Amer Sports, Inc. (AS) Q2 2025 Earnings Report, Transcript and Summary

Thank you for standing by, and welcome to the Amer Sports Second Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] Thank you. I'd now like to turn the call over to Omar Saad, SVP, Capital Markets and Investor Relations. You may begin.

Welcome, everyone. Thanks for joining Amer Sports earnings call for the second quarter of fiscal year 2025. Earlier this morning, we announced our financial results for the quarter ended June 30, 2025, and the release can be found on our IR website, investors.amersports.com. A quick reminder to everyone that today's call will contain certain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements reflect our current expectations and beliefs only. They are subject to certain risks and uncertainties that cause actual results to differ materially. Please see the safe harbor statements in our earnings release and SEC filings. We will also discuss certain non-IFRS financial measures. Please refer to our earnings release for important information regarding such non-IFRS financial measures, including reconciliations to the most comparable IFRS financial measures. We'll begin with prepared remarks from our CEO, James Zheng; and CFO, Andrew Page, followed by a Q&A session until approximately 9:00 a.m. Eastern. James will cover key operational and brand highlights. Then Andrew will provide a financial view at both the group and segment level and also walk through our guidance for the third quarter and full year 2025. Arc’teryx CEO, Stuart Haselden, will join for the Q&A session. With that, I'll turn the call over to James.

