Q3 2024 Amer Sports Inc Earnings Call
Hello, everyone and welcome to M or sports third quarter fiscal 'twenty 'twenty four earnings call. Please note that the scholarship being recorded after the Speakers' prepared remarks, there will be a question and answer session. If you'd like to ask a question during that time. Please press star one on your telephone keypad.
Thank you I'd now like to hand over to Omar Saad Vice President of Investor Relations you May now begin.
Speaker Change: Hello, everyone. Thanks for joining AMR sports earnings call for the third quarter of fiscal year 2024.
Speaker Change: Earlier this morning, we announced our financial results for the quarter ended September 32024, and the release can be found on our IR website at investors the AMR sports Dot com.
Speaker Change: 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.
Speaker Change: Please see the safe Harbor statement in our earnings release and SEC filings we.
Speaker Change: We will also discuss certain non <unk> financial measures. Please refer to our earnings release for important information regarding such non <unk> financial measures, including reconciliations to the most comparable <unk> financial measures.
Speaker Change: We will begin with prepared remarks from our CEO.
Speaker Change: CFO, Andrew page, followed by a Q&A session until approximately nine a M eastern.
Speaker Change: James will cover our key operational and brand highlights the Andrew will provide a financial review at both the group and segment level and also walk through our updated guidance.
Speaker Change: <unk> CEO Stuart Hazelton will also joined for the Q&A session with that I'll turn the call over to James.
James: Thanks Omar.
James: It was very strong for amateur sports group across all operating segments geographies and channels.
James: Technical brands are taking market share and creating white space in sports and outdoor markets around the war.
James: We are executing well against our largest growth opportunities in our tariffs and the start to move forward.
James: Our market, leading <unk> and wreckage and winter sports equipment franchise, both grow faster than expected.
James: Amer Sports group generate 17% <unk> in Q3 led by our flagship brand <unk>.
James: We achieved a very strong 14, 4% adjusted operating margin.
James: Above our expectations.
James: We continue to enjoy strong gross margin expansion driven by the pricing power I'll follow up Brad.
Speaker Change: First the mix shift towards our highest margin right.
Speaker Change: Tariffs.
Speaker Change: I think our all the performance segment Solomos soft goods continues to grow double digits led by footwear, while Paul and Jeff.
Speaker Change: <unk> improved reaching double digit growth in Q3.
Speaker Change: We believe <unk> is very uniquely positioned the company within the global sports and outdoor space.
Speaker Change: Several factors give me confidence for the rest of this year and beyond.
Speaker Change: First we own and operate a unique and valuable portfolio of premium outdoor and sports brands.
Speaker Change: In the field by a technical innovation and positioning.
Speaker Change: <unk> segment.
Speaker Change: Our brands have high engagement conversion and the satisfaction with consumers, but are still relatively small player on the global stage with significant room to grow.
Speaker Change: Secondly, <unk> is a breakout growth story with standout growth and profitability for the outdoor industry charting new territory with its disruptive DTC model and the unique competitive position.
Our growing installed network critical products and a deep community connections allow us to continually attract new consumers to our brand and also have success expanding into newer categories, such as footwear and women's.
Speaker Change: Third.
Speaker Change: We believe that Solomon brand borrowing in the mountains.
Speaker Change: Our unique technical performance position and the design aesthetic within the global Sneaker market for steel has low market share and a long runway of growth ahead.
Speaker Change: Especially at this time when consumers are more open to new sneaker choices than ever before.
Speaker Change: Boy.
Speaker Change: And our winter sports equipment brands have longstanding authentic heritage premium position high performance products, and a leading market position because they already enjoy strong equipment market share.
We'll deliver slower long terms growth in their core equipment business.
Speaker Change: You have a large soft goods potential, especially in the western Tennessee 60 line.
Speaker Change: And the fifth.
Speaker Change: While other consumer companies face challenge in Great China in.
Speaker Change: In Q3, we generated 56% growth there continued to outperform the market.
Speaker Change: We are seeing strong momentum across all of our three big brands.
Speaker Change: <unk> strong consumer confidence following the government stimulus actions.
I'd like to highlight some of the key reasons behind our standout performance in greater China.
Speaker Change: Number one our brands competing in one of the houses and the fastest growing consumer segment in China.
Speaker Change: The premium sports and outdoor market.
So although the trend in China continues to be very strong attracting younger consumers female consumers and even luxury shoppers.
Speaker Change: Additionally.
Speaker Change: The China consumer landscape today.
Speaker Change: All being to a market of winners and losers.
Speaker Change: Seven brands.
Speaker Change: <unk> extremely well and the address underperforming.
Speaker Change: Our still small specialized price on non core properties.
Speaker Change: Properties high quality, and the technical innovation, which resonate with Chinese shoppers.
Speaker Change: Thirdly, and most importantly, we believe we have a great team in China.
Our deep expertise and a unique scalable operating platform gave us a significant competitive advantage across the portfolio.
Speaker Change: Now coming on to some key highlights from our segments in Q3.
Speaker Change: Starting with technical apparel, which is led by our fastest growing and now largest brand tariffs.
Speaker Change: <unk> delivered another very strong quarter with healthy growth across all regions channels and categories, especially footwear women's and hardship decades.
Speaker Change: Brand momentum was most evident in its strong performance against a very difficult growth comparison from last year.
Speaker Change: Our tariffs is executing well, it's the retail expansion plan.
Speaker Change: Putting 90 net new brand stores globally in Q3, bringing the total owned brand store count to 134.
Speaker Change: Key new locations, including four openings in the United States two in Canada, two in Australia, two in China, and one in Germany.
Speaker Change: Terrorists opened another brand store at obsession, Ireland more in Newport Beach, California.
