Amer Sports Fourth Quarter and Fiscal Year 2025 Earnings Call

Thank you for standing by. My name is Jael, and I will be your conference operator today. At this time, I would like to welcome everyone to the MR Sports 4th Quarter Full Year Fiscal Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question in this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again.

I would now like to send the conference over to Omar Saad, Head of Investor Relations.

You may begin.

Omar Saad Hello, everyone. Thanks for joining AMR Sports Earnings Call for the fourth quarter of fiscal year 2025. Earlier this morning, we announced our financial results for the quarter and year-ended December 31, 2025, and the release can be found on our IR website, investors.amrsports.com. A quick reminder to everyone that today's call will contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements reflect our current expectations and beliefs only and are subject to certain risks and uncertainty that could cause actual results to differ materially. Please see the Safe Harbor Statement in our earnings release and SEC filings. We will also discuss certain non-IFRS financial measures. Please refer to our earnings release for important information regarding such non-IFRS financial measures, including reconciliations to the most comparable IFRS financial measures. We will begin with prepared remarks from our CEO, James Zang, and CFO, Andrew Page, followed by a Q&A session until approximately 9 a.m. Eastern. James will cover key operational and brand highlights. Then Andrew will provide a financial review at both the group and segment level and also walk through our guidance for the first quarter and full year 2026. Arc'teryx CEO, Stuart Hazelden, and Salomon CEO, Guillaume Mazank, will join for the Q&A session. With that, I'll turn the call over to James.

