Amer Sports, Inc. (AS) Q2 2024 Earnings Report, Transcript and Summary

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 also healthy. They have longstanding authentic heritage, premium positioning and high-performance products. Both Salomon and Wilson have leading market share within their heritage equipment business, but still have very small soft goods franchises with large growth opportunities ahead, especially in Salomon footwear. And fourth, where other consumer companies are having challenge in Greater China, we generate more than 50% growth there, and we continue to well outperform the market. Importantly, we are seeing strong momentum across all of our three big brands. A few reasons I'd like to highlight why we are doing so well in China. Number one, our brands compete in one the highest and fast-growing consumer segments in China, the premium sports and outdoor market. The outdoor trend in China is very strong. Even beyond the traditional male consumer, the outdoor category is attracting younger consumers, female consumers, and we also see more luxury shoppers spending in our categories. Second, the China consumer landscape today has evolved into a market of winners and losers, with some brands doing extremely well and others underperforming. Our still small specialized brands with deep expertise and high quality and performance resonate strongly with Chinese shoppers. Thirdly, and the most important, we believe we have the best team in China. Our deep expertise and unique scalable operating platform gives us a significant competitive advantage across the portfolio. Before Andrew's financial discussion, I'd like to share some key highlights from our segments in Q2. Starting with Technical Apparel, which is led by our fastest growing and now largest brand, Arc'teryx. Arc'teryx delivered another very strong quarter, with healthy growth across all regions, channels and categories, especially footwear, women's and hardshell jackets. Arc'teryx brand momentum was most evident in the very strong omni-comp performance against a very difficult growth comparison from last year. Globally, Arc'teryx is well executing its retail expansion plans, opening 17 net new brand stores in 1H, including 13 net new locations in 2Q, bringing the total owned brand store come to 125. Key new locations this quarter included Bloor Street in Toronto as well as Le Marais and the La Madeleine in Paris, which have emerged as standout locations with high engagement from local consumers in France. We also opened three stores in Great China and one Los Angeles store in Brentwood. All of these new stores have performed exceptionally well. We are also excited to open our New York Soho flagship store this week with grand opening set for early September. This new Alpha store will feature our most pinnacle expression of ReBIRD yet, including shoppable ReGEAR in store for the first time, a large ReBIRD facility for care and repair and much more. Shifting to products. Recall that Arc'teryx recently launched its first footwear line that was designed, developed and sourced by our in-house footwear team. We continue to be extremely pleased with the reception to what we believe is the best line of technical performance footwear designed for the mountain athlete. Since the launch, penetration of footwear to Arc'teryx total revenues had jumped from 6% to 10%, often selling out of our most popular styles, especially the Kragg. Because of the unique position of Arc'teryx footwear in the market, the strong sales in our DTC channel and the enthusiastic increase from wholesale accounts, our confidence is growing that footwear will become a very sizable and profitable growth avenue for the brand, both in own stores and the brand-relevant wholesale accounts. Women's continues to perform extremely well, growing faster than the brand overall. Women's outperformance is driven by Softshell and Windshell, particularly the Gamma and the Squamish franchises. Women's shares of sales is already more than 20% of the business, and we see great upside in the category as we add more colorways, models and style options that resonate with her. In May, Arc'teryx also recently opened a cutting-edge creation center in Tokyo. This design space will serve as an innovation hub, reflecting local creativity, culture and outdoor community. A quick update on our new ePE product, which complies with the ban on PFAS forever chemicals traditionally using in waterproof materials. Sales of our iconic Beta Jacket have accelerated since switching to compliant materials. Our customers love the look, feel and the performance of the new material. Arc'teryx also continues to execute cutting-edge community engagement programs. This summer, Arc'teryx launched gym residents in climbing gyms from New York to Paris to San Francisco as part of the brand's Summer of Climb. Investments in brand awareness and activations that feed off the global excitement and the popularity of climbing is driving awareness and positions Arc'teryx, which is at the heart of this phenomenon. Moving to the Outdoor Performance segment, which also delivered upside to our expectations led by Salomon footwear, partially