Thank you for standing by and welcome to the Amer Sports' Second Quarter Fiscal 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I'd now like to turn the call over to Omar Saad, Vice President of Finance and Investor Relations. You may begin.

Hello, everyone. Thanks for joining Amer Sports earnings call for the second quarter of fiscal year 2024. Earlier this morning, we announced our financial results for the quarter ended June 30, 2024, and the release can be found on our IR website, investors.amersports.com. A quick reminder to everyone that today's call will contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements reflect our current expectations and beliefs only and are subject to certain risks and uncertainties that could cause actual results to differ materially. Please see the Safe Harbor statement in our earnings release and SEC filings. We will also discuss certain non-IFRS financial measures. Please refer to our earnings release for important information regarding such non-IFRS financial measures, including reconciliations to the most comparable IFRS financial measures. We'll begin with prepared remarks from 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 updated guidance. Arc'teryx CEO, Stuart Haselden, will join us for the Q&A session. With that, I'll turn the call over to James.

Thanks, Omar. We are pleased to announce strong second quarter results, with sales margin and the EPS ahead of our guidance. The momentum behind our unique portfolio of premium sports and outdoor brands continues, and we are generating top-tier growth and margin expansion within our industry. Our global end markets are healthy and growing and we are taking market shares, positioning us to deliver another record year in 2024. We generated 16% sales growth in Q2 or plus 18% on a constant currency basis led by our flagship brand, Arc'teryx. Although we benefited from a two-point shift of wholesale shipments from 3Q into 2Q, our underlying growth momentum is clear. We achieved nearly a 3% adjusted operation margin, also well above our expectations, as we continue to enjoy strong gross margin expansion driven by the pricing power of our brands and a healthy mix shift toward our highest-margin franchise at Arc'teryx. Looking forward, several factors give me confidence for the rest of 2024 and beyond. First, we own and operate a unique and valuable portfolio of premium outdoor and sports brands. Each one is fueled by technical innovation and positioned at the pinnacle of its respective segment. Our brands have high engagement, conversion and satisfaction with consumers everywhere, but are still relatively small players on the global stage with significant room to grow. Second, Arc'teryx is a breakout growth story with unprecedented growth and profitability for the outdoor industry, and it is charting new territory with its disruptive DTC model and a strong competitive position. Arc'teryx's world-class products, plus the authentic and deep connection with consumers is allowing us to have strong success in large new categories such as footwear and women's and also incredible momentum across all major geographies. Third, Salomon, Wilson and all of our other brands are…

Thank you, James. I'm excited to discuss our strong Q2 performance and the setup for the remainder of the year. Our underlying results exceeded our guidance on sales, gross margin, operating margin and earnings per share, giving us confidence to raise full year guidance. Before diving into our financial performance in Q2 and going through our updated guidance, I want to quickly discuss two timing items that affected Q2 and the cadence of our guidance for the rest of 2024. First, there was a two-point top line benefit from early shipments of certain wholesale orders that moved into Q2 from Q3, driving approximately $0.01 of EPS upside. Second, we had a $0.04 EPS benefit in Q2 related to the resolution of uncertain tax positions that were contemplated in the full year guidance that we previously provided, but were expected to be resolved in Q3 and Q4 this year. Excluding these timing shifts, our underlying operations still drove a strong beat in the quarter, which is reflected in our full year top and bottom line guidance range. With that, let me focus on Q2 results and guidance. The fast growth of our high-margin Arc'teryx franchise is elevating the financial profile of Amer Sports Group in total. This dynamic allows us to deliver strong profitable growth for shareholders, while reinvesting in the many long-term growth opportunities across our portfolio. At the group level, Amer Sports sales grew 16% in Q2 or 18.3% at constant currency, well ahead of expectations we set back in May. Even excluding the two-point wholesale shift from Q3, the strong group sales performance was led by Technical Apparel and Outdoor Performance. By channel, the group continues to be led by DTC, which grew 40% led by Arc'teryx. Group wholesale revenues improved plus 2% year-over-year. Regional growth was led…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Brooke Roach from Goldman Sachs. Your line is open.

