Q4 2024 Amer Sports Inc Earnings Call
Thank you for standing by. At this time, I would like to welcome everyone to today's OMERSports fourth quarter full year 2024 earnings call. All lines have been put 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.
Speaker Change: I'd now like to turn the call over to Omar Saad, SVP, Capital Markets and Investor Relations. Omar, please go ahead.
Speaker Change: All three of our big brands are carrots, Saddam them in the Western World.
Speaker Change: Accelerating momentum.
Speaker Change: Visionary, great, China, and APAC continued to deliver strong growth, while both email and then lastly America accelerate.
Omar Saad: 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.
Speaker Change: Looking forward.
Omar Saad: We believe Amer sports is very uniquely positioning the company within the global sports and outdoor space.
Omar Saad: Several factors give me confidence for 2025 and beyond.
Speaker Change: Please see the Safe Harbor Statements in our Earnings Release and SEC Filings.
Omar Saad: First.
Omar Saad: We own and operate a unique portfolio of premium outdoor and sports brands.
We will also discuss certain non-IFRS financial measures.
Speaker Change: Each one is fueled by technical innovation and is positioned at the coffee segment.
Speaker Change: Please refer to our earnings release for important information regarding such non-IFRS financial measures, including reconciliations to the most comparable IFRS financial measures.
Our brands have high conversion and the satisfaction, but still small players with room to grow.
Speaker Change: 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.
Speaker Change: Terex is a breakout growth story with great growth and profitability for the outdoor industry driven by disruptive.
Speaker Change: James will cover key operational and brand highlights and Andrew will provide a financial review at both the group and segment level and also walk through our guidance for the first quarter and full year 2025.
Speaker Change: Direct to consumer model and the unique competitive position.
Speaker Change: The brand is still very under penetrated globally, we've got tremendous long term growth path ahead.
Arcteryx CEO Stuart Hazelden will join for the Q&A session.
With that, I'll turn the call over to James.
Speaker Change: Sure.
Thanks, Omar.
Speaker Change: We believe that.
Speaker Change: Fourth quarter was a very strong finish to a remarkable year for Amherst sports.
Speaker Change: Ms Nicholas how by unique performance position and the design within the global market.
Speaker Change: And we continue to enjoy strong momentum across all brands and geographies.
Speaker Change: Still very low market share and the growth potential ahead.
Speaker Change: Especially at this time when consumers are open to trying new sneak brands.
Speaker Change: Led by Actarix, our unique portfolio of premium technical brands continues to create wide space and take market share, and still has significant room for growth.
Speaker Change: For.
Speaker Change: What's in our winter sports equipment brands have authentic heritage premium position high performance products and the leading market positions.
Speaker Change: High market share franchisee will deliver lower long term growth in the core equipment business.
Speaker Change: They still have klatsch soft goods potential, especially the western Tennessee 60.
And the fifth.
Speaker Change: We believe we have a very strong differentiated platform in greater China, where we continue to deliver best in class performance with strong momentum across all three brands.
Speaker Change: Before I tend to over two and you allow me to briefly recap key highlight.
Speaker Change: Our three segments.
Speaker Change: Starting with technical apparel.
Speaker Change: Which is led by our fastest growing and largest brand at terex.
Speaker Change: <unk> achieved over $2 billion of sales in 2024.
Speaker Change: And it delivered another great result in Q4 with strong growth across all reaching Chan.
Speaker Change: Panels in the category.
Speaker Change: Especially in footwear, and the women, which grow faster than the brand overall.
Speaker Change: We were encouraged to see the brand momentum in technical apparel, which generated a strong 29% omnicom in Q4.
Speaker Change: Our differentiation stores continued to be at the heart of Paris growth strategy and are critical to how we engage with consumers and the community.
Speaker Change: Terrorists opened in nets, eight new retail stores in Q4, bringing the total net new store opening in 2024 to 33.
Speaker Change: Key new locations increased six openings in China.
Speaker Change: All of our store in Japan, and a new store in Salt Lake City.
Speaker Change: Oh tariffs store expansion strategy inclusive of a mix of different formats.
Speaker Change: Ranging from multi layer large scale, our flagship stores to small format.
Speaker Change: Pawn stores.
Speaker Change: For 2025, we plan to keep a similar opening pace with 25 to 30 net new stores.
Speaker Change: It includes a similar level of cross brand store openings as 2024, and closing certain outlets and as a sub optimal locations.
In Q4, we opened a four level our first store in Shinjuku, Tokyo, which is located in the heart of the city with an estimated three and a half million people walking by daily.
Speaker Change: The store features the full range of our character and debated.
Speaker Change: And our first ever better launch in the country offering a unique consumer survey.
Speaker Change: And the top level has a rebirth service center, our platform for REIT peer trading and upcycle gear.
Speaker Change: In New York City.
Speaker Change: Our Soho offer store continues to exceed expectations since its opening in September.
