Amer Sports, Inc.

Thank you for standing by. My name is JL and I will be your conference operator today. At this time, I would like to welcome everyone to the AmerSports 1Q24 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask questions during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the conference over to Omar Saad, VP of Finance and Investor Relations. You may begin.

Hello, everyone, and thanks for joining AMR Sports' first quarter 2024 earnings call. Earlier this morning, we announced our financial results for the first quarter of fiscal year 2024. The release can be found on our IR website, investors.amrsports.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, 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 reconciliation to the most comparable IFRS financial measures. We will begin with prepared remarks from our CEO, James Zeng, and CFO, Andrew Page, followed by a Q&A session until approximately 9 a.m. Eastern. Arc'teryx CEO, Stuart Hazelden, will also join for the Q&A portion of the call. With that, I'll turn the call over to James.

Thanks, Omar. The momentum behind our strong financial performance has continued through the first quarter of 2024, as we delivered sales in the margin above our guidance. Our transformation to our brand direct finish model four years ago continues to fuel Amerisport's profitable growth today and will for years to come. Our high performance technical products are resonating with consumers globally and we are getting share in the premium sports and outdoor market. Our consumers are engaged and our end markets are healthy, giving us confidence that our unique portfolio of brands is well positioned to deliver another great year in 2024. In the first quarter, we generated 12.6% sales growth of plus 14.2% excluding currency impacts, and we achieved an 11% adjusted operating margin above our expectations. We continue to enjoy strong gross margin expansion which reflects the strong pricing power of our brands, as well as the ongoing mixed shift toward our high-margin franchise, Arc'teryx, which continues to generate best-in-class financial performance. And, as Andrew will discuss, we have significantly improved our balance sheet. Five key factors give me confidence for 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 innovations and positioned at the pinnacle of its respective segments. 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, Acterys is a breakout growth story with unprecedented growth and profitability for the outdoor industry, charting new territory with a disruptive DTC model and a strong competitive position. Filled by Arc'teryx, Amersfoort's highest margin channels, regions, and categories are growing the fastest. Third, Solomon, Wilson, and all of our other brands are also healthy. They have long-standing authentic heritage, premium position, high-performance products, and a leading market share. Although they are earlier in their growth inflection, we are building very strong foundations for future growth for these brands across categories and the geography. Fourth, we believe our deep expertise and the unique scalable operating platform in Great China gives us a significant competitive advantage across the brands in our portfolio in this large and important consumer market. Last but not least is team. All great journeys begin with a great team. And we have assembled an experienced management team with a great track record that's energized and motivated to drive value creation for our stakeholders. Okay. Now, let's review the performance of our brand segments. First, technical apparel. Led by Acterix, technical apparel revenues grow 44% to $510 million in Q1. Excluding FX, technical apparel sales increased 48%. The segment was fueled by 46% DTC growth, including a 36 percent omnicom against a difficult plus 61 compression from last year in the first quarter technical apparel growth in our direct channel was fueled by both new and existing consumers and both strong traffic and the conversion trends in stores and online as a reminder Omnicom incorporates growth from both own retail stores and e-commerce sites that have been open at least 13 months. The Arc'teryx brand continues to experience broad-based trends and is over-delivering across every region, channel, and category. DTC remains the core growth engine, but we also experience trends in the wholesale channel, which grows 40% for the segment. Wholesale growth was driven by existing accounts and doors, not expansion into new accounts or new doors. Wholesale performance was boosted by strong reorders and continued improvement in on-time delivery and inventory availability. Please note that we don't expect technical apparel wholesale to continue growing at this rate in Q2 or for the remainder of the year. Originally, technical apparel grew farthest in Asia Pacific, led by Japan, followed by the Americas and the Great China. In Japan, stores were also left in very low inventory levels from last year. Email growth was driven by activities offset with a decline at peak performance, which faced a difficult growth comparison due to promotional activities in the prior year period. Importantly, Acterys continues to generate outside growth in key opportunity areas, including footwear, women's, and haggis, and accessories. Acterys did a great job executing its commercial expansion strategy in Q1. With several brand developments I would like to highlight. This was the first full quarter for our new Shanghai flagship, which we call The Music. This four-story, one-of-a-kind, highly experiential store in