Speaker Change: <unk>, two <unk> stores in Los Angeles, and epicentre market for us.
Speaker Change: The brand is resonating well with consumers, giving us confidence that terex has large growth potential even in warmer markets.
Speaker Change: Doubling down on our commitment to the community we are hosting our first ever tariffs back country Academy in Mammoth, California. This winter.
Speaker Change: After the fraction of the opportunities we see in this region.
Speaker Change: In Europe, we have opened five new stores this year, so far and we are taking.
Speaker Change: Exciting results.
<unk> strong affinity with both <unk> and the locals.
Speaker Change: Paris local consumers.
Speaker Change: We are facing our store in laminate.
Speaker Change: 13 years of engaging with branch and the Europe thing our opinions at our climbing a paddle in Germany has generated significant brand recognition and appreciation with French consumers, even before we opened our first store there.
Speaker Change: We also opened our New York City flagship store at 580 Broadway.
Speaker Change: Timber.
This new offer features our most critical expression of rieber yet.
Speaker Change: <unk> shuffle <unk> installed for the first time.
Speaker Change: A large <unk> service center facilities for clear ended appear.
Speaker Change: Our unique installed coffee shop.
Speaker Change: This unique collection delivers the brand in a slightly new REIT in the U S. Taking cues from the success of our retail format in China.
Speaker Change: Present, a much of the assortment by activity instead of by category, which creates a strong energy and engaging presentation of our product portfolio is performing very well relative to our internal expectations in its first few months.
Speaker Change: Shifting to products.
Speaker Change: Innovation is at the heart of <unk> DNA.
Recently, we were thrilled that our mogul motorized hiking pain was recognized by time magazine as one of the best inventions of 2024.
Speaker Change: Designed to support users India out of the equation pursuit mode.
Speaker Change: <unk> stands for mountain coal and there is a worst first payoff powers hiking pants.
Speaker Change: <unk> integrate robotics with carbon element and it was engineered by the tariffs advanced concepts tea alongside external partner escape.
Speaker Change: Which is the <unk> spinoff dedicated to tackling mobility challenges.
Speaker Change: We believe this technology has the potential to increase accessibility to outdoor sports in a meaningful and scalable way regardless of physical ability.
Speaker Change: Also our terex footwear continued elevated trajectory since launching at FERC in house line growing strong double digits across all regions and the channels in Q3.
Speaker Change: <unk> continues to be widely successful.
Speaker Change: Including our Lady.
Eric Murphy for cooler fall and winter temperatures.
Speaker Change: This is a great example of how we will add new dimension to our key franchise.
Speaker Change: With ideas and inspiration coming through collaboration with our teams.
Speaker Change: We also introduced a new high Chew brought Okada co pay which has also deliver strong early results.
Speaker Change: Overall, we are extremely pleased with consumer reception to what we believe is the best line of technical performance footwear designed for mountain Terry.
Speaker Change: And because of its unique position in the market very strong sales in our DTC channels and.
Speaker Change: The enthusiastic interest from key wholesale accounts.
Our confidence is growing that footwear, we have become a very sizeable and profitable growth Avenue for our carriers, both in retail and the certain brand rather than wholesale accounts.
Women's continues to perform extremely well growing very strong double digits outpace.
Speaker Change: Outpacing overall Franco's underrepresented.
Speaker Change: Cost of sales in Q3.
Speaker Change: This outperformance was driven by seasonal relevant color in the U S.
Speaker Change: Buying with breakout new styles like the clock here pen.
We continue to see significant upside in the category as we add more models color ways and the style of sheet.
Speaker Change: Resonate with her.
Lastly, an update on our cutting edge community engagement.
Speaker Change: Yes.
Speaker Change: This summer our carriers launching Kim residents in timing teams from New York to Paris to San Francisco as part of the brand's summer of cloud.
Speaker Change: The investment in brand awareness and activity that fifth of the global exciting and the popularity of timing occurring awareness cultural relevancy and the position at the heart of this phenomenon.
Speaker Change: Our academies continued to generate strong packs and the affinity for the brand, including our largest ever Academy in the French Alps in Chamonix with 650 participants ranging from beginners to world class climbers.
Speaker Change: Moving to the outdoor performance segment.
Speaker Change: Which also delivered a solid quarter and outperformed our expectations led by Sullivan soft goods and that products, partially offset by sulfur change in sodom of winter sports equivalents.
Speaker Change: The higher margin fast growing startup of footwear franchises.
Speaker Change: It represents a very low share of the global snack market.
Speaker Change: Today Solomos soft goods represent approximately two thirds of the outdoor performance segment up significantly from 54% in 2022.
Speaker Change: We believe Solomon sneakers.
Speaker Change: <unk> centric and a unique market position with technical features designed for the market, but also great for everyday use.
Speaker Change: Our unique style and the technical attributes resonate with consumers at a time when they are more receptive than ever to wearing new sneaker brands.
Speaker Change: Long term, we expect Solomon softwares to grow double digits annually.
Speaker Change: In Q3 settlement footwear continued to show strong traction and great, China, and APAC, where consumers love our sport style offerings.
Speaker Change: Buying our distinct trendy look with higher technical features.
Speaker Change: In China, we have created a new category called Aldo sneakers.
Speaker Change: Which especially resonate with young consumers.
Our Solomon contact shop format in China is also working very well.
Speaker Change: Profitable starting day, one and four times, the more productive per square foot.
Speaker Change: Industry average.
Speaker Change: We are continuing to expand salamone shops in greater China.
Speaker Change: <unk> 39, net new salary shops in Q3, including both older stores and partner stores, bringing our total count to 165 and great China.