Speaker Change: <unk> guests are responding very well to the largest Ah keryx outerwear offering in the city as well as the stock's unique rebar service Center.
Speaker Change: <unk> continues to be an important strategy for our carriers.
Diving strong guest engagement and elevating the in store experience.
Speaker Change: Globally in 2024, we opened 11, new <unk> service centers.
Speaker Change: And in January we opened our first European Mountain Palm shop in Chamonix, France.
Speaker Change: We are very excited by initial result, there.
Speaker Change: Germany is one of the largest mountain results in the apps and attracts a range of visitors from all over the award.
Speaker Change: From monetary he still yet to hard core mountain athletes.
Speaker Change: This store comes after 13 years of engaging with European monitoring entity at our operating Academy in Germany every summer.
Speaker Change: Which allowed the brand to build a significant recognition and appreciation with local and global consumers.
Speaker Change: Shifting to product.
Speaker Change: Well continue to be okay.
Speaker Change: In category in Q4.
Speaker Change: Consumers continued to respond strongly to what we believe is the best line of technical performance footwear designed for bunkers.
Speaker Change: Beyond that the breakout success of the crack.
Speaker Change: We are excited that our Syrian running shoe won best Trail Shoe award from Runner's World UK and women's training.
Speaker Change: Looking forward we.
Speaker Change: We believe <unk> has an even more exciting pipeline for shoe launch in 2025.
Speaker Change: We believe that we will become a sizable and profitable growth Avenue for.
Speaker Change: Both <unk>, one retail and a certain brand relevant wholesale accounts.
Speaker Change: <unk> also continued to perform extremely well in Q4 with double digit growth across all regions outpacing men's and the brand growth in total.
Speaker Change: Softer turns feminine and neutral pass while popular with female consumers.
Speaker Change: Ski and snow products were especially strong with women and we are seeing significantly improving brand awareness and affinity with women in both the U S and Europe.
Speaker Change: Innovation is at the heart of our coach DNA and it can range from cutting edge products, such as our new late Chick evidence airbag and award winning mogul hiking pen two small evolution of existing product lines, such as our <unk> version of the correct.
Speaker Change: Which was hit this winter season.
Speaker Change: This year we.
Speaker Change: We also further strengthened the leadership team at Alkermes.
Speaker Change: We announced the met boat.
Speaker Change: Our new Chief merchandising officer and.
Speaker Change: And industry veterans with nearly two decades at Nike.
Speaker Change: We are also building an all star team to develop our valence brands, which today accounts for 5% of Terex revenues.
Speaker Change: What do we think has significant room for growth.
Anne Marie: This includes our new <unk> Anne Marie.
Anne Marie: <unk> <unk> from <unk> and the valence creative director.
Speaker Change: <unk> stepping in who joined from Lulu Lemon and the theory privacy.
Speaker Change: We believe the addition of <unk> to our valence team marks a pivotal moment in our journey to broaden the reach of our unique valence offering.
Lastly in technical apparel.
Speaker Change: We recently announced that as Stefano Satcom, we are joining April 1st as precedent of the peak performance brand.
Speaker Change: Stefano has looked at a variety of global sports fashion and other upgrades.
Speaker Change: Including most recently as CEO of the Orange brand.
Speaker Change: Moving to the outdoor performance cycle.
Speaker Change: <unk> delivered a great quarter that by Saddam footwear and apparel.
Speaker Change: Actually offset by softer trends in winter sports equipment.
Speaker Change: Saddam on footwear and apparel now represent two thirds of the outdoor performance segment.
Speaker Change: Up significantly from 54% in 2022.
Speaker Change: Elements, Nick surpassed $1 billion of sales in 2024.
Speaker Change: But it is still tiny relative to the $180 billion global sneak market.
Speaker Change: We believe sentiment sneakers have an authentic and a unique market position with technical features designed for the long term, but also great for everyday use.
Speaker Change: Our unique style and the technical attributes are resonating with consumers at a time when they are more receptive than ever to wearing new sneak brands.
Speaker Change: Long term, we expect <unk> to grow double digit annually.
Speaker Change: In Q4.
Speaker Change: Saddam of footwear and apparel accelerate in every region led by Great, China, APAC and EMEA.
Speaker Change: Direct to consumer demand that our strongest growth channel for the brand.
Speaker Change: And the sports style offering continuing to lead footwear goes.
Speaker Change: Saddam apparel bags and sucks are also experiencing great momentum original rate.
Speaker Change: Hello, Ms soft goods are experiencing great sell through in Europe and.
Speaker Change: I know we have noticed two new important trends in Europe was calling out.
Speaker Change: Number one settlement performance sneakers are experiencing a demand recovery in Europe.
Speaker Change: And number two some of them pre orders have shifted to solid positive growth after negative changed during the last couple of years when retailers all relying on at once orders to chase demand.
