Amer Sports, Inc.

Thank you for standing by and welcome to the armor sports second quarter fiscal 2024 earnings conference 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 a question during this time simply press star followed by the number one on your telephone keypad if you would like to withdraw your question again press the star one Thank you. I'd now like to turn the call over to Omar Saad, Vice President of Finance and Investor Relations. You may begin.

Hello, everyone. Thanks for joining AMR Sports Earnings Call for the second quarter of fiscal year 2024. Earlier this morning, we announced our financial results for the quarter ended June 30, 2024, and the release can be found on our IR website, investors.amrsports.com. A quick reminder to everyone that today's call will contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements reflect our current expectations and beliefs only and are subject to certain risks and uncertainties that could cause actual results to differ materially. Please see the Safe Harbor Statement in our earnings release and SEC filings. We will also discuss certain non-IFRS financial measures. Please refer to our earnings release for important information regarding such non-IFRS financial measures, including reconciliations to the most comparable IFRS financial measures. We'll begin with prepared remarks from our CEO, James Zhang, and CFO, Andrew Page, followed by a Q&A session until approximately 9 a.m. Eastern. James will cover key operational and brand highlights, and Andrew will provide a financial review at both the group and segment level, and also walk through our updated guidance. Our Tarek CEO, Stuart Hazelden, will join for the Q&A session. With that, I'll turn the call over to James.