Wheelock Square represents the pinnacle expression of the Arc'teryx brand at retail and has created incredible buzz for us in the market. We expect this store to generate sales well over $20 million in its first year. Globally, we execute well our retail expansion plans. opening nine new Akerix locations in total in Q1, including Pasadena, Nanjing, China, Kobe Garden, London, and in Paris, a shop-in-shop in Plaza Martin department store. Second, Akerix launched its first footwear line that was designed, developed, and sourced by the in-house footwear team in Portland, Oregon. Arcteryx started its footwear journey seven years ago, leveraging Salomon's existing platform. And three years ago, Arcteryx began building in-house footwear capabilities. This launch represents the first model designed by the Arcteryx team. We are very pleased with the market reception to what we believe is the best line of technical performance footwear designed for the mountain asset. Since the launch, The penetration of footwear to Akari's total revenue has jumped from 6% to 10%, and the craft has emerged as our breakout style. Based on the enthusiastic response from consumers and the key wholesale accounts, we are gaining early confidence that footwear can become a meaningful, profitable growth avenue for the brand. Lastly, I'd like to address the upcoming 2025 change in regulation against PFAS for aerochemicals. These new regulations are not expected to have an adverse impact on our business. We have been at the forefront of the industry, developing alternative waterproof materials with our key partners for a number of years. And the early reads from the consumer are very encouraging. The Acclex team has already started selling the new PFAS-compliant materials in our most popular model with no negative impact on sales trends. The consumer isn't reacting to any difference in the look, feel, or performance of the new materials. Across the rest of the portfolio, our other brands have much lower exposure and are already well down the path of transition to PFAS-free inventory by next year. Turning to the outdoor performance segment, where revenue increased 6% to $400 million, above our guidance for fresh sales. Excluding FX, outdoor performance sales increased 6%. The upside was driven by strong top-line performance in Solomon DTC and the soft goods. particularly footwear in Asia Pacific and Great China. This stress was partially affected by softness in our winter sports equipment franchises, which were negatively impacted by warm weather late in the ski season, 2022 delivery shifts, and the elevated inventory levels in the market. Although winter sports equipment sales declined in Q1, When we look at the performance of that phase over the entire winter ski season, which starts with wholesale shipment in the third quarter, our portfolio of brands had a strong season overall and a top market share. The industry is healthy with solid annual bookings and the traffic in the big skiing epicenter in Europe and the Americas. In the DTC channel, Outdoor performance grew 42% in Q1, driven by strong results in both e-commerce and stores fueled by increased traffic and conversion. Wholesale declined 3% and was negatively impacted by challenging trends in the outdoor sporting goods channels in the Americas. Regionally, Great China more than doubled. while Asia-Pacific growth double-digit driven by an overachievement in footwear, especially Salomon's four-star category. The growth in Asia was partially offset by our decline in the Americas, as the North America business has been affected by soft pre-orders from key retailers, who are relying more on refreshment orders as they order stock closer to need. Email single-digit growth was led by softwares, partially offset by winter sports equipment softwares. As you know, we are undergoing a minimum transition at Solomon, and I'm operating as interim brand CEO, where we perform a comprehensive search for the next brand leader. Now six weeks into my interim role, I'm even more confident in the Solomon brand, our team. Salomon is a strong and unique brand with a sizable opportunity to grow its footwear franchise globally. We believe the global sneaker market is at a unique crossroads. More than ever before, consumers are open to new brands, styles, and products. And we believe Salomon's authentic mountain sports heritage and unique performance technology will allow us to become one of the most impactful upcoming new brands. I see three key strategic priorities for the Salomon brand as we look to accelerate footwear growth globally, particularly in EMEA and North America. Number one, the new customer acquisition. Number two, amplifying leadership in footwear. And number three, elevating the accessibility and the visibility of Salomon's products. I believe it's very important for the brand to win its home market of Europe, and we are focused on leveraging both the Paris Olympics this summer and the 2026 Milano-Cortina Olympic Games, where Salomon is an official partner. These high-profile events will elevate the profile and the reach of Salomon across Europe. To support our commercial strategy in email and to build upon our brand seed along these events, we are opening a settlement flagship on the Champs-Élysées in addition to our recent store opening lemonade. I'm confident in the brand and our team headquarters in Annecy, France, to deliver continued profitable growth in the near and the long term. With that, I will turn it over to Andrew to discuss Ball and Racket as well as the group result and the outlook. Thanks, James.