Speaker Change: Approximately two so we expect to end 2024 with approximately 200 settlements ports in China with the opportunity to grow to several hundred locations overtime, and just tier one and two cities.
Speaker Change: We have also begun testing that soluble compact shop format outside China loading up a new location in APAC, and the EMEA, including Tokyo, Singapore, and Lamere shop in Paris.
Speaker Change: We recently opened our first settlement flagship in Shanghai.
Speaker Change: <unk> thousand 400 square foot Pinnacle brand expression in the <unk> shopping district, <unk>, which combines both footwear and apparel in a car.
Speaker Change: Comprehensive offering and highly immersive brand experience.
Speaker Change: We are also excited to share that we opened a pop up shop in the heart of New York City and Soho in October.
Speaker Change: This is our first branch stores in the U S and that comes ahead of plan to open one to two permanent stores in 2025.
Speaker Change: Deciding the old tariff Soho location to Saddam Australia performed very well so far with strong response from both tourists and locals.
Globally, we plan to end the year with four saloma shops, including both owned and partner stores that were in the comp from last year.
Speaker Change: In Europe, <unk> footwear, and apparel are performing well, especially driven by strong reorders.
Speaker Change: And the cross sell them when you're selling through well. This is also driving our higher pre order rates.
Speaker Change: In both EMEA and North America Solomon.
Speaker Change: <unk> sports style is still early in its long term development.
Speaker Change: We have evolved our go to market organization in both markets.
Speaker Change: Now clearly separating the winter sports equipment sales team from the Solomon footwear tea, which should help us reach our potential in both categories given.
Speaker Change: <unk> end markets.
Speaker Change: We continue to be very excited about our opportunity to translate our strong brand heat into broader commercial success in the U S. The largest sneak markets in the world.
Speaker Change: As we evolve as a company we are announcing two leadership changes to the Amer sports executive structure effective January one 2025.
Speaker Change: First we are pleased to announce that Dr. <unk> current chief product officer for Sullivan has been appointed President and CEO for Saddam.
Speaker Change: Additionally.
Michael.
Speaker Change: Saracen Chief operating Officer, and Executive Officer for Amer Sports has decided to step down from his current position and will return to his formal Lowe as advisor to the board of directors of Amer Sports.
Speaker Change: We conduct a comprehensive search for the next settlement CEO, including both internal and external candidates and conclude that the key young is the right person to take settlement to the next level.
Speaker Change: I have worked closely with beyond the last several months as interim CEO. He.
Speaker Change: He has built a strong reputation during his 20 aes at settlement.
<unk>, a well respected throughout the company and the industry.
Speaker Change: <unk> analyzed in the French airports and avid skier and Outdoorsmen.
Speaker Change: Embodies the core values of Salomon.
Speaker Change: He brings a strong track record of operational excellence and strategic innovation in diverse leadership lows across Solomon, including sales product innovation and both softness in the winter sports equipment.
Speaker Change: More importantly beyond was instrumental in the February of Salamone footwear sales over the last five years, including creating and developing our key sports style category, which is now approaching one third of Saddam of liquor sales.
Speaker Change: Have the right team and strategy in place and I have full confidence in <unk> to lead a settlement for the next stage of its growth journey.
Speaker Change: Moving on to <unk> and Iraqis highlights.
Speaker Change: We are pleased that the poor and the like it's growth trends continue to improve.
Speaker Change: In Q3.
Speaker Change: Double digit growth was driven by strong change in record sports, especially performance tenants boosted by our Roger Federer record line and growing 10, its popularity in China totaling 10, Chamberlain's Olympic Gold medal.
While still in its early stage, our Tennessee Honey 60 strategy is proving to be a key driver for our western franchise led by apparel and footwear growth and accelerating expansion of tenants 360 shops in China.
Speaker Change: We saw record sales at our U S. Open shops earlier, this fall and our new line of larger fetters premium performance records bags and accessories lodging August has been extremely successful in the first month.
Speaker Change: Driven by strong growth in our key performance Iraqis segment.
Speaker Change: Inflatables returned to growth in Q3 at.
Retail inventories normalize and the retail begin accelerating depression orders.
Speaker Change: Our catering clock collaboration continues to drive brand heat and a strong sell through.
Speaker Change: With that I will attempt to over to Andrew.
Andrew Page: Thanks, James IMAX.
Andrew Page: I am excited to discuss our strong Q3 performance and the positive revisions to our full year 2024 guidance as well as our first look at our outlook for 2025.
Andrew Page: Before I dive in and I'll quickly address a couple of housekeeping items first.
Andrew Page: In Q3, we updated the presentation of our credit card processing fees.
Andrew Page: Were previously recorded as Contra revenue and have now been reclassified as selling general and administrative expenses.
Andrew Page: The request has no impact on operating profit.
Andrew Page: We have included a slide in our earnings deck with a schedule of the annual impact since 2021, and the quarterly impact since 2023.
Andrew Page: Second Q3, adjusted operating margin benefited by approximately 100 basis points from $14 million of government subsidies that we received in the third quarter, which we previously expected to receive in Q4.
Andrew Page: We are thrilled with the underlying sales and margin performance of our brand portfolio.
Andrew Page: SaaS growth of our high margin our tech franchise is elevating the financial profile of Ameren sports in total.
And this dynamic allows us to deliver strong profitable growth for our shareholders, while reinvesting in the many long term growth opportunities across our portfolio.
Andrew Page: Ameren sports grew sales, 17% in Q3 on both a reported and constant currency basis.
Andrew Page: The strong group sales performance was led by technical apparel, while outdoor performance and ball a racquet sports also delivered very solid growth.
Andrew Page: By channel. The group continues to be led by D to C, which grew 41% led by our Terex and Solomon footwear.
