Amer Sports, Inc.

Thank you for standing by. At this time, I would like to welcome everyone to today's Amherst Sports fourth quarter full year 2024 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 a question during this time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw your question, simply press star one again. Thank you. I'd now like to turn the call over to Omar Saad, SVP, Capital Markets and Investor Relations. Omar, please go ahead.

Hello, everyone. Thanks for joining AMR Sports Earnings Call for the fourth quarter of fiscal year 2024. Earlier this morning, we announced our financial results for the quarter and year ended December 31st, 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 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 statements in our earnings release and SEC filings. We will also discuss certain non-IFRS financial measures. Please refer to our earnings release for important information regarding such non-IFRS financial measures. including reconciliations to the most comparable IFRS financial measures. We'll begin with prepared remarks from our CEO, James 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, then Andrew will provide a financial review at both the group and segment level, and also walk through our guidance for the first quarter and full year 2025. Our TARIC CEO, Stuart Hazelden, will join for the Q&A session. With that, I'll turn the call over to James.

Thanks, Omar. Fourth quarter was a very strong finish to a remarkable year for Emirates Sports. And we continue to enjoy strong momentum across all brands and geographies. Led by Acterix, our unique portfolio of premium technical brands continues to create white space and take market share and still has significant room for growth. In the fourth quarter, Amerisports Group delivered sales, adjusted margin, and EPS above expectations. We generated 23% sales growth and more than 300 base points of adjusted operating margin expansion led by strong growth and profitability in both the technical apparel and outdoor performance segments. For the year, we generated 18% revenue growth to $5.2 billion and 130 base points of adjusted operation margin expansion to 11.1%, both new records for the company. In Q4, all three of our big brands, Acterys, Salomon, and Wilson saw accelerating momentum. Originally, Great China and APEC continued to deliver strong growth, while both email and North America accelerated. Looking forward, we believe Amerisports is a very uniquely positioned company within the global sports and outdoor space. And several factors give me confidence for 2025 and beyond. First, we own and operate a unique portfolio of premium outdoor and sports brands. Each one is fueled by technical innovation and is positioned at the pinnacle of its segment. Our brands have high conversion and satisfaction, but are still small players with room to grow. Second, Octelix is a breakout growth story with great growth and profitability for the outdoor industry driven by its disruptive direct-to-consumer model and a unique competitive position. The brand is still very under-penetrated globally with a tremendous long-term growth path ahead. Third, we believe that Salomon sneakers have a unique performance position and design within the global sneaker market, but still very low market share and a close potential ahead, especially at this time when consumers are open to trying new sneaker brands. Fourth, Wharton and our winter sports equipment brands have authentic heritage, premium position, high-performance products, and the leading market positions. These high-market share franchises will deliver lower long-term growth in their core equipment business, but they still have large soft goods potential, especially the Wilson's Tennis 360. And fifth, we believe we have a very strong differentiated platform in Great China, where we continue to deliver best-in-class performance with strong momentum across all three brands. Before I turn over to Andrew, allow me to briefly recap key highlights from our three segments. Starting with technical apparel, which is led by our fastest growing and the largest brand, Acterix. Acterix achieved over $2 billion of sales in 2024. and delivered another great result in Q4, with strong growth across all regions, channels, and categories, especially footwear and women, which grow faster than the brand overall. We were encouraged to see the brand momentum in technical apparel, which generated a strong 29% Omnicom in Q4. Our differentiated stores continue to be at the heart of Acterys growth strategy and are critical to how we engage with consumers and the