Moving to Ball and Racket. Revenue decreased 14% to $273 million as Wilson continues to be constrained by challenges comparing against strong growth and profitability last year in Q1. Recall. This time last year, both retailers and consumers were buying earlier in the season to avoid stock outs. Retail ordering patterns have now returned to a more normal seasonal cadence and are back to buying stock closer to need. Importantly, Wilson continues to hold or gain share in terms of retail sell through in almost every one of its categories, which positions us well for when order trends improve. From a category perspective, in Q1, Wilson Sportswear achieved very strong double-digit growth, although off a small base, which was more than offset by declines in other categories. Tennis declined due to slowness in the overall market across geographies, except for slight growth in China. Despite the decline, Wilson returned to the number one performance racket brand in the U.S., fueled by the launch of the new Blade Bracket in February. During Tier 1, Wilson opened four new brand stores, two in the US and two in China. We are seeing positive signals in China DTC with the new Wilson store in Shenzhen generating extremely strong early sales results led by our Tennis 360 presentation. Looking ahead, We are confident that our market leadership position and flow of innovative products positions ball and bracket well for when industry inventories reach balance and retailer orders and sell-ins begin to reaccelerate, which we still anticipate beginning in H2 this year. We're getting some early indications from retail partners of improving future order trends And we're also seeing reorder velocity pick up. Given the inventory cleanup in the back half of last year, our year-over-year comparisons will become easier in Q3 and Q4. Wilson has strong product plans in place for the second half of the year, including a unique partnership for an exclusive line of basketballs with Caitlin Clark, which we announced earlier this morning. Kaitlyn Clark is one of the most visible and popular basketball stars in the game right now, and she will be the new face of Wilson basketball. Kaitlyn is a true sports and cultural superstar and will play a leading role in developing our basketball marketing campaigns from men's to women's and youth and professional. A clear sign that the women's game and its influence is exploding. The women's NCAA championship game was more watched than the men's final for the first time ever this year. Not only will Kaitlyn start in our marketing, we will also develop with her a dedicated Kaitlyn Clark basketball product line to express her personal story throughout innovative basketball products. Additionally, Wilson is accelerating its new baseball glove merchandising strategy to flow more newness and colorway launches more frequently. We are also happy to announce that Wilson and the NFL has renewed its contract for a long-term extension, ensuring that Wilson will continue to be the only brand to ever score a touchdown in NFL history for more years to come. This news coincides with the opening of a new state-of-the-art leather football manufacturing facility in Ada, Ohio. This cutting-edge plant will also become a center of excellence for customization and personalization. Lastly, we are relaunching our NBA ball with new products and storytelling at retail, which will be our most extensive product refresh since our contract began in 2021. Now to the numbers. As James alluded to, the fast growth of our high-margin Arc'teryx franchise is elevating the growth and profitability profile of Amherst Sports Group in total. This dynamic allows us to deliver best-in-class profitable growth for shareholders while continuing to reinvest in the many growth opportunities across our portfolio of brands, especially Arc'teryx and Salomon. In summary, 14% constant currency growth means that we are winning with consumers, allowing us to deliver results ahead of the expectations we set in March. At the group level, sales growth was fueled by outperformance in technical apparel and strong growth in the D2C channel, China, and Asia Pacific. Turning to profitability. Adjusted growth profit margin rose 110 basis points to 54.3 in Q1, primarily driven by the company's highest gross margin business, Arc'teryx, growing faster than the other brands. Lower logistics costs, improved sourcing performance, and channel and regional mix also drove growth margin expansion. This was partially offset by an unfavorable FX impact in technical apparel, and inventory adjustments related to the outdoor performance and ball and racket segments. Adjusted SG&A expenses as a percentage of revenue increased 420 basis points and represented 43.7% of revenues in Q1, in line with our expectations and guidance. The primary drivers of higher SG&A include anticipated spend related to the higher mix of D2C sales, as well as key investments to support our growth, including IT infrastructure investments and new store openings. Adjusted operating margins fell 240 basis points from 13.4% in one Q of 2023 to 11% in the first quarter of 2024, above our guidance of 9 to 10%. Looking at margins by segment. Technical apparel adjusted operating margin contracted 40 basis points to 23% versus a strong margin comparison in Q1 of last year, driven primarily by lower gross margin from foreign exchange losses. Peak performance was also a slight drag on technical apparel segment margin. The outdoor performance segment adjusted operating profit margin contracted 340 basis points to 4.8% as expected. This was due to D2C-driven gross margin expansion that was more than offset by higher investment and operating expenses to support Solomon's growth