Thanks, Omar. We are pleased to announce strong second quarter results. with sales margin and the EPS ahead of our guidance. The momentum behind our unique portfolio of premium sports and outdoor brands continues, and we are generating top-tier growth and the margin expansion within our industry. Our global end markets are healthy and growing, and we are taking market shares, positioning us to deliver another record year in 2024. We generate 16% sales growth in Q2, or plus 18% on our constant currency basis led by our flagship brand, Arc'teryx. Although we benefit from a two-point shift of wholesale shipments from 3Q into 2Q, our underlying growth momentum is clear. We achieved an area of 3% adjusted operation margin, also well above our expectations. as we continue to enjoy strong gross margin expansion driven by the pricing power of our brands and a healthy mix shift toward our highest margin franchise, Acterys. Looking forward, several facts give me confidence for the rest of 2024 and beyond. First, we own and operate a unique and valuable portfolio of premium outdoor and sports brands. Each one is fueled by technical innovation and the position 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, Octelix is a breakout growth story with unprecedented growth and profitability for the outdoor industry. and it is charting new territory with its disruptive DTC model and a strong competitive position. Acterys' world-class products plus the authentic and deep connection with consumers is allowing us to have strong success in large new categories, such as footwear and women's, and also incredible momentum across all major geographies. Third, Solomon Wilson, and all of our other brands are also healthy. They have longstanding authentic heritage, premium positioning, and high performance products. Both Salomon and Wilson have leading market share within their heritage equipment business, but still have very small soft goods franchises with large growth opportunities ahead, especially in Salomon forward. And fourth, where other consumer companies are having challenges in Great China. We generally more than 50% growth there, and we continue to well outperform the market. Importantly, we are seeing strong momentum across all of our three big brands. A few reasons I'd like to highlight why we are doing so well in China. Number one, our brands compete in one The health and the fast-growing consumer segments in China, the premium sports and outdoor markets, the outdoor trend in China is very strong. Even beyond the traditional male consumer, the outdoor category is attracting younger consumers, female consumers, and we also see more luxury shoppers spending in our categories. The China consumer landscape today has evolved into a market of winners and losers, with some brands doing extremely well and others underperforming. Our few small specialized brands with deep expertise and high quality and performance resonate strongly with Chinese shoppers. Thirdly, and the most important, we believe we have the best team in China. Our deep expertise and unique Scalable operating platform gives us a significant competitive advantage across portfolio. Before Andrew's financial discussion, I'd like to share some key highlights from our segments in Q2. Starting with Technic Apparel, which is led by our fastest-growing and now largest brand, Acterys. Acterys delivered another very strong quarter with healthy growth across all regions, channels, and categories, especially footwear, women's, and high-shirt jackets. Acterys' brand momentum was most evident in the very strong Omnicom performance against a very difficult growth comparison from last year. Globally, Acterys is well executing its retail expansion plan. opening 17 net new brand stores in one edge, including 13 net new locations in 2Q. Bringing the total owned brand store count to 125. Key new locations this quarter included Broad Street in Toronto, as well as the La Marais and the La Marienne in Paris, which have emerged as standout locations with high engagement from local consumers in France. We also opened three stores in Great China and the one Los Angeles stores in Brentwood. All of these new stores have performed exceptionally well. We are also excited to open our New York Soho flagship store this week with grand opening set for early September. This new alpha store will feature our most pinnacle expression of rebirth yet. including shop ball re-gear installed for the first time, a large reverse service center facility for care and repair, and much more. Shifting to products, recall that Acterys recently launched its first footwear line that was designed, developed, and sourced by our in-house footwear team. We continue to be extremely pleased with the reception to what we believe is the best line of technical performance footwear designed for the mountain athletes. Since the launch, penetration of footwear to Acterys total revenues has jumped from 6% to 10%, often selling out of our most popular styles, especially the crack. Because of the unique position of Acterys footwear in the market, the strong sales in our DTC channel and the increased interest from wholesale accounts Our confidence is growing that footwear will become a very sizable and profitable growth avenue for the brand, both in home stores and the brand-relevant wholesale accounts. Women's continues to perform extremely well, growing faster than the brand overall. Women's outperforms is driven by soft share and the wind share, particularly downer and squamish franchises. Women's Shares of Sales is already more than 20% of the business, and we see great upside in the category as we add more colorways, models, and style options that resonate with her. In May, Arc'teryx also recently opened a cutting-edge creation center in Tokyo. This design space will serve as an innovation hub reflecting local creativity, culture, and outdoor community. A quick update on our new EPE