Thanks, Omar. Amer Sports strong momentum continued in the second quarter as our unique portfolio of premium technical brands continues to create white space and the picture in sports and outdoor markets around the world. We remain confident in our ability to manage through higher tariffs and other near-term macro uncertainties. We are also ensuring that we develop each of our unique brands for higher-quality, long duration growth. The recent Salomon footwear acceleration, Arc'teryx continued momentum and steady results from our equipment franchise position us well for another strong performance in 2025 and beyond. In Q2, we delivered strong results across sales, margin and the EPS. We generated 23% sales growth, or 22% excluding currency impact, and we also expanded our adjusted operating margin by 260 basis points. Our performance was led by very strong growth and the profitability in both Outdoor Performance and the Technical Apparel as well as a solid performance in Ball & Racquet. Andrew will provide a more detailed update on our tariff exposure, but I'd like to emphasize that I believe we are well positioned and managed through a wide range of tariff scenarios, given our premium brands with pricing power, secular growth trends and relatively low U.S. revenue exposures. As I mentioned, we believe Amer Sports is a uniquely positioned company within the global sports and outdoor space. Several factors give me confidence for our near-, medium- and long-term outlook. First, we own a unique portfolio of premium innovation-driven sports and outdoor brands. Second, Arc'teryx is a breakout story with leading growth and profitability for the outdoor industry, driven by its disruptive direct-to- consumer model. Third, Salomon sneakers have unique performance and design positioning, and the brand is experiencing a global acceleration, but still has a small share of the global sneakers market. Fourth, Wilson and our winter sports equipment franchises have high-performance products and the leading share, but will deliver slower long-term growth except for Wilson soft goods, which has significant long-term potential. And fifth, we have a strong differentiated platform in Greater China where we continue to deliver best-in-class performance across all 3 big brands. Before I turn it over to Andrew, allow me to briefly recap key brand highlights from our 3 segments, starting with Technical Apparel, which is led by our largest brand carrier. Arc'teryx delivered another quarter of broad-based strength across regions, channels and categories, especially footwear and women's, which continue to grow faster than the brand overall. We are encouraged to see Technical Apparel momentum continue in the direct-to-consumer channel where we generated a very solid 15% omni-comp in Q2 despite facing the highest 2-year omni-comp comparison of 2025. Arc'teryx stores continue to be critical to the growth strategy, especially how we engage with local consumers and the community. Arc'teryx opened 7 net new stores in Q2, with 12 openings offset by a closure of 5 legacy locations as part of our ongoing strategy to optimize the quality and the productivity of our store fleet. Arc’teryx store expansion strategy includes of a mixed different format, ranging from multi-level large-scale alpha flagship stores to small format, very distinct mountain town shops. In EMEA, key new store locations this quarter included our first Arc'teryx stores in Milano and Stockholm. In North America, we opened a new mountain town shop at a Banff resort in Canada, which has been experiencing strong traffic since opening in April. It has been one of the top-performing shops in the region, another proof point that Arc'teryx can be relevant year-round, even in summer. We opened a new flagship in Vancouver on Robson Street, the best location in the city with excellent performance since opening in July. We are also very excited about our first store flagship opening in New York City in Q4, right on Fifth Avenue at Rockefeller Center, one of the highest traffic shopping locations in the world. In China, we opened our first brand stores in the iconic Peninsula Hotel chain in Beijing. The store represents our most elevated expansion of the brand designed for top-tier luxury shopping experiences. For 2025, we continue to plan to open approximately 25 net new Arc'teryx stores globally, with the most coming in North America. Our store opening plan incorporates a similar level of gross new stores as in 2024, partially offset by the closure of certain outlets and other suboptimal locations. We believe our high-quality retail network is much more important to long-term success than chasing the fast-paced store expansion. In Greater China, we are focused on optimizing Arc'teryx retail footprint rather than pushing new store expansion. This year, Arc'teryx will have net store closure in Greater China, including some legacy partner stores and factory outlets. However, Arc'teryx will still meaningfully increase its presence in China with large-format, high quality, more productive locations. Looking ahead to 2026, we are planning Arc'teryx to have net store opening in China after years of rationalizing the store fleet in the region. Community engagement remains critical to elevating Arc'teryx brand awareness. In July, we hosted the 14th Annual Arc'teryx Academy in Germany and France, joined thousands of participants from around the world to our climbing clinics and also drove strong sales to our local shops. Community engagement activities during Q2 included the Fifth Arc'teryx Climbing Academy in Langdale Valley in the U.K. and our ALL RISE climbing event in the San Francisco Bay area. Shifting to products. Footwear continue to be Arc'teryx fastest-growing category in Q2, growing faster than the brand overall, despite comparing against triple-digit growth last year. This spring, we launched the Norvan LD 4, an elevation of the most popular model made for long-distance, long-term running. We also launched Vertex Speed, which is a mountain running shoe designed to climb through technical vertical terrain. Looking forward, Arc'teryx has an exciting pipeline for shoe launch in the second half of 2025 and continue to believe footwear will be a large and profitable growth avenue for Arc'teryx. Women's also continued its great momentum in Q2 with double-digit growth across all regions, outperforming the brand overall. We see a big opportunity to serve women in the outdoor differently through technical design and performance. A great example of our design focus on women is the Clarkia pants, which