of engaging with European mountain athletes at our Alpine Academy in Chamonix every summer, which allowed the brand to build significant recognition and appreciation with local and global consumers. Shifting to product, footwear continues to be Arc'teryx's fastest-growing category in Q4, as consumers continue to respond strongly to what we believe is the best line of technical performance footwear designed for mountains.

Beyond the breakout success of the brand, we are excited that our Sylan running shoe won Best Trail Shoe awards from Runner's World UK and Women's Running. Looking forward, we believe Arc'teryx has an even more exciting pipeline for shoe launch in 2025. We believe that footwear will become a sizable and profitable growth avenue for Arc'teryx, both in own retail and certain brand-relevant wholesale accounts. Women's also continued to perform extremely well in Q4 with double-digit growth across all regions, outpacing men's and brand growth in total. Softer tones, feminine, and neutral colors were popular with female consumers. Ski and snow products were especially strong with women, as we are seeing significantly improving brand awareness and affinity with women in both the U.S. and Europe.

Innovation is at the heart of Arc'teryx's DNA, and it ranges from cutting-edge products such as our new LiTRIC avalanche airbag and award-winning MO/GO hiking pants to small evolutions of existing product lines, such as our insulated version of the Kragg, which was a hit this winter season. This year, we also further strengthened the leadership team at Arc'teryx. We announced Matt Bowe as our new Chief Merchandising Officer, an industry veteran with nearly two decades at Nike. We are also building an all-star team to develop our Veilance brand, which today accounts for 5% of Arc'teryx's revenues, but we think has significant room for growth. This includes our new Veilance GM, Marissa Pardini from Vans and Veilance Creative Director, Ben Stubbington, who joins from Lululemon and Theory previously.

We believe the addition of Marissa and Ben to our Veilance team marks a pivotal moment in our journey to broaden the reach of our unique Veilance offering. Lastly, in technical apparel, we recently announced that Stefano Saccone will join April 1 as president of the Peak Performance brand. Stefano has worked at a variety of global sports, fashion, and outdoor brands, including most recently as CEO of the Woolrich brand. Moving to the outdoor performance segment, which delivers a great quarter led by Salomon footwear and apparel, partially offset by softer trends in winter sports equipment. Salomon footwear and apparel now represent two-thirds of the outdoor performance segment, up significantly from 54% in 2022. Salomon sneakers surpassed $1 billion of sales in 2024, but it is 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 the mountain, 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 double-digit annually. In Q4, Salomon footwear and apparel accelerated in every region led by Greater China, APAC, and EMEA. Direct-to-consumer remained the strongest growth channel for the brand, and the Sportstyle offering continued to lead footwear growth. Salomon apparel, bags, and socks are also experiencing great momentum. Regionally, Salomon soft goods are experiencing great sales throughout Europe, and we have noticed two new important trends in Europe worth calling out. Number one, Salomon performance sneakers are experiencing a demand recovery in Europe.

And number two, Salomon pre-orders have shifted to solid positive growth after negative trends during the last couple of years when retailers were relying on at-once orders to chase demand. We are increasingly seeing Salomon sneakers sell through very well at retail, which is translating to stronger order books. We also opened two new Salomon stores in the quarter in European epicenters, London and Milano. In Asia, direct-to-consumer continues to be the critical growth channel for Salomon. Our Salomon compact shop format developed in China is working very well, and we believe these stores generate significant higher sales per sq ft versus industry average. We are continuing to expand Salomon shops in Greater China, opening 31 net new Salomon shops in Q4, including both-owned stores and partner stores, bringing our total count to 196 in Greater China.

We believe Salomon has the opportunity to grow to several hundred locations over time in just Tier 1 and 2 cities. In 2025, we expect to open about 100 new Salomon shops in Greater China, including partner stores. Our new Salomon flagship in Shanghai is performing very well in the first few months. This store represents a pinnacle expression of the brand in China, which combines footwear and apparel in a comprehensive offering and a highly immersive brand experience. In the U.S., the world's largest sneaker market, we continue to lay the groundwork for Salomon footwear long-term opportunity. Our first U.S. store, a pop-up shop in New York City, continues to perform very well. We are seeing strong early brand buys with key sneaker retailers across New York City, and we expect to open at least one more Salomon shop in New York this year.