Andrew Page: But also in Q3, we saw wholesale trends improve growing 8% year over year led by our tariffs and Wilson.
Andrew Page: Regional growth was led by greater China, which increased 56% followed by Asia Pacific, which grew 47%.
Andrew Page: Importantly growth in Americas, and EMEA accelerated from 1% each in Q2 to 7% and 4% respectively in Q3.
Andrew Page: Turning to profitability adjusted gross margin increased 410 basis points to 55, 5% in Q3 <unk>.
Andrew Page: Primarily driven by positive segment product regional and channel mix shift combined with lower discounting actions.
Andrew Page: Going forward, we expect our highest gross margin franchise, our turret to continue to grow significantly faster than the rest of the portfolio and continue to be the biggest underlying driver of our ongoing gross margin expansion.
Andrew Page: Adjusted SG&A expenses as a percentage of revenues increased 210 basis points and represented 42, 3% of revenues in Q3, mainly driven by SG&A deleverage at outdoor performance due to greater China and Asia Pacific growth planned investments.
Andrew Page: Also technical apparel slightly deleverage due to investments in opening stores.
Andrew Page: We will open net 30, new <unk> stores in 2024, the highest ever in one year.
Andrew Page: At this time, we do not expect to significantly increase the number of annual openings from this run rate.
Andrew Page: We generated a 280 basis point increase in our adjusted operating margin from 11, 6% last year to 14, 4% in Q3 2024.
Andrew Page: Our guidance of approximately 11% to 12%.
Andrew Page: As mentioned above our adjusted operating margin benefited by the $14 million earlier receipt of government subsidy payments.
Andrew Page: Adjusted corporate expenses were $26 million.
Andrew Page: Versus $23 million in Q3 of last year, driven by higher personnel costs.
Andrew Page: Depreciation and amortization was $71 million, which includes $32 million of Aro <unk> depreciation.
Andrew Page: Adjusted net finance costs in the quarter was $45 million at the low end of the $45 million to $50 million range, we guided to on our last call.
Andrew Page: In the quarter, our adjusted income tax expense was $78 million.
Which equates to an adjusted effective tax rate of 52% in line with our guidance of 50% to 55%.
Andrew Page: Adjusted net income was $71 million in Q3 compared to an adjusted net loss of $13 million in the prior year period.
Andrew Page: Adjusted diluted earnings per share was <unk> 14.
Andrew Page: Compared to an adjusted diluted earnings per share of <unk> <unk> last year.
Andrew Page: Turning to segment results.
Andrew Page: Technical apparel revenues increased 34% to $520 million led by our growth was fueled by 40% data see expansion, including a 20% Omnicom a great result, comparing against a 68% omni comp in the third quarter of last year.
Andrew Page: Our Terex D to C momentum was fueled by both new and existing consumers across all regions and channels.
Andrew Page: The <unk> brand continues to experience broad based strength and is outperforming across every region channel and category.
Andrew Page: <unk> remains the core growth engine, but we also experienced strength in the wholesale channel, which grew 26% for the segment.
Andrew Page: U S. Wholesale was spent with a standout especially for <unk>.
Andrew Page: Regionally technical apparel growth was led by Asia Pacific followed by Greater China, and the Americas. Additionally, EMEA returned to growth driven by a strong DTC performance consumer love, our Cherokee in China continues to grow and the brands very strong performer.
Andrew Page: And APAC continued into Q3.
Andrew Page: Technical apparel adjusted operating margin expanded 370 basis points to 20% driven by higher gross margin from favorable product channel and regional mix.
Andrew Page: The technical apparel segment operating margin also benefited 200 basis points from the Q3 receipt of government subsidy payments that were expected in Q4.
Andrew Page: Outdoor performance segment revenues increased 8% to $534 million.
Andrew Page: Driven by double digit topline performance and Solomon footwear, and apparel and strong D to C channel growth, especially in Asia Pacific and Greater China.
Andrew Page: This was partially offset by a decline in salary and winter sports equipment and the wholesale channel.
Andrew Page: By channel outdoor performance D to C grew by more than 50%, while wholesale declined slightly driven by continued soft wholesale market conditions in EMEA and North America for Solomon Winter sports equipment.
Andrew Page: Okay.
Andrew Page: By region there.
Andrew Page: Strong growth in greater China, and APAC were partially offset by slower sales in EMEA and North America.
Andrew Page: North America was a tale of two businesses strong double digit growth in soft goods offset by more challenging environment for winter sports equipment.
Andrew Page: As we said last quarter 2024 will be a slightly softer year for winter sports equipment due to slower trends in North America, where ski equipment sales our rebased after a strong run through and beyond Covid.
Andrew Page: This is in addition to cautious orders in EMEA after two tough snow seasons in Europe, However, given our great brands and scale advantages, we are taking market share as our businesses are down less than the market.
Andrew Page: Longer term, although we expect winter sports equipment to be a slower growth business. The industry remains healthy and the consumer demand for ski vacations remains consistent and strong irrespective of whether.
Andrew Page: As a results have become adept at making their own snow.
Andrew Page: One of the sports equipment now represents one third of outdoor performance and long term, we expect this business to grow low single digits annually.
Andrew Page: Outdoor performance adjusted operating margin contracted 40 basis points from last year's record performance to 17, 5% this year.
Andrew Page: This was driven by higher SG&A due to store and team investments to drive regional acceleration for <unk> in China, and APAC offsetting gross margin gains, which were mainly driven by a favorable region channel brand and product mix.
Andrew Page: Moving to Boston Racquet.
Andrew Page: Revenue increased 11% to $300 million at inventory has normalized in the market and replenishment orders accelerated.