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

Hey, Brooke, it's Stuart. So let me try to address your questions. You had a number there that I'll add to speak to. So as we look at the performance of Arc'teryx by region, we were very pleased with how balanced we saw our growth in the second quarter. The North America business continued to see good momentum, as we mentioned on the prepared remarks, Asia Pacific outside of China saw the fastest growth of the four regions in which we operate. We also saw a very strong growth in China. The business in Europe grew a bit slower, but we're still very encouraged by the success of the new stores that we opened in the Europe market. The stores that we opened in Paris, in particular, have really performed ahead of our expectations, which gives us a lot of confidence to continue to lean into our Europe expansion. So we're really pleased across every region where we're operating with the results that we're seeing, both from a brick-and-mortar standpoint as well as from an e-commerce business standpoint. The sustainability of the momentum in our Arc'teryx business, we really see this as the early innings of our growth story. We are far from reaching penetration potential in really any region in which we operate. And so we'll have around 60 stores in North America at the end of the year. We could see the total potential for North America being well over 200, just for an example, and we're even earlier in the development of the Europe market and the Asia Pacific market. China, we're farther along with our store count, but we still see a really exciting runway of growth there as we continue to optimize our real estate portfolio. And the success of the Shanghai Museum store is really helping us reset what we see as the potential for the business in China. And as we look at some of the other KPIs and customer performance related matters or trends, we were pleased to see very healthy double-digit guest file growth in the quarter, and that was reflected in really strong traffic. As we look at the results, the omni-comp that Andrew mentioned, just the overall sales trajectory of the business, it's really a traffic story. We saw very modest improvements in conversion, but the main KPI that is driving the sales increases in our D2C business has been traffic. And so we see that as a very healthy indicator of the momentum of the brand as we're building brand awareness. And we also saw healthy growth in average spend per customer. So really strong customer metrics and very healthy and balanced KPIs across our channels. So, yes, and I'd also just add that we're -- we feel confident that we're taking share in every market in which we operate. James, maybe you could address the first question of the day.

Yes. I add a certain comments based on Stuart's explanation, okay. I think Arc'teryx in China, it's still I mean playing a clear leadership role in the segment. I mean we are sitting, but not only on the segment, but also the whole industry. So we really grow tremendous our sales through in Q2, in the first half and really outperformed among all the sports brands in the market. And the trend we see is to continue to carry on. And it's not slowed down, okay, the overall, especially on the comp shop growth pattern in China. So it's, obviously, the Q2, I mean second quarter, it's still relatively soft season among the four quarters. But we also see, I mean, we are in the middle of the Q3 already. So we also see big growth patterns in China market. So I think as Stuart mentioned, it's still a preliminary stage for us, not only in China and the rest of the world. So we have a very good confidence to continue to grow the Arc'teryx business across board in the world.

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

Your next question comes from the line of Matthew Boss from JPMorgan. Your line is open.

Thanks and congrats on the nice quarter. So James, maybe a higher level, could you speak to runway that you see across brands in the portfolio to capture continued market share in the premium sports and outdoor market? And then for Andrew, on the bottom line, maybe could you just help elaborate on the back half margin geography as we think about gross margin drivers relative to SG&A investments that are embedded this year relative to the path to SG&A leverage multi-year?

Okay. Matthew, thank you for your questions. I just want to highlight here, okay? We got a very unique proposition in the market. For Amer Sports, we really own two distinguished business franchise, which is the hard goods we call the equipment business as well as the soft goods. So I would say, first of all, I mentioned about the hard goods business or equipment business for both Winter Sports Equipment and Wilson. We all, I mean, you guys all can tell, we all got very strong market share in the segment we are sitting. Even the growth runway still a bit small, but we have a good high, good level of confidence to secure or continue to amplify our market share in the future in the segment we are sitting, not only on the Winter Sports Equipment, but also in racquets, balls and also the increase we mentioned. Okay. So I think the team got a very good level of confidence to continue to secure our leadership in the this kind of delicate segment. For soft goods part, I think, I mean, the great performance from Arc'teryx already demonstrate our unique proposition at the premium segment of the outdoor industry we are sitting, okay. So Arc'teryx really give out a very strong momentum in the pinnacle sectors in outdoor segments and continue to grow more than, I think, 30% in the market and really leading the whole growth in the industry. So I think it's, I will say, it's a hero brand at this moment in the market. And as we just mentioned, we will continue to drive Arc'teryx. It's just the first -- it was the first phase for us. We are still a great runway for us to continue to accelerate Arc'teryx growth in the future. For…

Hey, Matt. Hi. This is Andrew Page. Thanks for the question as well. As you think about the margin profile, I'll give you a little bit of perspective both on gross margin and SG&A leverage. As you progress, we had a very, very strong gross margin quarter in the second quarter. Over 55% on gross margin, that's outstanding. As you move through the year, you recall that third quarter is our largest wholesale shipment quarter. And so you'll see gross margins somewhat compressed from Q2 and then return to those levels that you saw in Q2 and Q4. And as we talked about, our full year gross margin profile, we've upped our guidance to about 54.5%. So you're going to see strong gross margins in the third and fourth quarter, with the third quarter being a bit more compressed because it reflects our largest wholesale shipments. As you move from an SG&A leverage perspective, SG&A dollars, obviously, as we get into third and fourth quarter, will increase as you go through the year. Back half of the year is meaningfully larger than the first half or front half of the year. But you're going to see meaningful SG&A leverage when you compare that to Q2. I would think about Q3 being meaningfully better than Q2 and Q4 being meaningfully better than Q3. So progressively, as a percentage of revenue, SG&A will continue to go down as we move through the year. Hope that answers your question.