The wholesale channel will be important to unlock Salomon potential in the U.S., and we are beginning to successfully leverage Salomon brand heat to expand our presence with top-tier existing customers such as Nordstrom and Kith, as well as new retailers including Shoe Palace and Scheels. In winter sports equipment, we continue to win with both leading skis and the world-class pros. Atomic had great momentum at the World Championships in Austria this month. Atomic athletes Mikaela Shiffrin and Breezy Johnson won gold on our iconic Redster skis. Moving on to Ball & Racquet highlights, we are pleased that Ball & Racquet brands continue to improve in Q4, with growth accelerating to 22% driven by strong trends in racquet sports and also lapping inventory clearance at the end of last year.

Our Tennis 360 continues to resonate very strongly with consumers, from performance rackets to our apparel and footwear offering. In 2024, Wilson returned to the number one U.S. market share in performance rackets, led by the recent Blade and the Roger Federer racket launches. And in January, we launched Clash v3, which is also off to a strong start. Also, Wilson soft goods continues its excellent growth, doubling in 2024. Apparel and footwear now represent 10% of Ball & Racquet segment sales. As I mentioned, we are seeing strong reception to our Wilson tennis apparel and footwear offering, especially in the U.S. and China. In Q4, we opened the next six new Wilson brand shops in China, bringing the total owned and partner store count in the region to 43. In 2025, we plan to open approximately 50 Wilson Tennis 360 shops in China, between owned and partner stores.

In North America, we opened a Tennis 360 concept store in the Dallas NorthPark Center in Q4, which has been performing very well, and we also will begin testing tennis apparel in approximately 56 sporting goods locations this year, including a Tennis 360 shop in Scheels in Miami. With that, I will turn it over to Andrew.

Andrew Page (CFO)

Thanks, James. With over 20% revenue growth, healthy margin expansion, strong free cash flow generation, and the continued transformation of our capital structure, the fourth quarter of 2024 marked a financial turning point in Amer Sports' journey.

Although expected FX headwinds will weigh slightly on our 2025 reported financial results, continued strong momentum from our highest margin technical apparel segment and accelerating momentum in outdoor performance soft goods, plus strong and stable positions from our market-leading hard goods franchises, gives me confidence that Amer Sports is well-positioned to deliver another year of strong and profitable growth in 2025. Let's first take a moment to reflect on the key highlights of 2024. Amer Sports delivered 18% growth in 2024, with broad-based strength across brand segments, regions, channels, and categories. Arc'teryx and Salomon footwear continued their very strong trajectories, and Wilson returned to positive growth. We delivered meaningful adjusted operating margin expansion from 9.8% last year to 11.1% in 2024, driven by the mix shift towards technical apparel. We also significantly reduced our leverage, effective tax rate, and annual interest expense.

Now turning to our Q4 results, Amer Sports grew sales 23% in Q4 on a reported basis and 24% in constant currency. The strong group sales performance was led by Technical Apparel, while Outdoor Performance and Ball & Racquet also delivered very solid growth in the quarter. By channel, the group continues to be led by D2C, which grew 46% led by Arc'teryx and Salomon footwear. We saw solid wholesale growth of 6% year over year, led by improving trends at Wilson. Regional growth was led by Greater China, which increased 54%, followed by Asia-Pacific, which grew 52%. The Americas accelerated to 15% growth, and EMEA grew 8% in Q4. We are pleased to again achieve over 50% growth in Greater China for both Q4 and the full year. There are several key reasons why we are confident in our future growth in this important consumer market.