Speaker Change: Our constant innovation and top quality products have allowed Wilson to take share during these past few quarters of inventory rebalancing.
Speaker Change: We are very pleased with the strong rebound and continue to expect ball and racket to grow low to mid single digits long term.
Speaker Change: By category the return to double digit growth was led by our marquee racquet sports franchise as well as a small but fast growing software segment.
Speaker Change: Inflatable ball in golf also returned to growth in Q3.
Speaker Change: Our <unk> 360 strategy continues to be a key driver for the Wilson franchise led by footwear and apparel growth performance rackets accelerating expansion of Wilson incentives 360 sites in China as well as padel in pickle ball growth.
Speaker Change: Fallen racket segment adjusted operating profit margin increased 600 basis points compared to the third quarter 2023 to six 9%, primarily driven by an increase in new product launches this year, which carry higher gross margins and supported by lower discount and given the.
Speaker Change: Inventory clearance that began last year in Q3.
Speaker Change: Looking ahead, we are confident that our market share and flow of innovative products positioned ball and racquet well in Q4, when we face our easiest comparison and also have our strongest pipeline of new products.
Speaker Change: Okay.
Speaker Change: Turning to the balance sheet.
Speaker Change: We ended the quarter with $2 billion of net debt up from Q2 as we typically draw on our revolver in Q3 to fund inventory build ahead of our key winter season.
Speaker Change: Using the midpoint of our 2024 implied adjusted operating profit guidance.
Speaker Change: Our net debt to adjusted non IRS EBITDA ratio was approximately two eight times at the end of Q3.
Speaker Change: Deleveraging our balance sheet remains a priority and our goal is to reduce our leverage ratio to one five times or better over the next few years through both EBITDA expansion and debt Paydown.
Speaker Change: Our focus on inventory discipline is paying off as inventories finished Q3 up only 12% year over year versus 17% sales growth.
Speaker Change: Also I'd like to provide a quick update on our regional sourcing exposures given the increased market focus on potential U S import tariffs.
Speaker Change: Greater China represents less than 30% of Amyris sports global sourcing.
Speaker Change: And looking at Amyris Sports group in totality sourcing from China to the U S market represents only 10% to 12% of total group revenues.
Speaker Change: Most of the last period of rising sign of tariffs are ball and racquet segment would be most impacted predominantly tennis rackets baseball bats, and basketballs we.
Speaker Change: We have some degree of flexibility to adjust our supply chain, but price increases will be the primary tool we utilized should tariffs occur.
Speaker Change: Now turning to guidance, given our strong third quarter results and confidence in our brands and their financial outlook. We are raising our full year guidance for sales adjusted gross margin and adjusted diluted EPS.
Speaker Change: As we've said on our previous earnings call.
Speaker Change: With strong trends continue and better than anticipated demand materialize, we will be well positioned to deliver financial performance ahead of our expectations.
Speaker Change: For the full year, we are raising our revenue guidance to 16% to 17% growth despite greater currency headwinds as a result of the strengthening of the U S dollar since the election.
Speaker Change: This incorporates approximately 34% growth in technical apparel, roughly 8% revenue growth in outdoor performance and 4% in Boston racquet.
Speaker Change: We are increasing our full year adjusted gross profit margin guidance from approximately 54, 5% to 55, 3% to 55, 5%.
Speaker Change: However, we are maintaining our full year adjusted operating margin guidance towards the high end of 10, 5% to 11%.
Speaker Change: Given the strength in our brands, we are choosing to Opportunistically accelerate high return investments to support our key growth opportunities, including marketing and store Buildout.
Speaker Change: Our net finance costs for the year will be $200 million to $210 million.
Speaker Change: Including approximately $15 million of finance costs in the first quarter of 2024 that won't be recurring.
Speaker Change: We expect to have an effective tax rate on adjusted pretax income of approximately 37% for the full year of 2024.
Speaker Change: We now expect to achieve full year adjusted diluted EPS in the range of 43% to <unk> 45 per share versus our previous guidance of 40 to 44 per share.
Speaker Change: Looking at the segment margins, we expect a 2024 adjusted operating profit margin slightly above 20% for technical apparel.
Speaker Change: High single digit percentage for outdoor performance and low to mid single digit for ball and racket.
Speaker Change: Lastly, as we began to look beyond this year, we are confident in our initial 2025 outlook and expect to deliver results consistent with our long term financial algorithm of low double digit to mid teens annual revenue growth.
Speaker Change: And third <unk> 70, plus basis points of annual adjusted operating margin expansion driven by gross margin expansion.
Speaker Change: We would also like to highlight two below operating income items to consider for 2025, our effective tax rate will be approximately 37% and we expect net finance costs in the range of $180 million to $190 million.
Speaker Change: With that I'll turn it back over to the operator for Q&A.
Speaker Change: We are now opening the floor for question and answer session. If you'd like to ask a question. Please press star and then one on your telephone keypad. Please limit your questions to one question and one follow up.
Speaker Change: Our first question comes from Lorraine Hutchinson from Bank of America. Your line is now open.
Lorraine Hutchinson: Thank you good morning.
James can you discuss your view on the Chinese consumer how that evolved over the course of the year and then where do you see and the biggest opportunity in the region.
Speaker Change: Okay. Thank you Lorraine and I will say I mean, the consumer, especially.
Speaker Change: In China from China market today.
Speaker Change: They are.
Speaker Change: Especially in our segments. They are still looking for newness and we are pretty lucky the sports segment still booming in China market.
Speaker Change: We estimate that there is a high single digit growth cross border in our sports industry. This year in China, and especially our those segments grow more than the.
Speaker Change: The industry average.