has continued to see explosive growth in Q2, stocking out quickly across stores and e-commerce. Arc'teryx is experiencing rising brand awareness and affinity with women in the U.S. and Europe as we have improved the fit, style and function. Moving to the Outdoor Performance segment, which delivered an outstanding quarter led by Salomon footwear and apparel. Salomon brand momentum continues to accelerate across all regions with very strong momentum in both sports line and the performance line. By region, Salomon soft goods continued very strong growth in Greater China and APAC, while growth in both EMEA and America accelerated meaningfully. Direct-to-consumer remains the fastest-growing channel for the brand, including a 28% omni-comp with strength in both stores and e-commerce. In addition to sneakers, Salomon apparel, bags and socks are also experiencing great momentum, especially Salomon running vest. Sports side is doing very well globally and continue to lead footwear growth. The momentum of our first-ever global footwear launch of the XT-WHISPER from Q1 continued into Q2 and is especially resonating with younger female consumers. On the performance side, we are very pleased with our new Aero Glide 3 running shoes, one of the best footwear launched in Salomon history, including traction in the running specialist channel. Aero Glide 3 uses a foam called optiFOAM evo, which we believe represent a disruptive new-generation material, offering the runner a new level of rebound and the [ comp ] for running on roads or trails. In May, we launched our new gravel line, which offers consumers a more versatile than ever running shoe that performs great on various type of terrain from hot pavement to lose terrain in parks and on trails. While it's still very small, our gravel line is seeing strong early response from consumers and retailers. Another key launch for the quarter was the X Ultra 5, the latest update to our iconic X UItra hiking boots known for lightweight and the stability and upgrade technology. Originally, EMEA has also experienced very strong consumer demand for Salomon sneakers with strong sell-through, reorders and preorders, driven by both performance and sports side. In Asia, direct-to-consumer continued to be the critical growth channel for Salomon led by our highly productive Salomon compact shop format. We opened 16 net new Salomon shops in Greater China this quarter, including both own stores and partner stores, bringing our total count to 234 . We are on track to reach approximately 290 Salomon shops in Greater China this year, and we believe Salomon has the opportunity to go to several hundred locations over time. We recently opened our second Salomon flagship in Shanghai, a 7,300 square foot clinical expansion of the brand located in the French concession district known for its boutique shopping. The C-level store offers a more immersed experience for consumers and has performed very well in its first month. In APAC, we opened 10 new Salomon stores in Q2, 5 in Korea and 5 in Japan, including prime locations in the Marunouchi neighborhood of Tokyo and Seongsu in Seoul. Overall awareness and demand for Salomon footwear is rapidly growing across Asia. In the Americas, we continue to lay the groundwork to support significant future growth, and the Salomon soft goods grew strong double digits in Q2. Our first U.S. store in New York City continued to show incredible traction with our consumers, and we plan to open 3 to 4 more in the great New York area this year or early next year as well as continue to expand our presence in key wholesale accounts. New locations this fall include Woodbury Common and Williamsburg, Brooklyn. We are also opening stores in Chicago and West Hollywood this year and will focus on San Francisco, Los Angeles and Miami in 2026. And from a wholesale perspective, Salomon is seeing growing demand across a variety of retailers, including REI, Nordstrom and the running specialty shops. Lastly, as we continue to elevate Salomon's brand awareness, we are excited about upcoming Milano Cortina Olympic, where Salomon is a premium partner, offsetting all volunteers. This will be especially important moment for the brand in its home market of the Europe. Before I discuss Ball & Racquet highlights, let me cover the Wilson management transition. As you saw on our press release, Joe Dudy has decided to step down as President and CEO of Wilson to pursue new endeavors outside the company. Our group CFO, Andrew Page, has been appointed Interim President and CEO of Wilson and the Ball & Racquet segment and will continue in his current role as Amer Sports CFO. The company has begun a comprehensive search for the next Wilson leader. We are grateful for Joe Dudy's 30 years of service at Wilson and wish him well as he begins a new chapter. His contribution has been critical to the brand's success, especially the last 6 years as CEO. Looking forward, I have full confidence in Andrew Page to lead Wilson during this transition, where he will also continue to execute his responsibility as Amer Sports CFO. Now to the Ball & Racquet segment. Ball & Racquet growth trends continued to be solid in Q2 with 11% growth driven by strength in sportswear and racquet sports. Our Tennis 360 continues to resonate very well with consumers from performing racquets to soft goods. On court, we are thrilled by the recent win by 18-year-old Canadian, Victoria Mboko, at the National Bank opening in Montreal. She is our first ever Wilson head-to-toed Tennis 360 athlete to win a WTA 1000 tournament and is now ranked in the top 25 of the world. With consumers, Wilson performance records continue to shine, including the successful launch of our Roger Federer Classic collections this quarter. In pickleball, we are also experiencing a strong response to our Vesper paddle. Wilson soft goods continued its excellent growth, more than doubling in Q2 2025. We continue to see a strong response to the Intrigue women's tennis shoe, which was recently chosen as the best new tennis shoe by Women's Health magazine. We also continue to excel in China and will open approximately 50 more Wilson Tennis 360 shops in China this year. In North America, the new Tennis 360 concept store in the Dallas NorthPark mall continues to perform very well, and we are excited about our new shop in Beverly Hills. And we continue to expand our Tennis 360 test at DICK'S Sporting Goods and other retail partners. Beyond the racquet sports, solid trends in baseball bats were offset by soft sales in gloves, inflatables and golf. Now I will turn it over to Andrew.