Number one, our brands compete in one of the healthiest and fastest-growing consumer segments in China, the premium sports and outdoor market. The outdoor trend in China continues to be very strong, attracting younger consumers, female consumers, and even luxury shoppers. Additionally, the China consumer landscape today has evolved into a market of winners and losers, with some brands doing extremely well, including ours. Our still small specialized brands are known for their expertise, high quality, and technical innovation, which resonates with Chinese shoppers. Thirdly, and most important, we believe 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 370 basis points to 56.4% in Q4, primarily driven by positive segment, product, regional, and channel mix shift combined with lower discounting actions.

Going forward, we expect our highest gross margin franchise, Arc'teryx, to continue to be the biggest underlying driver of our ongoing gross margin expansion. Adjusted SG&A expenses as a percentage of revenues deleveraged by 20 basis points and represented 43.3% of revenues in Q4. Technical Apparel and Outdoor Performance SG&A deleveraged was driven by investments to support growth and was partially offset by Ball & Racquet and headquarters expense leverage. Driven by the strong gross margin expansion, we generated a 330 basis point increase in our adjusted operating margin from 10.3% last year to 13.6% in Q4. Adjusted corporate expenses were $12 million, down from $17 million in Q4 of last year. D&A was $77 million, which includes $37 million of ROU depreciation.

Adjusted net finance cost in the quarter was $64 million and included $24 million of FX losses on intercompany balances as a result of the significant appreciation of the U.S. dollar in Q4. Going forward, we will enhance our hedge program to include these intercompany transactions. In the quarter, our adjusted income tax expense was $67 million, which equates to an adjusted effective tax rate of 42%. Adjusted net income was $90 million in Q4, compared to an adjusted net loss of $31 million in the prior year period. Adjusted diluted earnings per share was $0.17, compared to adjusted diluted loss per share of $0.08 last year. Turning to segment results, Technical Apparel revenues increased 33% to $745 million, led by Arc'teryx.

Growth was fueled by 44% to D2C expansion, including a 29% omni-comp, a great result comparing against a 33% omni-comp in the fourth quarter of last year. Arc'teryx D2C momentum continues to be fueled by both new and existing consumers across all regions, channels, and product categories. Technical Apparel wholesale revenues were roughly flat, driven by timing of shipments compared to the prior year. We continue to have strong demand for Arc'teryx from the wholesale channel. Regionally, Technical Apparel growth was led by Greater China, followed by Asia-Pacific, the Americas, and EMEA. All regions grew strong double digits, fueled by Arc'teryx's retail expansion. Technical Apparel adjusted operating margin expanded 130 basis points to 24.3%, driven by higher gross margins from favorable product, channel, and regional mix, and supported by savings and freight costs.

This was partially offset by SG&A deleveraged, driven by investments in technology, marketing, and operations to support continued D2C expansion, including new store openings. Moving to our outdoor performance segment, which saw revenues increase 13% to $594 million, mainly driven by very strong performance in Salomon footwear, apparel, bags, and socks. The D2C channel grew strong double digits, driven by door openings, especially in Asia-Pacific, Greater China, and EMEA, as well as e-commerce developments in all regions. This was partially offset by a decline in winter sports equipment due to soft reorders in Europe, resulting from poor snow conditions, and also a material FX drag due to its large euro exposure. By channel, outdoor performance D2C grew 58%, led by Greater China and APAC, and wholesale improved to plus 1% from a slight decline last quarter.

The wholesale results are impacted by continued soft wholesale market conditions in EMEA and North America for winter sports equipment. 2024 was challenging for the winter sports equipment market overall 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. However, given our great brands and products and scale advantages, we believe we are taking market share, especially in Atomic. Our assumption is that the winter sports equipment market will be relatively flat in 2025. Longer term, while the winter sports equipment business will be a slower growth business for us, the industry remains healthy, and we expect this business to grow low single digits annually. As a reminder, winter sports equipment now represents one-third of the Outdoor Performance segment.

