Earnings Call Transcript - AS Q3 2025

Omar Saad, SVP, Capital Markets and Investor Relations

Welcome, everyone. Thanks for joining Amer Sports Earnings Call for the third quarter of fiscal year 2025. Earlier this morning, we announced our financial results for the quarter ended September 30, 2025, and the release can be found on our IR website, investors.amersports.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. They are subject to certain risks and uncertainties 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 Zheng; and CFO, Andrew Page, followed by a Q&A session until approximately 9:00 a.m. Eastern. 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 full year 2025 as well as an initial high-level sales and margin outlook for 2026. Arc'teryx CEO, Stuart Haselden; and Salomon's CEO, Guillaume Meyzenq, will join for the Q&A session with that, I'll turn the call over to James.

Jie Zheng, CEO

Thanks, Omar. Amer Sports' strong momentum continued in the third quarter as our unique portfolio of premium technical brands continues to create white space and take share in sports and outdoor markets around the world. All three segments performed extremely well, led by exceptional Salomon footwear growth and Arc'teryx omni-channel reacceleration and solid growth from Wilson Tennis 360 and our Winter Sports Equipment franchise. We delivered strong results across the P&L, including 30% growth, 130 basis points of adjusted operating margin expansion and more than doubling our adjusted EPS. Our performance was led by very strong growth and profitability in Outdoor Performance, led by Salomon footwear and Technical Apparel driven by Arc'teryx. We also had a solid contribution from the Ball & Racquet segment, led by Wilson Tennis 360. All four regions accelerated in Q3 and achieved double-digit revenue growth, and that strong momentum has continued into Q4. We believe Amer Sports is a uniquely positioned company within the global sports and outdoor space. Our specialized, highly technical brands serve the premium sports and outdoor market, which continues to be one of the healthiest segments across the global consumer landscape. Several factors give me confidence for our near, medium, and long-term outlook. First, we own a unique portfolio of premium innovation-driven sports and outdoor brands. Second, Arc'teryx is a breakout brand story with leading growth and profitability for the outdoor industry driven by its disruptive direct-to-consumer model. Third, Salomon Footwear has unique products and brand positioning and a very strong demand, but still a small share of the global sneaker market. Fourth, Wilson Equipment and our Winter Sports Equipment brands already have leading market shares and will deliver slower long-term growth, except for Wilson Softgoods, which we believe has significant long-term growth potential. And fifth, we have a strong differentiated platform in Greater China, where we continue to deliver best-in-class performance across our three big brands. I want to take a moment to address the September fireworks incident. We regret our involvement and are working closely with the local authorities to address the impacts. We remain deeply committed to our communities and consumers and are taking actions to ensure we do better going forward. Before I turn it over to Andrew Page, allow me to briefly recap key brand highlights from our three segments, starting with Technical Apparel, which is led by Arc'teryx. Arc'teryx delivered another quarter of broad-based strength across regions, channels, and categories, especially footwear and women's. We are encouraged by Technical Apparel's continued momentum in the direct-to-consumer channel, where the omni-channel reaccelerated to 27% from 15% in Q2. We envision Arc'teryx as a truly global brand with significant runway to grow in all major markets, and we are particularly encouraged by the meaningful Q3 acceleration in North America and Europe as well as continued strength in Asia and China. Strong Women's momentum continued in Q3, growing 40% and was one of Arc'teryx' fastest-growing categories. We continue to see a large opportunity to serve women in the outdoors in a different way, focusing on pinnacle design and performance. The new women's Leutia Pant was a standout performer in the quarter and was a top five model across all U.S. epicenters. Our women's climbing pant, the Clarkia, also continues to be widely popular since its launch last year. For Fall-Winter 2025, we are expanding our focus on color and have launched new models like the Nia pant and women's-only shell jacket styles like Emaris and Altira. We continue to experience rising brand awareness and affinity with women in the U.S. and Europe, as we have improved fit, style, and function. As we discussed at our recent Investor Day, Women's will represent approximately 25% of global Arc'teryx sales in 2025, and we expect it to become 30% of sales by 2030.