Speaker Change: We can tell more and more consumers and especially in tier one tier two cities. They are looking for they are really I mean cheap treat it as a kind of our activities become what they are part of the lifestyle. So the participation patient level getting.
Speaker Change: Getting higher than our expectations. So.
Speaker Change: It's a very good moment for us, especially.
Speaker Change: A character that Saddam sitting auto segment, we can have a clear beneficial from the overall market.
Speaker Change: Dynamic.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Jay sole from UBS. Your line is now open.
Jay Sole: Great. Thank you so much I guess my first question is on our Terex what changed over the last 90 days, but has you most excited.
Jay Sole: Particularly about some of the newer growth drivers and then secondly, I'm Andrew you mentioned.
Jay Sole: With respect to the fiscal 'twenty five initial outlook that you're giving some financing costs can you just talk about capital allocation priorities.
How much free cash do you expect to generate and what you plan to do with that free cash. Thank you.
Jay Sole: Okay, Hey, Jay it's Stuart.
So I'll speak to your question on our tariffs.
Jay Sole: Yes, I think one of the biggest milestones in the last 90 days was our Broadway.
Jay Sole: Store opening here in Soho in Manhattan.
Jay Sole: Really exciting.
Jay Sole: Expression of the brand.
Jay Sole: It represents sort of the evolution of how we are creating the store experienced retail experience importantly, the store also has the first ever dedicated re bird sales for and we're learning a lot from.
Jay Sole: From that part of the $5 80 Broadway store that we'll be able to take to other locations as we expand the rebirth concept.
Jay Sole: But it also just includes included a lot of interesting elements.
Jay Sole: And expanded valence shop.
Jay Sole: Really strong expression of our footwear line.
Jay Sole: And I would say a second point I would highlight is just the ongoing success, we see in our footwear business exciting momentum there.
Jay Sole: Where we've got new models in the pipeline, we launched our kopeck hiking shoe.
In the third quarter.
Jay Sole: A lot of enthusiasm from our from our guests. So we're excited with the momentum that continued in footwear that also in women's we saw over 50% growth in our women's category in the third quarter.
Jay Sole: So exciting to see acceleration there, we picked up 200 basis points of sales penetration.
Jay Sole: Our womens category.
Jay Sole: And we feel like we're just getting started in womens theres a lot of upside we feel like the potential assortment.
Jay Sole: <unk> is much broader than what you see today in the store a lot of opportunity to evolve our womens line.
So yes those are some of the highlights I would I would I would mentioned today.
Andrew Page: Hey, Joe Hey, Thanks. This is Andrew just following up on capital allocation question glad you brought that up is definitely a priority of ours. As you can see in 2024. We were we were intentionally focused on growing the business. We opened a net 30, new <unk> stores this year.
Andrew Page: We expect a similar run rate next year as we went into 2024, we talked about capital expenditures approaching $300 million, which is.
Andrew Page: Our largest expenditure again focusing on store build out.
Andrew Page: The implementation of our expanded the ERP system.
And the business as we go into 2025, I anticipate that we will continue to focus on growing the business.
Andrew Page: We will continue to focus through our through capital expenditures. Another key focus is going to be managing our debt carrying costs.
Andrew Page: As an example, you could you see our net carrying costs coming down slightly as we could as we've gone through.
Andrew Page: And swapped some of our highest at higher interest rate debt for lower interest rate debt.
Andrew Page: We've repriced our debt and say what do you see an annual run rate of.
Andrew Page: Almost $10 million next year on the repricing. So we will continue to focus on growing the business. We will continue to focus on delighting, our consumers will be.
Andrew Page: Focused on debt Paydown and managing the carrying cost of the business.
We expect free cash flow to increase next year over what do you see this year.
Speaker Change: Got it thank you so much.
Speaker Change: Your next question comes from Matthew Boss from Jpmorgan. Your line is now open.
Matthew Boss: Thanks, and congrats on a nice quarter.
Speaker Change: Thanks, Matt.
Speaker Change: Could you speak to performance versus plan in the third quarter across regions at arc Terex and maybe just any comments on demand <unk> seen so far in the fourth quarter relative to that 20 comp in the third quarter and then Andrew raised gross margin held operating margin, maybe if you could just elaborate on SG&A investments and the <unk>.
Speaker Change: Fourth quarter, and how best to think about SG&A relative to sales next year.
Speaker Change: Got it.
Speaker Change: Hey, Matt its Stuart yes, so I'll speak to your first question there on our tariffs.
Speaker Change: We're really pleased with the with our performance versus plan overall and by region.
Speaker Change: In the quarter as you heard in our prepared remarks, we exceeded our expectations in every region and every channel and every product category. So.
Speaker Change: <unk> strong momentum across the board and.
Speaker Change: We've seen in prior periods.
Speaker Change: Our APAC business led by our Japan.
Speaker Change: Business has been a standout performer with the highest growth rate of all the regions.
Speaker Change: So we're really excited for the momentum there and again there was a consistent degree of success across the product categories.
Speaker Change: In that region.
Speaker Change: Our China business was the second fastest growing followed by North America and Europe.
Speaker Change: Overall, very pleased with the momentum high full price sell throughs.
Speaker Change: Particularly in North America, we saw an acceleration in our full price sell through and.
Speaker Change: And a reduction in our off price selling in the period.
And.
Speaker Change: We're pleased with our comps are to your stock at 88%, we feel is really strong.
Speaker Change: And I would say the inventory if we had more inventory we would have had even higher comps.
Speaker Change: That's probably the opportunity we have as we look into the future.
Speaker Change: <unk>.
Speaker Change: We left sales on the table frankly.
Speaker Change: We are now chasing inventory across a number of categories footwear in particular has been.