Outdoor Performance adjusted operating profit margin expanded 190 basis points from last year's record performance to 11.1% this year, driven by solid gross margin expansion, given the higher mix of footwear, which carry a higher gross margin than winter sports equipment. Its gross margin expansion was partially offset by SG&A deleveraged to support growth investments. Moving to Ball & Racquet, revenue increased 22% to $296 million, driven by racket sports and soft goods. The strong growth was also helped by easier comparisons from last year, when Wilson went through a heavy liquidation period to normalize inventory levels. We are very pleased with the strong rebound, but would caution that +20% is not a sustainable growth rate, and we continue to expect Ball & Racquet to grow low to mid single digits long term.

By category, the strong double-digit growth was led by our marquee racket sports franchise, as well as our small but fast-growing soft goods segment, which now represents 10% of Ball & Racquet sales. We are seeing very strong momentum in Tennis 360, especially in North America, Greater China, and APAC. We also saw strong growth in EvoShield apparel, padel, and pickleball. Inflatable balls and baseball also grew in the quarter, while golf declined slightly. Ball & Racquet segment adjusted operating profit margin increased 660 basis points compared to the fourth quarter of 2023 to negative 3.7%, primarily driven by higher full-price sales, given inventory clearance in the second half of last year when the channel inventories were elevated. SG&A leveraged, thanks to tight cost controls on higher revenue.

Turning to the balance sheet, funded by our recent $1 billion equity raise and strong cash conversion in Q4, we paid down our entire $1.2 billion of term loans before year-end and ended the quarter with $600 million of net debt, down from $2 billion at the end of Q3. Using our 2024 adjusted operating profit, our net debt-to-Adjusted EBITDA ratio was approximately 0.7 times at the end of Q4. Looking forward, paying down non-deductible interest debt remains a high-return usage of excess cash. Also, our focus on inventory discipline is paying off. Inventories rose 11% in 2024, well below our 18% sales growth. Driven by strong profit growth and disciplined working capital management, we generated $425 million of operating cash flow in 2024, which translated to approximately $150 million of free cash flow for the year.

I would also like to provide an update on our sourcing exposure in light of the contemplated new tariffs on imports from China, Canada, Mexico, and Vietnam. In 2024, sourcing to the U.S. from China, Vietnam, Canada, and Mexico combined represented approximately 20% of global sourcing. China and Vietnam make up the majority of this exposure, while sourcing from Canada and Mexico to the U.S. accounts for less than 1% of the total. Similar to when we experienced a rise in China tariffs in 2018 and 2019, our Ball & Racquet segment will be most impacted. However, given our various mitigation levers, including price increases, supply chain flexibility, and partnership with vendors to share the impact, we believe we are well-equipped to weather a variety of tariff scenarios. Now, turning to guidance, we are off to a strong start in 2025 and are confident in our financial outlook for 2025.

As we have 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 of 2025, we expect reported group revenue growth between 13% and 15%, which assumes a 250 basis points drag from unfavorable FX impact at current exchange rates. This incorporates approximately 20% growth in technical apparel, low double-digit revenue growth in outdoor performance, and low to mid single digit growth in Ball & Racquet. We expect adjusted gross margin of 56.5% - 57% for the full year, driven primarily by mix shift benefits. We expect adjusted operating profit margin of approximately 11.5% - 12%. Given macro uncertainties, including FX and tariffs, our current margin expectations are more focused toward the low end of this margin range, at least until we have a quarter or two under our belts.

For the segments, we expect an adjusted operating margin of approximately 21% for Technical Apparel, approximately 9.5% for Outdoor Performance, and 3%-4% for Ball & Racquet. You should assume full-year net finance costs of approximately $120 million and an effective tax rate of approximately 33%. We expect adjusted diluted EPS of $0.64-$0.69 per share, which is based on approximately 560 million fully diluted shares. Also, we are assuming D&A of $350 million, including approximately $180 million of ROU depreciation. To support our new store expansion, ERP implementation, and distribution and logistics investments, CapEx is expected to be approximately $300 million in line with 2024. Turning to the first quarter guidance, we expect reported revenue growth for the group in the range of 14%-16%, which assumes a 300 basis points drag from unfavorable FX impact at current exchange rates.