community. Acterys opened the next eight new retail stores in Q4, bringing the total net new store opening in 2024 to 33. Key new locations increased six openings in China, an alpha store in Japan, and our new store in Salt Lake City. Arcteryx store expansion strategy includes a mix of different formats, ranging from multi-layer large-scale ultra flagship stores to small format mountain town stores. For 2025, we plan to keep a similar opening pace with 25 to 30 net new stores. This includes a similar level of growth brainstorm openings as 2024, and closing certain outlets and other suboptimal locations. In Q4, we opened a four-level alpha store in Shinjuku, Tokyo, which is located in the heart of the city with an estimated 3.5 million people walking by daily. The store features the full range of characteristics and and our first ever beta launch in the country, offering a unique concierge service. And the top level has a rebirth service center, our platform for repair, trading, and upcycle gear. In New York City, our Soho Alpha store continues to exceed expectations since its opening in September. Notably, guests are responding very well to the largest Arc'teryx hourware offering in the city, as well as the store's unique rebirth service center. Rebirth continues to be an important strategy for Arc'teryx, driving strong guest engagement and elevating their in-store experience. Globally, in 2024, we opened 11 new rebirth service centers. And in January, We opened our first European mountain town shop in Chamonix, France, and we are very excited by the initial results there. Chamonix is one of the largest mountain resorts in the Alps and attracts a range of visitors from all over the world, from mountain enthusiasts to hardcore mountain athletes. This store comes after 13 years of engaging with European mountain athletes at our Appling Academy in Chamonix every summer, which allowed the brand to build a significant recognition and appreciation with local and global consumers. Shifting to product, footwear continues to be Acterys 5's growing category in Q4, as consumers continue to respond strongly to what we believe is the best line of technical performance footwear designed for mountains. Beyond the breakout success of the project, we are excited that our Syrian running shoe won best trail shoe award from Runners World UK and the Women's Running. Looking forward, we believe Arc'teryx has an even more exciting pipeline for shoe launch in 2025. We believe that will become a sizable and profitable growth avenue for activities both in own retail and certain brand-relevant wholesale accounts. Women also continue to perform extremely well in Q4 with double-digit growth across all regions, outpacing men's and brand growth in total. Soft turns, feminine, and neutral colors were popular with female consumers. Ski and snow products were especially strong with women, as we are seeing significantly improving brand awareness and affinity with women in both the U.S. and Europe. Innovation is at the heart of Arcade's DNA, and it's ranged from cutting-edge products such as our new electric avalanche airbag and award-winning mogul hiking pants to small evolutions of existing product lines such as our insulated version of the crack, which was a hit this winter season. This year, we also further strengthened the leadership team at Arcaris. We announced Matt Bolt as our new chief merchandising officer, an industry veteran with nearly two decades at Nike. We are also building an all-star team to develop our valence brands. which today accounts for 5% of Carrick's revenues, but we think has significant room for growth. This includes our new Valence GM, Marisa Padini, from Vance and the Valence Creative Director, Vance Stubbington, who joined from Lululemon and Ceri previously. We believe the addition of Marisa and Ben to our Valence team marks a pivotal moment in our journey to broaden the reach of our unique valence offering. Lastly, in technical apparel, we recently announced that Stefano Seccom will join April 1st as president of the Peak Performance brand. Stefano has worked at a variety of global sports, fashion, and outdoor brands, including most recently as CEO of the Warwich brand. Moving to the outdoor performance segment, which delivered a great quarter led by Salomon Footwear and Apparel, partially offset by softer trends in winter sports equipment. Salomon Footwear and Apparel now represent two-thirds of the outdoor performance segment, up significantly from 54% in 2022. Salomon's NIC surpassed $1 billion of sales in 2024. but it's still tiny relative to the $180 billion global sneaker