opportunities in footwear in both the Americas and Greater China. As expected, the ball and racket segment adjusted operating margin contracted 1,040 basis points compared to the first quarter of 2023 to 4%. This margin compression was due to a deterioration in gross margin driven mainly by discounts, customer mix, inventory cost update, SG&AD leverage, and a difficult margin comparison. Corporate expenses were $18 million and depreciation and amortization was $62 million, which includes $26 million of right of use depreciation. Adjusted net finance costs in the quarter was $76 million, well below the $100 to $110 million we guided to on our last call. This reflects the benefit of hedging strategies and the exclusion of approximately $17 million of one-time finance costs related to our debt restructuring in February. Also note that the $76 million still includes approximately $30 million of other finance costs that won't recur on an ongoing basis. Our effective tax rate in the quarter was 25%. Adjusted net income was $39 million for the first quarter of 2024 compared to adjusted net income of $27 million in the prior year period. Adjusted diluted earnings per share was $0.08 compared to adjusted diluted earnings per share of $0.07 for the same period last year. Turning to the balance sheet and cash flow. We significantly improved our capital structure in Q1, using the IPO proceeds to retire approximately $1.4 billion of debt. Our net debt to third parties declined from $3.2 billion at year end to $1.7 billion at the end of the first quarter. Using the midpoint of our 2024 adjusted operating profit guidance, Our net debt to adjusted non-IFRS EBITDA ratio is already approaching 2.5 times. Please note that we will focus on bringing down the leverage ratio to 1.5 times or better in the next few years through both EBITDA expansion and debt pay down. Our focus on inventory discipline is paying off as inventories finish Q1 in healthy condition. up only 6% year-over-year versus 13% sales growth. This is better than our goal to grow inventories in line with or slower than sales growth, a target we will continue to aggressively pursue going forward. Before discussing guidance, I want to touch on the NV sale announcement and the status of the Amerisports portfolio. As we published in early May, we sold our NV business This is a small franchise serving the premium cycle market and non-core to our portfolio of premium technical sports and outdoor brands. Envy generated approximately $25 million of annual sales, evenly spread across the four quarters. Following this divestiture, we are comfortable with and very excited about our 10 remaining brands. They all still have significant profitable growth opportunities. Although the NV sale and other previous divestitures indicate our willingness to evolve the portfolio when necessary, as certain franchises are no longer strategic and material to our value creation algorithm, M&A is not a priority in the near term. Now, turning to guidance. Given our confidence in our portfolio and its financial performance, We are slightly raising our guidance for the full year adjusted diluted EPS despite a higher than originally anticipated effective tax rate. However, the fact that we have only one quarter of the year under our belt and absorbing the loss of the NV revenue for the remainder of the year, we are not raising full year revenue guidance at this time. However, Should trends continue and stronger than anticipated demand materialize, there is no structural reason to prevent us from continuing to deliver financial performance ahead of our expectations. For the full year, we continue to expect mid-seens revenue growth. Given the upside in Q1, we are more comfortable that we will end the year towards the high end of the mid-seens range. This incorporates greater than 25% growth in technical apparel, mid to high single-digit growth in outdoor performance, including the NV divestment, and low to mid single-digit growth in ball and racket. For the year, we expect FX to be neutral to reported sales growth at the group level. We slightly increase our adjusted gross profit margin guidance, which is expected to be approximately 54%. We also still expect an adjusted operating profit margin of 10.5% to 11% for 2024. Our net finance costs for the year will be $215 million to $225 million, and we expect to have an effective tax rate on an adjusted free tax income of approximately 38% versus the 25% to 35% expected previously. The higher effective tax rate reflects deductibility limitations related to interest expense associated with our debt. We are designing and implementing strategies to reduce our effective tax rate, and we are confident that we will be able to reduce our effective tax rate to a level that is consistent with other global consumer companies. We now expect adjusted diluted EPS to be towards the high end of the previous guidance range of 30 cents to 40 cents per share. Looking at the segments, we expect 2024 adjusted operating profit margin of slightly above 20% for technical apparel, high single digit for outdoor performance, and a low mid single digit adjusted segment margin for ball and racket. Looking at Q2, we expect revenue growth for the group to be approximately 10% led by technical apparel. We expect 2Q adjusted gross margin to be approximately 54% driven primarily by mixed shift benefits and an adjusted operating profit margin of approximately 0%. Based on current interest rates, our net finance cost for the quarter will be $45 million to $50 million and an effective tax rate of approximately 38%. This leads to adjusted diluted EPS in the range of a 4 cent loss to 8 cent loss per share. With that, I'll turn back to the operator for Q&A.

Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to remove or withdraw your question, simply press star 1 again. If you are called upon to ask a question, and are listening via loudspeaker on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. We do request for today's session, in order to allow as many questions as possible, that you please limit yourself to one question and one follow-up. Your first question comes from the line of Lorraine Hutchison of Bank of America. Your line is open.

Thank you. Good morning. Regarding our CARICs, you spoke about outsized growth in footwear and women's. Can you talk about how big these two categories are today? goals for the penetration going forward and any margin implications of growing these categories?

Hey Lorraine, it's Stuart. Yeah, thanks for the question. And very excited about the momentum that we're seeing both in our new footwear line as well as potential that we see for our women's business. So women's is just over 20% of our business. Currently we think that could be upwards of 40% in time. And we've organized a powerful team inside the company to work on that strategy. Footwear, we've been working on it now for about three years. Exciting launch of the three new models that have been designed in our Portland design center that was mentioned on the prepared remarks. And we see that business growing rapidly. Through the end of last year, it was right around 6% of sales. Since we launched the three new models, we've seen our penetration of footwear grow to 10%, I think as James mentioned, and really seeing exciting momentum with these three new models that represent almost 50% of sales since we launched them. We're seeing in the 10 weeks since the launch, our footwear revenues have increased over 100%. We really believe that Arcteryx has a future as a legitimate competitor in the athletic footwear space. And from a market standpoint, you know, it's a relatively small business today. It's slightly diluted to our overall margin, but we think as we grow it, this will come apart with the rest of our product margins. So it's not a real challenge for the margins. And women's margins are very healthy, very strong, and on par with our men's margins as well. So, two important parts of our business and two that we have identified internally as priority.

Thank you.

Your next question comes from the line of Matthew Boss of JP Morgan.

Your line is open.

Great, thanks. Maybe Stuart, just to pick up on that at Arc'teryx, could you speak to new customer acquisition trends that you're seeing at the brand and any change in momentum at the brand as we think about second quarter to date just relative to first quarter performance? And Andrew, on gross margin, so this year 54%, is there any ceiling as we think about gross margin performance moving forward? I think 54 was the long-term target. So just any constraints to further gross margin expansion from here.

Hey, this is Andrew. I'll start off with the gross margin and then turn it over to you. With regard to gross margin, as you saw, our long-term, we thought that we had a meaningful upside on a long-term basis gross margin of about 300 points. And we have, as you can see, as we continue to grow our business and we continue to grow our our fastest franchise and our most profitable channels faster. It is a meaningful compounding effect. We've also talked about the fact that we have planned our business and structured our business around what we believe to be prudent growth rates, but to the extent that demand materializes, we are able to service that demand. There's no structural constraints that prevent us from servicing that demand. So you saw that in Q1 with regard to Arcteryx and its overperformance, again, has a compound impact. So I do think that as we continue to grow that business, it is going to have a strong impact on gross margin that Stuart just alluded to. Even the new categories that we've meant to grow as far as women's footwear, we don't see those deteriorating gross margins as well. We continue to contrive D to C in our outdoor performance footwear.

That's also, and it's built in our guidance also.

Yeah, and Matt, to your other questions on our carry, so really happy with the momentum that we saw in the first quarter, you know, strong KPI fundamentals across regions and channels. We saw the autonomy constant. that we reported, and that was up against some very difficult last year comparisons. And pleased with the balance of the business regionally. Strong results in North America, China, our APAC business as well. So it's a really exciting momentum that we're seeing across really every part of the business. As we look at the second quarter, we're seeing these trends continue. We're lapping the toughest comparisons this year on a quarterly basis versus the second quarter of last year. And yet we're still very pleased with the Omnicom momentum that we're seeing in the second quarter. And, you know, it's really a high-quality, full-price growth story. And, again, we're continuing to see great balance regionally and by channel. We're in a strong inventory position. that we all haven't been throughout all of last year. We're much stronger coming into this year. It gives us the gas in the tank to outperform if it materializes. So in regards to your other question on customer acquisition, we're beginning to see strong customer guest file expansion. very healthy average purchase patterns and retention and acquisition statistics that we measure across every region. So we're pleased with how the guest file is expanding and something that we feel we're cultivating a very strong level of engagement that may offer years to come.