product, which comprise with the ban on PFAS, forever chemicals traditionally used in waterproof materials. Sales of our iconic better jacket have accelerated since switching to compliant material. Our customers love the look, feel, and the performance of the new material. Acterys also continues to execute cutting-edge community engagement programs. This summer, Acterys launched gym residence in climbing gyms from New York to Paris to San Francisco as part of the brand Summer of Climb. Investments in brand awareness and activations that fit of the global excitement and the popularity of climbing is driven awareness and the position of Acterys, which is at the heart of this phenomenon. Moving to the outdoor performance segment, which also delivers upside to our expectation led by Solomon Fulwell, partially offset by softer trends in winter sports equipment. A quick reminder that the outdoor performance is comprised of two business that operate in unique environment. First, winter sports equipment, which includes ski, snowboard, and snow sports equipment across the Solomon, Atomic, and Amara brands. These are long-standing winter sports equipment franchise that already have high market share, a very strong competitive position, and the industry leading scale and the profitability, although less growth runway ahead given the already high market shares. Then we also have the and apparel franchise, which is a higher margin, faster-growing business. but still with very low market share of the global sneaker market. Today, it represents approximately 66% of outdoor performance segment sales, up significantly from 54% in 2022. We believe Salomon sneakers have an authentic and unique market position with technical features designed for the mountain, but also great for everyday use. Salomon shoes offer consumers unique styles and technical attributes at a time when consumers are more receptive than ever to wearing new sneaker brands. Looking forward, we expect Salomon soft gears to grow double-digit annually over the long term. In the second quarter, Salomon footwear showed especially strong traction in Great China and in APEC. where consumers love our sports style offering that combines a distinct trendy look with high technical features. In China, we have created an entire new category called Outdoor Sneakers, which especially resonates with young consumers. We opened 27 salami shops in Q2, including both owned stores and licensed stores. In Great China, bringing our total count to 136. We expect to end 2024 with about 200 owned and licensed Salomon stores in China, with the opportunity to grow several hundred locations just in Tier 1 and Tier 2 cities. In 2Q, we also opened a new shop in Osaka, Japan, which has become one of highest productivity shops, well received by both local consumers and the tourists. In the brand's home market of France, ahead of the recent Paris Olympics. We opened our Salomon flagship store on the Champs-Élysées in addition to our recent store opening in Les Marais. Both new stores have performed extremely well in the first month and they represent the highest amount of consumers have to engage with the Salomon brand in its own environment. The Champs-Élysées store has created a landmark presence to showcase the breadth and the depth for Salomon's unique offering in its home market, while Le Marais Shoppe is a footwear-only concept store, which has proven to be a particularly successful model that we will replicate across EMEA with three more stores in Paris, two in London and two in Milan. We are also excited to share that we will open in October a pop-up store in New York City in Soho, which will see the market with our first brand store in the city ahead of our plan to open one to two permanent New York stores in 2025. As you know, we are undergoing a measurement transition at Salomon, and I'm operating as interim brand CEO where we perform a comprehensive search for the next brand leaders over the next 12 months. Over four months in the low, I'm confident in the Salomon brand and our team as we continue to optimize the go-to-market strategy and the sales structure to maximize potential of our Salomon forward business. Moving on to ball and racket highlights. We will pre-select ball and racket return to growth in 2Q as we expect driven by improving selling to the retail channel. Still in its early stage, our 10360 strategy is proving to be a key driver for the Werson franchise led by apparel and footwear growth, accelerating expansion of Werson 10360 shops in China and a key new product launch. We are particularly excited that Roger Fisher is back and active with the Werson brand again. Roger will have his own line of premium performance rackets, bags, and accessories at Wilson called RF, which launched on his birthday, August 8. As you know, Roger is a living legend in tennis, and this new product line has been met with a very enthusiastic response from the market. Wilson is also launching the first tennis shoe designed explicitly for female tennis players called the Intrigue. This shoe combines the comfort and the support of modern form technology without losing any of the side-to-side stability required for tennis. Our 360 tennis athlete, Marta Kostjak, will wear it for the first time in the U.S. Open later this month. Western tennis and the Western China had a big moment recently during the Summer Olympics when Qingwen Zheng won gold in playing with her Wersen racquet. This feat didn't go unnoticed in her home countries as sales of Wersen racquets rose 20 times that day. There are 19 million tennis participants in Guichina. Last but not least, Catherine Clark is also elevating brand heat as the face of Wersen Festival. Her signature basketball collection sold exclusively online so far, sold out in record time. And we expect our catering club franchise to accelerate in H2 with the launch in select wholesale accounts. With that, I will turn it over to Andrew.