Thanks, James. I will discuss tariffs in more detail when I provide guidance, but I want to start by saying that we are very confident that our fundamental business momentum, diverse global footprint, clean balance sheet and strong brand portfolio with pricing power will give us significant flexibility to manage through a variety of tariff scenarios. More importantly, the inflection of Salomon footwear adds a strong second leg of growth to Arc'teryx's already exceptional sales and margin trajectory, significantly elevating the long-term value creation potential of our unique brand portfolio. Given our strong first half results and continued operating and financial momentum, and despite higher tariffs than assumed in our previous guidance, we are raising our full year revenue and EPS expectations. This updated guidance assumes the current 30% U.S. tariff on goods from China and that the latest tariff rates on all other countries will stay in place for the remainder of 2025. Although the impact of higher tariffs to our Ball & Racquet segment will be slightly higher than expected, given the mitigation strategies already underway across brands, we still expect negligible tariff impact to our consolidated results this year and beyond. Okay. Let's go through Q2 results. Amer Sports grew sales 23% in Q2 on a reported basis or 22% excluding currency. The strong sales performance was led by Outdoor Performance followed by Technical Apparel, and Ball & Racquet also continued to deliver solid growth in the quarter. By channel, the group continued to be driven by DTC, which grew 40%, led by Salomon in Greater China and APAC as well as Arc'teryx globally. Wholesale grew 9% at the group level led by Salomon. Regional growth was led by Asia Pacific, which increased 45%, and China, which grew 42%. EMEA accelerated to 18% growth, and the Americas grew 6% in Q2. The Americas deceleration was driven by normalizing growth in Ball & Racquet and a tougher comparison due to the shift in wholesale shipments from Q3 into Q2 in 2024. Amer Sports continues to achieve very strong growth in China, and there are several reasons why we are confident in our future growth opportunities in this important consumer market. Number one, our brands compete in one of the highest-quality, fastest- growing consumer segments in China, the premium sports and outdoor market. The outdoor trend in China continues to be very robust, attracting younger consumers, female consumers and luxury shoppers. Additionally, our authentic brands are known for their expertise, quality and technical innovation, which resonates well with Chinese consumers, and our brands are still small in China. Third, and most important, we have a great team in China. Our deep expertise and unique scalable operating platform gives us a significant competitive advantage across the portfolio. Turning to profitability. Adjusted gross margin increased 250 basis points to 58.7% in Q2, primarily driven by favorable channel, geographic, product and brand mix as well as by lower discounts compared to the prior year and partially offset by the headwinds in transportation, logistics and materials. Adjusted SG&A expenses as a percentage of revenues delevered by 140 basis points and represented 54.7% of revenues in Q2. Outdoor Performance achieved SG&A leverage on very strong growth, which was offset by slight deleverage of Technical Apparel due to retail expansion and Ball & Racquet due to ongoing investments in sportswear. Led by gross margin expansion, we generated a 260 basis point increase in our adjusted operating margin from 2.9% last year to 5.5% in Q2. Note that we received $19 million of government grants in the second quarter of 2025, which we received in the second half of 2024. This benefited adjusted operating margin by approximately 150 basis points in Q2. Corporate expenses were $34 million, up from $25 million in Q2 last year. D&A was $81 million, which includes $39 million of ROU depreciation. Adjusted net finance cost in the quarter was $22 million, comprised of $30 million of interest expense, partially offset by $8 million of FX gains on the remeasurement of certain monetary assets. In the quarter, our adjusted income tax expense was $5 million, which equates to an adjusted effective tax rate of 12%. A discrete item related to a return to provision adjustment benefited our ETR in Q2. Adjusted net income in Q2 was $36 million compared to $25 million in the prior year. Adjusted diluted earnings per share was $0.06 compared to adjusted diluted earnings per share of $0.05 last year. Now turning to segment results. Technical Apparel revenues increased 23% to $509 million led by Arc'teryx. Growth was fueled by 31% DTC expansion, including a 15% omni-comp, a solid result facing the toughest 2-year stacked comp comparison of 2025. Lower levels of outlet sales had a negative impact on the Technical Apparel omni-comp as Arc'teryx continues to shift more focus on full price sales and limiting online and in-store outlet sales. The DTC momentum continues to be fueled by both new and existing consumers across all regions, channels and product categories. Technical Apparel wholesale revenues grew 4%, negatively impacted by a shift in shipments from Q3 into Q2 last year. Regionally, the Technical Apparel growth rate was led by Asia Pacific followed by Greater China, the Americas and EMEA. All regions grew strong double digits. Technical Apparel adjusted operating margin declined 10 basis points to 13.9%. A slight gross margin expansion and higher other operating income was offset by growing SG&A investments. Lastly, we recently entered into an asset purchase agreement to acquire substantially all of the assets and certain liabilities of Nelson Sports, Inc., the exclusive distributor for Arc'teryx and Veilance products in Korea since 2001. We expect the transaction to close in the second half of 2025, after which the country will be operated fully brand direct versus a traditional distributor model. Korea is a large sport and luxury consumer market, still with strong growth potential for Arc'teryx. Moving to Outdoor Performance segment. We saw revenues increase 35% to $414 million, driven by very strong performance in Salomon footwear, apparel and bags and socks. By channel, Outdoor Performance DTC grew 63%, led by new doors and higher productivity across markets, especially Greater China and APAC. E-com is also growing across regions, driven by higher traffic. Wholesale grew 18%, driven by strong sell-through in reorders in soft goods. Regionally, the Outdoor Performance growth rate was led by Greater China and APAC followed by accelerating growth in both EMEA and Americas. As James alluded to, the popularity of Salomon footwear is inflecting globally, and we are well positioned to appropriately and fully develop this unique opportunity over time. We believe we have very significant growth opportunities in all 3 major consumer regions and have the right talent and team structure in place to take a meaningful share of the global sneaker market over time. For our Winter Sports Equipment brands, while Q2 is by far the smallest quarter of the year, we had solid preorders for the upcoming winter season as we continue to take market share in skiing. We also see growth opportunities in both snowboarding and protective equipment. Winter Sports Equipment is expected to represent only 28% of the Outdoor Performance segment in 2025, down from 46% in 2022. Outdoor Performance adjusted operating profit margin expanded 720 basis points from