Thanks, Oma. Fourth quarter was a great finish to a breakout year for Amar Sports. Our growth was led by our flagship Arcterys Ram and the rising star Solomon, which recently surpassed the $2 billion US sales bar. In 2025, we generated 27% revenue growth to $6.6 billion and the 170 basis point of adjusted operating margin, expansion to 12.8%, with double-digit growth across all segments, regions, and channels. In the fourth quarter, we grow sales 28%, and the strong momentum continues into Q1. Our performance was led by technical apparel and outdoor performance, with solid contribution from winter sports equipment and the ball and the racket. All four regions achieved solid double-digit revenue growth. Although we generate solid growth margin expansion in Q4, adjust operating margin declined 110 base points. This was entirely due to accelerate SG&A investment to support key growth opportunities, particularly for Salomon. Looking forward, we believe we are well positioned for strong and profitable growth within the premium sports and outdoor markets, which continues to be one of of the healthy segments in all of consumers. Several factors gave me confidence in our outlook. First, we own a unique portfolio of premium innovation driven sports and outdoor brands. Second, Acterics is a breakout brand with leading growth and the profitability for the outdoor industry driven by its disruptive direct to consumer model. Third, Salomon Footwear has a comparing and a unique brand position but still only a small share of the global sneak market. Fourth, our Wilson and the winter sports equipment franchises already have leading market position, will deliver slower long-term growth except for Wilson soft goods, which has significant growth potential. And the fifth, we have a strong differentiated platform in Great China, where we continue to deliver best-in-class performance across brands. Before I turn it over to Andrew, you, I will briefly recap key highlights from our three segments, starting with technical apparel. Apparel delivers another excellent quarter of floor-based trends across regions, channels, and categories, especially footwear and women's. Technical apparel generates a very solid 16 percent Omnicom, driven by strong full-price clothes and also healthy segment margin expansion year-over-year. technical apparel sales plus 34 percent was our highest growth quarter of the year we continue to envision acterics as a truly global brand with significant runway in all major markets and were encouraged that the brand is generating double-digit omnicons across all four regions Women's was actually the fastest growing category in Q4 with over 40% growth. We continue to enjoy rising brand awareness with women across regions as we improve fit, style, color, function, and the newness. We created a significant amount of newness in women's this past four, which drove notable incremental growth in key product categories. We saw especially strong momentum in ski and inceleration with the Serum Atom SV, and also the new Endisar Down Jacket, which is a warm, waterproof ski jacket at a pinnacle price Women's bottom also continued to be popular following the successful launch of the Clarkier, Luthier, and Nierpens in 2025. Moving to footwear, which grows nearly 40%, driven by strong growth in all markets, top performing models were the Northern LD4 Trail Shoes, our most successful launch today, followed by the Copac Cortex Hiking Shoe. Looking forward, Octaris has an exciting pipeline of shoe launch for 2026, as we continue to believe footwear will be a large and profitable growth avenue for our characters our valence the brand is still small for the growth strong double digits in q4 and we are very excited for the future of this unique brand valence there are a lot of interest at the paris fashion week with showroom a point tripling from last year we expect strong double digit growth from valence in 2026 as we further develop our collections and expand distribution security and the rebirth continue to be at the heart of our brand we open eight new rebirth centers in q4 bring the total to 43 in q4 we increase the credit that guests receive when they trade in use a cash product to 30 percent from 20 percent previously which has driven a notable jump in trading activity i would also like to highlight recent leadership announcement at a character first we welcome every baker our first ever chief brand officer who joins most recently from palmy herfiger every is stepping into a newly created enterprise-wide law that will bring together global marketing strategy as well as consumer experience insight and analytics team we also welcome toby our private our new head of email toby brings more than 20 years of international leadership experience across email and apex most recent at the sitting and the gucci i would also like to mentioned peak performance our other technical apparel brand which delivered solid growth in q4 2025 marked the brand's return to growth with sales increasingly across all regions and channels the brand also continued to improve profitability driven by our concentrated efforts to reduce promotions and increase full price selling moving to the outdoor performance segment which was led by another outstanding quarter from salomon forward and apparel and the solid performance from winter sports equipment 2025 was a breakout year for the 79 year old salomon brand which grows 35 percent to more than 2 billion u.s dollars of sales salomon forward momentum continues across all regions especially asia with a high demand for sports style and the performance There are several ongoing factors that give us confidence that Salomon Fullwear is well-positioned for significant profitable growth in the years ahead. Number one, global sports style momentum continues. One of Salomon's unique strengths as an outdoor brand is that we are connecting with women and a younger consumer in a way traditional outdoor brands haven't. Sports style is critical to Solomon's position at the modern outdoor sneak brand, and the success of XT Whisper is the first example of how we can successfully expand sports style beyond the XT6 franchise. Second, our performance at the running lines are also having great success. We continue to believe our new driver franchise is helping to unlock the run category for Solomon like never before. salomon is gaining traction in the run specialty channel in north america and email and even china which has been a sports diet centric market is seeing strong traction in performance products third is salomon amazing blanket in great china and asia where we believe we operate the most productive and profitable sneak shops in the industry in 2025 salomon growth sales very strong double digits in great china driven by both sports style and the performance as well as strong growth in apparel beyond the great china salamon is experiencing surging demand in korea and japan both large sneak markets fourth our epicenter strategy is working our strategy to open a handful of brand stores alongside strategic elevated wholesale distribution in key metro markets is critical to elevate Solomon's presence and awareness globally. Epicentral cities include Paris, London, Shanghai, Beijing, New York, LA, Milan, and more to come. Fifth is a strong pool demand we are seeing from consumers in Europe, Solomon's home market, driving strong reorders, preorders, and sales through. Both styles continue to be the close driver, but we have also seen a real inflection in rival in Europe, supported by marketing campaigns, in-store events, and the running event activations. We are seeing especially strong performance in European epicenter like Paris and London, with strong double-digit omnipotent. Also, Salomon opened its first-ever office and showroom in Paris, which is designed to elevate our brand presence in the city, strengthen our connection with buyers and the community, as well as support top talent acquisition. Sixth is North America, which is still a much smaller sneaker market for us compared to Europe or Asia. North America growth accelerated in Q4, driven by Sportstar. We remain focused on wrapping up our North America direct-to-consumer footprint and the wholesale expansion with the key strategic partners early signs are positive as our north america audible is experiencing strong growth solomon is also making key investment in leadership in january we appoint our first ever creative director hacky solomon hacky arrives following tenure at diesel and the most recently mm6 and the world lead both product design and brand creative direction lastly I also want to mention our winter sports equipment franchise which had a very strong q4 despite challenging weather conditions the market remains healthy despite the low snow in certain regions bookings participation and enthusiasm for ski and snowball are at the record levels at this winter the recent Milano Cortina winter olympics games who are a big moment for Emir sports group especially Solomon who outfit all 27,000 official staff and the volunteers head-to-toe between Solomon a character peak performance Hamada and also atomic which is already one of the most successful I plan ski racing brands in history our brands sponsored more than 200 athletes at the games winning an incredible 59 medals a dominant performance. Congratulations to our athletes and the teams. Moving to ball and a racket which had a strong Q4. Sales growth 14% driven by continuous strength in soft goods are returned to growth in baseball and an acceleration in golf. Wersen soft goods continued explosive growth in 2025, including very strong double-digit growth in Q4 our Wilson soft goods offering is resonating with consumers in both wholesale and direct-to-consumer channels and across all major regions Wilson is unique in its ability to outfit tennis athletes from head to toe including records and accessories and we are excited to have signed six new Wilson tennis 360 athletes on tour including what top 10 players eric stamina bringing our total account to 16 players bianna paris we also saw our return to growth in baseball driven by strong best sales led by the louisville slug supra and the five other best among the top 10 this season lastly before i turn over to andrew i'm pleased to announce Carrie asked as the next president and the CEO of Western Brand, effective March 1st. Carrie is a proven brand CEO and a seasuit executive with great experience in the global soft goods, sports, and outdoor industries, including Harry Hanson, Levi's, and Nike. She began her career as an officer in the United States Navy, serving both in the U.S. and abroad. We are excited to welcome Kerry to the Wilson and AmarSports team. With that, I will turn it over to Andrew.