Speaker Change: We are increasingly seeing Saddam of sneakers, <unk> very well at retail, which is translating to stronger order books.
Speaker Change: We also opened two new saloma stores in the quarter in European Epicenters, London and Milan.
Speaker Change: In Asia.
Speaker Change: Direct to consumer continues to be the critical growth channel for some of them.
Speaker Change: Our Solomon complex shop format developed in China is working very well.
Speaker Change: And we believe these stores generate significantly higher sales per square foot versus industry average.
Speaker Change: We are continuing to expand salamone shops in Greece, China opening 31, net new settlement shops in Q4 <unk>.
Speaker Change: Including both owned stores and partner stores.
Speaker Change: Bringing our total count to 196 inquiry China.
Speaker Change: We believe settlements has the opportunity to grow to several hundred patients overtime, and just tier one and two cities.
Speaker Change: And in 2025, we.
Speaker Change: We expect to open about a 100, new Saddam shops in China, including partnered doors.
Speaker Change: Our unused Saddam flagship in Shanghai is performing very well in the first few months.
Speaker Change: This store represents pinnacle expression of the brand in China, which combined footwear and apparel in a comprehensive offering and a highly immersive brand experience.
Speaker Change: In the U S. The world's largest sneak market. We continued to lay the groundwork for Saddam was footwear long term opportunity.
Speaker Change: Our first U S store, a pop up shop in New York City continues to perform very well.
Speaker Change: We're seeing strong early brand, but with key sneaker retailers across New York City.
Speaker Change: And we expect to open at least one more sodom with shop in New York This year.
Speaker Change: The wholesale channel will be important to unlock settlement potential in the U S.
Speaker Change: We are beginning to success for lavish sediment brand heat to expand our presence with top tier existing customers.
Speaker Change: Such as mall Street, and Keith as well as add new retailers, including shoe Paris and the shares.
Speaker Change: In winter sports equipment, we continue to win with both leisure skiers and world class professionals.
Speaker Change: <unk> had great momentum at the walk championships in Australia at this months.
Speaker Change: <unk> SV.
Speaker Change: The cash shuffling and breezy Johnson, one code on our iconic rest of schemes.
Speaker Change: Moving on to <unk> in Iraq as highlights.
Speaker Change: We are pleased that born in the Rockies gross trends continued to improve in Q4 with growth accelerating to 22% driven by strong trends in breakfast scores and also lapping inventory carriers at the end of last year.
Speaker Change: Our <unk> hundred 60 continues to resonate very strongly with consumers.
Speaker Change: Performance records to our apparel and footwear offering.
Speaker Change: In 2020 book Wilson returned to the number one U S market share performance Records led by the recent upgrade in the larger faded a record launch.
Speaker Change: And in January we launched crash, we sweep which is also off to a strong start.
Speaker Change: Also with the soft goods continuous excellent growth.
Speaker Change: In 2024.
Speaker Change: Apparel and footwear now represent 10% of four and a record second one sales.
Speaker Change: As I mentioned.
Speaker Change: We are seeing strong reception to our work in tenants apparel and footwear offering, especially in the U S and China.
Speaker Change: In Q4, we opened a net six new western brand shops in China.
Speaker Change: The total owned and partner door count in the region $2 43.
Speaker Change: In 2025, we plan to open approximately 50 worse in Tennessee, 160 shops in China between owned and partner doors.
Speaker Change: In North America, we opened at 10 360 concept store in the Paris, Las <unk> in Q4, which has been performing very well and.
Speaker Change: And then we also will begin testing tennis purely approximately 50 dicks sporting goods locations. This year.
Speaker Change: Including the Tennessee, 360 shop in shop in Miami.
Speaker Change: With that I will turn to over to Ajay.
Ajay: Thanks, James with over 20% revenue growth healthy margin expansion strong free cash flow generation and the continued transformation of our capital structure. The fourth quarter of 2024 marked a financial turning point in Amyris sports. This journey.
Ajay: Although expected FX headwinds weighed 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.
Ajay: <unk> is well positioned to deliver another year of strong and profitable growth in 2025, let's.
Ajay: Let's first take a moment to reflect on the key highlights of 2020 for Amyris sports delivered 18% growth in 2024 with broad based strength across brand segments regions channels and categories.
Ajay: Tariffs and Solomon footwear continued their very strong trajectories and Wilson returned to positive growth.
Ajay: We delivered meaningful adjusted operating margin expansion from nine 8% last year to 11, 1% in 2024, driven by the mix shift towards technical apparel.
Ajay: And we also significantly reduced our leverage effective tax rate in annual interest expense.
Ajay: Now turning to our Q4 results Ameren.
Ajay: Ameren sports grew sales, 23% in Q4 on a reported basis and 24% in constant currency.
Ajay: 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.
Ajay: By channel. The group continues to be led by <unk>, which grew 46% led by our Terex and settlement footwear.
Ajay: We saw solid wholesale growth of 6% year over year led by improving trends at Wilson.