Speaker Change: Far ahead of our expectations.
Speaker Change: We're chasing.
Speaker Change: Crag model in particular has been a really successful model for us.
Speaker Change: And out of stock often.
Speaker Change: So those are those are some of the I think the headlines by region.
Speaker Change: And in terms of the Q4 outlook I think that the guidance that we share kind of reflects our perspective and we see it.
Speaker Change: Honestly as a continuation of the strong momentum we've seen through the first three quarters.
Speaker Change: Hey, Matt Thanks for the questions Andrew.
Speaker Change: We are extremely pleased with our continued gross margin expansion throughout the year, we've continued to deliver a high quality expansion in earnings.
Speaker Change: Of the organization, which has allowed us to invest in high return.
Speaker Change: Investments and so as.
Speaker Change: We expanded gross margin in Q4.
Speaker Change: Of that to the bottom line, but but additionally, much of that to continue the investments some of the areas that we're going to continue to focus on is our new <unk> stores.
Speaker Change: Solomon stores in China, with the same mentioned as well as Wilson stores in China.
Speaker Change: And the rest of APAC that are doing very well.
Speaker Change: We're really excited about.
Speaker Change: The expansion of our Tennessee, 360 concept that is really generating traction with consumers. In addition talent acquisition retention and technology are additional areas that we believe will drive sustainable growth for us as we look into 2025, we continue to remain consistent.
Speaker Change: With our plans to be right around flat leverage in 2025 to start to begin to leverage the business post 2025 into 2026.
Speaker Change: Great Best of luck.
Speaker Change: Your next question comes from Paul <unk> from Citi. Your line is now open.
Speaker Change: Hi, Thanks This is Kelly.
Speaker Change: Paul Im sorry could you could you talk a little bit more about the footwear opportunity.
And potential to expand into wholesale.
Speaker Change: Where do you see the biggest opportunities there and.
Speaker Change: Do you have the inventory kind of low teens to fulfill demand in that channel and then just separately.
Speaker Change: It looks like Youre seeing good performance in the Solomon footwear in North America, and how are you thinking about that growth specifically in the North America market and given some of the challenges you paint is gaining traction there.
Speaker Change: Thanks.
Stuart Hazelton: Hey, Kelly it's Stuart.
Stuart Hazelton: I'll take the your first question there.
Stuart Hazelton: On our <unk> footwear, yeah, we're we're definitely.
Stuart Hazelton: Looking into the future and thinking about the.
Stuart Hazelton: The broad strategy for expanding our footwear.
Business and that would include not only our direct to consumer channels, but importantly, wholesale and so we have a number of.
Stuart Hazelton: Valued high quality wholesale points of distribution for footwear today, but we think it's small in terms of what's possible. We think it's important that we have a strong presence through the wholesale channel, especially for footwear.
Stuart Hazelton: A way to build.
Stuart Hazelton: Brand awareness, but it's also how our guests want to shop for.
Stuart Hazelton: Footwear, often and so well continue to have great offerings in our own stores our own digital.
Stuart Hazelton: The points of distribution wholesale is a critical part of the channel mix.
Stuart Hazelton: And the inventory.
Stuart Hazelton: Planning that's happening now is really obviously aimed into next year and.
And we have.
Stuart Hazelton: Reset our expectations at a higher level.
Terms of whats possible based on what we learned in 2024.
Stuart Hazelton: An exciting new part of the business we've shared previously.
Stuart Hazelton: Our penetration of sales had previously been around 6% footwear, it's jumped up to 10% since we launched the new model beginning in March.
Stuart Hazelton: Our our mid term goals are to see footwear reached 20% of revenues in the coming years, and so we feel like run a good trajectory to achieve that.
Speaker Change: Hey, Kerry this is James I gave out the second comment.
Speaker Change: <unk> development in North America.
Speaker Change: First of all I'd like to say, Okay. We are very excited about our innovative product pipeline build up for sign ups.
Speaker Change: Footwear and also being prove this.
Speaker Change: We caught outdoors sneakers categories really comparing to the younger.
Speaker Change: Consumers in China, and EMEA App, we already see a green light.
Speaker Change: And so.
Speaker Change: For Salomon footwear business in the U S. I will say we are still on pace.
Speaker Change: Minerals stage, and we are well underway to learn how we penetrate a market at the right order. So that's the shop pop up shop, we opened in New York City.
Speaker Change: October 2nd it's kind of a showcase water brands ever to really demonstrate how the brand stands for.
Speaker Change: The first months performed extremely well and they gave us a huge confidence to continue to rollout. These kind of a similar we caught a footwear complex shop in United States next year. Meanwhile, we also identified certain key accounts and to try to build a strong partnership with them. Besides.
Speaker Change: Our long term partner.
Speaker Change: We also are actively looking for the retailer like a shoe Paris from west part of the United States, and Australia, and all these kind of new retailers for us and to try to.
Speaker Change: Give us the right level of the potash assortment and also high standard merchandising.
Speaker Change: Yes.
Speaker Change: The spray.
Speaker Change: Overall presentation in these type of shop, and you see how the market look like and also we are also working on the community.
Speaker Change: Kind of a strategy to really help us to build up our.
Speaker Change: Overall solid on those footwear awareness in the market the United States. So.
Speaker Change: Preliminary stage, but we already got a very exciting results from the from the areas, we see a great potential for our <unk>.
Speaker Change: The United States So.
Speaker Change: We will keep you guys updated on our overall progress in the future.
Speaker Change: Thank you best of luck.
Your next question comes from Lauren <unk> from BNP Paribas. Your line is now open.
Speaker Change: Good morning. Thank you very much for taking my question James I wanted to ask about Sullivan, great to hear about Gm's promotion can you talk about like <unk> bring to the table to lead the brand.