Thanks, James. We had another strong performance in Q4 with healthy sales growth, growth margin expansion, and EPS despite our decision to accelerate investment behind Solomon. The strong sales and profitability of the AmarSports portfolio allows us to accelerate resources behind the large Solomon sneaker opportunity while still delivering great results at the group level. Let's first take a moment to reflect on the key highlights of 2025. Amara Sports Group delivered 27% growth in 2025 with broad-based strength across brand segments, regions, channels, and categories. Our trends continue this very strong trajectory. Solomon Softgoods entered rapid growth mode and Wilson Tennis 360 moved the needle in our ball and racket segment. We delivered meaningful adjusted operating margin expansion from 11.1% in 2024 to 12.8% in 2025. We also continued to reduce our leverage ratio, effective tax rate, and annual interest expense, leading to strong operating and free cash flow generation. Now turning to our Q4 results. Emirates Sports grew sales 28% in Q4 on a reported basis and 26% in constant currency. the strong group sales performance was led by technical apparel and outdoor performance while ball and racket also delivered solid growth in the quarter by channel the group continued to be led by d2c which grew 38 led by solomon soft goods wholesale grew 18 globally which was led by arcteryx regional growth was led by asia pacific which grew 53 followed by greater china which increased 42%. AMEA grew 21%, and the Americas generated 18% growth. Moving down to P&L, adjusted gross margin increased 140 basis points to 57.8% in Q4, primarily driven by positive segment, regional, and channel mix shift. Adjusted SG&A expense as a percentage of revenue deleveraged by 220 basis points and represented 45.5% of revenues in Q4 versus 43.3 percent of revenues last year. The de-leverage was primarily driven by outdoor performance as Solomon made the decision in Q4 to accelerate investments to support healthy long-term growth. Also, the strong growth of Wilson's Foxwoods continues to drive elevated SG&A investment within ball and rackets. These factors were partially offset by technical apparel, which achieved SG&A leverage in Q4. Driven by the higher SG&A investments, as well as lower other operating income, our adjusted operating margin declined 110 basis points from 13.6% last year to 12.5% in Q4. Corporate expenses were $40 million, up from $12 million in Q4 last year, driven by higher share-based compensation. In addition, last year in Q4, corporate expenses benefited from certain one-time accounting reclassifications related to net finance costs. DNA was $106 million, which includes $48 million of ROU depreciation. Adjusted net finance costs in the quarter was $21 million, which comprised primarily of $20 million of interest expense. In the quarter, our adjusted income tax expense was $65 million, which equates to an adjusted effective tax rate of 27 percent. Adjusted net income was $176 million in Q4, compared to $90 million in the prior year period. Adjusted diluted earnings per share was $0.31, compared to $0.17 last year. Turning to segment results, technical apparel revenues increased 34 percent to $1 billion, led by Arcteryx. Growth was fueled by both 37% wholesale growth and 34% D2C expansion. Technical apparel generated a strong 16% Omnicom, led by full-price selling as we intentionally pulled back our participation in key promotional events, including Black Friday and Double 11. regionally the technical apparel growth rate was led by asia pacific greater china the americas and emea all regions grew strong double digits q4 was the first full quarter host of korea distributor acquisition which contributed a low to mid single digit percentage to technical apparel's growth rate in q4 in q4 arcterics opened 15 net new stores with 21 openings offset by the closure of six legacy locations as part of our ongoing strategy to optimize the quality and productivity of our store fleet new store openings included the new arcteric alpha store in rockefeller center in new york city and mountaintown stores in aspen and park city arcterics also opened stores in canada japan australia and china in the quarter looking back at full year 2025, we opened 24 net new stores, excluding the career acquisition, and we plan to open 25 to 30 net new Arteric stores in 2026, with the largest number coming in North America and also China. Our store opening plan incorporates a similar level of gross new stores as in 2025, partially offset by the continued closure of certain outlets and other suboptimal locations in greater china as planned we had slight net store closures in 2025 which includes partner stores however we still grew our own store count and overall square footage in china by opening larger format higher quality more productive locations in north america i want to highlight our second new york city alpha store which opened in october on fifth avenue at Rockefeller Center. The store is the most pinnacle expression of the brand in the U.S., and we are encouraged by the strong sales this winter. The newly opened Mountain Town stores in Aspen and Park City are also off to great starts. We were very pleased by Technical Apparel's strong operating margin expansion in Q4. Adjusted operating margin expanded 160 basis points to 25.9%, driven by strong flow-through of revenue upside in the form of SG&A leverage. This is a great proof point behind our confidence in the scalability of Arcteryx's highly productive store model as they comp positively over time. Moving to our outdoor performance segment, which saw revenues increase 29% to $764 million, driven by very strong performance in Salomon footwear, apparel, bags, and socks, and also supported by strong double-digit growth in winter sports equipment. By channel, outdoor performance D2C grew 55%, led by new doors and higher productivity across markets, especially in APAC and Greater China. Outdoor performance generated a 28% omnicom with strength in both stores and online. Wholesale grew 17% driven, especially by strong results in Greater China and EMEA. Regionally, the outdoor performance growth rate was led by APAC in Greater China, followed by EMEA and the Americas. The popularity of Salomon footwear continues to inflect globally, and we are doing everything we can to ensure we are well-positioned to fully develop this large opportunity over time. Salomon is positioned for significant growth in all three major consumer regions, and we are working hard to build the right team, operational, go-to-market, and brand building functions to support our growth. In Asia, D2C continues to be the critical growth channel for Salomon led by our highly productive Salomon compact shop format. We opened 33 net new Salomon shops in greater China this quarter, including both owned stores and partner stores, bringing our total count a year into 286 doors, adding nearly 100 new doors in 2025. In 2026, we expect to continue store expansion in Greater China, but at a more moderate rate, adding approximately 35 net stores to the fleet. In December, we reopened the Solomon flagship store in Chengdu. The store design is inspired by local Szechuan mountain scenery, and it is the first flagship store combining winter sports and trail running in APAC we opened net eight new Solomon stores in Q4 including Japan Australia and Korea the region finished the year with 113 Solomon stores including partner stores with 44 net new openings in 2025. overall brand awareness and demand for Solomon footwear is growing rapidly across Asia in the Americas Solomon soft goods growth further accelerated as we continue to lay the groundwork to support significant future growth we are excited to see very strong order books for both spring summer and fall winter for 2026 with growing demand across a variety of high quality retail partners including rei nordstrom jd sports run specialty shops and other specialty retailers we also have improved our inventory position to answer the growing demand our brand awareness continues to rise across the greater new york area as our shop in soho continues to show great traction with consumers and we open our second new york store in williamsburg brooklyn in q4 the williamsburg location strengthens our presence in the core new york epicenter forming very well out the gate globally and in north america we will continue to focus on our epicenter strategy in 2026 and beyond, particularly New York, Los Angeles, and Miami. We currently plan to open seven to 10 new Solomon shops in the U.S. this year. In EMEA, we continue to expand our store fleet and key epicenters, including a third brand store in Milan and a fourth in London. And we will further develop our Europe epicenters into Spain, Germany, and other key UK cities in 2026. For our winter sports equipment branch, Q4 is a strong quarter with double-digit growth despite lower snow levels in the Alps and the Rockies. In addition to strong market share in our core ski, boot, and binding franchises, we continue to see incremental growth opportunities in areas such as snowboarding and protective equipment. Moving to outdoor performance P&L. Adjusted operating profit margin contracted 490 basis points to 6.2% as Solomon made the decision to accelerate SG&A investments to support its significant growth opportunity in the global soft goods market. Outdoor performance growth margin continued to expand driven by positive mixed shift across product, region, and channel. This was more than offset by higher SG&A in Q4, driven by key investments to fuel Solomon's long-term global growth. These investments include impactful marketing campaigns to drive long-term brand awareness, including XT Whispering Gravel, the MECO Olympics-related marketing. Also, we accelerated