Andrew Page, CFO

Thanks, James. The headline is that our strategy is working. Our brands are firing on all cylinders, allowing us to exit Q3 with momentum and setting us up to enter 2026 with confidence. Before I get into Q3 results, I want to personally thank our more than 13,000 employees around the globe for their obsessive focus on the consumer and continued push toward operational excellence. These results are only possible through their efforts. Now to our results. Salomon footwear continues to add a strong second leg of profitable growth to Arc'teryx' already exceptional trajectory, significantly elevating the financial profile and long-term value creation potential of the Amer Sports portfolio. All three operating segments delivered both sales and margin ahead of expectations in the third quarter. And given our strong third quarter results and continued momentum, we are raising our full year revenue, margin, and EPS expectations. Amer Sports grew sales 30% in Q3 on a reported basis or 28% ex-currency. The strong group sales performance was led by Outdoor Performance, followed by Technical Apparel. Ball & Racquet sales also accelerated and delivered double-digit growth. By channel, the group continues to be driven by direct-to-consumer, which grew 51% led by Salomon in Greater China and APAC. Wholesale grew 18% at the group level, also led by Salomon. Growth accelerated across all regions. Regional growth was led by Asia Pacific, which increased 54% and China, which grew 47%. EMEA accelerated to 23% and the Americas accelerated to 18% in Q3. Turning to profitability. Adjusted gross margin increased 240 basis points to 57.9% in Q3, primarily driven by favorable channel, geographic, product and brand mix. Gross margin also benefited by approximately 50 basis points from one-time inventory reserve adjustments. Adjusted SG&A expenses as a percentage of revenues was flat year-over-year and represented 42.3% of revenues in Q3. The Technical Apparel SG&A leverage on strong growth was offset by slight deleverage at Outdoor Performance and Ball & Racquet due to ongoing investments in Salomon Softgoods and Wilson Tennis 360. Led by strong gross margin expansion, we generated 130 basis points increase in our adjusted operating margin from 14.4% last year to 15.7% in Q3. Corporate expenses were $38 million, up from $23 million in Q3 of last year. D&A was $119 million, which includes $43 million of ROU depreciation. Adjusted net finance cost in the quarter was $18 million, which comprised primarily of $26 million of interest expense, partially offset by $7 million of FX gains on the remeasurement of certain monetary assets. In the quarter, our adjusted income tax expense was $68 million, which equates to an adjusted effective tax rate of 26%. Adjusted net income in Q3 was $185 million compared to $71 million in the prior year period. Adjusted diluted earnings per share was $0.33 compared to adjusted diluted earnings per share of $0.14 last year.

Stuart Haselden, CEO, Arc'teryx

Looking forward, Arc'teryx has an exciting pipeline of shoe launches for next year, and we continue to believe footwear will be a large and profitable growth avenue for Arc'teryx. Footwear will represent approximately 8% of global brand sales this year, and we expect it to reach 13% by 2030. Our Veilance sub-brand is still small, but grew strong double-digits in Q3, and we are excited for the future potential of this brand. Veilance is expanding into new high-end wholesale partners in North America, and you can now find Veilance in Nordstrom in the U.S. and Holt Renfrew in Canada. Veilance will represent approximately 5% of global brand sales in 2025, and we expect it to reach 7% in 2030. Circularity and ReBIRD continue to be at the heart of our brand. We now have 32 ReBIRD centers, which supported our successful September trade-in initiative, whereby guests received a 30% credit for returning their used Arc'teryx jackets. I would also like to mention Peak Performance, the other brand within our Technical Apparel segment. We are pleased to share that Peak Performance is seeing stabilizing sales and profitability in its core European business as well as early green shoots in North America. We introduced Peak to REI in September, and we are also opening a Vancouver Flagship store in the previous Arc'teryx space in time for this Winter season.

Andrew Page, CFO

Our strategy is focusing on executing strong growth while ensuring profitability. Looking at the broader company, the strong performance we saw in Q3 was significant, allowing us to raise full year guidance. Amer Sports has a robust growth trajectory ahead as we further develop our brands and expand our presence in key markets worldwide. The adjustments to our guidance reflect our confidence in the business and the team’s capability to exceed expectations, should strong demand continue.