Ajay: Reasonable growth was led by greater China, which increased 54% followed by Asia Pacific, which grew 52%.
Ajay: The Americas accelerated to 15% growth in EMEA grew 8% in Q4.
Ajay: We are pleased to again achieve over 50% growth in greater China for both Q4 and the full year.
Ajay: 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 markets.
Ajay: The outdoor trend in China continues to be very strong attracting younger consumers female consumers and even luxury shoppers.
Ajay: Additionally, the China consumer landscape today has evolved into a market of winners and losers with some brands doing extremely well including ours.
Speaker Change: Are still small specialized brands are known for their expertise high quality and technical innovation, which resonates with Chinese shoppers.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Going forward, we expect our highest gross margin franchise, our terex to continue to be the biggest underlying driver of our ongoing gross margin expansion.
Adjusted SG&A expenses as a percentage of revenue Deleveraged by 20 basis points and represented 43, 3% of revenues in Q4.
Speaker Change: Technical apparel and outdoor performance SG&A deleverage was driven by investments to support growth and was partially offset by bolland racket in headquarters expense leverage.
Speaker Change: 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.
Speaker Change: Adjusted corporate expenses were $12 million down from $17 million in Q4 of last year.
Speaker Change: DNA was $77 million, which includes $37 million of Aro.
Speaker Change: <unk> depreciation.
Speaker Change: 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.
Speaker Change: Forward, we will enhance our hedge program to include these intercompany transactions.
Speaker Change: In the quarter, our adjusted income tax expense was $67 million, which equates to an adjusted effective tax rate of 42%.
Speaker Change: Adjusted net income was $90 million in Q4 compared to an adjusted net loss of $31 million in the prior year period.
Speaker Change: Adjusted diluted earnings per share was <unk> 17.
Speaker Change: Compared to adjusted diluted loss per share up 8% last year.
Turning to segment results.
Speaker Change: Technical apparel revenues increased 33% to $745 million led by our Terex.
Speaker Change: <unk> was fueled by 44% the <unk> expansion, including a 29% Omnicom a great result, comparing against a 33% omni comp in the fourth quarter of last year.
Speaker Change: Our Terex D to C momentum continues to be fueled by both new and existing consumers across all regions channels and product categories.
Speaker Change: Technical apparel wholesale revenues were roughly flat driven by timing of shipments compared to the prior year. We continue to have strong demand for our tariffs from the wholesale channel.
Speaker Change: Regionally.
Speaker Change: Technical apparel growth was led by greater China, followed by Asia Pacific The Americas and EMEA.
Speaker Change: All regions grew strong double digits fueled by our parents as retail expansion.
Speaker Change: 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 in freight costs.
Speaker Change: This was partially offset by SG&A deleverage driven by investments in technology marketing and operations to support continued <unk> expansion, including new store openings.
Speaker Change: Moving to our outdoor performance segment, which saw revenues increased 13% to $594 million, mainly driven by very strong performance in Solomon footwear apparel bags and socks.
Speaker Change: <unk> 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 our material.
Speaker Change: FX drag due to its large euro exposure.
Speaker Change: By channel outdoor performance D to C grew 58% led by greater China, and APAC and wholesale improved to plus 1% from a slight decline last quarter.
Speaker Change: The wholesale results are impacted by continued soft wholesale market conditions in EMEA and North America for winter sports equipment.
Speaker Change: 2024 was challenging for the winter sports equipment market overall due to slower trends in North America with ski equipment sales, a rebase and after a strong run through and beyond Covid.
Speaker Change: This is in addition to cautious order than EMEA after two tough snow seasons in Europe.
Speaker Change: 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.
Speaker Change: The winter sports equipment business will be a slower growth business for us.
Speaker Change: The industry remains healthy and we expect this business to grow low single digits annually.
Speaker Change: As a reminder, when a sports equipment now represents one third of the outdoor performance segment.
Speaker Change: So our 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.
Speaker Change: This gross margin expansion was partially offset by SG&A deleverage to support growth investments.
Speaker Change: Moving to ball and racket revenue increased 22% to $296 million driven by record sports and soft goods. This strong growth was also helped by easier comparisons from last year. When Wilson went through a heavy liquidation period to normalized inventory levels. We are very pleased with the strong rebound.
Speaker Change: But we're caution that 20 plus percent is not a sustainable growth rate and we continue to expect <unk> to grow low to mid single digits long term.
By category the strong double digit growth was led by our marquee racquet sports franchise as well as a small but fast growing soft goods segment.
Speaker Change: Which now represents 10% of ball and racquet sales.
Speaker Change: We are seeing very strong momentum in tier 360, <unk>, especially in North America, Greater China and APAC. We also saw strong growth in Eagle Shield apparel.
Speaker Change: Well and pickle ball.
Speaker Change: Inflatable balls and baseball also grew in the quarter, while golf declined slightly.