We expect adjusted gross margin to range between 56.5% and 57% in Q1 of 2025, and an adjusted operating profit margin of 11%-11.5%. Our net finance cost for the quarter will be approximately $30 million, and an effective tax rate will be approximately 33%. We expect adjusted diluted earnings per share of 14-15 cents per share. With that, I'll turn it back to the operator for Q&A.

Operator (participant)

Thank you so much. And at this time, I would like to remind everyone, in order to ask a question, press star and the number one on your telephone keypad. Once again, star one. In the interest of time, we ask that you please limit your questions to one primary question and one follow-up. And with that, we will pause just a moment to compile the Q&A roster.

It looks like our first question today comes from the line of Lorraine Hutchinson with Bank of America. Lorraine, please go ahead.

Lorraine Hutchinson (Managing Director and Senior Retail Analyst)

Thank you. Good morning. Can you update us on the longer-term store targets for Arc'teryx? You've had a lot of success opening new stores, and it sounds like that will continue this year. But as you think about each of your geographies, are there any updated thoughts on how many stores you could have in each?

Stuart Haselden (CEO)

Yeah, hey, Lorraine, it's Stuart. You know, we were pleased with our new store performance in 2024. It was consistent with the strategy that we had laid out as part of the IPO process last year. And as you heard in the prepared remarks, we intend to continue to open, you know, generally the same amount of stores each year as we look forward.

We had 33 net new stores in 2024, so I think we got it 25-30 for 2024, or I'm sorry, for 2025. The overall view on what's possible by each region is pretty much the same. You know, we were calling for the potential of around 200 stores in North America, 75-100 in Europe, 75-100 in APAC outside of China. And I think we're looking at around 150-200 in China, mainland China now. So a little more bullish on mainland China. And yeah, I think that's how we're viewing it today. I think some of those estimates are likely conservative, and we'll continue to reevaluate them as we see success in each of those geographies.

Lorraine Hutchinson (Managing Director and Senior Retail Analyst)

Thank you.

Operator (participant)

Okay, thanks, Lorraine. And our next question comes from the line of Matthew Boss with JPMorgan. Matthew, please go ahead.

Matthew Boss (Managing Director and Senior Equity Analyst)

Thanks, and congrats on another nice quarter. So, Stuart, could you elaborate on drivers of the comp acceleration, the nearly 30% at Arc'teryx in the fourth quarter? Any change in demand trends post-holiday for the brand? And can you speak to the progression of inventory and in-stocks to further support demand into 2025? Just where you stand today and the progression as the year moves on. Thanks.

Stuart Haselden (CEO)

Yeah, thanks, Matt. So the comp drivers, you know, we saw broad-based strength across all of our comp KPIs. The biggest factor was traffic, and that's true in store as well as online. That was the biggest driver of the comp, you know, big increases in traffic across all regions and channels. We did see very healthy conversions. So typically, when you see big traffic increases, it can pressure conversion. We saw modest increases in conversion, again, in store and online.

You know, we had an e-commerce result in Cyber 5 that set a new record for the company, and we saw increases in AOV and average selling prices. So the KPIs are generally green across the board. So, and in terms of demand post-holiday, what I would say is we've seen a very strong continuation of momentum out of the fourth quarter into the first quarter. We've seen, you know, the success that we posted in the fourth quarter continuing into Q1. I mean, obviously, we're an outerwear company. You know, the balance, you know, of our business is weighted to outerwear. And so this is the sort of the time of the year when we're, you know, we really see our most significant sales opportunity. So we've been pleased with the momentum we've seen into Q1.

So, and then from an inventory standpoint, we ended the year, you know, really clean with inventory growth well below our revenue growth. As I've said on previous calls, we certainly left some revenue on the table in 2024. We put a lot of focus on how we planned our inventories into 2025, particularly in footwear, where we had some really, you know, painful out-of-stock positions through much of 2024. So, you know, we think we'll be in a much better position for footwear into 2025. And we've got exciting new models that we'll introduce. And so the story continues in terms of how we're developing our footwear strategy.