market. We believe Salomon sneakers have an authentic and a unique market position with technical features designed for the mountain, but also great for everyday use. Our unique style and the technical attributes are resonating with consumers at a time when they are more receptive than ever to wearing new sneaker brands. Long-term, we expect Salomon softwares to grow double-digit annually. In Q4, Salomon footwear and apparel accelerate in every region led by Great China, APAC, and EMEA. Direct-to-consumer remains the strongest growth channel for the brand, and the sports style offering continued lead to footwear growth. Salomon apparel, bags, and socks are also experiencing great momentum. Originally, Salomon soft goods are experiencing great sales through in Europe, and we have noticed two new important trends in Europe worth calling out. Number one, Salomon performance sneakers are experiencing a demand recovery in Europe. And number two, Salomon pre-orders have shifted to solid positive growth after negative trends during the last couple years. when retailers were relying on advanced orders to chase demand. We are increasingly seeing Salomon sneakers sell through very well at retail, which is translating to stronger order books. We also opened two new Salomon stores in the quarter in European epicenters, London and Milano. In Asia, direct-to-consumer continues to be the critical growth channel for Salomon. Our Salomon compact shop format developed in China is working very well, and we believe these stores generate significant higher sales per square foot versus industry average. We are continuing to expand Salomon shops in Great China, opening 31 net new Salomon shops in Q4, including both owned stores and partner stores, bringing our total count to 196 in Great China. We believe Salomon has the opportunity to grow to several hundred locations over time in just Taiwan and the two cities. And in 2025, we expect to open about 100 new Salomon shops in Guichina, including Panadol's. Our new Salomon flagship in Shanghai is performing very well in the first few months. This store represents pinnacle expression of the brand in China. which combines footwear and apparel in a comprehensive offering and a highly immersed brand experience. In the U.S., the world's largest sneaker market, we continue to lay the groundwork for Salomon's footwear long-term opportunity. Our first U.S. store, a pop-up shop in New York City, continues to perform very well. We are seeing strong early brand buzz with key sneaker retailers across New York City And we expect to open at least one more Salomon shop in New York this year. The wholesale channel will be important to unlock Salomon potential in the U.S. And we are beginning to successfully leverage Salomon brand heat to expand our presence with top tier existing customers, such as Nord Stream and KISS, as well as new retailers, including shoe patterns and the shears. In winter sports equipment, we continue to win with both leisure skiers and the world-class professionals. Atomics had great momentum at the World Championships in Australia this month. Atomic athletes Michaela Shuffrin and Breezy Johnson won gold on our iconic wrestler skis. Moving on to ball and racket highlights. We are pleased that ball and racket growth trends continue to improve in Q4, with growth accelerating to 22%, driven by strong trends in racket sports and also lapping inventory queries at the end of last year. Our Tennis 360 continues to resonate very strongly with consumers, from performance rackets to our apparel and footwear offerings. In 2024, Wilson returned to the number one U.S. market share in performance records, led by the recent break in the larger federal record launch. And in January, we launched Crash V3, which is also off to a strong start. Also, Wilson's software continues excellent growth, doubling in 2024. Apparel and footwear now represent 10% of fall and racket segment sales. As I mentioned, we are seeing strong reception to our Western tennis apparel and footwear offering, especially in the US and China. In Q4, we opened the next six new Western brand shops in China, bringing the total owned and partner store count in the region to 43. In 2025, We plan to open approximately 50 Wilson tennis 360 shops in China, between owned and partner laws. In North America, we opened a tennis 360 concept store in the Dallas North Park Mall in Q4, which has been performing very well. And we also will begin testing tennis apparel in approximately 56 sporting goods locations this year. including a tennis 360 shopping shop in Miami. With that, I will turn it over to Andrew.