Brooke Roach, Analyst, Goldman Sachs

Have you seen a sales impact in China following the fireworks incident? If so, when do you expect sales to recover? Do you think there could be any longer-term brand repercussions?

Stuart Haselden, CEO, Arc'teryx

Brooke, it's Stuart. Thanks for your question. Arc’teryx China sales trends were softer at the beginning of Q4, but have since rebounded as weather has cooled. We are confident in Arc’teryx's brand position and equity with consumers across all of our markets. We are most focused on connecting with our consumers and communities and delivering great products and store experiences.

Andrew Page, CFO

It did not have a factor in our Q4 guide.

Matthew Boss, Analyst, JPMorgan

Congrats on a nice quarter. So James, could you speak to your confidence in guiding 2026 revenue growth to mid-teens, which is the high end of your long-term algorithm? And then, Stuart, at Arc'teryx, could you break down the cadence of the third quarter 27% omni-comp? And if you could elaborate on the strong global momentum that you've seen in the fourth quarter or just any change in demand that you've seen as we head into holiday for the brand?

Jie Zheng, CEO

I'll just highlight our forecast for coming years. Given the very solid foundation we built up in 2025, I think we have a good level of confidence to deliver what we guide in 2026. I think mid-teen growth patterns can be secured in 2026.

Stuart Haselden, CEO, Arc'teryx

Yes, Matt, it's Stuart. The omni-comp, we're really pleased to see the momentum in the third quarter. The overall D2C revenue increase of 46%, we think is really healthy. The 27% omni-comp also reflects a strong two-year trajectory, and that's definitely factored into how we thought about guidance into the fourth quarter. As we look at Q3 specifically, the retail performance was driven by traffic. We saw really healthy traffic increases, more modest increases in conversion and AOV. Also worth mentioning, markdown levels were pretty consistent year-over-year. So it was not a markdown-driven sales increase. As you look at your... and your question around the global demand, strong momentum around all our regions, it was great to see an acceleration in our North American business in the third quarter, where they moved up in the ranking after Asia Pacific, which continues to be the leading region for us. But we still saw some very strong growth in China and in Europe. So we're not really seeing weakness in any of our regions. And it makes us optimistic as we look at the fourth quarter and beyond. Yes, I think feeling really good for how we've now stepped into the fourth quarter and the trends we're seeing quarter-to-date.

Irwin Boruchow, Analyst, Wells Fargo

Let me add my congrats. I guess a higher-level question on next year's outlook, just maybe potential additional info on door growth for both technical, basically both for Salomon and Arc'teryx. And then would love to hear a little bit more about the progress on Salomon in the United States specifically? Andrew, can you give us an update of where you are in penetration there? Just there seems to be a lot of appetite for the brand locally here. Just kind of curious how you're measuring that, balancing the growth with the push-pull model?

Omar Saad, SVP, Capital Markets and Investor Relations

We'll have Andrew actually take the first question, and then we have Guillaume Meyzenq here who's the CEO of Salomon brand, who will take the Salomon question.

Andrew Page, CFO

Yes, thanks for the question. With regard to detail on store growth, I will provide more of that update as we get into our Q4 call. So not necessarily ready to provide a detailed update on store growth yet.

