Powered by an outstanding performance by Arc’teryx and solid gains by Salomon, Amer Sports reported first-quarter results that easily topped its guidance for sales and earnings. The company, which went public in February, slightly raised its EPS outlook for the year.
Salomon’s performance was hampered in the quarter by a challenging environment in the outdoor sporting goods channel in North America but benefited from strong gains in footwear in Asia Pacific and Greater China.
Amer Sports’ ski brands, Armada and Atomic, saw sales declines in the latest quarter due to warm weather and high inventory levels in the ski channel but delivered market share gains across the overall ski season.
Arc’teryx’s hyper-growth of above 40% offset many of the challenges of other brands.
“Our high-performance technical products are resonating with consumers globally and we are gaining share in the premier sports and outdoor market,” said CEO James Zheng on an analyst call. “Our consumers are engaged, and our end markets are healthy, giving us confidence that our unique portfolio of brands is well positioned to deliver another great year in 2024.”
Q1 Revenue Beats Guidance
Revenue in the quarter increased 12.6% to $1.2 billion, well above company guidance calling for growth between 6% to 8%. On a constant currency basis, revenue increased 14%.
The gains were led by a 44% growth in its Technical Apparel segment, led by Arc’teryx. Zheng said, “Arc’teryx is a breakout growth story with unprecedented growth and profitability for the outdoor industry, charting new territory with its disruptive DTC model and a strong competitive position.”
CFO Andrew Page added that the “fast growth of our high-margin Arc’teryx franchise is elevating the growth and profitability profile of Amer Sports.”
By channel across Amer Sports, DTC expanded 41% with double-digit growth across all regions while wholesale revenues decreased 1% year over year.
Regional growth was led by Greater China, which increased 51%, and the Asia Pacific region, which rose 34%. EMEA grew 1%.
In the Americas, revenues were flat. Growth in the Technical Apparel segment was offset by declines in the Ball & Racquet and Outdoor Performance segments in the region.
Adjusted gross profit margin rose 110 basis points to 54.3%, topping guidance of 53.5%. The improvement was primarily driven by favorable segment revenue mix shift towards Technical Apparel, which packs the highest gross margin across Amer Sports’ three segments. Reduced logistics costs also drove gross margin expansion, which were partially offset by higher raw material costs and higher promotions compared to the prior year.
On an adjusted basis, earnings rose 44.4% to $39 million, or $0.08 per share, topping analysts’ consensus estimate of $0.04 a share. Results also beat Amer Sports’ previously provided guidance between -$0.01 and $0.02 per share. Adjusted earnings exclude finance and debt extinguishment costs tied to the IPO and other non-recurring items.
On a reported basis, net earnings for the first quarter were $7 million, or $0.01 per share, compared to $19 million, or $0.05 per share, for the first quarter of 2023.
Technical Apparel Segment Q1 Revenue Jumps 44%
In the Technical Apparel segment (Arc’teryx, Peak Performance), sales in the first quarter vaulted 43.7% year-over-year to $510 million. On a constant currency basis, revenue climbed 48%.
The outperformance was driven by Arc’teryx. Zheng said, “The Arc’teryx brand continues to experience broad-based strength and is over-delivering across every region, channel, and category.”
He also highlighted that Arc’teryx “continues to generate outsized growth in key opportunity areas, including footwear, women, and hardware & accessories.”
DTC sales across the Technical Apparel segment surged 46%, including 36% omni-comp growth on top of a 61% comp gain from last year’s first quarter. Omni-comp represents growth from both owned retail stores and e-commerce sites that have been open at least 13 months.
The DTC gains were fueled by both new and existing consumers, as well as strong traffic and conversion trends both in-store and online. Also fueling the growth was the net increase of 19 stores across both brands year over year. Arc’teryx added 14 stores year over year to end the quarter with 146; Peak Performance added three to close with 44.