last year to 5.1% in Q2. Margin expansion was led by gross margin, thanks to positive channel, region and product mix as well as favorable product costs due to our footwear cost optimization initiatives. This margin expansion was also driven by SG&A leverage on very strong revenue growth. Before I get into the results of Ball & Racquet, I'd like to thank Joe Dudy and acknowledge his distinguished 30-year career with Amer Sports and the Wilson franchise. Joe was instrumental in many key achievements of the brand, most recently growing the brand to over $1 billion in annual revenues and setting the stage for its next growth inflection driven by Tennis 360. Now moving to results. Ball & Racquet revenue increased 11% to $314 million, driven by soft goods and racket sports. We are pleased with the continued growth in Ball & Racquet, but would cautioned that double-digit growth is not sustainable long term, and we continue to expect Ball & Racquet to grow low to mid-single digits long term. By category, the growth was led by soft goods, which now represents approximately 15% of segment sales and also our racquet sports franchises. We continue to see very strong momentum in Tennis 360 across the globe, especially in China. Golf, inflatables and baseball were all down slightly. Golf grew strong double digits in EMEA, but this was offset by lower sell-in in the U.S. However, for H1 overall, golf had solid growth. The inflatables market conditions are challenging, and the weaker baseball glove sales are offsetting growth in bats. Regionally, the Ball & Racquet growth rate was led by China, APAC and EMEA, while Americas was roughly flat. Ball & Racquet segment adjusted operating profit margin increased 200 basis points to 3.1% due to higher gross margin driven by favorable product, channel and region mix, which offset higher duties and slight SG&A deleverage on continued soft goods investment. Turning to the balance sheet. We ended the quarter with $640 million of net debt. Using the midpoint of our 2025 adjusted operating profit guidance, our net debt to adjusted EBITDA ratio was approximately 0.6x at the end of Q2. Our balance sheet is in a healthy position to support our company as we navigate tariff and other external uncertainties. Looking forward, paying down debt, which carries nondeductible interest remains an effective use of excess cash. We exited the quarter with inventories up 29% year-over-year, higher than our 23% sales growth, mainly driven by Arc'teryx. This higher inventory is primarily driven by 3 factors: one, early receipt of fall 2025 merchandise, which included tariff mitigation tactics; two, higher goods in transit from lower airfreight usage, which means we carry the goods on our books much longer; and three, FX translation from the weaker U.S. dollar. While we expect inventory growth to remain moderately elevated through the end of 2025, we are very comfortable with the quality of Arc'teryx's goods and expect to work it down and return to normal inventory growth rates as we progress through 2026. Driven by strong profit growth and disciplined working capital management, we generated $108 million of operating cash flow in the first half. And for the full year 2025, we expect to generate solid operating cash flow growth from 2024 levels. Now moving to guidance. We remain confident that we are well positioned to manage through a variety of tariff scenarios, given our low exposure to the U.S., our high-end consumer base, the untapped pricing power of our brand portfolio and our clean balance sheet and strong cash flow dynamics. And given mitigation strategies underway, we continue to expect negligible impact to our group P&L from higher tariffs in 2025 and beyond. For the full year of 2025, given the upside in Q2 and our continued momentum, and despite a slightly higher tariff impact, we are raising our full year revenue and EPS expectations. This guidance assumes incremental U.S. tariffs on imports from China remain at 30%, Vietnam at 20%, Europe at 15% and rest of world at the latest rates. We are raising our 2025 revenue growth guidance from 15% to 17% to 20% to 21%, including an approximate 100 basis point benefit from favorable FX impact at current exchange rates. By segment, we are raising our Technical Apparel revenue growth guidance from approximately 20% to 22% to 22% to 25%, including continued strong omni-comp growth. We are also increasing our Outdoor Performance sales growth expectations from mid- teens to 22% to 25% and Ball & Racquet from mid-single digits to 7% to 9% growth. We are raising our full year adjusted gross margin guidance from 56.5% to 57% to approximately 57.5%, and we're also raising our adjusted operating margin guidance from 11.5% to 12% to 11.8% to 12.2%. By segment, we continue to expect an adjusted operating margin of approximately 21% for Technical Apparel. For Outdoor Performance, we are raising adjusted operating margin guidance from approximately 9.5% to 11% to 11.5%. For Ball & Racquet, we are maintaining our adjusted operating margin guidance of 3% to 4%. Ball & Racquet will experience a slight drag from higher tariffs in the second half because of a few factors. Number one, the termination of the steel and aluminum exemption, under which Wilson racquets and bats previously fell. Number two, higher actual tariff rates in Vietnam and other sourcing markets than the 10% rest of world assumption we last guided. And three, some shipments of Wilson soft goods had unfavorable timing and were hit by the temporary 145% China tariffs. We are now assuming full year net finance cost of approximately $105 million and an effective tax rate of 28% to 30%. The lower effective tax rate is primarily driven by higher profit generation from low tax jurisdictions as well as the discrete item in Q2 that I mentioned. Other operating income will be approximately $20 million for the full year and net income attributable to noncontrolling interest will be approximately $10 million. We now expect adjusted diluted EPS of $0.77 to $0.82 versus our prior guidance of $0.67 to $0.72, which is based on 561 million fully diluted shares outstanding. Also we are assuming D&A of $350 million, including approximately $180 million of ROU depreciation. CapEx is expected to be approximately $300 million, primarily to support new store expansion, ERP optimization and distribution and logistics investments. Turning to third quarter guidance. We expect reported revenue growth for the group to be approximately 20%, which includes an approximate 150 basis point benefit from FX. We expect adjusted gross margin to be approximately 56.5% in Q3 and an adjusted operating profit margin between 12% and 13%. Our net finance cost for the quarter should be between $30 million and $35 million, and the effective tax rate should fall between 28% and 30%. We expect adjusted diluted EPS of $0.20 to $0.22 per share. Our updated guidance implies slower growth in 2H than 1H. However, as we've said before, should strong trends continue and better-than-anticipated demand materialize, we believe we will be well positioned to deliver financial performance ahead of these expectations. Lastly, before Q&A, we will be hosting our first-ever Investor Day on September 18 in Vancouver at Arc'teryx's headquarters, which will be webcast. Although we will provide a high-level group update, the primary focus of the meeting will be a deep dive into the Arc'teryx brand and its many unique opportunities. With that, I'll turn it back over to the operator for questions.