Guillaume Meyzenq, CEO, Salomon

And for Salomon, so nice to meet you all. Before jumping into North America, I think that we have to put Salomon into the context and the current momentum we have. So I'm convinced that we hold a truly distinctive position in the market, and we will fully leverage it to shape what's come next. We have an incredible opportunity to define and lead the modern mountain sports movement in the market. If I identify a few strengths of Salomon, the first one is the authentic mountain performance, which is what consumers are looking for: authenticity. We are true to what we are doing. We have a global recognition of design language led by innovation. What we are doing and developing is really true for performance, for function. And we have a growing cultural relevance reaching the mountain, the city, and the modern lifestyle. This quarter is definitely a good example of the potential of Salomon in the market, and we believe that this is just a start. If I move on the U.S. case because this is a question, of course, this is today the region that we have to build the fundamentals. So we are showing a strength in EMEA. We are growing very fast in Asia Pacific and China. And today, we are focusing on the U.S. And the U.S. provision is coming from this leading position in winter sports and outdoor where Salomon has high market share and high recognition in the market. Now we have to move to the city. This is what is currently happening with a true epicenter strategy. We started in New York a few quarters ago. Now we have L.A.; the new shop opening we have in Melrose is a good example with a long line of consumers looking at this product. We have also good traction in running specialty distribution in performance. Now it's how we translate this good signal and insight, which is coming with a new consumer, often a female consumer, to a bigger scale in the U.S. This is why we are looking at more epicenters, more shop openings, having a curated media investment in the right spaces and, of course, working with our B2B partners to drive numeric distribution that will expose Salomon to more consumers. We feel very confident that we are on the right path to accelerate in North America.

Lorraine Maikis, Analyst, Bank of America

Just sticking with Salomon, you're pruning back some of the distribution there, which is causing some pressure. Can you talk about when that pressure will abate? And where you are on U.S. awareness at this point for the Salomon brand?

Unknown Executive, Executive

I believe we are still discussing the U.S. As I mentioned, we hold a strong position in winter sports and outdoor performance footwear. This footwear led us to explore certain distribution channels a few years ago that we now consider less relevant, and some partners are also seeking alternatives. This is the reason for the negative trends we are experiencing, which ultimately show some growth, but not to the extent we anticipated. We expect that by the end of the first half of 2026, we will have completed our transitions and will no longer face anniversary sales, resulting in a fresh and new distribution setup. We have a few more quarters to wait, but I would say that most of the changes have already been implemented.

Jay Sole, Analyst, UBS

I want to ask about Wilson, specifically the Tennis 360 stores. It sounds like you mentioned you're up to 80 stores in China. Can you discuss the long-term opportunity in China? I believe you also noted that the store in Dallas is performing well and you're planning to open more Tennis 360 stores in the U.S. Can you elaborate on the Tennis 360 opportunity outside of China and how that's progressed over the last three months from your perspective?

Andrew Page, CFO

Thanks, Jay. So you mentioned the Tennis 360 concept outside of Greater China. We have 14, 15 stores in North America. I mentioned the Dallas Park store that's doing really well. We will focus really around the Southern regions. So you think about where you concentrate tennis in the Southern part of the U.S. starting in Georgia down to Florida, around the south and then back up through California. So that's what I would expect to see from our retail format epicenter concentration. We're still in the early stages of that. We're excited and we're super motivated about where it's going. The consumer is really gravitating towards the product, but we're still in the early stages of really optimizing and formulating our total owned retail format. In addition to our owned retail format, we've also seen success in our DICK'S shop-in-shop format, where we are able to present the full pathway of our Tennis 360 concept. The consumer is really resonating with the product there. So you'll start to see the expansion even in the DICK'S and the House of Sports format for the DICK'S locations.

Paul Lejuez, Analyst, Citigroup

On the margin guide for next year, I'm curious how much of the expansion is simply a function of business mix versus improvements that you might be seeing within each segment? And then I just wanted to ask a clarifying point on Salomon. Could you just say what is the number of doors that you're actually exiting in the wholesale business? And then what are you adding over the next 12 months?

Stuart Haselden, CEO, Arc'teryx

Yes. Paul, thanks a lot. The same drivers of our mix shift is as before. It's going to be primarily driven by gross margin expansion. We will continue to make the proper investments in SG&A to drive growth. So the margin expansion that you see will be driven primarily by gross margin expansion. That gross margin expansion is driven primarily by mix shift, both channel and product and region mix shift. As it relates to the number of doors, we're not necessarily going to comment. It's a bit nuanced as Guillaume talked about exiting some wholesale doors that could tell our full expression of the brand and getting into more strategic partners. But as we talked about, start to think about clearing that through H1 of next year and then you start to see as we get into the third quarter of next year, you start to see the brand really show up in the strategic partners.