Matthew Boss (Managing Director and Senior Equity Analyst)

Great. Best of luck.

Stuart Haselden (CEO)

Thanks, Matthew.

Operator (participant)

And our next question comes from the line of Brooke Roach with Goldman Sachs. Brooke, please go ahead.

Brooke Roach (Managing Director and Equity Research Analyst)

Good morning, and thank you for taking our question.

As you look to sustain the strong revenue growth momentum that you have across each of your brands, can you elaborate on the investments that you're looking to make in SG&A throughout the year? Where should we be focused on the investments that you are making, and how should we be thinking about the cadence and payoff of those investments longer term? Thank you.

Andrew Page (CFO)

Hi, thanks. This is Andrew. As you saw last year, you know, we continued to make investments in SG&A, and when you think about, you know, just really the combination of our investments, we're focused on new store build-out. We're focused on increasing the growth and the connection to our consumers, both online and through new store build-out. And then, yeah, there's some infrastructure things that we're focused on as well as far as our ERP system and our logistics and supply chain.

As you think about 2025, the investments that we've made in 2023 and 2024, we believe that those will start to scale. And so we're calling SG&A in 2025 to be relatively flattish.

Brooke Roach (Managing Director and Equity Research Analyst)

Thanks so much.

Andrew Page (CFO)

Thanks, Brooke.

Operator (participant)

And our next question comes from the line of Paul Lejuez with Citi. Paul, please go ahead.

Paul Lejuez (Managing Director and Head of Consumer Discretionary Research)

Hey, thanks, guys. Hey, Stuart, I'm curious how you're thinking about growth in F2025 and the footwear and women's side of the business. And if you could remind us where you are as a % of sales in those two segments within Arc'teryx. And then any changes or updates to the distribution strategy for Arc'teryx on the footwear side? Thanks.

Stuart Haselden (CEO)

Yeah, thanks, Paul. Yeah, the footwear strategy remains a big focus for us, you know, as we've talked about over the last year. We saw, you know, exciting growth over the course of 2024.

You know, it could have probably delivered higher sales, particularly for our Kragg model, you know, had we had better in-stocks. The business, you know, grew over 60% in footwear over the course of the year. We saw for much of the year, the penetration had reached nearly 10%. We finished the year a little bit under 10% overall and see the potential for the business to be over 20% in footwear over the next several years. Our women's business, you know, likewise, as we mentioned on the call, grew faster than our overall business, definitely faster than our men's business. We saw the sales there, you know, approaching, you know, almost 40% in the fourth quarter. The overall penetration grew a couple hundred basis points in the fourth quarter and for the full year.

And that was reaching sort of the mid-20s, sort of 25% overall for women's as a percent of total sales. So continue to see the opportunity for our women's business versus our men's business to achieve a 50-50 mix, if you will, of apparel. If we look at just apparel, we think we have the potential for that business to come quite balanced by gender. The other questions that you had in terms of the distribution strategy for footwear, yeah, I mentioned this, I think, previously. We see wholesale as uniquely important for our footwear strategy. It's how consumers like to shop for footwear in terms of being able to see a range of brands across a broader assortment than just an individual brand. So we think that expanding that distribution, particularly in the U.S., is going to be critical for the overall success.

So we're investing in the team and the resources and the capabilities that will enable us to compete more effectively. And at the same time, we're going to create, I think, an exciting experience within our own channels for our footwear. So, and I think it'll overall complement not only the footwear success, but just the overall brand awareness. This will be a driver of engagement with consumers beyond just outerwear. It'll make us more relevant in the spring-summer months. It'll create a new anchor for our business to be relevant in the warmer part of the year as we support our hike and our climb apparel assortments. So it all fits together in an important way.

Paul Lejuez (Managing Director and Head of Consumer Discretionary Research)

What's happening to door count on the footwear side this year?

Stuart Haselden (CEO)

You know, it's so early for us in this.