Speaker Change: Paul a rocket segment adjusted operating profit margin increased 660 basis points compared to the fourth quarter of 2023 to negative three 7%, primarily driven by higher full price sales given the inventory clearance in the second half of last year when the channel inventories were elevated.
Yeah.
Speaker Change: SG&A leverage thanks to tight cost controls on higher revenue.
Speaker Change: 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.
Speaker Change: Term loans before year end and ended the quarter was $600 million of net debt down from $2 billion at the end of Q3, using our 2024 adjusted operating profit.
Speaker Change: Our net debt to adjusted EBITDA ratio was approximately <unk> seven times at the end of Q4.
Speaker Change: Looking forward paying down non deductible interest debt remains a high return uses of excess cash.
Speaker Change: So our focus on inventory discipline is paying off.
Speaker Change: Inventories rose, 11% in 2024, well below our 18% sales growth.
Speaker Change: Driven by strong profit growth and disciplined working capital management, we generated $425 million of operating cash flow in 2024, which translated to approximately $150 million of free cash flow for the year.
Speaker Change: 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.
Speaker Change: In 2020 for sourcing to the U S from China, Vietnam, Canada, and Mexico combined represented approximately 20% of global sourcing.
Speaker Change: China and Vietnam makeup the majority of this exposure, while sourcing from Canada, and Mexico to the U S accounts for less than 1% of the total.
Speaker Change: Similar to when we experienced a rise in China tariffs in 2018 in 2019, our ball and racquet segment will be most impacted however, given our various mitigation levers, including price increases supply chain flexibility and partnership with vendors to share the impact we believe we.
Speaker Change: Well equipped to weather a variety of tariff scenarios.
Speaker Change: Now turning to guidance.
Speaker Change: 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 embedded in anticipated demand materialize, we will be well positioned to deliver financial performance ahead of our expectations.
Speaker Change: For the full year of 2025, we expect reported revenue growth between 13% and 15%, which assumes that 250 basis point drag from unfavorable FX impact at current exchange rates.
Speaker Change: This incorporates approximately 20% growth in technical apparel.
Speaker Change: Low double digit revenue growth in outdoor performance and low to mid single digit growth in Baldwin racket.
Speaker Change: We expect adjusted gross margin of 56, 5% to 57% for the full year, driven primarily by mix shift benefits we expect.
Speaker Change: Adjusted operating profit margin of approximately 11, 5% to 12%.
Speaker Change: Given macro uncertainties, including FX and tariffs our current margin expectations are more focused towards the low end of this margin range at least until we have a quarter or two under our belts.
Speaker Change: For the segments, we expect an adjusted operating margin of approximately 21% for technical apparel, approximately nine 5% for outdoor performance and 3% to 4% for ball and racket.
Speaker Change: You should assume full year net finance costs of approximately $120 million and an effective tax rate of approximately 33%.
Speaker Change: We expect adjusted diluted EPS of <unk> 64 to 69 per share, which is based on approximately 560 million fully diluted shares.
Speaker Change: Also we are assuming DNA of 350 million <unk>.
Speaker Change: Including approximately $180 million of Aro <unk> depreciation.
Speaker Change: To support our new store expansion.
Speaker Change: Implementation and distribution and logistics investments Capex is expected to be approximately $300 million in line with 2024.
Speaker Change: Turning to the first quarter guidance we.
Speaker Change: We expect reported revenue growth for the group in the range of 14% to 16%, which assumes a 300 basis point drag from unfavorable FX impact at current exchange rates.
Speaker Change: We expect adjusted gross margin to range between 56, 5% and 57% in Q1 of 2025.
Speaker Change: And an adjusted operating profit margin of 11 to 11, 5%.
Speaker Change: Our net finance costs 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 <unk> per share with that ill turn it back to the operator for Q&A.
Speaker Change: 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.
Speaker Change: 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.
Yeah.
Speaker Change: It looks like our first question today comes from the line of Lorraine Hutchinson with Bank of America Lorraine. Please go ahead.
Lorraine Hutchinson: Thank you good morning.
Speaker Change: You update us on the longer term store targets for our Terex, you've had a lot of success opening new stores and it sounds like that will continue this year, but as you think about.
Speaker Change: Each of your geographies are there any updated thoughts on how many stores you could have in each.
Speaker Change: Yeah, Hey, Lorraine, it's Stuart.
Speaker Change: We were pleased with.
Our new store performance in 2024 was consistent with the strategy that we had laid out as part of the IPO process last year.
Speaker Change: And as you heard in the prepared remarks, we intend to continue to open.
Speaker Change: Generally the same amount of stores each year as we look forward, we had 33 net new stores in 2000 or so.
Speaker Change: I think we guided 25 to 30.
Speaker Change: For 2004, RV, sorry for 25.
Speaker Change: The overall view.
Speaker Change: Are you on what's possible by each region.