retail expansion, especially in China, where we opened 25 net new brand stores in Q4. Lastly, we increased investment in talent and operations, including higher incentive compensation given Solomon's performance versus plan, new talent acquisitions such as our new creative director and his team, and opening Solomon's new Paris hub. I want to emphasize that we're seeing tangible benefits and high returns from our accelerated investments, including meaningful uplifts in Solomon's brand awareness since 2023, which has increased 15 points globally, including plus 15 points in Paris and plus 10 points in London. Moving to ball and racket. Revenue increased 14% to $337 million, driven by soft goods, baseball, and golf. We continue to see very strong momentum in Tennis 360 globally. By category, the growth was led by soft goods, up very strong double digits with continued momentum in all regions. Soft goods now represent approximately 15% of segment revenue. Rackets had slower growth in the quarter due to timing of product launches and wholesale shipments while underlining demand remains strong with double-digit growth 2025 was a great year for rackets and we have exciting performance racket launches in 2026 baseball returned to growth driven by strong performance in bats driven by successful product launches in fall of 2025 and golf ended the year with improved margins and solid growth, especially in EMEA and APAC driven by a strong product offering. In other categories, we saw inflatables stabilizing in Q4 and returning to slight growth following a challenging first nine months. Regionally, the ball and racket growth rate was led by China, followed by meaningfully accelerating growth in Americas, EMEA, and partially offset by slight decline in APAC. we had 10 new owned wilson brand stores opening globally in q4 split between greater china and apac wilson tennis 360 shops are performing well in china and we opened 13 new shops in q4 including partner doors this brings the total owned and partner store count to 77 and in 2026 we plan to open approximately 30 wilson tennis 360 shops in china between owned and partner doors. APAC also continues to drive meaningful Wilson Softgoods growth. Our first store in Japan, in Tokyo's Maranuchi District, and two stores in Melbourne, Australia, are off to great starts. In North America, improving ball and racket growth was led by baseball and soft goods. In soft goods, we saw strong e-commerce comp growth in the region. Our expansion into warmer southern markets is continuing to drive strong results. Our Dallas North Park Mall continues to perform very well, and we continue to expand our new Tennis360 concept store into more southern and coastal locations, including our new shops in Beverly Hills and Miami. We also continue to expand our Tennis360 offering into more Dick's Sporting Goods locations, including House of Sports. Ball and racket segment adjusted operating profit margin improved 110 basis points to negative 2.6% driven by solid growth margin expansion related to less promotional activity and better regional and channel mix. This was partially offset by SG&AD leverage due to investments in soft goods. Now turning to the group balance sheet. Ending 2025 with $291 million of net debt and only 0.3 times net leverage, our financial foundation has never been stronger. We generated $730 million of operating cash flow in 2025 compared to $425 million last year driven by strong profit growth and disciplined working capital management. Additionally, given our strong financial position, post-year-end in January, we announced a redemption of $80 million of our outstanding $800 million, 6.75% senior secured notes at a redemption price of 103. We ended 2025 with inventories up 33% year-over-year, slightly elevated compared to our 27% sales growth as expected. We remain very comfortable with the level and quality of our inventory. The higher inventory growth is primarily related to four factors. Number one, earlier receipt of seasonal Arc'teryx merchandise to prepare for better in-stock position. Two, higher Arc'teryx goods in transit resulting from the greater use of ocean shipping versus air freight. Three, FX translations from the weaker U.S. dollar. And four, the addition of the Arc'teryx Korea inventory following the recent acquisition. We expect inventory growth rates to normalize beginning in the second half of 2026 when we start to cycle our improved in-stock positions and the higher use of ocean freight a quick housekeeping item as we turn to guidance beginning in q1 2026 we would discontinue allocating certain corporate expenses that are not directly attributable to the operating performance of our reportable segments there will be no impact to our overall group adjusted operating profit margin it is simply reallocating certain costs from segments to corporate for the full year of 2026 we expect group corporate expenses to increase by approximately 60 basis points, or approximately $50 million, related to costs reallocated from the segments. These cost reallocations to corporate will most benefit the outdoor performance and ball and racket segment margins and have a much more muted benefit to technical apparel. Now turning to guidance. Guidance assumes the latest tariff rates on all countries will stay in place for the remainder of 2026 and beyond. 2026 is off to a strong start, and given the continued momentum from our highest margin Arterix franchise, accelerating Solomon Soft Goods, plus the solid foundation of our equipment franchises, we are confident in our ability to deliver another very strong financial performance in 2026. For the full year, we expect reported group revenue growth between 16 and 18 percent, which assumes a 200 basis point benefit from favorable FX impact at current exchange rates. We expect group adjusted gross margin of approximately 59% for the full year, with the margin expansion continuing to be driven by makeshift benefits. As we've said in the past, we are confident in our position to manage through a variety of tariff scenarios given our relatively low exposure to the U.S., strong brand portfolio with pricing power, and clean balance sheet. We continue to expect an immaterial impact on our group P&L from higher tariffs in 2026. We expect adjusted operating margin of 13.1 to 13.3 percent towards the low end of our long-term guidance of 30 to 70 bps of improvement, primarily due to the accelerating Solomon investment, opting for long-duration profitable growth over near-term profit flow through. We are committed to investing behind the large growth opportunities in front of our Arcterics, Salomon, and Wilson Tennis 360, while still delivering against our long-term financial algorithms. Arcterics' size and profitability and our strong sales growth and gross margin expansion at the group level allow us the flexibility to invest behind Salomon and Wilson Tennis 360 in a way they could not as standalone entities. We believe this is a unique advantage of our portfolio corporate expense is expected to be approximately 225 million dollars which includes approximately 50 million dollars of cost previously allocated to the segments that i mentioned above we assume full-year net finance costs of 105 to 110 million dollars higher than 2025 due to a normalizing fx impact on the revaluation of certain non-monetary assets as well as higher imputed interest expense on store leases as our retail network grows. The effective tax rate is expected to be approximately 28%. This is an increase from 2025 as we generate a higher percentage of our taxable income and higher tax jurisdictions, and also as we cycle a one-time discrete tax benefit in the second quarter of 2025. We expect adjusted diluted EPS of $1.10 to $1.15, cents, which is based on approximately 564 million fully diluted shares. Also, we are assuming depreciation and amortization of approximately $400 million, including approximately $170 million of ROU depreciation. CapEx is expected to be approximately $400 million versus $310 million in 2025. The increase is mainly driven by increasing key investments in IT infrastructure and retail expansion. Turning to the segments, our full-year sales forecast incorporates 18% to 20% growth in technical apparel, 18% to 20% growth in outdoor performance, and 7% to 9% growth in ball and racket. For technical apparel, we expect adjusted operating margin of approximately 22%. We expect outdoor performance segment margin of 14.5% to 14.8%, and we expect ball and racket margin of 4.7 to 5 percent all three segments should generate gross margin expansion driven by mixed shift partially offset by higher sgna reinvestment while we don't usually provide quarterly segment guidance given the q4 2025 margin fluctuation in outdoor performance resulting from accelerated solomon investments i want to provide a little extra margin color for q1 2026 Although we will continue to invest heavily to support Solemn's growth, we do expect outdoor performance to return to modest year-over-year margin expansion in Q1. Turning to first quarter guidance, we expect reported revenue growth for the group in the range of 22% to 24%, which assumes a 500 basis point benefit from favorable FX impact at current exchange rates. We expect adjusted gross margin to be approximately 59% in 1Q2026, and adjusted operating profit margin to be 14% to 14.5%. Our net finance cost for the quarter will be approximately $27 million, and the effective tax rate will be approximately 28%. We expect adjusted diluted earnings per share of $0.28 to $0.30. defense. Lastly, I would note that should strong trends continue and better than anticipated demand materialize, we believe we are well-positioned to deliver financial performance ahead of our expectations. With that, I'll turn it back to the operator for Q&A.

Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw a question, simply press star 1 again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. And we do request for today's session that you please limit yourself to one question and one follow-up. Your first question comes from the line of Michael Benetti of Evercore ISI. Your line is open.

Oh, hey, guys. Thanks for taking our question here. Appreciate all the help. A couple of technical ones for the model here. The fourth quarter gross margin is usually a little bit above third quarter in the past i'm just curious because there's a lot of moving parts here is there something structural that we should consider going forward in fourth quarter with any any one-timers in the in one of the segments that we should consider as we model going forward and then um i guess andrew the solomon investments in 4q it sounds like those are the reason for the margin operating margin guidance in 2026 to be the lower end of the long-term algorithm so those investments from 4q continue in the first quarter just curious if maybe you could walk us through what some of the investments are in the in the first quarter and then bigger picture you know as you as you think about the solomon investments and the incremental growth to the algorithm you presented it are they are the investments incremental to the algorithm that you've talked about with us or it sounds like there's at least an element of it being pulled forward and i'm wondering if you're stepping up these investments um if that means you're there's an element of gating the margin expansion today because you can imagine a bigger uh brand revenue uh level for solomon then what you've kind of talked about with us in the past yeah a lot to unpack there uh michael happy to um happy to address a bunch of these oh yeah i did address a bunch of these so as i think as you think about uh the fourth fourth quarter gross margin.