You know, we've had, we've seen a lot of appetite with, you know, our existing wholesale partners, REI in particular, is one I'd call out. We're seeing increases in the amount of doors that are offering Arc'teryx footwear. But it's still relatively small in the grand scheme of things. And we're excited as we're talking to not only outdoor, you know, outdoor retailers, but also specialty footwear retailers. So more to follow on that, Paul, as we develop those plans into 2025, we'll be talking more about it.

Operator (participant)

Great. Thanks, Paul. And our next question comes from the line of Laurent Vasilescu with BNP Paribas. Laurent, please go ahead.

Laurent Vasilescu (Managing Director and Senior Equity Analyst)

Good morning. Thanks very much for taking my question. James, Andrew, I wanted to ask about regional performance. Americas and APAC both grew mid-single digits in 2024.

It seems like there's real momentum in these two key markets in the prepared remarks across the three brands. Should we assume a similar mid-single digit growth rate for 2025? I know you don't guide specifically by region, but any color there, or should we kind of assume that it could be a little bit higher growth for 2025?Thank you.

Andrew Page (CFO)

Yeah, we continue to expect in 2025 all of our regions to continue to grow well and continue to see positive growth across each of the regions. Obviously, you saw the almost 50% growth in APAC and Greater China and obviously the mid-singles in EMEA and North America, and we don't see any real pullback in any of those metrics going forward.

Laurent Vasilescu (Managing Director and Senior Equity Analyst)

Okay, thank you. Sorry, go ahead. [crosstalk]

Andrew Page (CFO)

There was meaningful recovery in North America as it related to Wilson, given the inventory pipeline was pretty full in 2023, exiting 2023. And so back half of 2024, you saw that recovery. And so a lot of that, you know, inflection was, you know, notably from our strong business in North America with Wilson.

James Zheng (Board Executive Director and CEO)

And for EMEA, I just want to add one more point. For EMEA, we have a very solid plan to speed up our overall store footprint focus on footwear business penetration in EMEA markets. You can tell from Q4, we already see a big improvement in EMEA in terms of the overall sales revenue growth from Salomon Soft Goods, especially from footwear. So the trend is to carry on. So for EMEA, I do believe the overall growth pattern will also be strengthened in 2025.

Laurent Vasilescu (Managing Director and Senior Equity Analyst)

Very helpful, James and Andrew.

Then following the December primary offering, are there further opportunities, Andrew, to reduce your finance costs and tax rate over the next 12-18 months? Where do you want leverage ultimately to go? And where do you think the tax rate can go over the next couple of years? Thank you.

Andrew Page (CFO)

Yeah, good question. You know, as I've continued to say, you know, even though we had meaningful paydown in our debt and really strengthened our balance sheet, you know, paying off the remainder Senior Secured Note with excess cash is still a very high and accretive use of cash given the fact that that debt doesn't carry a tax shield. So we will continue to think about ways and prioritize that, you know, that focus. With regard to the second question was around the tax rate, we are continuing to drive that.

As you can see, you know, the rate is down into the low 30s% now. And we see that we will continue to drive that toward our statutory rate closer to 27%.

Operator (participant)

All right. Thank you, Laurent. And our next question comes from the line of Michael Binetti with Evercore. Michael, please go ahead.

Michael Binetti (Senior Managing Director and Research Analyst)

Hey, guys, congrats on a great quarter. Let me just ask for first quarter. Could you just help us think through the revenue assumptions by segment and any one-time dynamics to think about in the first quarter that we should have in our model? And I'm also curious if you could break down a little bit how you're looking at outdoor this year. You said low double-digit% growth, but I think you said you expect the winter equipment category to be flat this year.

So, maybe just a little bit of help understanding how you're planning that for the year.

Omar Saad (SVP of Capital Markets and Investor Relations)

Hey, Michael, it's Omar. So, we're only guiding segments on an annual basis, you know, kind of leave the modeling in your hands as you think about the different growth factors. But no major callouts either to, you know, across segments that would, you know, that you should really think about when you're modeling the segments across the quarters. Okay. I mean, we'll, you know, we'll just continue to remind that second quarter from a cadence perspective. We believe that 2025 is going to be a little more balanced as you compare it to 2024, where you saw accelerating growth each quarter. And remember, the second quarter is our smallest quarter, both from a top-line revenue as well as a profitability perspective.