Speaker Change: Is is pretty much the same we were calling.
Speaker Change: For the potential of around 200 stores in North America 75 to 100 in Europe, 75 to 100 and APAC outside of China.
Speaker Change: And I think we're looking at around 150 to 200 in China mainland China now so a little more bullish on.
Speaker Change: In mainland China and.
Speaker Change: Yes, I think that's that's how we're viewing it today I think some of those estimates are likely conservative.
And we'll continue to reevaluate that as we as we see success in each of those geographies.
Speaker Change: Thank you.
Speaker Change: Okay. Thanks, Brian.
And our next question comes from the line of Matthew Boss with JP Morgan Matthew. Please go ahead.
Matthew Boss: Thanks, and congrats on another nice quarter.
So that's that Stuart so Stuart could you elaborate on the drivers of the comp acceleration for nearly 30% at arc <unk> in the fourth quarter.
Matthew Boss: The 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 and into 25, just where you stand today and in the progression as the year moves on.
Matt: Yes, Thanks, Matt.
Speaker Change: So the comp drivers.
Speaker Change: We saw broad based strength across all of our core kpis.
Speaker Change: The biggest factor was traffic and that's true in store as well as online that was the.
Speaker Change: The biggest.
Speaker Change: The driver of the comp big increases in traffic across all regions and channels.
Speaker Change: We did see very healthy conversion. So typically when you see big traffic increases it can't pressure conversion we saw.
Speaker Change: Modest increases in conversion again in store and online.
Speaker Change: We had a e-commerce result in cyber five that set a new record for the company.
Speaker Change: We saw increases in <unk> and average selling prices so.
Speaker Change: The Kpis are generally green across the board.
Speaker Change: So and in terms of.
Speaker Change: Demand post holiday would have would say is.
Speaker Change: We've seen a very strong continuation of momentum out of the fourth quarter into the first quarter.
Speaker Change: We've seen.
Speaker Change: The success that we posted in the for the fourth quarter continuing into Q1.
Speaker Change: I mean, obviously we're.
Speaker Change: An outerwear company the balance.
Speaker Change: Of our all of our business is weighted too.
Speaker Change: To outerwear and said this is the sort of the time of the year were.
Speaker Change: Where we're really.
Speaker Change: C are our most significant.
Speaker Change: Difficult sales.
Speaker Change: Opportunity. So we've been pleased with the momentum we've seen into Q1, so and then from an inventory standpoint.
Speaker Change: We ended the year really clean.
Speaker Change: Inventory growth well below our revenue growth.
Speaker Change: As I've said on previous calls we.
Speaker Change: We certainly left some revenue on the table in 2024, we've put a lot of focus on how we plan our inventories in the 25, particularly in footwear.
Speaker Change: Had severely.
Speaker Change: Painful out of stock positions through much of 24 or so.
Speaker Change: We think we'll be in a much better position for footwear into 'twenty.
Speaker Change: And we've got exciting new models that will introduce in say the story continues in terms of how we're developing.
Our strategy.
Speaker Change: Great Best of luck.
Speaker Change: Thanks Matthew.
Speaker Change: And our next question comes from the line of Brookfield <unk> with Goldman Sachs. Please go ahead.
Brookfield: 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 youre looking to make an SG&A throughout the year, where should we be focused on the investments that you are making and how should we be thinking about.
Speaker Change: Cadence from payoff of those investments longer term. Thank you.
Brookfield: Yeah.
Hi, Thanks This is Andrew.
Brookfield: As we as you saw last year, we continue to make.
Brookfield: Investments in SG&A and when you think about just really the combination of our investments were focused on new store build out are focused on increasing the.
Brookfield: The growth in the.
Brookfield: Connection to our consumers as both online and through new store build out and then there's some infrastructure things that we're focused on as well as far as our our ERP system and our logistics and supply chain as you think about 2025.
Brookfield: The investments that we've made in 2023 and 2024, we believe that those will start to scale and so we're calling SG&A in 2025 to be relatively flattish.
Brookfield: Yes.
Brookfield: Thanks, so much.
Thanks, Brett.
Brookfield: And our next question comes from the line of Paul Lajoie with Citi. Paul. Please go ahead.
Paul Lajoie: Hey, Thanks, guys, Hey, Stuart just curious how youre thinking about growth in F. 'twenty five in footwear and women's side of the business and if you could remind us.
Paul Lajoie: We are as a percent of sales in those two segments within within our Terex and then any changes or updates to the distribution strategy for our parents on the footwear side.
Paul Lajoie: Yes, Thanks Paul.
Paul Lajoie: Yes.
Paul Lajoie: The footwear strategy remains a big focus for us.
Paul Lajoie: Talked about.
Paul Lajoie: However over the last year.
Paul Lajoie: We saw.
Exciting growth over the course of 'twenty 'twenty four and.
Paul Lajoie: We could have probably delivered higher sales, particularly for our Crag model have we had better in stocks.