One of the things that you talked about was the trend from third quarter to fourth quarter. Keep in mind that the fourth quarter, as you think about outdoor performance, is our largest quarter for winter sports equipment. Winter sports equipment actually outperformed as well in the fourth quarter. And so that is going to create a bit of a drag on gross margin. Obviously strong business, but the fact is, is it's a lower gross margin business. and when it outperforms, it affects it. The other thing that you also want to think about is on a comparative basis, recall that in 2023, we set up a cost optimization program and you started to see the impact of that cost optimization in outdoor performance in the back half of 2024. And so as you get through, and it's anniversary itself, so you stop, in the fourth quarter of 2025, you started you saw the anniversary of that cost optimization so if you think about you know all 2025 you saw material margin expansion and outdoor performance and um and then anniversary of itself because now you you know you're you kind of reset the gross margin to its uh to its new go forward cycle as you think about um your your first question really around the solomon solomon investments uh in the in the fourth quarter um given that we opportunity we opportunistically made key investments behind strong momentum of solomon you know over recent over the recent years we've had one big brand arterics has been on fire and we've made key investments behind that growth now we have multiple high return opportunities to invest in uh especially as you think about the Solomon really inflecting right now. You know, also keep in mind in Q1, you will see Solomon margins return to moderate growth. Again, Q4, we opportunistically made the right investments behind that accelerated momentum. The other thing is that this is the power of our portfolio.

You know, we run this, what we call our brand direct offense. And because of that, you know, we can get behind accelerating momentum in our brands in ways that these brands can't do on an individual standalone basis. We continue to be committed to investing appropriately behind large growth opportunities in front of Arcterics, Salomon, Glosson Tennis 360, and we'll continue prioritizing long-duration opportunities over near-term profit flow-throughs.

You know, the last thing I want to say about that is that the gross margin mix, including outdoor performance, that continues, that mixed benefit continues.

Q4, including Q4, Q4 has healthy growth margin mix shift at the product region and the channel level. full year op margin for the portfolio just recall it was 160 basis points expansion for the full year and this is after consideration of the key investments that we made in fourth quarter so to wrap it up before I turn it over to Guillaume to give you some real color on it long term we still expect that SG&A leverage so I'll turn it over to Guillaume he'll give you some real key points on some of the discrete investments we made i can say yes good good morning good morning everybody so um

yes maybe if we can go a little bit more into details uh we did we we take this opportunistic decision to choose salomon long-term expansion in q4 uh we have few uh i have really few strong examples where we decide coactively to accelerate uh our positioning in the market the first one is we are driving few marketing campaigns in some key area supporting xd whisper which is as james explained we need to build a portfolio of key franchise products and on the top of x6 we need to have a kind of variety of products and xd whisper looks like really a very promising opportunity so this is why we are pushing the same for gravel running which is also our point of difference in the markets and finally also we were preparing the milan cortina olympic games so now you see the results certainly you have seen the momentum we have been able to create during the olympic games and of course it was kind of preparation of it in the in q4 on the top of that we continue to have this retail expansion we open 30 stores in china in the quarter you would you certainly mention what was happening in los angeles where we opened this store in melrose and at the same time we are building a campaign so it's how much you know we are building this ecosystem in every city where we open a store we partner with our b2b uh partners so i think about shoe palace for example which are true presence in les angeles and then we are driving you know media and company to attract this consumer and it was really successful so this type of model require also some resources at the beginning just where it starts in the epicenter the last one is about talent and operation investment you just hear that salomon was growing by 35 percent in 25 and of course we need to structure the company for a new scale and we we had to support of course incentive uh compensation but also we were starting to acquire some new talent acquisition the example of 80 is a very good example of the level of ambition we we put in uh into salomon the another one was the opening of the salomon paris hub so we have a new office you know that we are in a base in annecy which is a kind of small city in the middle of the alps a gorgeous one but uh but of course you know the scale of the company requires a little bit more facility in different places and and paris is a very obvious uh we are a company a french-based

company so paris was kind of obvious opportunity for us and of course it was requiring also this type of investment uh it's also a place where we can capture capture trend we can capture also world-class talents in the future okay thanks for a lot of this michael i'll just uh i'll just wrap on on the one point because i think the last one we talked about was the was was there something structurally different about our algo yeah not like i said we delivered 160 basis points to the bottom line after that investment our algo does uh and has consistently been you know 30 to 70 basis points plus on the bottom line we opened this year uh with our guide at 30 bits uh we believe that that's responsible it does not reflect a structural change in uh in our investment our investments as uh as gill just highlighted we will opportunistically get behind growth momentum uh while still continuing to maintain our earnings I'll go. It's early in the year and should strong trends continue and greater demand materialize, you know, we see no reason why we can't outperform our guide as presented. I just want to clarify, 30 to 50 pips, 30 to the range.

30 to 50, yep, heard it. Okay, thanks everybody for all the help, a lot of detail. Appreciate it.

Your next question comes from the line of Matthew Boss of JPMorgan.

Your line is open. Great, thanks and congrats on another nice quarter. so james so james following the breakout year that you cited for for the portfolio could you elaborate on the current momentum entering the the first quarter maybe what opportunities do you see for the solomon brand to accelerate market share further in 26 and and stewart have you seen any change in top line momentum at arcteryx relative to the fourth quarter or what's embedded to moderate within the 18 to 20 percent full year forecast relative to mid-30s that we just see here exiting 25.

Matt, we're going to have Guillaume answer your question on Solomon. James will talk kind of global outlook for the space, including China, and then Stuart will finish. He's a remote on our parricks.