Great, Collar. Best of luck.

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

Good morning, and thank you for taking our question. As you contemplate the stronger momentum in the Arc'teryx brand, how are you thinking about reinvesting upside for future growth back into SG&A versus flowing through that stronger leverage to the bottom line? And then perhaps for Andrew, you spoke to improving future order trends from retail partners in North America wholesale. Can you elaborate on inventory levels today for both ball and racket and outdoor performance and the drivers of your improved confidence for stronger growth in those segments in the back half? Thank you.

Hey, Brooke. It's Stuart. So absolutely from a SG&A standpoint and reinvestment, we are taking a portion of the fee that we're seeing on the top line and reinvesting the business. Given the pace of growth that we're seeing, it's imperative that we are looking into the future and identifying the critical strategic investments that we need to have in order to stay in the trajectory and build the business for the long term. We've seen explosive growth over the last three years that we can only sustain this building a very solid foundation. Areas that we're focused on for investment include our infrastructure, our supply chain, technology, heard us talk about in the past, the investments that we've made to strengthen our supply chain, our ERP systems and technology, our digital platforms for our e-commerce. These are all areas that we're very focused on ensuring are strong and built to the scale of business that we're looking for. And otherwise, just across key parts of our infrastructure from product team to the brand team to our commercial team as well. The business is seeing exciting growth as we've seen and that's only sustainable if we're able to invest. I'd also mention we're seeing very strong store expansion which is another important area of investment. The second quarter we're going to see the highest number of store openings this year. We'll open 17 uh that our 17 new stores uh will close uh four or five stores in the second quarter that'll be that the most uh stores that we've opened probably ever uh and uh in the highest uh accordingly hey thanks brooke this is andrew um and you alluded to uh inventors north american wholesale industry so as we we exited 2023

really nice inventory position. You can see as we move through 2024, inventory was up about 6% year-over-year. But exiting 2023 in that strong inventory position set us up well to be very responsive to our wholesale partners. We understand that the ordering cadence and ordering pattern is off in 2023, given the fact that you know, wholesalers were rushing to inventory exiting 2022 and in the first quarter of 2023. And so that's a tough comparison. But we look at both, you know, our sell-in to our wholesale. And as importantly, we look at our sell-through. Our sell-through from our wholesale accounts has been picking up. It's been leading across, you know, most of the categories that we participate in. And the velocity is starting to pick up and pre-orders are starting. So we have a healthy inventory position. Not age, it's at the levels that we'd like. We're not carrying excess inventory. We cleaned that up and made meaningful investments. Fourth quarter of 2023, we're going to clean up our inventory. We're well positioned. As we stated a couple of times, we do feel like exiting H1 and moving into H2. A couple of things. One, it's an easier comparison for us because of the investments that I just talked about in cleaning up inventory last year. And signals from our wholesale accounts is that They believe that they are cleaning their inventory up, and the data that we get from them is that even in a constrained emission, we're taking share. And you get out of H1 and H2, we believe that we're going to very well take advantage of the inventory in the market.

But our inventory is clean. Next question.

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

Great. Thank you so much. James, I'm wondering if you can comment on the company's performance in China. Revenue in China was better than expected. And I think there's a view of the consumer spending environment in China is kind of choppy. So can you just tell us more about how you're delivering really strong growth in China and if you think that strong growth can continue?

Hey, Jay. This is James. Thank you for your questions. I give a quick snapshot about how China's current retail environment looks like. So actually, overall, Chinese economies still face a big challenge. We usually look at the macro situation, especially in consumer sectors. we have seen certain big slowdown from the luxury segment as well as the cosmetics. However, I mean, in our industry, sports industry, I think the trend still moving to a very positive direction. Even the more and more consumers, they view the health is the most important matter in their lifestyle. So basically, there are a lot of consumers, they participate in the sports at a very high level, and especially for outdoor activities. So this gives us a very strong background to basically to grow our business, especially for Carrick and Salomon, both brands really positioned a very unique premium segment in China outdoor markets. And especially, Carrick's really taking on leadership role in overall Chinese auto segment, and this segment, which basically is booming at this moment. And likewise, Salomon also, in China, also created a new badge based on the great introduction about our sports style footwear business in China market. In a nutshell, I would say the market is getting more challenging, given the overall economic development. And our segment is still very promising. And we see more and more consumers like to spend the money on sports activities, and especially for outdoor activities. So the team here, I mean, still got a very high level of the confidence to continue to drive our business based on our current footprint we set up for these two major brands.

