Yahoo Finance

Andrew Page

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 softgoods, plus strong and stable positions from our market-leading hardgoods 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 Group 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. And we also significantly reduced our leverage, effective tax rate and annual interest expense.
Now, turning to our 4Q 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 DTC, 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 high-quality 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 & 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 give 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 deleverage 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 points 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 USD 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% DTC expansion, including a 29% omni-comp, a great result comparing against a 33%omni-comp in the fourth quarter 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 were roughly flat, driven by timing of shipments compared to 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 in freight costs. This was partly offset by SG&A deleverage driven by investments in technology, marketing and operations to support continued DTC 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 DTC channel grew strong double digits driven by door openings, especially in Asia Pacific, Greater China and EMEA, as well as e-commerce development 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 DTC grew 58%, led by Greater China and APAC, and wholesale improved to +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. This gross margin expansion was partially offset by SG&A deleverage to support growth investments.
Moving to ball & racquet. Revenue increased 22% to $296 million driven by racquet sports and softgoods. The strong growth was also helped by easier comparisons from last year when Wilson went through a heavier liquidations period to normalize inventory levels. We are very pleased with the strong rebound but would caution that 20%-plus 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 racquet sports franchise as well as our small but fast-growing softgoods 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 the inventory clearance in the second half of last year, when the channel inventories were elevated. SG&A leveraged, thanks to tight cost control 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 $2.0 billion at the end of Q3. Using our 2024 adjusted operating profit, our net-debt-to-adjusted-EBITDA ratio was approximately 0.7times at the end of Q4.
Looking forward, paying down debt with non-deductible interest with excess cash 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 exposures in light of contemplated new tariffs on imports from China, Canada, Mexico and Vietnam. In 2024, sourcing to the US 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 US accounts for less than 1% of 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've 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 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 digits revenue growth in outdoor performance, and low-to-mid single-digit growth in ball & racquet.
We expect adjusted gross margin of 56.5% to 57.0% for the full year, driven primarily by mix shift benefits. We expect adjusted operating margin of approximately 11.5% to 12.0%. Given macro uncertanties, including FX and tariffs, our current margin expectations are more focused towards 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% to 4% for ball & racquet. You should assume full-year net finance cost of approximately $120 million and an effective tax rate of approximately 33%. We expect adjusted diluted EPS of $0.64 to $0.69, 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 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% to 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 57.0% in Q1 of 2025, and an adjusted operating profit margin of 11% to 11.5%. Our net finance costs for the quarter will be approximately $30 million and effective tax rate will be approximately 33%. We expect adjusted diluted EPS of $0.14 to 0.15%.
With that, I’ll turn it back to the operator for Q&A.

Question and Answer Session

Operator

Thank you so much. (Operator Instructions) In the interest of time, we ask that you please limit your questions to one primary question and one follow up. Lorraine Hutchinson, Bank of America.

Lorraine Hutchinson

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

Yes, hey, Lorraine. It's Stuart. 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 generally the same amount of stores each year as we look forward. We had 33 net new stores in '24, so I think we've got ['25 to 30] -- for '24 -- I'm sorry for '25.
The overall view on what's possible by each region is pretty much the same. We were calling for the potential of around 200 stores in North America, 75 to 100 in Europe, 75 to 100 in APAC outside of China. And I think we're looking at around 150 to 200 in China, Mainland China now, so a little more bullish on Mainland China. And yes, I think that's how we're viewing it today. I think some of those estimates are likely conservative and we'll continue to re-evaluate them as we see success in each of those geographies.

Operator

Matthew Boss, JP Morgan.

Matthew Boss

Congrats on another nice quarter. So Stuart, could you elaborate on drivers of the comp acceleration to 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 '25, just where you stand today and the progression as the year moves on.

Stuart Haselden

Thanks, Matt. So the comp drivers, we saw a 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, 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. We had an e-commerce result in Cyber-Five 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. 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 the success that we posted in the fourth quarter continuing into Q1.
I mean, obviously, we're an outerware company, the balance of our business is weighted to outerwear and so this is the sort of the time of the year when we really see our most significant sales opportunities. So we've been pleased with the momentum we've seen in the Q1.
And then from an inventory standpoint, we ended the year 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 '25, particularly in footwear, where we had some really painful out-of-stock positions through much of '24. So 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

Great. Best of luck.

Operator

Brooke Roach, Goldman Sachs.

Brooke Roach

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?