Michael Binetti (Senior Managing Director and Research Analyst)

Okay. Let me try a couple of different questions.

What, I guess, since you, Andrew, you mentioned the sourcing partners, what is the biggest sourcing region into the U.S.? Just so we understand as this tariff situation continues to evolve, it sounds like the countries you listed are pretty small overall. And then when you said you currently expect the EBIT margin at the low end of the guidance, was that due to something in the gross margin outlook, or should I more think about that as, you know, there's some sticky SG&A and we're conservatively thinking about revenues at the low end? Just some help in how you're thinking about that.

Omar Saad (SVP of Capital Markets and Investor Relations)

Yeah, Michael, I'll answer the second question first. When we talked about focusing toward the low end early on, it's just macro uncertainties. I mean, we believe that we'll continue to expand EBIT in line with our algo.

But, you know, as we get out of the first and second quarter, you continue to look at some of the uncertainties around the macro. We just don't want to get ahead of our Atomic skis too quickly. On the second point, when we talk about our biggest sourcing regions, they are, as I talked about in my prepared remarks, you know, I talked about 20% coming from those regions of Mexico, Canada, Vietnam, and China. Obviously, Vietnam and China, with China being slightly bigger, you know, makes up the lion's share of that. Michael, did I hit on all your? Okay.

Michael Binetti (Senior Managing Director and Research Analyst)

Yeah.

Omar Saad (SVP of Capital Markets and Investor Relations)

Okay.

Michael Binetti (Senior Managing Director and Research Analyst)

Yep.

Operator (participant)

And our next question looks like it comes from the line of John Kernan with TD Cowen. John, please go ahead.

John Kernan (Managing Director and Research Analyst)

Hey, good morning, everybody. Congrats on a great year.

Andrew Page (CFO)

Thanks, John. [crosstalk]

John Kernan (Managing Director and Research Analyst)

Andrew, can you unpack the gross margin expansion a bit more?

Obviously, channel mix has played a huge factor. Gross margin was up over 450 basis points in the back half of the year. You're guiding it up, you know, at the high end to 57%. How should we think about the drivers of the gross margin expansion? One, in the back half of 2024 that drove that upside. And then two, how to think about the drivers of the gross margin to that 57% range in fiscal 2025?

Andrew Page (CFO)

Okay. So from a gross margin perspective, consistently, Arc'teryx, our highest margin business, is our fastest growing business, continues to be the overwhelming driver of the gross margin expansion. What you would have seen in the back half of 2024 was the lapping of what was coming out of 2023 in the sense that we participated meaningfully in a promotional environment, and especially in our Ball & Racquet segment last year.

You saw some expansion of just lapping that comp year over year. The lion's share on a steady state basis continues to be Arc'teryx. To a lesser extent, you know, you start to see some mix shift expansion within the segment. As footwear becomes a larger portion of Outdoor Performance, it carries a higher margin than the rest of the segment. As the soft goods, so the Tennis 360 franchise that we have in Ball & Racquet, as that continues to grow, that's now 10% of the Ball & Racquet segment, you'll start to see margin expansion there. Again, I close out with Arc'teryx margin profile and the rate of its growth and the proportion that it has into the total portfolio is the largest driver of the margin expansion.

James Zheng (Board Executive Director and CEO)

Yeah. John, I'll just tack on to that.

You saw healthy expansion in Arc'teryx, and that was driven by lower transportation costs, lower markdowns, and higher product margins, sort of first costs. So a pretty strong view across the board for gross margin.

John Kernan (Managing Director and Research Analyst)

Excellent. Thank you.

Operator (participant)

All right. Thank you, John. And that appears to be all the questions we have. So I will now turn the call back over to management for closing comments.

Omar Saad (SVP of Capital Markets and Investor Relations)

Thanks, everyone, for joining. See you for our 1Q call in about three months.