offset by softer trends in Winter Sports Equipment. A quick reminder that the Outdoor Performance is comprised of two business that operates in a unique environment. First, Winter Sports Equipment, which includes ski, snowboard and snow sports equipment across the Salomon, Atomic and Armada brands. These are longstanding Winter Sports Equipment franchise that already have high market share, a very strong competitive position and industry-leading scale and profitability, although less growth runway ahead given the already high market shares. Then we also have the Salomon footwear and apparel franchise, which is a higher margin, faster-growing business, but still with very low market share of the global sneaker market. Today, it represents approximately 66% of Outdoor Performance segment sales, up significantly from 54% in 2022. We believe Salomon sneakers have an authentic and unique market position, with technical features designed for the mountain, but also great for everyday use. Salomon shoes offers consumers unique style and technical attributes at a time when consumers are more receptive than ever to wearing new sneaker brands. Looking forward, we expect Salomon's Soft goods to grow double-digits annually over the long-term. In second quarter, Salomon footwear showed especially strong traction in Great China and in APAC, where consumers love our Sportstyle offering that combines a distinct trendy look with high technical features. In China, we have created an entire new category called Outdoor sneakers, which especially resonates with the young consumers. We opened 27 Salomon shops in Q2, including both owned store and licensed stores, in Great China, bringing our total count to 136. We expect to end 2024 with about 200 owned and licensed Salomon stores in China, with the opportunity to grow several hundred locations just in Tier 1 and Tier 2 cities. In 2Q, we also opened a new shop in Osaka, Japan, which has become one of highest productivity shops, well received by both local consumers and tourists. In the brand's home market of France, ahead of the recent Paris Olympics, we opened a Salomon flagship store on the Champs-Elysees, in addition to our recent store opening in La Marais. Both new stores have performed extremely well in the first month and represent the high demand consumers have to engaged with the Salomon brand in its own environment. The Champs-Elysees store has created a landmark presence to showcase the breadth and the depth for Salomon's unique offering in its home market, while La Marais shop is a footwear-only concept store, which has proven to be a particularly successful model that we will replicate across EMEA with three more stores in Paris, two in London and two in Milano. We are also excited to share that we will open in October a pop-up store in New York City in Soho, which will seed the market with our first brand store in the city ahead of our plan to open one to two permanent New York stores in 2025. As you know, we are undergoing a management transition at Salomon and I'm operating as Interim Brand CEO, while we perform a comprehensive search for the next brand leaders over the next 12 months. Over four months in the role, I'm confident in the Salomon brand and our team, as we continue to optimize the go-to-market strategy and the sales structure to maximize potential of our Salomon footwear business. Moving on to Ball & Racquet highlights. We were pleased that Ball & Racquet returned to growth in 2Q, as we expected, driven by improving sell-in to the retail channel. While still in its early stage, our Tennis 360 strategy is proving to be a key driver for the Wilson franchise, led by apparel and footwear growth, accelerating expansion of Wilson Tennis 360 shops in China and the key new product launch. We are particularly excited that Roger Federer is back and active with the Wilson brand again. Roger will have his own line of premium performance racquets, bags and accessories at Wilson, called RF, which launched on his birthday, August 8. As you know, Roger is a living legend in tennis and this new product line has been met with a very enthusiastic response from the market. Wilson is also launching the first tennis shoes designed exclusively for female tennis players called the Intrigue. This shoe combines the comfort and the support of modern foam technology without losing any of the side-to-side stability required for tennis. Our 360 tennis athlete, Marta Kostyuk, will wear it for the first time in the US Open later this month. Wilson Tennis and Wilson China had a big moment recently during the Summer Olympics, when Zheng Qinwen won Gold playing with her Wilson racquet. This feat didn't go unnoticed in her home country as sales of Wilson racquets rose 20 times that day. There are 19 million tennis participants in Great China. Last but not least, Caitlin Clark is also elevating brand heat as the face of Wilson Basketball. Her signature basketball collection sold exclusively online so far sold out in record time and we expect our Caitlin Clark franchise to accelerate in H2 with the launch in select wholesale accounts. With that, I will turn it over to Andrew.