Your next question comes from the line of Paul Lejuez from Citigroup. Your line is open.

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

Hey, Paul, I mean, I just want to mention here. So China actually is -- we got the two legs to run, okay. So both our physical shops and e-comm grows extremely well in China market, okay. So we grow the business more than 54%. And actually this 54% is all coming from it's kind of an average coming from the physical retail as well as e-commerce business. It's relatively the same level of the speed. In terms of the promotional environment in China, it's a difficult market so far I mean for time being, okay. So but we see, I mean, there is still a lot of discount activities in China markets to get the brands, try to get more revenues, okay, with relatively high level of inventory. But the good thing is for us, I mean, we are sitting mainly in outdoor segments, okay. So that segment is still quite healthy at this moment, I will say. The brand Arc'teryx and Salomon, when we run the business at this moment and we are -- we keep to the same level, I mean, as our discount is very small in our regular shop, okay. So we don't, literally, we don't give a discount in our regular shop. And we have the outlets. I mean that discount ratio is only 20% to 25% off from the regular price. Still at a very healthy track. So I mean our two brands in the segment, so they all performed extremely well for the time being. We're also encountering level of the short of supply for both brands. And so I mean we are quite confident I mean to continue to have this kind of a trend in China for our two brands business.

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

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

Jay, thanks. This is Andrew. Yes, inventory position, as we talked about, grew about 2% this year compared to 16% top line revenue growth. I just want to start off with saying that this was really set up as we exited 2023. As you recall, we had, we did a very intentional job in the back half, especially in the Q4 of 2023, cleaning up inventory across each of our brands. And we came into 2024 with a very disciplined buying approach, merchandising approach and focused sell-through. And so where you see our inventory levels, as James talked about, in some of our high velocity. As you think about the Arc'teryx Kragg shoe and sometimes that we do, we are selling out quickly. We have really, really strong relationships with our sourcing partners. So we feel good about being able to be responsive to elevated demand. But we feel good about that inventory. You're going to continue to see the trends that you saw in second quarter with inventory growing below revenue. You're going to continue to see that trend as we go through the year. It's a key KPI for us, and this is not an aberration in the sense that we're shortened inventory. We are lean in inventory by design and by discipline.

Got it. Thank you so much.

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

Your next question comes from the line of Ike Boruchow from Wells Fargo. Your line is open.

Hey, good morning, everyone. Congrats on the quarter. Wanted to dig in a little bit more on Europe. Can you just kind of talk about your expectations for the region the rest of the year relative to your revenue guide? Obviously, it looks like it's not really showing much growth the past couple of quarters. Would love to notice a little bit more about what you guys see in the market. Basically, what do you see at POS and comp growth for your retail stores versus what are the conversations with your retail partners? Are they getting more reluctant to take product? Kind of just trying to get a flavor of the appetite from a retail perspective in that region specifically.

Hey, let me give you the high-level answer on this, okay. So it's a big, we got multiple brands doing business in Europe. Each brand got a different proposition. So I start with the Salomon, okay. So Salomon Europe, I do believe, okay, so this year, we will continue to grow our footwear business at the right level and while we also faced the level of challenge from Winter Sports Equipment. So in that part, so it's kind of a balance. So for Salomon Europe, specifically, it's more or less mid to high-single-digit growth, okay. For Arc'teryx I think we just started with a very small base. I think Arc'teryx, we will grow meaningfully from Europe, but it's still small base for us. And Wilson, it's more or less we will keep the mid to mid to low-single-digit growth for our business. Peak Performance, we will face a level of the challenge. We want to find a good way to mitigate the risk, okay. So especially, our business is really focused on Nordic area. So not sure, okay, I think Europe business as a whole, I mean, when we look at this, it will be like mid-single-digit growth in Europe for the whole year. It's kind of our lock for the group perspective.

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

That's right.

Okay. Cool. All right. Thank you.

Yes. Peak Performance still represents a very small percentage of the business for us anyway, so as a whole, okay. So that we -- yes.