Paul Lajoie: Uh huh.
Paul Lajoie: Yeah.
Paul Lajoie: Yes.
Paul Lajoie: Grew.
Paul Lajoie: Over 60%.
Paul Lajoie: Where over the course of the year and we saw that.
Paul Lajoie: For much of the year.
Paul Lajoie: Penetration had reached nearly 10%.
Paul Lajoie: We finished the year a little bit under 10% overall.
Paul Lajoie: And and see the potential for the business to be over 20% in footwear over the next several years.
Paul Lajoie: Our women's business.
Paul Lajoie: Likewise, as we mentioned on the call it was faster than our overall business is definitely faster than our men's business.
Paul Lajoie: And we saw the sales there.
Paul Lajoie: Approaching.
Almost 40% in the fourth quarter.
Paul Lajoie: The overall penetration grew a couple of hundred basis points.
Paul Lajoie: In the fourth quarter and for the full year and that was reaching sort of the mid 20%, 25% overall for womens.
Paul Lajoie: As a percent of total sales so.
Paul Lajoie: Continue to see.
Paul Lajoie: 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 the apparel. We think we have the potential for that business to come quite balanced by gender.
Paul Lajoie: B.
Paul Lajoie: The other questions that you had in terms of.
Paul Lajoie: The distribution strategy for footwear.
Speaker Change: Yeah, I mentioned I think previously we see wholesale as a uniquely important for our footwear strategy.
Speaker Change: It's it's how consumers like to shop for footwear.
Speaker Change: In terms of being able to see a range of brands across a broader assortment than just an individual brand.
Speaker Change: So we think that.
Speaker Change: Expanding that distribution, particularly in the U S is going to be critical for the overall success. So.
Speaker Change: So we're investing in the team and the resources and the capabilities that will enable us to compete more effectively.
Speaker Change: And at the same time, we're going to create I think an exciting experience within our own channels for our footwear.
Speaker Change: 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, but will create a new anchor for our business to be relevant in the warmer parts of the year.
Speaker Change: Air as we support our hike in our Cline.
Apparel assortments so.
Speaker Change: It all fits together and important way.
Speaker Change: I think the door count on that.
Speaker Change: Footwear side this year.
Speaker Change: You know it's still early.
Speaker Change: Really for us in this with.
Speaker Change: We've had we've seen a lot of appetite with.
Speaker Change: Our existing wholesale partners Rei particulars, what I'd call out we are seeing increases in our.
And the amount of doors that are offering our terex footwear.
Speaker Change: But it's still relatively small in the Grand scheme of things and we're excited as we're talking to not only outdoor.
Speaker Change: Outdoor retailers, but also on specialty footwear retailers, so more to follow on that Paul as we develop those plans in 'twenty five we'll talk more about it.
Speaker Change: Great. Thanks, Paul.
Speaker Change: And our next question comes from the line of Laurent <unk> with <unk> per box.
Please go ahead.
Speaker Change: Good morning, Thanks, very much for taking my question James Andrew I wanted to ask about regional performance Americans and EMEA. 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 2020.
Speaker Change: I know you don't guide specifically by region, but any color there or should we kind of assume that it could be a little bit higher growth for 2025. Thank you.
Speaker Change: Yes, we are.
Speaker Change: We continue to expect in 2025.
Speaker Change: All of our regions to continue to grow well in.
Speaker Change: And continue to see positive growth proceeds of the reasons. Obviously you saw the almost 50% growth in APAC and <unk>.
Speaker Change: In greater China, and obviously, the up mid singles and in EMEA, and North America, and we don't see.
Speaker Change: Any real pullback in any of those metrics going forward.
Speaker Change: Okay. Thanks anyway.
Speaker Change: Sorry go ahead.
Speaker Change: But there was meaningful recovery.
Speaker Change: In North America as it related to Wilson, given the given the.
Speaker Change: The inventory pipeline was pretty full in 'twenty three exiting 'twenty three and so back half of 'twenty four you saw that recovery and so a lot of that in <unk>.
Speaker Change: Flexion was notably from our strong business in North America, with Wilson, and therefore email I just want to add on more planes for email and we have a very solid plan to access speed up our overall software.
Speaker Change: Folks on the footwear business penetration in EMEA market you can tell from Q4, we already see it.
Being a big improvement in EMEA in terms of the overall <unk> revenue comes from our southern most sockets, especially from footwear.
Speaker Change: Hum.
Speaker Change: Still carry on so E mail I do believe the overall both back and will also be strengthened in 2025.
Speaker Change: Very helpful James and Andrew and then following the December primary offering.
Speaker Change: Are there further opportunities Andrew to reduced or finance costs and tax rate over the next 12 to 18 months.
Speaker Change: 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.
Speaker Change: Okay.
Speaker Change: Yes, good question.
Speaker Change: As I've always I've continued to say, even though we had meaningful pay down our debt and really strengthen our balance sheet.