Thanks, James. With over 20% revenue growth, healthy margin expansions, strong free cash flow generation, and the continued transformation of our capital structure, the fourth quarter of 2024 marked a financial turning point in Amerisports' journey. Although expected FX headwinds, will weigh slightly on our 2025 reported financial results. Continued strong momentum from our highest margin technical apparel segment and accelerating momentum in outdoor performance soft goods, plus strong and stable positions from our market leading hard goods franchises gives me confidence that Amerisports is well positioned to deliver another year of strong and profitable growth in 2025. Let's first take a moment to reflect on the key highlights of 2024. Amerisports delivered 18% growth in 2024 with broad-based strength across brand segments, regions, channels, and categories. Arc'teryx and Salomon Footwear continued their very strong trajectories, and Wilson returned to positive growth. We delivered meaningful adjusted operating margin expansion from 9.8% last year to 11.1% in 2024, driven by the mixed shift towards technical apparel. and we also significantly reduced our leverage, effective tax rate, and annual interest expense. Now turning to our Q4 results. Amerisports grew sales 23% in Q4 on a reported basis and 24% in constant currency. The strong group sales performance was led by technical apparel, while outdoor performance and ball and racket also delivered very solid growth in the quarter. By channel, The group continues to be led by D2C, which grew 46% led by Arc'teryx and Salomon Footwear. We saw a solid wholesale growth of 6% year over year, led by improving trends at Wilson. Regional growth was led by Greater China, which increased 54%, followed by Asia Pacific, which grew 52%. The Americas accelerated to 15% growth, and EMEA grew 8% in Q4. We are pleased to again achieve over 50% in growth in Greater China for both Q4 and the full year. There are several key reasons why we are confident in our future growth in this important consumer market. Number one, our brands compete in one of the healthiest and fastest growing consumer segments in China, the premium sports and outdoor market. The outdoor trend in China continues to be very strong, attracting younger consumers, female consumers, and even luxury shoppers. Additionally, the China consumer landscape today has evolved into a market of winners and losers, with some brands doing extremely well, including ours. Our still small specialized brands are known for their expertise, high quality, and technical innovation, which resonates with Chinese shoppers. Thirdly, and most important, We believe we have a great team in China. Our deep expertise and unique, scalable operating platform gives us a significant competitive advantage across the portfolio. Turning to profitability, adjusted gross margin increased 370 basis points to 56.4% in Q4, primarily driven by positive segment, product, regional, and channel mix shift combined with lower discounting actions. Going forward, we expect our highest gross margin franchise, Arc'teryx, to continue to be the biggest underlining driver of our ongoing gross margin expansion. Adjusted SG&A expenses as a percentage of revenues delevered by 20 basis points and represented 43.3% of revenues in Q4. Technical apparel and outdoor performance SG&A deleverage was driven by investments to support growth, and was partially offset by ball and racket and headquarters expense leverage. Driven by the strong gross margin expansion, we generated a 330 basis point increase in our adjusted operating margin from 10.3% last year to 13.6% in Q4. Adjusted corporate expenses were $12 million, down from $17 million in Q4 of last year. DNA was $77 million, which includes $37 million of ROU depreciation. Adjusted net finance costs in the quarter was $64 million and included $24 million of FX losses on intercompany balances as a result of the significant appreciation of the U.S. dollar in Q4. Going forward, we will enhance our hedge program to include these intercompany transactions. In the quarter, our adjusted income tax expense was $67 million, which equates to an adjusted effective tax rate of 42%. Adjusted net income was $90 million in Q4 compared to an adjusted net loss of $31 million in the prior year period. Adjusted diluted earnings per share was 17 cents compared to adjusted diluted loss per share of 8 cents last year. Turning to segment results, technical apparel revenues increased 33% to $745 million led by Arcteryx. Broke was fueled by 44% to D2C expansion, including a 29% Omnicomp, a great result comparing against a 33% Omnicomp in the fourth quarter of last year. Arcteryx DTC momentum continues to be fueled by both new and existing consumers across all regions, channels, and product categories. Technical apparel wholesale revenues were roughly flat, driven by timing of shipments compared to the prior year. We continue to have strong demand for Arcteryx from the wholesale channel. Regionally, technical apparel growth was led by Greater China, followed by Asia Pacific, the Americas, and EMEA. All regions grew strong double digits fueled by Arcteryx's retail expansion. Technical apparel adjusted operating margin expanded 130 basis points to 24.3%, driven by higher gross margins from favorable product, channel, and regional mix, and supported by savings and freight costs. This was partially offset by SG&AD leverage driven by investments in technology, marketing, and operations to support continued D2C expansion, including new store openings. Moving to our outdoor performance segment, which saw revenues increase 13% to $594 million, mainly driven by very strong performance in Solomon footwear, apparel, bags, and socks. The DTC channel grew strong double digits driven by door openings, especially in Asia Pacific, Greater China, and EMEA, as well as e-commerce developments in all regions. This was partially offset by a decline in winter sports equipment due to soft reorders in Europe resulting from poor snow conditions and also a material FX drag due to its large euro exposure. By channel, outdoor performance D2C grew 58% led by Greater China and APAC, and wholesale improved to plus 1% from a slight decline last quarter. The wholesale results are impacted by continued soft wholesale market conditions in AMEA and North America for winter sports equipment. 