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 by Greater China, which increased 54%, followed by Asia Pacific, which grew 45%. EMEA grew 1%, and Americas returned to slight growth with sales up 1%. Turning to profitability. Adjusted gross margin increased 200 basis points to 55.8% in Q2, primarily driven by positive segment, product, channel and regional mix shift. The company's highest gross margin business, Arc'teryx, continues to grow significantly faster than the other brands, the biggest driver of gross margin expansion. As expected, adjusted SG&A expenses as a percentage of revenue increased 210 basis points and represented 52.9% of revenues in Q2, mainly driven by SG&A deleverage at Ball & Racquet and higher spending related to D2C investments, including new store openings and higher retail personnel costs. We were pleased to achieve an adjusted SG&A rate in Q2 that was better than what was contemplated in our guidance last quarter, a reflection of the expense leverage in our business model when we deliver meaningful sales upside to our forecast. These factors allowed us to generate a 50 basis point increase in our adjusted operating margin from 2.4% last year to 2.9% in Q2 2024, above our guidance of approximately 0%. Adjusted corporate expenses were $25 million versus $6 million in Q2 of last year, driven by higher personnel costs due to increased headcount and share-based compensation. Depreciation and amortization was $63 million, which includes $29 million of ROU depreciation. Adjusted net finance cost in the quarter was $45 million, at the low end of the range of $45 million to $50 million we guided to on our last call. In the quarter, we had an adjusted income tax benefit of $42 million, which included the resolution of certain discrete tax items that I mentioned above, resulting in a $20 million benefit to net income or approximately $0.04 per share. Adjusted net income was $25 million in Q2 compared to an adjusted net loss of $86 million in the prior year period. Adjusted diluted earnings per share was $0.05 compared to adjusted diluted loss per share of $0.22 last year. We exceeded the midpoint of our Q2 EPS guidance by about $0.10. Please keep in mind, this includes the $0.05 of timing shifts that I discussed that were already contemplated in our full year guidance. Now turning to segment results. Technical Apparel revenues increased 34% to $407 million led by Arc'teryx. Growth was fueled by 39% D2C expansion, including a 26% omni-comp, a great result comparing against an 80% omni-comp last year in the second quarter. Our omni-comp metric incorporates growth from both owned retail stores and e-commerce sites that have been open at least 13 months. Arc'teryx D2C momentum was fueled by both new and existing consumers and both strong traffic and conversion trends in stores and online. The Arc'teryx brand continues to experience broad-based strength and is outperforming across every region, channel and category. D2C remains the core growth engine, but we also experienced strength in the wholesale channel, which grew 24% for the segment. Regionally, Technical Apparel growth was led by Asia Pacific, followed by Greater China and the Americas, which were partially offset by declines in EMEA. Arc'teryx is generating strong results in Europe, especially new store openings, but this is off a small base and was offset by a decline in Peak Performance, which continues to go through a brand reset to focus on greater full-price selling. Technical Apparel adjusted operating margin expanded 110 basis points to 14.2%, driven primarily by gross margin from favorable channel and geographic mix. The Technical Apparel segment margin also benefited from modest SG&A leverage on Arc'teryx's strong sales growth, while continuing key growth investments. Outdoor Performance segment revenue increased 11% to $304 million, driven by strong double-digit top line performance in Salomon footwear and apparel and in the D2C channel, particularly in Asia Pacific and Greater China. This was partially offset by a decline in Winter Sports Equipment. Outdoor Performance sales also benefited from earlier-than-anticipated shipments that shifted from Q3 into Q2. By channel, Outdoor Performance D2C grew 55%, while wholesale sales declined slightly, negatively impacted by slower preorders in the North America sporting goods and ski channels, which increasingly relies upon replenished orders. 2024 will be a slightly softer year for Winter Sports Equipment due to slower trends in North America, with 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. Given our great brands and scale advantages, we expect to take market share. Although we don't expect Winter Sports Equipment to be a high-growth business, the industry remains healthy and the consumer demand for ski vacations remains consistent and strong irrespective of weather, especially as resorts have become adept at making their own snow. Winter Sports Equipment now represents one-third of Outdoor Performance. And long-term, we expect this business to grow low single-digits annually. Regionally, Outdoor Performance sales growth was led by Greater China, APAC and EMEA, offset by a decline in Americas, which has been affected by softer preorders as retailers increasingly rely on replenished orders. The Outdoor Performance segment adjusted operating profit margin expanded 380 basis points to negative 2.1%. This was driven by a combination of gross margin gains and SG&A leverage. Gross margin gains were mainly driven by a favorable region and channel mix, lower discounts. And we also leverage expenses, including payroll, administrative and IT costs. Moving to Ball & Racquet. Revenue increased 1% to $283 million as Wilson returned to growth as expected after a double-digit decline in Q1, driven by improving wholesale sell-in. Our Tennis 360 strategy continues to be a key driver for the Wilson franchise, led by footwear and apparel growth, accelerated expansion of Wilson Tennis 360 shops in China and some of the new footwear and racquet product launches James mentioned. Golf also returned to growth driven by the Americas and EMEA led by premium clubs. The growth in sportswear, racquets and golf was partially offset by declines in baseball and inflatables. Ball & Racquet segment adjusted operating profit margin contracted 160 basis points compared to the second quarter of 2023 to 1.1%. This margin