[Operator Instructions] Your first question comes from the line of Matthew Boss from JPMorgan.

Congrats on another nice quarter. So James, could you elaborate on the momentum that you're seeing in the third quarter, supporting the 20% outlook. Speak to drivers of the growth inflection at Salomon and the accelerated back half opportunity. And then, Stuart, could you expand on the raised expectations at Arc'teryx? Maybe specifically trends you've seen third quarter to date relative to the second quarter 15% omni-comp.

Thanks, Matt. Okay. I -- so based on the very strong Q2 results and we see our growth momentum still carry on in Q3 and especially for Salomon footwear, okay, so cross-border, as we just introduced to you guys our strategy work and especially our new products really resonate in the market. And I say, okay, so we created a very unique category we call the outdoor sneakers, which really give us a very strong competitive edge in sneakers markets and especially for female consumers, younger female consumer sector. So we really created a white space for us, and we see very strong growth trend for Outdoor Performance segment. And on the other side, I also will say that Arc'teryx is also on the right track. And the momentum still carry on. Stuart will give you more detailed elaboration on that. So I mean, Wilson 360 -- Tennis 360 formats continue to work both. And the -- especially in China and Southeast Asia, we see a very clear growth pattern for our Wilson Tennis 360. And in the U.S., we're also on the way to really test a different format in the market we are sitting. And we also have a very good confidence to unlock the potential for our Wilson's Tennis 360 in the United States. So pretty much like this. Stuart?

Thanks, James. Yes, Matt, the outlook that we offered really reflects the trends that we're seeing in the business across regions and channels. Specifically, as we look at the second quarter into the third quarter, total revenues, we had a wholesale shift last year that was a headwind for us in the second quarter of this year, and that was reflected in the wholesale sales increase that we had posted single digit. That's a tailwind for us now as we go into Q3 this year, as we lap an easier compare last year in the wholesale channel. Overall, though, our direct-to-consumer business is very strong. I would say the 15% comp that we posted, we feel really good about that. The comparison was a tough compare to last year. We've also seen a reduction in markdown sales. So our markdowns are down about 500 basis points in retail and about 100 basis points in e-commerce. So much higher full-price business, much healthier that benefits our margins. So we're seeing just strong underlying trends in our business. From a KPI standpoint, traffic trends remain very strong, which is the KPI that is the driver of our revenue growth. And we have strong inventory position, as was noted, coming into the back half of the year. And what we're seeing so far in the third quarter is very encouraging. We're seeing really strong initial sell-through in the first few weeks of the third quarter. So that connects to the guidance that we just gave.

Your next question comes from the line of Brooke Roach from Goldman Sachs.

Can you speak to the next levers of growth at the Salomon brand following the recent inflection? How should we be thinking about the pace and magnitude of additional distribution point expansion in the U.S. relative to your other key international regions, both on an owned door and partner wholesale door basis?

Yes. Thank you for your questions. And I -- first of all, Salomon is really on a fast-growing pattern and driven -- I mean, in the past 2Q, I mean, obviously, mainly driven by strong momentum in China and Asia Pacific, together with EMEA. And in U.S., we are still -- literally, we are still on the way to build the foundation. So we -- right now, we only got one shop in New York City. We plan to open 4 to 5 shops by the end of the year to -- in New York, Chicago and Los Angeles, and to further validate our so-called Salomon compact shop format, which had been prove -- proven in China and Europe. So we have a very good confidence because in terms of the retail format and the product assortment, we already got a very solid base to support our U.S. market. Meanwhile, we also continue to try to find a good way to strengthen our B2B business in the United States. Especially, we are underway to build a very strong partnership with the top accounts like REI and Nordstrom. And that will give us a good more good place to continue to see what's the right model for us to accelerate our business in the U.S. And we also -- together with a very strong performance line we introduced in the market, we also -- right now, we also try to find a good model in our running specialty in the United States. So in summary, I will say we are still -- in Salomon in U.S., we are still on a preliminary stage. We are still on the way to build out the foundation. But given the successful model we built up in Europe and China, we have a very high confidence to build a very strong business model for Salomon footwear in the United States in the future.

Your next question comes from the line of Lorraine Hutchinson from Bank of America.

I wanted to get your views on pricing at each of the brands. What type of price increases are you embedding to mitigate the tariffs? And what has the customer response been to those?

Yes. Thanks, Lorraine. Yes, with regard to price increases, I mean, we have -- across the brands, we would have leaned into some pricing increases in the Wilson brand. We talked about that a little bit earlier this year. But as far as Salomon and Arc'teryx, we continue to acknowledge that we have untapped pricing flexibility that we will definitely lean into should we need to. But we've been able to navigate and mitigate the tariff impact without taking price thus far in those other 2 brands. With regard to Wilson, for certain products, it's been approximately 10%.

Your next question comes from the line of Paul Lejuez from Citi. Paul Lawrence Lejuez Citigroup Inc., Research Division Stuart, can you talk about how Arc'teryx stores are comping the full-price stores versus how much of a drag you're seeing on comp from the outlet stores? And then just separate. Inventory in terms of dollars versus units, and if you can give any color to places you might be too light, you might be restricting sales versus any regions or categories that you might be a bit too heavy.