Thank you, James. I'm excited to discuss our strong Q2 performance and the setup for the remainder of the year. Our underlining results exceeded our guidance on sales, gross margin, operating margin, and earnings per share, giving us confidence to raise full-year guidance. Before diving into our financial performance in Q2 and going through our updated guidance, I want to quickly discuss two timing items that affected Q2 and the cadence of our guidance for the rest of 2024. there was a two-point top-line benefit from early shipments of certain wholesale orders that moved into Q2 from Q3, driving approximately one cent of EPS upside. Second, we had a four-cent EPS benefit in Q2 related to the resolution of uncertain tax positions that were contemplated in the four-year guidance that we previously provided, but were expected to be resolved in Q3 and Q4 this year. Excluding these timing shifts, our underlying operations still drove a strong beat in the quarter, which is reflected in our full year top and bottom line guidance rates. With that, let me focus on Q2 results and guidance. The fast growth of our high margin Arcteryx franchise is elevating the financial profile of Amherst Sports Group in total. This dynamic allows us to deliver strong, profitable growth for shareholders while reinvesting in the many long-term growth opportunities across our portfolio. At the group level, Amerisports sales grew 16% in Q2 or 18.3% at constant currency, well ahead of expectations we set back in May, even excluding the two-point wholesale shift from Q3. The strong group sales performance was led by technical apparel and outdoor performance. By channel, the group continues to be led by DTC, which grew 40% led by Arcteryx. Group wholesale revenues improved plus 2% year over year. Regional growth was led by Greater China, which increased 54%, followed by Asia Pacific, which grew 45%. EMEA grew 1%, and America's return to slight growth was sales up 1%. Turning to profitability, adjusted gross margin increased 200 basis points to 55.8% in Q2, primarily driven by positive segment, product, channel, and regional mix shift. The company's highest gross margin business, Arcteryx, continues to grow significantly faster than the other brands. the biggest driver of gross margin expansion. As expected, adjusted SG&A expenses as a percentage of revenues increased 210 basis points and represented 52.9% of revenues in Q2, mainly driven by SG&A deleverage at ball and racket and higher spend related to D2C investments, including new store openings and higher retail personnel costs. We were pleased to achieve an adjusted SG&A rate in Q2 that was better than what was contemplated in our guidance last quarter, a reflection of the expense leverage in our business model when we deliver meaningful sales upside to our forecast. These factors allowed us to generate a 50 basis point increase in our adjusted operating margin from 2.4% last year to 2.9% in Q2 2024, above our guidance of approximately 0%. Adjusted corporate expenses were $25 million versus $6 million in Q2 of last year, driven by higher personnel costs due to increased headcount and share-based compensation. Depreciation and amortization was $63 million, which includes $29 million of ROU depreciation. Adjusted net finance cost in the quarter was $45 million, at the low end of the range of $45 to $50 million we guided to on our last call. In the quarter, we had an adjusted income tax benefit of $42 million, which included the resolution of certain discrete tax items that I mentioned above, resulting in a $20 million benefit to net income or approximately $0.04 per share. Adjusted net income was $25 million in Q2 compared to an adjusted net loss of $86 million in the prior year period. Adjusted diluted earnings per share was $0.05 compared to adjusted diluted loss per share of $0.22 last year. We exceeded the midpoint of our Q2 EPS guidance by about $0.10. Please keep in mind, this includes the $0.05 of timing shifts that I discussed that were already contemplated in our full-year guidance. Now turning to segment results. Technical apparel revenues increased 34% to $407 million, led by Arcturus. Growth was fueled by 39% D2C expansion, including a 26% Omnicop, a great result comparing against an 80% Omnicop last year in the second quarter. Our Omnicop metric incorporates growth from both owned retail stores and e-commerce sites that have been open at least 13 months. Arc'teryx D2C momentum was fueled by both new and existing consumers and both strong traffic and conversion trends in stores and online. The Arc'teryx brand continues to experience broad-based strength and is outperforming across every region, channel, and category. D2C remains the core growth engine, but we also experienced strength in the wholesale channel, which grew 24% for the segment. Regionally, technical apparel growth was led by Asia Pacific, followed by Greater China and the Americas, which were partially offset by declines in EMEA. Arterix is generating strong results in Europe, especially new store openings, but this is off a small base. was offset by a decline in peak performance which continues to go through a brand reset to focus on greater full price selling technical apparel adjusted operating margin expanded 110 basis points to 14.2 percent driven primarily by gross margin from favorable channel and geographic The technical apparel segment margin also benefited from modest SG&A leverage on Arc'teryx's strong sales growth while continuing key growth investments. Outdoor performance segment revenues increased 11% to $304 million, driven by strong double-digit top-line performance in Solomon footwear and apparel and in the D2C channel, particularly in Asia Pacific and Greater China. This was partially offset by a decline in winter sports equipment. Outdoor performance sales also benefited from earlier than anticipated shipments that shifted from Q3 into Q2. By channel, outdoor performance C2C grew 55%, while wholesale sales declined slightly, negatively impacted by slower pre-orders in the North American sporting goods and ski channels, which increasingly relies upon replenish orders. 