Speaker Change: Division over the next few years Salomon soft goods I think as you mentioned two thirds of the business can that get to 80% over the next few years and then.
Andrew I appreciate the commentary around FY 'twenty five.
Speaker Change: Below the line items like tax rate, just being really high at 37% if I recall last quarter, you talked about maybe having a better tax rate going forward, where do you think that tax rate can go over time. Thank you very much.
Speaker Change: And thank you for your question.
Speaker Change: Just to put a bit to highlight some key young and Ikea had been looking for Saddam them more than 10 data yes.
Speaker Change: And he is he has experience in sales product innovation across board being solid loan product divisions, and keeping a very strong track record of operational excellence and the strategic innovation in diverse leadership and also more importantly in the past decade.
Speaker Change: Also he build up the week so call it a new.
Speaker Change: Footwear category, what we call the modern.
Speaker Change: More than.
Speaker Change: What an outdoor sneakers and then really made tremendous success.
Speaker Change: In the past five years, so I think I mean, we have gone through a rigorous selections.
Speaker Change: Since April and we eventually we we think is the most fit for candidates for us for time being too too late.
Speaker Change: Salamone to next chapters and for future. We also deploy a very clear.
Speaker Change: Strategic theaters to to develop or Saddam on business.
Speaker Change: Obviously pork coming three five years there are four major areas that we will really focus on one is the.
Speaker Change: Footwear focus we will really accelerate our footwear business.
Speaker Change: <unk> bought in the work not only from China E Mail, but also in North America. Secondly, obviously, we we will put a very clear strategy when Europe. Okay. So we want to build a strong footprint followup ADC in European markets and defined a breakthrough in North America.
Speaker Change: And thirdly, we will continue to drive our business.
Speaker Change: <unk> beauty.
Speaker Change: Building a strong digital platforms. These are kind of key priorities has been put in the freight I think.
Speaker Change: <unk> also got a very high level of confidence to lead the team to fulfill the steps. We we want to go for next year.
Speaker Change: Laura I'll tell you this Andrew thanks for the question.
Speaker Change: Definitely.
Speaker Change: Tax rate is a key initiative of ours as you can see we are exiting.
Speaker Change: 2024, with a 50% effective tax rate, especially in the back half of the year. So.
Speaker Change: Next year, it's more than a 1000 basis points better than our exit rate coming out of 2024, we have done a significant amount of work this year to both reduce.
Speaker Change: The nondeductible interest as well as subtle outstanding.
Speaker Change: Tax tax constraints that were burdening the business go.
Speaker Change: Going forward we.
Speaker Change: We continue to expect that rate to continue coming down both again, focusing on the payment of our of our of our debt down and.
Speaker Change: An efficient tax structure jurisdictions, where it's nondeductible as well as the management of <unk>.
Speaker Change: Certain.
Speaker Change: Outstanding.
Speaker Change: Tax settlements and so we are definitely not stopping here, but 1000 basis points improvement as well on the way and we see that number coming down to a more normalized rate.
Speaker Change: In the near future in the coming years.
Operator time for one more question.
Our next question comes from Michael Binetti from Evercore. Your line is now open.
Hey, guys great quarter. Thanks for taking our question Andrew just one quick modeling a course correction I think you said.
Speaker Change: SG&A will be about flat next year.
Speaker Change: Street models have about 40 basis points of SG&A leverage I, just want to make sure I heard you correctly there.
Speaker Change: The components correctly, and then I guess it sounds like you pulled forward some investment dollars in the fourth quarter for growth initiatives and I'm Stuart just suggested maybe taken a little bigger look at the plan for our <unk> footwear in next year, but the revenue guidance just kind of the same algorithm. We've heard from you guys for a while it seems like you see a few potential for upside could you, maybe just where do you see the most opportunity for upside to the low.
Speaker Change: Double digit to mid teens revenue growth framework next year, and maybe just some thoughts on what you assume at the at the low end and at the high end of that range as we think about starting out our models for next year. Thanks.
Speaker Change: Yeah, Hey, Michael good to hear from you from the from the standpoint of SG&A, We expect next year to SG&A to be flat leverage.
Speaker Change: To this year.
Speaker Change: With regard to our our algorithm and looking at low to mid teens.
Speaker Change: Consistent with this year, we have consistently said that as the.
Speaker Change: Demand materializes, we will be able to service that demand in many cases.
Speaker Change: Some cases outperform against our guidance and Thats, what we are continuing to look forward to next year as demand materializes, we see or we see our ability to perform against that.
Speaker Change: And I'll just I'll.
Speaker Change: I'll add to that Michael we continue to be very excited across the regions. We operate we really feel like we're just getting started in North America, and Europe and Asia Pacific.
Speaker Change: We have a tremendous business in China that continues to see strong momentum.
Speaker Change: So there is there is just exciting channel and region opportunities even with this survey that we have today if it didn't change at all and then we'd look at the opportunities we have across footwear across womens.
And even with our within our core franchises.
Speaker Change: Within within our men's outdoor business.
Speaker Change: There is just tremendous.
Speaker Change: This amount of new ideas coming into our product pipeline that we think will continue to create upside into the future. We feel like the guidance that we've framed as responsible.
Speaker Change: Appropriate.
Speaker Change: Given where we are right now.
Speaker Change: Okay. That's a lot of the housing cycle.
Speaker Change: That concludes our question and answer session I'd now like to hand back over to management for final remarks.
Speaker Change: Thanks, everyone for joining we look forward to seeing you on the next call in about three months.
Speaker Change: Thank you so much for attending today's conference call. You May now disconnect have a wonderful day.
Speaker Change: Yeah.