So when we speak about the Solomon momentum itself, of course, we see a very strong outcome. So 25 was really the year. We confirmed that we are doing in all regions. You see the traction in China and Asia Pacific, but our domestic market, which is Europe, was really coming back strongly. All the investment we have been doing in epicenter strategy with Paris, with London, and now we are looking for Milano with part of it, of course. But we see that we have the right strategy in order to drive momentum in both sports style and performance. And lately, we see also that U.S. is becoming a new place of growth. Of course, we are still quite small compared to the market, which is on one hand a challenge, but also a great opportunity for us. But we see that we have early momentum in the sports style category. You will see that this epicenter strategy in New York, L.A. We opened a store in Chicago as well, which is performing very well. And we see also that through data that there is a good city where we start to pop up. And the last one is we have also in the U.S. early signal of positive trend for running thanks to gravel running. And you can imagine that if we are able to combine sports style and running in the U.S., then Salomon could have very promising growth.

Yeah. Good morning, Matt. Thank you for your question. As I mentioned, okay, I still believe strong trends have continued into Q1 cross-bought. And you already give out the guidance for our Q1, and the top line will grow between 22% to 24%. So our three segments, basically, they all have a very good forecast to achieve the target we set for them. Okay, so it's a pretty good trend for time being. And specifically, I just want to specifically mention about the performance in China during the Chinese New Year. So we see a very positive consumer trend during the Chinese New Year in our brands. And also, okay, not in our brands, and also for the whole world market overall. okay so the consumption is very very strong and I think later on you also will get a certain color from the other brands and you report okay so I think it's a it's a quite good moment for us however I still want to say okay just do a bit too early for us to say okay this is a very bullish situation in China markets. Okay, so, but at least we offer good stock in 2026.

Dan and Stuart.

Yeah, hey, Matt, it's Stuart. So, off to a fast start in the first quarter, really pleased with the trends that we're seeing across all our regions. And we're seeing especially strong momentum in North America over the last few weeks. So, that's contemplated, you know, in the guidance that uh andrew shared um and then your question versus the 18 to 20 percent guide you know what i would say is um this is consistent with our prior practices we view this as responsible uh in terms of the guidance we're offering investors um and there's nothing structural that would prevent us from capturing higher sales should should demand materialize We're well-positioned, strong inventory position, as Andrew noted, to really convert upside should it materialize. So, we're happy with the trends we're seeing and confident for the outlook for 2026.

Great call. Next question. Great.

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

Thanks, guys. I'm curious if you could talk a little bit more about the wholesale expansion opportunity in the U.S. within the Salomon business, and what sort of growth should we expect with Salomon wholesale versus PTC this year? And then, Stuart, also curious if you're thinking about adding any new wholesale partner doors for Arc'teryx this year. How should we think about growth there?

Okay, first, you all, and then, Stuart.

Yeah, thanks, Paul, for asking. So clearly, our strategy is about omnichannel. So we know that if we want to become a large sneaker and footwear brand in the U.S., we absolutely need to partner with the key players. so we speak a lot about our d2c we speak a lot about econ because we think that this is where we can express the best expression of salomon but of course you know the strategy is really becoming omni-channel and and partner with the the key player we have the renew support with rai which used to be our our historical partner in the us when we were very focused on winter sport equipment and outdoor and now we see that we are back in contact with with them and then in parallel we have nostrum gd sport and most of the running specialists which are today our current targets in order to drive uh to drive the growth and we we what we try to do so is not you know uh building you know a very big push but things door by door city by city having close partnership make sure that we have a very close partner good foundation of business we are driving demand with them and then we think that this is the best way to first of all win the shelf share uh battle in the market but as well as well expansion in terms of number of those so we have this type of very accurate strategy uh in in north america um the the the key driver at the end is where the consumer

demand and how we partner with them to drive this consumer demand to it yeah thanks paul uh from an architect standpoint um you know wholesale is emerging as an important uh channel for us uh across three of our key name strategies footwear valence and women's and footwear you know this is an important uh channel distribution different than apparel so we see the the need to have a stronger strategy here. We've been building a sales team as part of our footwear business unit in Portland, and we're engaging with specialty-run accounts, big box retailers as well, all on the premium high-end, I would say, very technical positioning, but that'll be an evolution within our footwear business. Prevalence premium wholesale tier zero, as we call it, will help create higher brand awareness for Valence and just drive the business there. And for women, you know, we see it as an interesting expansion of our distribution footprint just to be relevant where she shops or a female guest shop. So across those three strategies, we continue to evolve our wholesale strategy. So I hope that helps.

Your next question comes from the line of Brooke Roach of Goldman Sachs. Your line is open.

Good morning, and thank you for taking the question. At Salomon, I was hoping that you could unpack the proportion of growth that you expect to realize by region for the brand in 2026, and then if there are any specific regions that will receive an outsized SG&A investment this year.

As a follow-up, how much of the growth at Salomon do you expect to come from existing distribution partners versus new distribution partners? in 2026 thank you so uh so we expect to have growth in all regions in the world so uh clearly we uh the the very good and positive sign today is uh asia pacific and greater china continue to show uh very strong momentum but now emea is really back on track uh where i feel very proud of eme is also that we we we also qualify uh high quality sales so uh you know that sometimes in europe uh the the price point is sometimes an issue but we feel very good on what we have been able to build in the long run so keeping quite premium positioning and the last one which is a good news is north america where definitely small scale today but very high growth and high demand and especially from the last quarter and we see that this momentum is is really engaging for for 26. uh maybe no the second one for existing yeah so um so once again it's uh there is two there is a few area where we can look at so the existing distribution is growing with the momentum we have uh of course you know a new kind of uh strategy in europe and in us because we enter also the the sneaker market with sports style and of course it requires some new type of doors i just can name you know in europe gc sport for example which was not a customer of salomon five years ago and now it's becoming one of the strategic partners so we have as well new distribution and uh in europe uh despite the fact that our new distribution is already very strong and uh of course in us but i will reply i will reply the same uh the same as i did for the produce is we are building distribution right now in U.S.