2024 will be a slightly softer year for winter sports equipment due to slower trends in North America with ski equipment sales are rebasing after a strong run through and beyond COVID. This is in addition to cautious orders in EMEA after two tough snow seasons in Europe. Given our great brands and scale advantages, we expect to take market share. Although we don't expect winter sports equipment to be a high growth business, the industry remains healthy and the consumer demand for ski vacations remains consistent and strong irrespective of weather, especially as resorts have become adept at making their own snow. Winter sports equipment now represents one-third of outdoor performance and long-term we expect this business to grow low single digits annually. Regionally, Outdoor performance sales growth was led by Greater China, APAC, and EMEA, offset by a decline in Americas, which has been affected by softer pre-orders as retailers increasingly rely on replenish orders. The outdoor performance segment adjusted operating profit margin expanded 380 basis points to negative 2.1%. This was driven by a combination of gross margin gains and SG&A leverage. Gross margin gains were mainly driven by a favorable region and channel mix, lower discounts, and we also leveraged expenses, including payroll, administrative, and IT costs. Moving to Ball and Racket. Revenue increased 1% to $283 million as Wilson returned to growth as expected after a double-digit decline in Q1. driven by improving wholesale sell-in, our tenant 360 strategy continues to be a key driver for the Wilson franchise, led by footwear and apparel growth, accelerated expansion of Wilson tenant 360 shops in China, and some of the new footwear and racket product launches James mentioned. Golf also returned to growth, driven by the Americas and EMEA, led by premium clubs. The growth in sportswear, rackets, and golf was partially offset by declines in baseball and inflatables. Ball and racket segment adjusted operating profit margin contracted 160 basis points compared to the second quarter of 2023 to 1.1%. This margin compression was due to SG&AD leverage, which was driven by retail investments in the U.S., China, and Korea. footwear and apparel investments, and timing of advertising and promotion spend. Generating consistent margin performance is a key management priority for Ball & Racket given its low single-digit growth profile. We are pleased by our lean inventory position in Ball & Racket, which is down significantly versus last year and positions us for much better profitability in the second half, especially in Q4 when we cycled against our high discounts from last year. Looking ahead, we are confident that our market leadership position and flow of innovative products positions fall in bracket well as market inventories reach balance and retailer orders reaccelerate in the second half, especially in Q4 when we face our easiest comparison and also have our strongest pipeline of new products. Turning to the group balance sheet and cash flow, we ended the quarter with $1.8 billion of net debt. Using the midpoint of our 2024 implied adjusted operating profit guidance, our net debt to adjusted non-IFRS EBITDA ratio is already approximately 2.6 times. Deleveraging our balance sheet remains a priority, and our goal is to reduce our leverage ratio to 1.5 times or better over the next few years through both EBITDA expansion and debt pay down. Our focus on inventory discipline is paying off as inventories finish Q2 in healthy conditions, up only 2% year-over-year versus 16% reported sales growth. Within our target to grow inventories in line with or slower than sales. Now, turning to guidance. Given our strong second quarter results and confidence in our brand and their financial outlook, we are raising our guidance for the full year sales, adjusted operating margin, and adjusted diluted EPS. As we said on previous earnings call, should strong trends continue and better than anticipated demand materialize, we will be well positioned to deliver financial performance ahead of our expectations. For the full year, we now expect revenue growth of 15 to 17%, which incorporates greater than 30% growth in technical apparel, mid to high single digit revenue growth and outdoor performance, and low to mid single digit growth in ball and racket. We are increasing our adjusted gross profit margin guidance from approximately 54% to approximately 54.5%. We are also raising our guidance for our full year operating margin and now expect adjusted operating margin toward the high end of our previous 10 and a half to 11% range. Our net finance costs for the year will be 200 to $220 million, including approximately $15 million of non-recurring finance costs in the first quarter of 2024. we still expect to have an effective tax rate on adjusted pre-tax income of approximately 38% for the full year of 2024. But the rate will be higher in the back half of approximately 50 to 55%. We continue to be very focused on designing and implementing strategies to reduce our effective tax rate. We're confident that we will be able to reduce our effective tax rate to a level that is consistent with other global consumer companies over the next few years. We now expect to have full-year adjusted diluted EPS in the range of 40 cents to 44 cents versus our previous guidance of towards the high end of 30 to 40 cents. Please keep in mind the 5 cent timing shift into Q2 from the second half as you incorporate our revised full year and initial Q3 guidance. Looking at the segments, we expect a 2024 adjusted operating profit margin slightly above 20% for technical apparel, high single digits for outdoor performance, and low to mid single digit adjusted segment margin for ball and racket. Now looking at Q3, We expect Q3 adjusted gross margin to be approximately 54% driven primarily by the mixed shift towards technical apparel and an adjusted operating margin between 11% and 12%. Based on current interest rates, our net finance cost for the quarter will be $45 million to $50 million, and we will have an effective tax rate on an adjusted pre-tax income of 50% to 55%. We expect adjusted diluted EPS to be 8 to 10 cents per share. With that, I'll turn it back to the operator for Q&A.