compression was due to SG&A deleverage, which was driven by retail investments in the US, China and Korea, footwear and apparel investments and timing of advertising and promotion spend. Generating consistent margin performance is a key management priority for Ball & Racquet given its low single-digit growth profile. We are pleased by our lean inventory position in Ball & Racquet, which is down significantly versus last year and positions us for much better profitability in the second half, especially in Q4, when we cycle against our high discounts from last year. Looking ahead, we are confident that our market leadership position and flow of innovative products positions Ball & Racquet well as market inventories reach balance and retailer orders reaccelerate in the second half, especially in Q4 when we face our easiest comparison and also have our strongest pipeline of new products. Turning to the group balance sheet and cash flow. We ended the quarter with $1.8 billion of net debt. Using the midpoint of our 2024 implied adjusted operating profit guidance, our net debt to adjusted non-IFRS EBITDA ratio is already approximately 2.6 times. Deleveraging our balance sheet remains a priority, and our goal is to reduce our leverage ratio to 1.5 times or better over the next few years through both EBITDA expansion and debt pay down. Also our focus on inventory discipline is paying off as inventories finished Q2 in healthy conditions, up only 2% year-over-year versus 16% reported sales growth. Within our target to grow inventories in line with or slower than sales. Now turning to guidance. Given our strong second quarter results and confidence in our brand and their financial outlook, we are raising our guidance for the full year sales, adjusted operating margin and adjusted diluted EPS. As we said on previous earnings call, should strong trends continue and better-than-anticipated demand materializes, we will be well positioned to deliver financial performance ahead of our expectations. For the full year, we now expect revenue growth of 15% to 17%, which incorporates greater than 30% growth in Technical Apparel, mid to high single-digit revenue growth in Outdoor Performance and low to mid-single-digit growth in Ball & Racquet. We are increasing our adjusted gross profit margin guidance from approximately 54% to approximately 54.5%. We are also raising our guidance for our full year operating margin and now expect adjusted operating margin towards the high end of our previous 10.5% to 11% range. Our net finance cost for the year will be $200 million to $220 million, including approximately $15 million of nonrecurring finance cost in the first quarter of 2024. We still expect to have an effective tax rate on adjusted pretax income of approximately 38% for the full year of 2024, but the rate will be higher in the back half of approximately 50% to 55%. We continue to be very focused on designing and implementing strategies to reduce our effective tax rate. We're confident that we will be able to reduce our effective tax rate to a level that is consistent with other global consumer companies over the next few years. We now expect to have full year adjusted diluted EPS in the range of $0.40 to $0.44 versus our previous guidance of towards the high end of $0.30 to $0.40. Please keep in mind the $0.05 timing shift into Q2 from the second half as you incorporate our revised full year and initial Q3 guidance. Looking at the segments. We expect a 2024 adjusted operating profit margin slightly above 20% for Technical Apparel, high single-digits for Outdoor Performance and low to mid-single-digit adjusted segment margin for Ball & Racquet. Now looking at Q3. We expect Q3 adjusted gross margin to be approximately 54%, driven primarily by the mix shift towards Technical Apparel and an adjusted operating margin between 11% and 12%. Based on current interest rates, our net finance cost for the quarter will be $45 million to $50 million, and we will have an effective tax rate on an adjusted pretax income of 50% to 55%. We expect adjusted diluted EPS to be $0.08 to $0.10 per share. With that, I'll turn it back to the operator for Q&A.

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 Salomon, it's another new area. As I mentioned, for soft goods, Salomon, especially footwear, we are still at the preliminary stage. And we are the leaders in trail running sectors, but you guys all know the market size of the trail running is relatively limited versus the rest of the segments, footwear segment. So Salomon, we got kind of a very unique opportunity to create new categories. We just mentioned, we call the outdoor sneakers categories, okay? So it's kind of a new segment. And we had a tremendous successful story in the past two years. We run this in China. And really I mean the shop we say the Salomon footwear compact shop really created a great buzz in China market and taking on leadership roles on the outdoor sneaker segment in the market. And last year, literally, we doubled the count of our shop penetration in China market. By the end of the year, we foresee at 200 shops in China. In the meanwhile, I mean, we just opened the first Salomon footwear shop in France, okay, in Paris. La Marais shop, the first compact shop also outperformed a lot, okay, when we opened in May. And we also try to have this kind of format, okay, to check out the market acceptance, okay. So we will open another two shop in London and three more in Paris and one more in Milano and two more in Milano to further verify the models. So the footwear opportunity for Salomon, it's kind of the greatest opportunities for us to unlock in the future. So we see great, we also see a great momentum for us in the future. And for Wilson, I mean, as we just mentioned, we created a segment Wilson Tennis 360. While we continue to secure our leadership for racquets business, we also introduced Wilson sportswear, which is Wilson apparel and the footwear to the market. And we also see a good light when we introduced this kind of format, both in North America and in China, specifically in China. But it's still on infant stage. We will continue to explore the opportunities. In a nutshell, we will see the soft goods business, I mean, especially combined all the three major brands, we will see a tremendous growth potential for our business in the future.

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.