Andrew Page

Hi, thanks. This is Andrew. As you saw last year, we continue to make investments in SG&A. And when you think about 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 chains.
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.

Operator

Paul Lejuez, Citi.

Paul Lejuez

Hey, Stuart, curious how you're thinking about growth in F25 in the footwear and women's side of the business. And if you could remind us of where you are as a percent 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?

Stuart Haselden

Yes, thanks, Paul. The footwear strategy remains a big focus for us. As we've talked about over the last year, we saw, exciting growth over the course of 2024 and it could have probably delivered higher sales, particularly for a Kragg model, have we had better in stocks.
The business grew over 60% in footwear over the course of the year, and 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, likewise, as we mentioned on the call, grew faster than our overall business, definitely faster than our men's business. And we saw the sales there approaching almost 40% in the fourth quarter. The overall penetration grew a couple 100 basis points in the fourth quarter and for the full year, and that was reaching sort of the mid-20%s, 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 US 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 footwear.
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 will 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

And what's happened to door town on the footwear side this year?

Stuart Haselden

It's so early for us in this. We've seen a lot of appetite with our existing wholesale partners, REI, in particular, is what I'd called 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 retailers, but also specialty footwear retailers. So more to follow on that, Paul, as we develop those plans in '25. We'll be talking more about it.

Operator

Laurent Vasilescu, BNP Paribas.

Laurent Vasilescu

James, Andrew, I wanted to ask about regional performance. Americas and America 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? Should we kind of assume that it could be a little bit higher growth for 2025?

Andrew Page

Yes, 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 almost 50% growth in APAC and Greater China and obviously the mid-singles in EMEA in North America. And we don't see any real pullback in any of those metrics going forward.
There was meaningful recovery in North America as it related to Wilson given the inventory pipeline was pretty full in '23, exiting '23. And so back half of '24, you saw that recovery and so a lot of that inflection was notably from our strong business in North America with Wilson.

Jie Zheng

And for EMEA, I just want to add one more point for EMEA and we have a very solid plan to speed up our overall [software aspect,] focus on footwear business penetration in EMEA markets. You can tell from Q4, we're already seeing a big improvement in EMEA in terms of the overall sales revenue growth from Salomon softgoods, especially from footwear. So the trend is still carried on. So for EMEA, I do believe the overall growth pattern will also be strengthened in 2025.

Paul Lejuez

Very helpful, James and Andrew. And then following the December primary offering, are there further opportunities, Andrew, to reduce your finance costs and tax rate over the next 12 to 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?

Andrew Page

Yes, good question. As I've continued to say, even though we had meaningful paydown in our debt and really strengthen our balance sheet, paying off the remainder 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 focus.
With regard to -- and the second question was around the tax rate, we are continuing to drive that as you can see 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

Michael Binetti, Evercore.

Michael Binetti

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

Hey, Michael. It's Omar. So we're only guiding segments on an annual basis, kind of leave the modeling in your hands if you think about the different growth factors, but no major callouts either across segments that you should really think about when you're modeling the segments across the quarters.

Andrew Page

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 the top line revenue as well as a profitability perspective.

Michael Binetti

Okay. Let me try a couple of different questions. Since you, Andrew, mentioned the sourcing partners, what is the biggest sourcing region into the US 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 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.

Andrew Page

Michael, I'll answer the second question first. And 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 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, where we talk about our biggest sourcing regions, as I talked about in my prepared remarks, I talked about 20% coming from those regions of Mexico, Canada, Vietnam and China. Obviously, Vietnam and China, with China being slightly bigger, makes up the lion's share of that.

Operator

John Kernan, TD Cowen.

John Kernan

Congrats on a great year. 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 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 '25?

Andrew Page

So from a gross margin perspective, consistently, Arc’teryx, our highest margin business, 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 & racket segment last year, and so you saw some expansion of just lapping that comp year-over-year.
So the lion's share on a steady state basis continues to be Arc’teryx. To a lesser extent, you start to see some mix shift expansion within the segment. So as footwear becomes a larger portion of outdoor performance, it carries a higher margin than the rest of the segment. And as the softgoods, so the Tennis 360 franchise that we have in ball & racket, as that continues to grow, that's around 10% of the ball & racket segment. You'll start to see margin expansion there.
But 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.

Stuart Haselden

John, I'll just tack on to that. So healthy expansion in Arc’teryx and that was driven by lower transportation costs, lower markdowns and higher product margins sort of first cost. So a pretty strong view across the board for gross margins.

Operator

Alright. 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

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