Your next question comes from the line of Ike Bovichow of Wells Fargo.

Your line is open.

Hey, good morning, everyone. Two questions. Andrew, big picture for you. Just in North America, I guess Jay hit kind of the China macro. Just in North America, you know, kind of just what are you seeing versus three months ago? You know, anything to call out by kind of income cohort or price point across the brand? Just kind of trying to understand. It's very dynamic. Just trying to understand if there's anything to read into there, good or bad. And then maybe a quick follow-up for Stuart. Just on the wholesale number for Arcteryx and Q1, just kind of explain... what exactly drove that robust number and then why we should be expecting everything, you know, what exactly, what kind of growth rate should we be expecting that to moderate, you know, through the rest of the year would be great. Thank you.

Yeah, so let me touch on North America again a little bit on my last question, and I'll hand it over to Stuart to talk about what we're seeing.

You know, we really started coming out of 2023,

We were definitely hearing whispers that they thought that H1 was going to be a tough year. Retailers thought that H1 was going to be a tough year. Not as much around consumers, but just around the fact that they needed to work for their inventory. And we set ourselves up to be able to take advantage. We cleaned our inventory up. We made sure that we had premium products available to be able to service the replenish orders going into 2020. So three months later, what are we seeing? Three months later, we are actually seeing that we're on strategy. There are no indications that would suggest that our expectations coming into 2024 were off of it. In fact, I think about the cadence of Q1. The cadence of Q1 was actually on par with our expectations. Look at how we exited Q1 and into Q2. You know, we're starting to see some pickup in velocity. We're excited. As an example, you think about, you know, baseball where we lead the category. We're excited about both our gloves and our bat launches that we have later this season. We're excited about some of the things that wasn't in our plan. So the Caitlin Clark basketball was something that was not part of our plan. Our blade racket regaining the number one position in the U.S. and fell through there. We continue to be excited about what we suspected coming into 2024, and as we've moved through the first quarter of 2024, felt like we built in all the things that we could control in our plan, and we built in the risks associated with the macro environment. It's not been a surprise to us through the end of 2021.

Hey, Stuart. On the wholesale question, I would say, stepping back, We have a new focus on wholesale after several years of building our D2C strategy. We still see D2C as the primary engine for our channel strategy, but we see important relationships, points of distribution for us on the wholesale side, and we're creating a new focus there and feel good about the mix of the business I think in the first quarter, we were about 70% D2C globally. And the upside that we saw in the first quarter from a wholesale standpoint, really our North America region, and it was related to just timing of certain deliveries and shipments. Our wholesale partners saw some revenue that we had originally planned in the second quarter shift in the first quarter, and it was just a tactical move. more to make sure your service counts in a high quality way. But we see a lower growth rate for wholesale over the course of the year, but it's still quite healthy. And we're pleased with the overall mix of business. But we see wholesale as a strategic part of our business that we believe is important.

Your next question comes from .

Your line is open.

Oh, good morning. Thank you very much for taking my question. Andrew, last quarter you gave us very helpful guidance on segment revenues for 1Q. I think you mentioned this morning that for 2Q will lead. That would make sense. For the audience, is there any way you can give us some kind of bridge across the three segments, and then I have a follow-up question on Solomon.

I think it's one of the remarks I talked about with regard to the revenue development. Outdoor performance is high single to low double, low double-digit growth in the second quarter, and fall in racket sports is big single-digit growth.

Also, we talked about technical, you know, plus 20. Yeah, sorry.

Sorry, Omar, I just want to add, so technical apparel over, you know, it's still performing extremely well, even against a difficult comparison. Outdoor performance in ball and racket in the second quarter and much more muted performance in single digits. Yeah, exactly.

Okay. Thank you, Andrew. Thank you, Omar. And then as a follow-up question on Solomon, I know Franco recently departed the Salomon brand. James, could you talk about the criteria you're looking for for a new Salomon leader? How long do you think you expect that search process to last? And what is Salomon's growth trajectory going forward, particularly around footwear? Yeah.