2024 was challenging for the winter sports equipment market overall due to slower trends in North America where ski equipment sales are rebasing after a strong run through and beyond COVID. This is in addition to cautious orders in EMEA after two tough snow seasons in Europe. However, given our great brands and products and scale advantages, we believe we are taking market share, especially in Atomic. Our assumption is that the winter sports equipment market will be relatively flat in 2025. Longer term, While the winter sports equipment business will be a slower growth business for us, the industry remains healthy and we expect this business to grow low single digits annually. As a reminder, winter sports equipment now represents one-third of the outdoor performance segment. Outdoor performance adjusted operating profit margin expanded 190 basis points from last year's record performance to 11.1% this year. driven by solid gross margin expansion given the higher mix of footwear, which carry a higher gross margin than winter sports equipment. This gross margin expansion was partially offset by SG&AD leverage to support growth investments. Moving to ball and racket. Revenue increased 22% to $296 million, driven by racket sports and soft goods. The strong growth was also helped by easier comparisons from last year when Wilson went through a heavy liquidation period to normalize inventory levels. We are very pleased with the strong rebound, but with caution that 20 plus percent is not a sustainable growth rate, and we continue to expect ball and racket to grow low to mid single digits long term. By category, the strong double digit growth was led by our marquee racket sports franchise, as well as our small but fast-growing soft goods segment, which now represents 10% of ball and racket sales. We are seeing very strong momentum in tennis 360, especially in North America, greater China, and APAC. We also saw strong growth in Eagle Shield apparel, Fidel, and pickleball. Inflatable balls and baseball also grew in the quarter, while golf declined slightly. Faller Racket Segment Adjusted Operating Profit Margin increased 660 basis points compared to the fourth quarter of 2023 to negative 3.7%, primarily driven by higher full price sales given inventory clearance in the second half of last year when the channel inventories were elevated. SG&A leveraged thanks to tight cost controls on higher revenue. Turning to the balance sheet. Funded by our recent $1 billion equity raise and strong cash conversion in Q4, we paid down our entire $1.2 billion of term loans before year end, and ended the quarter with $600 million of net debt, down from $2 billion at the end of Q3. Using our 2024 adjusted operating profit, our net debt to adjusted EBITDA ratio was approximately 0.8 seven times at the end of Q4. Looking forward, paying down non-deductible interest debt remains a high return usage of excess cash. Also, our focus on inventory discipline is paying off. Inventories rose 11% in 2024, well below our 18% sales growth. Driven by strong profit growth and disciplined working capital management, We generated 425M dollars of operating cash flow in 2024, which translated to approximately 150M dollars of free cash flow for the year. I would also like to provide an update on our sourcing exposure in light of the contemplated new tariffs on imports from China. Canada, Mexico and Vietnam in 2024. Sourcing to the U.S. from China, Vietnam, Canada, and Mexico combined represented approximately 20% of global sourcing. China and Vietnam make up the majority of this exposure, while sourcing from Canada and Mexico to the U.S. accounts for less than 1% of the total. Similar to when we experienced a rise in China tariffs in 2018 and 2019, our ball and racket segment will be most impacted. Given our various mitigation levers, including price increases, supply chain flexibility, and partnership with vendors to share the impact, we believe we are well equipped to weather a variety of tariff scenarios. Now, turning to guidance. We are off to a strong start in 2025 and are confident in our financial outlook for 2025. As we have said on previous earnings calls, Should strong trends continue and better than anticipated demand materialize, we will be well positioned to deliver financial performance ahead of our expectations. For the full year of 2025, we expect reported group revenue growth between 13 and 15%, which assumes that 250 basis points drag from unfavorable FX impact at current exchange rates. This incorporates approximately 20% growth in technical apparel low double-digit revenue growth in outdoor performance, and low to mid single-digit growth in ball and racket. We expect adjusted gross margin of 56.5% to 57% for the full year, driven primarily by mixed shift benefits. We expect adjusted operating profit margin of approximately 11.5% to 12%. Given macro uncertainties, including FX and tariffs, our current margin expectations are more focused toward the low end of this margin range, at least until we have a quarter or two under our belts. For the segments, we expect an adjusted operating margin of approximately 21% for technical apparel, approximately 9.5% for outdoor performance, and 3% to 4% for ball and racket. You should assume full-year net finance costs of approximately $120 million and an effective tax rate of approximately 33%. We expect adjusted diluted EPS of 64 to 69 cents per share, which is based on approximately 560 million fully diluted shares. Also, we are assuming DNA of $350 million, including approximately $180 million of ROU depreciation. To support our new store expansion, ERP implementation and distribution and logistics investments, CapEx is expected to be approximately 300 million dollars in line with 2024. Turning to the first quarter guidance, we expect reported revenue growth for the group in the range of 14 to 16 percent, which assumes a 300 basis point drag from unfavorable FX impact at current exchange rates. We expect adjusted gross margin to range between 56.5 and 57% in Q1 of 2025, and an adjusted operating profit margin of 11 to 11.5%. Our net finance cost for the quarter will be approximately $30 million, and an effective tax rate will be approximately 33%. We expect adjusted diluted earnings per share of 14 to 15 cents per share. With that, I'll turn it back to the operator for Q&A.

