Capital Allocation Priorities
Q: How will you allocate capital and use free cash flow?
A: Andrew explained that they are focusing on growing the business by opening about 30 new Arc’teryx stores this year and expect a similar run rate next year. They anticipate capital expenditures approaching $300 million in 2024, focusing on store build-out and ERP system implementation. In 2025, they will continue to invest in growth, manage debt carrying costs by swapping higher interest rate debt to lower rates, resulting in annual savings of almost $10 million next year. They expect free cash flow to increase next year over this year.

Revenue Guidance and Potential Upside
Q: Where do you see upside to next year's revenue guidance?
A: Andrew stated they expect low to mid-teens revenue growth next year, consistent with this year. As demand materializes, they can service it and potentially outperform guidance. Stuart added they are excited about opportunities across regions, especially in North America, Europe, and Asia Pacific, with strong momentum in China. They see potential in footwear, women's, and core men's outdoor business, with new products in the pipeline that could create upside in the future.

Gross Margin and SG&A Outlook
Q: How should we think about SG&A relative to sales next year?
A: Andrew mentioned they are extremely pleased with continued gross margin expansion. In 2025, they expect SG&A to be flat leverage to this year. They plan to invest in new Arc’teryx stores, Salomon stores in China, and Wilson stores in China and APAC. They are also investing in talent acquisition, retention, and technology to drive sustainable growth. They remain consistent with plans to begin leveraging the business post-2025 into 2026.

Tax Rate Outlook
Q: How will your tax rate change over time?
A: Andrew highlighted that they are exiting 2024 with a 50% effective tax rate. Next year, the rate is more than 1,000 basis points better than their exit rate, meaning it will decrease by over 10 percentage points. They have reduced nondeductible interest and settled outstanding tax constraints. Going forward, they expect the tax rate to continue coming down to a more normalized rate in the near future.

Footwear Expansion and Wholesale
Q: What is the footwear opportunity and plans for wholesale expansion?
A: Stuart discussed plans to expand their footwear business, including through wholesale channels. Footwear penetration increased from 6% to 10% since launching new models in March. Their midterm goal is for footwear to reach 20% of revenues in the coming years. They believe wholesale is critical for building brand awareness and meeting customer shopping preferences.

Performance Across Regions
Q: How did Arc’teryx perform across regions in Q3?
A: Stuart reported they exceeded expectations in every region, channel, and product category. The APAC business, led by Japan, had the highest growth rate. China was the second fastest-growing region, followed by North America and Europe. They saw high full-price sell-throughs, especially in North America, and reduced off-price selling. Their two-year stacked comp was 88%, and they could have had higher comps with more inventory.

China Market Growth
Q: What's happening with Chinese consumers and opportunities in the region?
A: Jie Zheng noted that the sports segment is booming in China, with an estimated high single-digit growth in the sports industry this year. The outdoor segment is growing more than the industry average. More consumers in Tier 1 and Tier 2 cities are embracing outdoor activities as part of their lifestyle. This presents a good opportunity for them, especially for Arc’teryx and Salomon.

Salomon's New Leadership
Q: What does Gillam's promotion mean for Salomon's future?
A: Jie Zheng highlighted that Guiyang has over 28 years of experience with Salomon. He has a strong track record in sales, product innovation, and operational excellence. He built the modern outdoor sneakers category, achieving tremendous success in the past 5 years. The future strategy focuses on accelerating footwear globally, winning in Europe, building a strong footprint, and leveraging digital platforms.

Salomon Footwear in North America
Q: How are you growing Salomon footwear in North America?
A: Jie Zheng stated they are in the preliminary stages of expanding Salomon footwear in the U.S.. They opened a pop-up shop in New York City on October 2, which performed extremely well in the first month. They plan to roll out similar footwear concept shops next year. They are building partnerships with key accounts and retailers to enhance product assortment and merchandising. They are also working on community strategies to build brand awareness.