Yes. Thanks, Paul. Yes, the comp store trends in our full-price stores is robust. It's probably a mid-single-digit drag on the overall comp based on the outlet sales declines that I mentioned. So we're happy to see that shift happening. We're happy to see a stronger full price mix, even though it may weigh on the headline comp number. And from an inventory standpoint, the -- in certain of our footwear categories, we've stocked out quickly, especially new models that we're introducing, where we're still trying to find the edge of demand. The Clarkia pant that James had mentioned is a good example of that. We're still chasing the market there. Much of our spring/summer apparel line, also, we're still painfully out of stock in a number of regions. And so we really don't know how high is high yet in that part of the business, and it gives us encouragement for the spring/summer period, specifically. We're in a good position, I would say, from a fall/winter as we head into -- as we're now in the third quarter. And what I had mentioned in terms of the trend quarter-to-date in Q3 gives us confidence in the guidance that we had given. And I would further say, if demand continues to materialize, there's the potential to outperform. And so we think we're well positioned. Nothing structural that would prevent us, and we're in a strong inventory position at this point. So that's the most color we can give right now.

Yes. And Paul, this is Andrew. I would elaborate a little bit on the inventory as Stuart talked about and in our prepared remarks. Definitely comfortable with where we are at inventory and, in fact, a bit encouraged that we're able to get ahead of some of the floor sets that Stuart had to chase in previous years. In addition, as we have started to optimize our supply chain and get ahead of some of that, we're taking ownership of our inventory a bit earlier because we have less air freight and actually vessel freight to normalize that supply chain process, which is, again, I'm encouraged by the improvements that we're making in our supply chain and encouraged by the fact that we're going to get ahead of some of that demand that we've been chasing in previous periods.

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

A 2-part questions. One, Stuart, just talk about the women's business at Arc'teryx and how you've seen that develop over the last 90 days. And on Salomon, just with the super strong growth, you're probably above what you talked about at the time of the IPO. What's really gone better, big picture at Salomon, that's allowed you to deliver this big inflection and the big growth?

We'll start with Stuart on Arc'teryx and go to James for Salomon.

Jay, yes, thanks for the question. The women's business, we saw continued strength in the second quarter. Revenues in women's was up over 30% in the quarter. We saw continued increases in our penetration, our mix of business. So we're pleased to see just the strength of our women's business growing in importance, some explosive growth in certain models. James has mentioned the Clarkia. We also introduced recently a couple of new models, the Nia pant and the Altira Cropped hard shell, they're seeing fast sales out of the gate as well. So we're excited to see women's only specific models performing well as we expand the assortment for women's. This is an important sort of validation of the product strategy, while we're seeing our core products continue to sell well also with our female guests. So we really feel like we're just getting started. So more to follow, and we look forward to sharing more at the Investor Day in September our women specifically.

Jay, I will highlight several key drivers to make Salomon and, at this stage, go so faster in the market, okay? So first of all, I will say, I just mentioned it is all coming from our unique product proposition, okay? So we make a very successful story in the category we call the outdoor sneakers, which mainly driven by our sports style business, okay, [indiscernible]. So -- and that franchise really demonstrated very strong performance among the younger -- I would say, younger female consumer sectors. So I think this gives us a very unique angle to unlock the potential for the very highly competitive sneakers market. And on the other side, the product side, also, we consistently provide -- introduced a high-performance running products in the market, which also received extremely strong positive feedback from our B2B partners. And also the sell-through also listed on the top in all the shops point of sales we are sitting. So that's number one. The second one is the -- I think we also really built up a strong business model in China. Three years ago, we only got 5 shops. And today, by the end of the year, we will have close to 300 shops. All these shops are profitable. And it really give us a very strong confidence to drive the whole business at the right way. And this kind of direct-to-consumer channel build-up also give us the chance to leverage overall brand awareness and also make the consumer understand what Salomon stands for, how they can get the right level of service for our -- from -- in the shop they are working -- in the shop environment they are in, okay? So I think it's a quite amazing situation. And on the other side, I will say the overall, I mean, strategic move on our B2B partners optimization, especially in Europe, okay? We really did a very strong alliance with the top B2B retail -- the top retailers, cross-border in European markets, JD Sports, Foot Locker, and Decathlon. They all give us a very strong exposure in the shops, and so that we can really deliver the results in the market. So that's the main drivers for Salomon, the current high growth pattern in the market.

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

Outdoor Performance is implied to grow 20% in the second half. Can you unpack that a bit more? Any nuances between 3Q and 4Q revenues, especially heading into the Winter Olympics? And then, Andrew, should we still assume that winter goods grow low single digits for the year? And then I have a quick follow-up on margins.

The last part of the question, I missed the last part. The last part of your question, the second part.

Yes. Winter goods, should it still grow low single digits for the year?

The Winter Sports Equipment will continue to be a low single-digit grower for the rest of the year. The Outdoor Performance implied 20% growth in the second half is -- it's pretty level between the third and fourth quarter. So there's no cadence that you need to build in that we're signaling.

Okay. Very helpful. In the last quarter, Andrew, you were very helpful providing a color around 1,000 basis point improvement in margins for the Outdoor Performance. I think 700 bps was from gross margin. Can you kind of give us that bridge for the 700 basis point improvement? And then longer term, are there any structural reasons why this segment margin can't get to mid-teens over time?