Thank you. We will now begin the question and answer session. If you 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 withdraw your question, simply press star 1 again. We ask that you please limit yourself to one question and one follow-up. Your first question comes from the line of Brooke Roach from Goldman Sachs. Your line is open.

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

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

James, maybe you could address Brooke's question.

Yeah, I add certain comments based on Stuart's explanation. Okay, I think Acterix in China, it's still playing a clear leadership role in the segment we are sitting. but not only on the segment, but also the whole industry. So we really grow tremendous our sales through in Q2, in the first half, and really outperform among all the sports brands in the markets. And the trend we see, it's continued to carry on and it's not slowed down, okay? The overall, especially on the comp shop blows pattern in China. So it's obviously the Q2, I mean, second quarter, it's still relatively sub-season among the four quarters. But we also see, I mean, we are in the middle of the Q3 already. So we also see big growth patterns in China markets. So I think, as Stuart mentioned, it's still a preliminary stage for us, not only in China and the rest of the world. So we have a very good confidence to continue to grow the experience cross-border in the world.

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

Your next question comes from a line of Matthew Buss from JP Morgan. Your line is open.

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

Okay, Matthew, thank you for your questions. I just want to highlight here, okay, we got a very unique proposition in the market. For Amerisports, we really own two distinguished business franchise, which is hard goods, we call the equipment business, as well as the soft goods. So I would say, first of all, I mentioned about the hard goods business or equipment business. For both winter sports equipment the worsened i mean we all i mean you guys all can tell we all got very uh strong market share in the segment we are sitting even the um the gross runway still a bit small but we have a very good high a good level of confidence to secure continue to amplify our market share in the future in the in the in the in the segment we are sitting not only on the winter sports equipment but also in rackets, boards, and also the increase we mentioned. Okay, so I think that the team got a very good level of confidence to continue secure our leadership in these kind of delicate segments. For soft goods part, I think, I mean, the great performance from Apcarix already demonstrate our unique proposition at the premium segment of the, outdoor industry we are sitting. Okay, so Actelis really give out the very strong momentum in the pinnacle sectors in outdoor segments and continue to grow more than, I think, 30% in the markets and really leading the whole growth in the industry. So I think it's a, I will say it's a hero brand at this moment in the markets. And as we just mentioned, we will continue to drive It's just the first phase for us. There's still a great runway for us to continue to accelerate Octavius Close in the future. For Solomon, it's another new area. As I mentioned, for soft goods, Solomon, especially footwear, we are still at the preliminary stage. And we are the leaders in trail running sectors. But you guys all know the market size of the trade running is relatively limited versus the rest of the segments, forward segments. So, Solomon, we got kind of a very unique opportunity to create a new category. We just mentioned we call the outdoor sneakers categories. Okay, so it's kind of a new segment. And we had a tremendous successful story. In the past two years, we run this in China. And really, I mean, the shop, we say the Solomon Footwear Compact Shop really created a great buzz in China market and taking our leadership roles on all those niche segments in the market. And last year, I mean, we literally, we were double the count of our shop penetration in China market. by the end of year, we foresee 200 shops in China. And meanwhile, I mean, we just opened the first Salomon footwear shop in France, okay, in Paris. La Marais shops, the first compact shops also outperformed a lot, okay, when we opened in May. And we also try to, have this kind of format to check out the market acceptance. So we will open another two shops in London and three more in Paris and one more in Milano and two more in Milano to further verify the models. So the footwear opportunity for Salomon it's kind of the greatest opportunity for us to unlock in the future. So we see a great, we also see a great momentum for us in the future. And for Wilson, I mean, as we just mentioned, we created the segment Wilson 10360. While we continue to secure our leadership for racket business, we also introduced Wilson sportswear, which is Wilson apparel and footwear to the market. And we also see a good light when we introduce this kind of format, both in North America and in China, specifically in China. But it's still an infant stage. We'll continue to explore the opportunities. In a nutshell, we will see the soft goods business, I mean, especially combined all the three major brands, we will see a tremendous growth potential for our business in the future.

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

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

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

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

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

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

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

Thank you so much. I want to add one more color on this. So for the brain part, okay, all these three major brains, they got a very healthy immature position at this stage. Okay. We don't have a, we see the growth and we also build a relevant immature position to feed up the future growth, but it's all under good control right now.