Technical Apparel wholesale revenues increased 40%, driven primarily by higher volumes at existing accounts rather than new doors and boosted by “strong reorders and the continuous improvement in on-time delivery and inventory availability,” said Zheng. Zheng said Technical Apparel wholesale isn’t expected to continue growing at the rate seen in the first quarter in the second quarter or the remainder of the year.
Regionally, the fastest growth occurred in Asia Pacific, led by Japan; followed by the Americas, Greater China, and EMEA. Japan wholesale accounts were lapping “very low” inventory levels from last year, said Zheng. In EMEA, growth at Arc’teryx was partially offset by a decline at Peak Performance, which faced difficult comparisons due to promotional activities in the prior-year period.
Arc’teryx Growth Milestones – Footwear, Retail Stores
Zheng also said Arc’teryx “did a great job executing its commercial expansion strategy in Q1,” highlighting a few key developments.
At the store level, Arc’teryx opened a four-story flagship on Shanghai’s Nanjing West Road, called Arc’teryx Museum. Zheng said the location “represents the pinnacle expression of the Arc’teryx brand at retail and has created incredible buzz for us in the market. We expect this store to generate sales well over $20 million in its first year.”
Nine other stores opened in the period, including ones in Pasadena, California; Nanjing, China; and London’s Covent Garden. A shop-in-shop was opened in La Samaritaine, a department store on Paris’s Rue de Rivoli.
Arc’teryx in the quarter also launched its first footwear line designed, developed, and sourced by the brand’s in-house team in Portland, Oregon. The brand entered the category several years ago by leveraging Salomon’s existing platform.
Zheng said Amer Sports is “very pleased with the market reception” to the new footwear offerings with the Vertex model emerging as a “breakout style.” Since the launch of three new models that also include the Sylan and Kragg, footwear has expanded to 10% of Arc’teryx’s revenues from 6%. Zheng said, “Based on the enthusiastic response from consumers and key wholesale accounts, we are getting very confident that footwear can become a meaningful profitable growth avenue for the brand.”
Lastly, Zheng said Arc’teryx isn’t expected to be impacted by calls for banning PFAS or “forever chemicals,” that have commonly been used in outdoor and activewear to provide better water resistance and durability, but have recently been linked to harmful health effects, including cancer.
Zheng said the Arc’teryx’s team has been working on alternatives for years and started selling compliant materials in its most popular models with no negative impact on sales trends.
Zheng said, “The consumer isn’t reacting to any difference in the look and feel or performance of the new materials.” He added the rest of Amer Sports’ brand portfolio has “much lower exposure” to the materials and will fully transition away from the materials by next year.
Outdoor Performance Segment Q1 Revenues Advance 6% Despite Challenging Snow Market
In the Outdoor Performance segment (Salomon, Armada, Atomic), revenues in the first quarter grew 6.1% to $400 million, above guidance. On a constant currency basis, revenue advanced 6%.
The upside was driven by mid-teens growth in Salomon soft goods, which was led by a strong footwear performance in Asia Pacific and Greater China, as well as DTC gains at Salomon.
Salomon’s strength helped offset sales declines in Amer Sport’s Winter Sports Equipment division, which was negatively impacted by warm weather late in the ski season, a 2022 delivery shift that created difficult comparisons, and elevated ski inventory levels in the market.
Zheng said that the company’s ski brands delivered a “strong season overall” across the entire winter ski season, which starts with wholesale shipments in the third quarter, with both Armada and Atomic seeing market share gains. Zheng said, “The industry is healthy with solid annual bookings and traffic in the big skiing epicenters in Europe and the Americas.”
By channel, DTC sales in the Outdoor Performance segment continued to outperform the wholesale market with 42% growth, while wholesale was down 3%, negatively impacted by the challenging environment in the outdoor sporting goods channel in the Americas. DTC’s momentum was driven by strong results in both e-commerce and stores fueled by increased traffic and conversions.