Yes. With regard to the gross margin improvement in the second quarter, it is primarily gross margin. And with regard to whether or not this business can get to -- we're going to be obviously very competitive. And you know what? As we continue to drive soft goods and footwear, you would expect this business to start to approach that -- the area that you're talking about. I'm going to give a much -- a longer-term update on the margin profile of each of our segments when we come up at Investor Day, but you're in the ZIP code.

Your next question comes from the line of Jonathan Komp from Baird.

Stuart, just 2 follow-ups, if I could. The outlook drag on comps for Technical Apparel or Arc'teryx, should we expect that to continue equally throughout the year? And then maybe could you frame up a little more of the opportunity you see bringing the Korea business fully in-house? And then just separately. Andrew, you raised the operating margin again. It was a little bit less than the raise to the gross margin rate. So could you maybe just share where you're driving incremental investment and some of the payoffs that you expect to see?

Yes. Thanks, Jonathan. Stuart. So the outlet drag, yes, I don't expect it will get worse than what we have seen in the first half of the year. There could be an opportunity for that to moderate to a degree, but probably more like what we've seen in the first half than not, if that makes sense. So probably more consistent into the back half than any change per se. The Korea opportunity, we believe, is exciting. It's an incredible outdoor market. We've had a strong relationship for a number of years with our partner there, but we believe we can invest in the business in a new way and really capture meaningful upside, building on the strong start that our partner had created there. So we see upside, for sure, in Korea. We think it could be bigger than Japan even in terms of revenues, and we've got a great start so far.

Jonathan, yes, really excited about the performance in the second quarter. And so think about it, really strong momentum as we go into the third quarter. We're going to seize this opportunity to continue to invest in the growth of the business. As you think about things like new store openings, marketing, there was a previous question around Salomon footwear growth and that inflection and continue to invest in that inflection brand awareness, and with all of those key initiative investments, we're still going to deliver 100 basis points of expansion to the bottom line. So it's thoughtful and it's prudent and it's responsible growth.

Your final question comes from the line of Michael Binetti from Evercore.

Can I just ask? Stuart, it sounds like a few categories stocked out quickly, and it's not the first time, so good to see the demand there. I don't know, it sounds like the drag to the outlets is kind of the same through the year. Could you just help us understand what we should expect for the evolution of that omni-comp? The rest of the year, it is mid-teens more consistent run rate from here. And you also pointed to the high comparison a year ago. And then I guess, just backing up, I know you guys don't look at the business in geos, but maybe just unpack the 6% in the Americas there a little bit by brand and channel, give us a sense of whether that's the right range to think about. I know there's some categories like in Ball & Racquet and maybe hard goods that mix higher in the U.S. But is that the right cadence to think about what we'll see in that mid-single-digit range for the rest of the year?

Yes. Michael, it's Stuart. I'll take the first part of your question. So the omni-comp for Arc'teryx, our comparisons get easier into the second half. And as I said, the underlying trend is strong. And so we -- and what we're seeing in the first few weeks of Q3 is very encouraging. We're very pleased with the overall trends, including our omni-comp, and that's reflected in the guidance that we had shared. So we certainly see the trends in the first half from an omni-comp standpoint being something that we would see continuing at least at this level or higher into the second half of the year. And as I mentioned, strong inventory position. Nothing structural that would prevent us from delivering upside should demand materialize.

And Michael, this is Andrew. Just coming back to your North American question. Again, really excited about what we're seeing, especially with Arc'teryx and Salomon. Strong double-digit growth for both of them in North America, where you see, obviously, Ball & Racquet is predominantly North America. And so there was slower growth in the U.S. with Ball & Racquet. Tennis 360 continues to grow strong, and we're excited about that. We had strong results in racquets. Where you saw some slower trends were baseball gloves, golf and inflatable balls. We continue to do well with bats, but it was a little bit offset by the gloves. And then the last thing is we do see some sporting goods retailers being cautious with regard to their ordering. And so that's driving a little bit of that slowdown that you see.

Can I follow that real quick?

And then, Michael, one more thing. The last thing that I want to remember is that we pointed this out, and Stuart alluded to it a little bit, that last year, we had a pull forward out of Q3 into Q2 for -- and that was wholesale driven. And so what happens is it's a tougher comp this year. Excluding that pull forward, you would have seen a slight increase in the current year.

Yes. In the wholesale channel, excluding that drag, wholesale would have actually accelerated slightly overall at the group level.

Okay. Can I follow that with the reminder of about low to mid-single-digit growth long term out of Ball & Racquet? It sounds like you're feeling very good about the Tennis 360 initiatives. A few things in test, stores are starting to grow in China. Is there an obvious category that you expect to be persistently negative that would offset some of the emerging excitement I hear from you on some of the initiatives there in Ball & Racquet?

Yes. I mean, the business is still 90%, 85% equipment. That's number one. Number two, it just really depends on the velocity of our Tennis 360. As James talked about, we've really found a nice format in APAC and Greater China. We're still searching for it in the early stages of that format in North America.

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

Thanks, everyone, for joining. Look forward to seeing you on the third quarter call in November. Have a great week.

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