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

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

Let me give you the high-level answer on this. We got multiple brands doing business in Europe. Each brand got a different proposition. I start with the Solomon. Solomon in Europe, I do believe, okay, so this year we will continue to grow our footwear business at the right level. And while we also face the level of challenge from winter sports equipment. So that part, so it's kind of a variance. So for Solomon Europe specifically, it's more or less mid to high single digit growth, okay? For Acterix, I think we just started with a very small base. I think Acterix, we will grow meaningfully from Europe, but it's still a small base for us. And Wilson, more or less, we will keep the low to mid to low single digit growth for our business. Peak performance, we will face a level of the challenge. We want to find a good way to mitigate the risk, okay? So especially our business really focus on Nordic area. So in Russia, okay, I think in Europe, business as a whole, I mean, when we look at this, it will be like missing the digital in Europe for the whole year. It's kind of our look for the blue perspective.

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

That's right.

Okay, cool.

All right, thank you.

Yeah, performance still represent a very small percentage of the pain is for us. Anyway, so as a whole, okay, so, but we, yeah.

Okay, thank you, guys.

Your next question comes from a line of Lauren Vasilescu from BNP Paribas. Your line is open.

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

Yeah, Lauren, I just want to reinforce, I mean, we are just at the preliminary stage to expand our Solomon direct-to-consumer channels, mainly from our own retail expansion in China first. We see a good example from China, and then from that success, we also expand the model to Japan and Asia-Pacific. And we started to try also in Europe from May this year, okay, in Paris first. So it's a still infant stage for us outside of China. But luckily, the shop we opened, both in Osaka and in Paris, they all outperformed. So it gave us a good level of confidence to continue to try this kind of a format we call the salomon salomon forward compact shop okay and in u.s i will say we will open pop-up shop in october this year in new york city uh in soho areas that's the first try for us we will test that model to see how the market responds and i hope next year we can open uh I mean, within five shops, maybe, okay, one to two in New York City and another one or two shops in the rest of the city in North America. And to further verify the models we experienced in China. But it's still too early to tell in North America specifically. Very helpful, Jun. But China, as we mentioned, we will, quickly glow our penetration, and by the end of the year, we will have 200 dedicated Solomon 4-well compact shops for both home retail as well as the franchise shops. That's great to hear, James.

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

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

Very helpful. Thank you very much. Thank you, Andrew.

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

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

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

Yeah, let me. I think the overall, I mean, economic situation still got the level of the challenge okay so uh but different region got different situation uh for me i my understanding uh china it's a it's a it's a still overall uh it's getting through uh so people still need to figure out okay so how we overcome uh kind of a short-term difficulty the challenge as a whole But on your side, as I just mentioned, the industry we are sitting in, the sports industry, is still at an optimal situation. And the participants level from China markets continue to grow. And the overall sports industry, we believe, still grows more or less 5% to 8%. on CAGR for coming three years. So I, so we think that the market size do there. Okay, so and it just says how the other some brands are doing extremely good job taking the shares from the some brands are doing a social job. So it's a, it's kind of a shifting, okay, it's kind of a shifting. And the, the Europe, I think it's, it's all about it's kind of a, my understanding, it's kind of a stable markets, relatively stable markets. And it's all about how you created the kind of excitement, the level of excitement you created. And they all, I mean, the markets do welcome new players, which can create a distinguished value to the consumers. And the customers also love to try certain new brands, especially in the industry we are sitting. So we still see a good level of opportunities. likewise in North America, North America. So I, I, I still, uh, Boris Charlotte. Okay. So I, I think it's, um, uh, it's, uh, yeah, the, the macro situation is to chat a bit level of challenge, but the consumer is still looking for some, uh, as I say, okay. So the, some, uh, some newcomers and, uh, and, uh, with, uh, innovative tech, tech, high, high technical, uh, products and, uh, and in sports industries, and we still see good opportunities for us. So I'm pretty optimistic still for the overall industry, I mean, in our industry, and especially the segment we are sitting, we still see a great runway for us to explore the potential in the markets.

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

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

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

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