Speaker Change: Paying off the remainder senior secured note with with excess cash is still a very high an 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.
Speaker Change: That focus with regard to the second question was around the tax rate, we are continuing to drive that as you can see the.
Speaker Change: The rate is down into the low <unk> now and we see that we can we will continue to drive that toward our statutory rate closer to 27%.
Laurent: Alright, Thank you Laurent.
Speaker Change: And our next question comes from the line of Michael Binetti with Evercore. Michael. Please go ahead.
Michael Binetti: Hey, guys congrats on a great quarter.
Michael Binetti: Let me just ask for first quarter could you just help us think through the revenue assumptions by segment in any any one time dynamics to think about in the first quarter that we should have in our model.
Michael Binetti: I'm also curious if you could break down a little bit how youre looking at outdoor this year, you said low double digit growth.
You said you expect the winter equipment category to be flat this year.
Michael Binetti: So maybe just maybe it's a little bit of help understanding how you're how you're planning that for the year.
Michael Binetti: Yeah.
Omar Saad: Hey, Michael It's Omar so we're only guiding segments on an annual basis.
Omar Saad: Kind of read the modeling in your hands or do you think about the different growth factors, but no major callouts either.
Omar Saad: Cross segments that would be.
Omar Saad: You should really think about when you're modeling the segments across across the quarter.
Omar Saad: Okay. We'll continue we'll just continue to remind.
Omar Saad: That second quarter from a cadence perspective, we believe that 2025 is going to be a little more balance as you compare it to 2024, where you saw accelerating growth each quarter and remember the second quarter of our smallest quarter, both from a top line revenue as well as a profitability perspective.
Speaker Change: Okay. Let me, let me try a couple of different questions.
Speaker Change: And you mentioned on the sourcing partners what is the biggest sourcing region into the U S. Just so we understand is the tariff situation continues to evolve it sounds like the countries you listed are pretty small overall.
Speaker Change: When you said you currently expect EBIT margin at the low end of the.
The guidance was that was that due to something in the gross margin outlook or is that more thinking about that as you know, there's a sticky SG&A and we're conservatively thinking about revenues at the low end doesn't help in how you're thinking about that.
Speaker Change: Yeah, Michael I'll answer the second question first and we've talked about focusing towards and early on it's just macro uncertainties. I mean, we believe that that will continue to expand EBIT in line with or without I'll go, but you know 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.
Speaker Change: Want to get ahead of our atomic scale too quickly.
Speaker Change: On the on the second point, when we talk about our biggest sourcing regions. They are as I talked about in my prepared remarks, I talked about 20% coming from those.
Speaker Change: From those regions of Mexico, Canada, Vietnam, and China, Obviously, Vietnam, and China, with China being slightly bigger yes. It makes up the lion's share of that.
Okay.
Speaker Change: Okay.
Speaker Change: Michael did I hit all your.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: And our next question looks like it comes from the line of John Kernan with TD Cowen John. Please go ahead.
John Kernan: Hey, good morning, everybody congrats on a great year.
Speaker Change: Thanks, John as you can you can.
Speaker Change: Can you unpack the gross margin expansion a bit more obviously channel mix has played a huge factor gross margin was up over 450 basis points in the back half of the year, you're guiding it up.
Speaker Change: High end to 57% how should we think about the drivers of the gross margin expansion one in the back half of 2024 and that drove that upside and then two how do you think about the drivers of the gross margin.
Speaker Change: To that 57% range in fiscal 'twenty five.
Speaker Change: Okay.
Speaker Change: From a gross margin perspective consistently.
Speaker Change: Consistently our terex, our highest margin business is our fastest growing business continues to be.
Speaker Change: The overwhelming driver of the gross margin expansion.
Speaker Change: You would've 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 Baldwin racket.
Speaker Change: Segment last year, and so you saw some expansion of just lapping that comp year over year. So the lion's share on a steady state basis continues to be our terex to a lesser extent, yes, you start to see some some mix mix shift expansion within the segment so as footwear become.
Speaker Change: A larger portion of outdoor performance it carries a higher margin than the rest of the segment and as the soft goods. So it would be the Tennessee 360 franchise that we have in Boston racquet as that continues to grow at around 10% of the of the ball in racket segment, you'll start to see.
Speaker Change: The expansion, there, but again I close out with our Terex.
Speaker Change: Margin profile and the rate of its growth in a proportion that it has into the total portfolio is the largest driver of the margin expansion, yes, and John I'll, just tack onto that healthy intervention gross.
Speaker Change: In in our Terex, where 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.
Speaker Change: Excellent. Thank you.
Speaker Change: Alright, 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.
Speaker Change: Thanks, everyone for joining <unk> for our <unk> call in about three months.
Speaker Change: Yeah.
Yeah.
Speaker Change:
Speaker Change: Yeah.
Speaker Change: [music].