Thank you so much. And at this time, I would like to remind everyone, in order to ask a question, press star and the number one on your telephone keypad. Once again, star one. In the interest of time, we ask that you please limit your questions to one primary question and one follow-up. And with that, we will pause just a moment to compile the Q&A roster. It looks like our first question today comes from the line of Lorraine Hutchinson with Bank of America. Lorraine, please go ahead.

Thank you. Good morning. Can you update us on the longer-term store targets for Arc'teryx? You've had a lot of success opening new stores, and it sounds like that will continue this year. But as you think about each of your geographies, are there any updated thoughts on how many stores you could have in each?

Yeah, hey, Lorraine, it's Stuart. You know, we were pleased with our new store performance in 2024. It was consistent with the strategy that we had laid out as part of the IPO process last year. And as you heard in the prepared remarks, we intend to continue to open, you know, generally the same amount of stores each year as we look forward. We've had 33 net new stores in 24, so I think we've got it 25 to 30. for 24, I'm sorry, for 25. The overall view on what's possible by each region is pretty much the same. We were calling for the potential of around 200 stores in North America, 75 to 100 in Europe, 75 to 100 in APAC outside of China. And I think we're looking at around 150 to 200 in China, mainland China now. So a little more bullish on mainland China. And yeah, I think that's how we're viewing it today. I think some of those estimates are likely conservative, and we'll continue to reevaluate them as we see success in each of those geographies.

Thank you.

Okay. Thanks, Lorraine. And our next question comes from the line of Matthew Boss with JP Morgan. Matthew, please go ahead. Thanks, and congrats on another nice quarter.

So, Stuart, could you elaborate on drivers of the comp acceleration to nearly 30% at Arc'teryx in the fourth quarter? Any change in demand trends post-holiday for the brand? And can you speak to the progression of inventory and in-stocks? to further support demand into 25, just where you stand today and the progression as the year moves on.

Thanks. Yeah, thanks, Matt. So the comp drivers, you know, we saw broad-based strength across all of our comp KPIs. The biggest factor was traffic, and that's true in-store as well as online. That was the biggest driver of the comp. You know, big increases in traffic across all regions and channels. We did see very healthy conversions. So typically when you see big traffic increases, it can pressure conversion. We saw modest increases in conversion, again, in-store and online. You know, we had an e-commerce result in Cyber 5 that set a new record for the company. And we saw increases in AOV and average selling prices. So the KPIs are generally green across the board. So and in terms of demand post-holiday, what I would say is we've seen a very strong continuation of momentum out of the fourth quarter into the first quarter. um we've seen uh you know the the success that that we posted in the in the fir in the fourth quarter continuing into q1 um the uh i mean obviously we're an outerwear company you know the balance you know of our our business uh is weighted to um to outerwear and so this is the sort of the time of the year when we're you know when we're we really uh see our most significant sales opportunity. So we've been pleased with the momentum we've seen in the Q1. And then from an inventory standpoint, we ended the year really clean with inventory growth well below our revenue growth. As I've said on previous calls, we We certainly left some revenue on the table in 2024. We put a lot of focus on how we planned our inventories in the 25, particularly in footwear, where we had some really painful out-of-stock positions through much of 24. So we think we'll be in a much better position for footwear into 2025. And we've got exciting new models that we'll introduce. And so the story continues in terms of how we're developing our footwear strategy.

Great. Best of luck.

Thanks, Matthew. And our next question comes from the line of Brooke Roach with Goldman Sachs. Brooke, please go ahead.

Good morning and thank you for taking our question. As you look to sustain the strong revenue growth momentum that you have across each of your brands, can you elaborate on the investments that you're looking to make in SG&A throughout the year? Where should we be focused on the investments that you are making and how should we be thinking about the cadence and payoff of those investments longer term? Thank you.

Hi, thanks. This is Andrew. As you saw last year, we continue to make investments in SG&A. And when you think about just really the combination of our investments, we're focused on new store build out, focused on increasing uh the growth and and the um connection to our consumers both online and through new store build out and then yeah there's some infrastructure things that we're focused on as well as far as our our erp system and our our logistics and supply chain as you think about 2025 the investments that we've made in 2023 and 2024 We believe that that those will start to scale. And so we're calling SG&A in 2025 to be relatively flattish.

Thanks so much.