Lauren, I mean, so you know that we are on the way to have a search, okay? For us, the ideal candidate for Solomon Branch as CEO, we really like the person who got the experience on the CEO load.

He saw for a career pattern.

And on the other side, we also like the candidate coming from a similar industry, forward, I would say. strong and the knowledge of how to run the overall . And obviously, the leadership, a strong leadership is also a criteria. So these are three major criteria we are trying our best to find the right candidate. So I assume we will have another six to 12 months for us find the right candidate for the brand. And in terms of the overall growth trajectory for the business, obviously, we will continue to stick on the strategy we give to you guys at the beginning of the year. So basically, the full well will be the key growth engine for us. So given the successful story, we built up both in China and the APEC. We really believe we have a very strong forward franchise built up in the market to address the needs from the cross-border consumers. We positioned the brand as a modern outdoor lifestyle brand. And so I know we also created the new category for the outdoor sneakers. driven mainly by the sports style franchise. I think that part will really build us to grow our business both Europe and North America. So we are on the way to really drive this. We just opened a new Salomon footwear inspired shop in La Marais, which is the main commercial street in the center of Paris commercial areas and with the 100 square meters and the first two weeks sales really out of our expectation. Really demonstrate our new product lines really adjust the needs in the market besides our quality well established kind of outdoor, professional, technical outdoor segment. Okay, so we really believe this kind of strategy can, the products can really drive us to have a higher growth for our four-wheel-based industry.

Your next question comes from one of Michael Benetti of Evercore ISI. Your line is open.

Hey, guys. Thanks for all the detail here today. Appreciate it. I just want to ask one preliminary one before I ask my questions. I think the audio is breaking up a little bit, so we had trouble hearing the growth rates by segment that you gave. The audio actually broke out. If you wouldn't mind just restating the three segments for 2Q, my questions would be, I guess, just to maybe go back to a question you spoke on a little bit earlier, Andrew. I'd be interested to know the trajectory of wholesale through the year, particularly for Solomon and Outdoor, and then I guess Ball and Racket seems to be holding back the revenue growth rates a little bit in the first quarter. You're speaking to sellout improving. Anything maybe on what sellout growth looks like? I guess what wholesale revenue looks like, like when can the growth rate of revenue start to improve and look more like B2C in those two segments? And then I think Americas was guided to mid-teens growth in 2024. I'm curious if there's any change to that, given where first quarter came in.

Hey, Michael, it's Omar. Just to kind of clarify, so we're not giving quarterly, we're not going to provide quarterly detailed segment guidance, just update the annual, but more of a rank order. So obviously, technical apparel is leading the growth in the second quarter for the full year, followed by outdoor performance and ball and racket. And I'd say single digits for the second two, outdoor performance and ball and racket in the second quarter is probably the right way to think about it. In terms of your other comment around mid-teens, America's growth, that must have been a miscommunication. That's not guidance that we provided.

Any thoughts on the wholesale question?

Yeah, Andrew, you can talk about kind of what went wrong.

Yeah, trajectory through wholesale, how does it build throughout the year, ball and racket, or is that the performance?

Yeah, so from a ball and racket perspective, trajectory throughout the year, as we've talked about, wholesale in Q1 was going to be by far our toughest comp. Q2 will continue to be a bit tougher, but we definitely expect at least given guidance that we expect the trajectory to accelerate, especially as you get to Q2 and then Q3 and Q4.

We expect Q3 to be meaningful with time over Q2 and our strongest top quarter with our top quarter at ball and racket.

Similarly, with regard to outdoor performance, we expect a similar trajectory, back half weighted, primarily, and there are different reasons. You know, with Fallen Racket, you're pumping all of the cleanup that I talked about last year from a inventory perspective for outdoor performance. You get in the benefit of, you remember last year, added about 97 stores in Greater China, some of which were wholesale-related stores or department stores that captured in wholesale. So you get the full-year benefit of that. And we're also adding additional stores uh in in greater china this year so we expect an acceleration um as it relates to our wholesale accounts outdoor performance again easier time for ball and racket bookstore ads place outdoor performance operator unfortunately i think that's all we have time for jail understood due to uh loss of time for further questions this concludes the q a session i will now turn the conference back over to omar for closing remarks

Thanks, JL. Thanks, everyone, for joining. We look forward to reconnecting with you on our second quarter earnings call in approximately 90 days.

This concludes today's conference call. You may now disconnect.