Regionally, Outdoor Performance revenues more than doubled in Greater China and grew low-double digits in Asia Pacific, driven by footwear, especially Salomon Sportstyle offerings.
The growth in Asia was partially offset by a decline in the America as the North America business has been affected by “soft pre-orders from key retailers who are relying more on replenishment orders as they order stock closer to need,” said Zheng. EMEA delivered single-digit growth as soft goods gains offset softness in winter sports equipment.
Salomon Update – CEO Steps Down
Providing an update on Salomon, Zheng noted that the brand is undergoing a management transition with former president and CEO Franco Fogliato having stepped down in mid-April for personal reasons. Zheng has been leading Salomon on an interim basis until a successor is found.
Zheng said that in the six weeks he’s been overseeing the brand he’s grown “even more confident” in the brand’s potential to grow within the footwear space globally. He said, “We believe the global sneaker market is at unique crossroads. More than ever before, consumers are open to new brands, styles, and products and we believe Salomon’s authentic Mountain Sports heritage and unique performance technology will allow us to become one of the most impactful, up-and-coming sneaker brands.”
Strategic priorities to accelerate growth in footwear, particularly in EMEA and North America, for Salomon include new customer acquisition, amplifying footwear leadership and elevating the accessibility and visibility of Salomon products. Last September, Amer named Steve Doolan, formerly of Hoka, as the new Salomon president of the Americas.
Zheng said it’s particularly important for the France-based Salomon “to win its home market of Europe” and a major presence for the brand is planned around the Paris Olympics this summer and 2026 Winter Olympics in Milano Cortina in Italy. Salomon is opening a flagship on Champs-Élysées ahead of the Paris Summer Games and has signed on as an official partner of the 2026 Winter Olympics. Zheng said, “These high-profile events will elevate the profile and reach of Salomon across Europe.”
Zheng added, “I’m confident in the brand and our team headquarters in Annecy, France, to deliver continued profitable growth in the near and long term.”
Other Amer Notes
In the Ball & Racquet Sports segment (Wilson, Louisville Slugger, DeMarini, EvoShield and ATEC), revenue decreased 14.2% to $273 million.
Inventories across Amer Sports closed the quarter up 6% year over year versus 13% sales growth, topping management’s stated goal to grow inventory in line with or slower than sales growth.
On the call, Page, the CFO, noted that Amer Sports sold its ENVE cycling components brand during the quarter. He described ENVE as “non-core” to Amer Sports’ portfolio, generating $25 million in annual sales. He added, “Following this divestiture, we are comfortable with and very excited about our 10 remaining brands. They all still have significant profitable growth opportunities. Although the ENVE sale and other previous divestitures indicate our willingness to evolve the portfolio when necessary if certain franchises are no longer strategic and material to our value creation algorithms, M&A is not a priority in the near term.”
Amer Sports Outlook
Despite the strong quarterly performance, shares of Amer Sports closed Tuesday at $14.77, down $1.26, or 7.9%. The decline was attributed to Amer Sports forecasting a loss slightly below analyst targets in the second quarter and conservative guidance. Amer Sports went public on Feb. 1 with its offering priced at $13 a share.
For the year, revenues are still expected to expand in the mid-teens. Page told analysts that the sales outlook wasn’t raised given the sale of ENVE and “we have only one quarter of the year under our belt.” However, he also said given the upside in Q1, “we are more comfortable that we will end the year towards the high end of the mid-teens range.”
The growth incorporates greater than 25% growth in its Technical Apparel segment, mid-to-high single digit growth in Outdoor Performance, and low-to-mid single digit growth in Ball & Racquet.
Amer Sports now expects adjusted diluted EPS to be towards the high end of the previous guidance rate of $0.30 to $0.40.
For the second quarter, Amer Sports expects a loss in the range of -$0.04 to -$0.08 per share. Wall Street’s consensus estimate had called for a loss of -$0.05 cents per share. Sales are expected to expand approximately 10%, including the impact of the disposition of ENVE.