Thanks. And our next question comes from the line of Paul Lejouet with Citi. Paul, please go ahead.

Hey, thanks, guys. Hey, Stuart, I'm curious how you're thinking about growth in F25 and the footwear and women's side of the business. And if you could remind us where you are in the percent of sales in those two segments within Arc'teryx. And then any changes or updates to the distribution strategy for Arc'teryx on the footwear side. Thanks.

Yeah, thanks, Paul. Yeah, the footwear strategy remains a big focus for us, you know, as we've talked about. over the last year. We saw exciting growth over the course of 2024, and we could have probably delivered higher sales, particularly for our CRAG model, had we had better in-stocks. The business grew over 60% in footwear over the course of the year. And we saw for much of the year, the penetration had reached nearly 10%. We finished the year a little bit under 10% overall and see the potential for the business to be over 20% in footwear over the next several years. A women's business, You know, likewise, as we mentioned on the call group, faster than our overall business, definitely faster than our men's business. And we saw the sales there, you know, approaching, you know, almost 40% in the fourth quarter. The overall penetration grew a couple hundred basis points in the fourth quarter and for the full year. And that was reaching sort of the mid-20s, sort of 25% overall for women's. as a percent of total sales. So continue to see the opportunity for our women's business versus our men's business to achieve a 50-50 mix, if you will, of apparel. If we look at just apparel, we think we have the potential for that business to become quite balanced by gender. The other questions that you had in terms of the distribution strategy for footwear Yeah, I mentioned this I think previously. We see wholesale as uniquely important for our footwear strategy. It's how consumers like to shop for footwear in terms of being able to see a range of brands across a broader assortment than just an individual brand. So we think that expanding that distribution, particularly in the U.S., is going to be critical for the overall success. So we're investing in the team and the resources and the capabilities that will enable us to compete more effectively. And at the same time, we're going to create, I think, an exciting experience within our own channels for our footwear. And I think it will overall complement not only the footwear success, but just the overall brand awareness. This will be a driver of engagement with consumers beyond just outerwear. It'll make us more relevant in the spring-summer months. It'll create a new anchor for our business to be relevant in the warmer part of the year as we support our hike and our climb apparel assortments. So it all fits together in an important way.

And what happened to the door count on the footwear?

You know, it's so early for us in this. You know, we've seen a lot of appetite with, you know, our existing wholesale partners, REI in particular is what I'd call out. We're seeing increases in the amount of doors that are offering our Terex footwear. But it's still relatively small in the grand scheme of things, and we're excited as we're talking to not only outdoor retailers, but also specialty footwear retailers. So more to follow on that, Paul, as we develop those plans in 2025 as we're talking more about it.

Great. Thanks, Paul. And our next question comes from the line of Laurent Basilescu with P&B Paribas. Mark, please go ahead.

Good morning. Thanks very much for taking my question. James, Andrew, I wanted to ask about regional performance. Americans and America both grew mid-single digits in 2024. It seems like there's real momentum in these two key markets in the prepared remarks across the three brands. Should we assume a similar mid-single digit growth rate for 2025? I know you don't guide specifically by region, but any color there, should we kind of assume that it could be a little bit higher growth for 2025. Thank you.

Yeah, we continue to expect in 2025 all of our regions to continue to grow well and continue to see positive growth across each of the regions. Obviously, you saw The almost 50% growth in APAC and in Greater China, and obviously the mid-singles in EMEA in North America, and we don't see any real pullback in any of those metrics going forward. Okay, thank you. Sorry, go ahead. There was meaningful recovery. uh in north america uh as it related to wilson given the um given the um the inventory uh pipeline was pretty full in 23 actually in 23 and so back half of 24 you saw that recovery and and so a lot of that you know inflection was you know notably from our strong business uh in north america with wilson and for email i just want to add one more point for email and we have a very solid plan to

are speed up our overall software focus on footwear business penetration in email markets you can tell from q4 we already see seeing a big improvement in email in terms of the overall sales revenue growth from solomon softwares especially from footwear so um that the trend is still carry on so so for email i i do believe the overall growth pattern will also be strengthened in 2025.

Very helpful, James and Andrew. And then following the December primary offering, are there further opportunities, Andrew, to reduce your finance costs and tax rate over the next 12 to 18 months? Where do you want leverage ultimately to go? And where do you think the tax rate can go over the next couple of years? Thank you.