Thanks, Brooke.

Thank you.

Your next question comes in line of Ike Burakow of West Fargo. Your line is open.

Hey, thanks. Congrats, everyone. So, obviously, revenue's solid. Some questions this morning on the margin. Andrew, can we just dive in a little bit on the cadence of the investment? You've got about 200 basis points plus of deleverage in Q1, but based on the full year, it does seem like you should start to be scaling the investments, especially in the ones you kind of talked to for 4Q. Can you just comment on that? Like, does it seem like the business should be scaling and leveraging the expense base in the back half of the year, specifically in Q4? And does that kind of give us some visibility to scale in the out years and beyond? Thanks.

Also, one of the things that One of the things that is probably embedded that is not easily seen is that Q1, some of the deleverage is driven on a comparable basis, driven by the fact that Q1 last year in ball and racket was a quarter where it was meaningful pull forward because of the threat of tariffs that was on the horizon. So Q1 last year compared to Q1 this year. Q1 this year is more normal. Q1 last year was a lab will pull forward, so you saw a lot more probability, so it looks like it'd be leveraged. But underneath that, you know, as we talked about both our carrots and outdoor performers are performing well. You can see, and I talked about, you'll see margin expansion for outdoor performance. And it's much more of a quarter one of a quarter one comp issue related to ball and racket in the prior year. Is that helpful?

No, it is. But I guess my bigger question is about the pacing of the expenses into the back half. And are you planning to start scaling those as you exit the year? because that might give us some better visibility into the SG&A leverage potential as you're kind of exiting into fiscal 27.

Yeah, I mean, like I said, in Q4 of 2025, we invested a lot. We invested opportunistically a lot in Q4 of 2025. So, you know, empirically, it would suggest that the Q4 of 2026 comparative is going to be pretty easy.

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

Great. Thank you so much. My question is for Stuart. Stuart, just give us a little bit of update on how some of the initiatives around, say, the women's and footwear has gone for our tariffs, you know, in the fourth quarter in which I look for this year. And also just with all the news on tariffs over the last few weeks, how has the landscape changed and how might impact the company? Thank you.

Yeah, thanks, Jay. It's Stuart. On your second point there, Terrace, you know, it's more of a modest impact on ArcTeryx. It's not nothing, but it is not influencing in any way how we're pricing our products or operating the company. and we see it as an opportunity to take share from companies that might respond in that manner. So, you know, we're in a good spot from a managing the tariff situation. And then your other question, women's and footwear, as James mentioned in the prepared remarks, saw really healthy growth across both of those categories, both growing 40% in the fourth quarter. women's continued strength across some of the new products that we introduced, the women's only products. The pant category in particular has been really strong. The Clarkia, the Lucia, and the Nia pant are offering us a new sort of lever of growth within the women's business. Also saw strength in our ski and insulation, the Atom SV and the Endesa down, two new products that we introduced in the quarter, performed really well. And we're just excited to see women's continue to grow faster than the overall company. You know, we expect to see it exceeding 30% of the total sales of the company by 2030. And footwear, you know, 40% growth in the fourth quarter as well. Top models included the Norvan LD4, that's our top seller, and fast sales in our Kopec Hike shoe. You know, I'll also just mention we're going to launch the new Silent 2 on March the 6th. This is our pinnacle trail running shoe. Really excited about the evolution and the feature set there and the performance of that shoe. A lot of great feedback from it already from our athletes. And then, you know, within footwear, the business unit we've stood up in Portland, we're excited for how that's coming together, the sales team, the marketing capabilities we're building. So, very bullish on footwear. We see this as an important pillar of growth for us for some time. Hope that helps, Jay.

Hey, definitely. Hey, Jay, how you doing? Jay, this is Andrew. Just to wrap up a little bit on tariffs, at the group level, you know, we're confident, as I've said, we're confident in our positions to manage through a variety of tariff scenarios. You know, I've given a couple of things. Let's remember our low level of U.S. exposure, our strong brand portfolio and pricing power, on our clean balance sheet. I did the two, obviously the two businesses that are most impacted would be, you know, ball and racket and I want to sports equipment. And yes, you know, while, I mean, we are aware of the recent Supreme Court decision and follow-up decision by the president to oppose a 15% there, you know, looking at high-level scenarios, our position does not change. Okay. we have time for one more question i know it's fourth quarter so we're taking a little bit longer time uh uh this port this call thanks your last question comes from line of lorraine hutchinson of bank of america your line is open thanks good morning um andrew now that the leverage is down to 0.3 times can you talk a little bit about your expectations for the capital structure and uses of cash going forward yeah i mean you know and you can see you saw in 2025 You heard my guy, and we're talking about CapEx being $400 million in 2026, so we still believe a high return use of our cash and allocation is to grow our business to the point that we still believe that it is an efficient use of our cash to pay down the inefficient debt as it does not provide uh the requisite tax shield um but we are you know post so we'll continue to focus on that we'll continue to focus on the growth of our business we'll continue to focus on paying down the inefficient debt uh and we you know we like our we like our leverage position as it stands right now being you know close to zero thank you that concludes

our q a session i'll now turn the conference back over to management for closing remarks Thanks, everyone, for joining.

We'll see you in three months. Have a great spring.

This concludes today's conference call. You may now disconnect.