Okay. Thank you guys.

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

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

Yes. Laurent, I just want to re-enhance, I mean, we are just at the preliminary stage to expand our Salomon direct-to-consumer channels, mainly from our own retail expansion in China first. We see a good example from China. And then I mean from that success we also expand the model to Japan and Asia Pacific. And we start to try also in Europe from May this year, okay, in Paris first. So it's a still infant stage for us in the -- outside of China. But luckily, the shop we opened both in Osaka and Paris, they all outperformed. So give us a good level of confidence to continue to try this kind of format. We call the Salomon footwear compact shop, okay. And in US, I will say we will open pop-up shop in October this year in New York City in Soho areas. That's the first try for us. We will test that model to see how the market responds. And I hope next year we can open one to, I mean, within five shops, maybe, okay, one to two in New York City and another one or two shops in the rest of the city in North America and to further verify the models we experienced in China. But it's still too early to tell in North America, specifically.

Very helpful, James.

Burt China, as we mentioned, we will quickly grow our penetration. And by the end of the year, we will have 200 dedicated Salomon footwear compact shops for both our own retail as well as the franchise shops.

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

Yes. So let me start with the $20 million. The $20 million did have some variability between a couple of different segments. Outdoor Performance was a little bit more than half of that $20 million. And Technical Apparel was the remainder amount. All of the shift was from Q3 into Q2. And like I said, it had about a two-point top line impact. So if you think about Q2 growing 16%, really, it's kind of 14% if you exclude that. And you think about the implied guidance in Q3, it would have grown an additional 1.5% to 2%. So that's how you think about it. The shift was really Q3 to Q2. As you think about the rest of the year, there's not meaningful shift that you need to build into your models out of Q3 and into Q4. We anticipate, on a natural basis, Q2 would have been up about 14%, Q3 up similarly and then you're going to see the meaningful mark that we've talked about all year on Q4. Remember, Q4 is our biggest quarter by far. It's going to be our easiest comp given the fact that we had a lot of promotional environment activity in Q4 last year.

Thank you very much. Thank you, Andrew.

Thank you.

And your final question comes from the line of Lorraine Hutchinson from Bank of America. Your line is open.

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

James, why don't you take that, if you're seeing any consumer behavior? Stuart, too, I think it would be good to hear if you're hearing any sensitivities to the economy.

Yes, yes. Let me I think the overall I mean economic situation still got a level of the challenge, okay. So but different regions got different situation. For me, my understanding, China, it's still, overall, it's getting through, so people still need to figure out, okay, so how we overcome kind of a short-term difficulty is a challenge as a whole. But on the other side, as I just mentioned, the industry we are sitting in the sports industry, still at an optimal situation. So and the people and the participant level from China markets continue to grow. And the overall industry, sports industry, we believe, still grow more than, more or less 5% to 8% on CAGR for coming three years. So we think the market size is still there, okay. So and just to how the other -- some brands are doing extremely good job taking the shares from the some brands doing so-so jobs. So it's kind of a shifting, okay. It's kind of a shifting. And Europe, I think, it's all about, it's kind of my understanding is kind of a stable market, relatively stable markets. And it's all about how you create a kind of excitement, the level of excitement you create it. And they all, I mean, the market still welcome new players, which can create a distinguished value to the consumers. And the customers also love to try certain new brands, especially in the industry we are sitting. So we still see a good level of the opportunity. Likewise in North America, North America, so I'm still bullish on it, okay. So I think it's, yes, the macro situation is a bit level of challenge, but the consumers still looking for some, as I said, okay, so the -- some newcomers and with innovative high technical products and, in sports industries, and we still see good opportunities for us. So I'm pretty optimistic still for the overall industry I mean in our industry. And especially the segment we are sitting, we still see a great runway for us to explore the potential in the market.

Hey, Lorraine, it's Stuart. I'll just add to James' comments. I think what we're seeing is a bifurcation across the regions we operate. We're seeing a strong division between winners and losers. And companies that are -- that have a strong market position are taking share, and companies that have or are just participating in the market are forfeiting share. We also see technical innovation as an important competitive advantage that is helping companies. I think, like Arc'teryx, continue to thrive in the marketplace. And it is a focus for how we are building our product strategy. So at this point, our customer dynamics are very strong. The signal, the demand signal that we're seeing from all our regions is very strong. But we're also, we're reading the same headlines that you are around the world. And we're very much building in the contingency plans as we might be ready for any sort of change in the macro signal. But at this point, it's quite robust, and we're taking it as an opportunity to play offense and take share from our competitors. Thanks, Lorraine.

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

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

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