Yeah, good question. You know, as I've always, as I've continued to say, you know, even though we had meaningful pay down in our debt and really strengthen our balance sheet, you know, paying off the remainder senior secured note with excess cash is still a very high and accretive use of cash given the fact that that doesn't carry a tax shield. So, we will continue to think about ways and prioritize that, you know, that focus. with regard to the second question was around the tax rate. We are continuing to drive that. As you can see, the rate is down into the low 30s now, and we see that we will continue to drive that toward our statutory rate closer to 27%.

All right. Thank you, Laurent. And our next question comes from the line of Michael Benetti with Evercore.

Michael, please go ahead. Hey, guys. Congrats on a great quarter. Let me just ask for first quarter. Could you just help us think through the revenue assumptions by segment and any one-time dynamics to think about in the first quarter that we should have in our model? And I'm also curious if you could break down a little bit how you're looking at outdoor this year. You said low double-digit growth, but I think you said you expect the winter equipment category to be flat this year. So maybe just a little bit of help understanding how you're planning that for the year.

hey michael it's omar so we're only guiding segments uh on an annual basis um you know kind of leave the modeling in your hands as you think about the different growth factors um but no major call outs either to you know across segments that would you know you know that you should really think about when you're modeling the segments across across the quarters.

We'll continue to remind that second quarter, from a cadence perspective, we believe that 2025 is going to be a little more balanced as you compare it to 2024, where you saw accelerating growth each quarter. And remember, the second quarter is our smallest quarter, both from a top line revenue as well as a profitability perspective.

Okay. Let me try a couple different questions. Andrew, you mentioned the sourcing partners. What is the biggest sourcing region into the U.S., just so we understand as this tariff situation continues to evolve? It sounds like the countries you listed are pretty small overall. And then when you said you currently expect EBIT margin at the low end of the guidance, was that due to something in the gross margin outlook, or should I more think about that as there's some sticky SG&A and we're conservatively thinking about revenues at the low end? It doesn't help in how you're thinking about that.

Michael, I'll answer the second question first. And we talked about focusing toward the low end early on. It's just macro uncertainties. I mean, we believe that we'll continue to expand EBIT in line with our ALGO. But as we get out of the first and second quarter, you continue to look at some of the uncertainties around the macro. We just don't want to get ahead of our atomic fees too quickly. On the second point, We talk about our biggest sourcing regions. They are, as I talked about in my prepared remarks, you know, I talked about 20% coming from those regions of Mexico, Canada, Vietnam, and China. Obviously, Vietnam and China, with China being slightly bigger, yeah, makes up the lion's share of that. Michael, did I hit on all your points?

Okay. Yeah. Okay. And our next question looks like it comes from the line of John Kernan with TD Cowan. John, please go ahead.

Hey, good morning, everybody.

Congrats on a great year.

Andrew, can you unpack the gross margin expansion a bit more? Obviously, channel mix has played a huge factor. The gross margin was up over 450 basis points in the back half of the year. You're guiding it up at the high end to 57%. How should we think about

drivers of the gross margin expansion one in the back half of 2024 that drove that upside and then two how to think about the drivers of the gross margin uh to that 57 range in fiscal 25. okay so from a gross margin perspective um consistently arcteryx our highest margin business as our fastest growing business continues to be uh the um the overwhelming driver of the gross margin expansion What you would have seen in the back half of 2024 was the lapping of what was coming out of 2023 in the sense that we participated meaningfully in a promotional environment, and especially in our ball and racket segment last year. And so you saw some expansion of just lapping that comp. your year. So the lion's share on a steady state basis continues to be arterics. To a lesser extent, you start to see some mixed shift expansion within the segment. So as footwear becomes a larger portion of outdoor performance, it carries a higher margin than the rest of the segment. And as The soft goods, so the tennis 360 franchise that we have in ball and racket, as that continues to grow, that's now 10% of the ball and racket segment. You'll start to see margin expansion there. But again, I close out with Arterix margin profile and the rate of its growth and the proportion that it has into the total portfolio is the largest driver of the margin expansion.

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

Excellent. Thank you.

All right. Thank you, John. And that appears to be all the questions we have. So I will now turn the call back over to management or closing comments.

Thanks, everyone, for joining. See you for our one-two call in about three months.