Anna Andreeva, Analyst, Piper Sandler

Congrats. We wanted to follow up on the Americas. Nice to see the region accelerate to high teens. Can you provide more color on what you saw by channel? And how did the U.S. perform within that? I think you mentioned slight growth at Wilson in the U.S. And as you look into '26 and the high end of the algo, should we expect the Americas to be a double-digit grower next year? And then we just had a quick follow-up. The omni-comp acceleration, great to hear about strength in traffic. Did that headwind from outlet that you saw last quarter begin to moderate? And just remind us, when do we anniversary that outlet dynamic in '26?

Stuart Haselden, CEO, Arc'teryx

Yes, the acceleration in North America for Arc'teryx is really a function of the success of our brand awareness, investments in community and different forms of brand marketing and the growth of our store footprint. The stores are providing a critical catalyst for driving guest engagement and brand awareness across our key markets. So we're pleased to see the success of that reflected in omni-comp. With regard to the traffic question that you had, the traffic really reflects what I just mentioned, that we saw a meaningful reduction in markdown revenue in the first half of the year. So into Q3, we saw our markdowns basically on par, consistent with the prior year. So as we think about next year, obviously, we would begin to lap that.

Andrew Page, CFO

Yes. I mean to your point around the uptick in North America, it was primarily driven by our Tennis 360 concept, both in footwear and apparel, both very, very strong growth in the quarter. The other categories in Wilson also were strong, notably racquet sports was pretty strong, bats was strong, although baseball was relatively flat because it was offset by some challenges with gloves. But we're really excited about what we're seeing and how that's really inflected and returned to strong growth this quarter.

Jonathan Komp, Analyst, Baird

Can I follow up just the initial 2026 view, would you expect technical apparel to be at least in line with the algorithm from September, mid-teens growth with China at least low double digits? Any color there?

Andrew Page, CFO

Yes, this is Andrew. As you pointed out, we have reaffirmed the full algorithm from Investor Day, both at the brand level as well as at the group level.

Jonathan Komp, Analyst, Baird

Great. And then a follow-up just on the Q4 outlook, Andrew, operating profit growth has been very strong in the first three quarters, over 60%. It looks like you're embedding a single-digit growth rate in profit for the fourth quarter. So could you just share any more detail, anything unique in the fourth quarter impacting the margin outlook? And is there anything we should expect into the first half of '26 in terms of margin headwinds?

Andrew Page, CFO

Yes, definitely. As I pointed out, obviously, really strong third quarter. We're excited about it. You see what happens when we're able to over deliver top line, we can drop that through to the bottom line. In the fourth quarter, as you start to think about what we're seeing, we still believe we're excited about our full year. You can see the implied guidance for the fourth quarter. But as Guillaume talked about, we're in the early stages of this inflection point. The fourth quarter will be the first full quarter of tariffs. We also have investments that we're making in the market. We believe the guide for the full year and the implied guidance for the fourth quarter is responsible as we continue to say should demand materialize, we believe there are no structural reasons why we won't be able to overdeliver against our guidance.

John Kernan, Analyst, TD Cowen

Congrats on another strong quarter. Andrew, just to kind of follow up on Jonathan's question. The guidance for the Outdoor Performance segment margin is for a decline in Q4. Obviously, there's been a ton of upside to your guidance this year and the incremental margin you've been generating on the soft goods really seems to be flowing through. I'm just curious why the conservatism here in Outdoor Performance and how you're thinking about the margin performance of Outdoor Performance into next year?

Andrew Page, CFO

Yes. I mean a couple of things. As I talked about, there were some early shipments into the third quarter for sports equipment. We have some meaningful investments we want to make in the fourth quarter in marketing, increased awareness in our North American footwear and the Olympics. We believe that if the business continues and the demand continues to show up as it's been, that there's opportunities in the fourth quarter. But again, we're in the early stages of that inflection point. So we don't know the end of demand at this point.

John Kernan, Analyst, TD Cowen

Got it. And maybe just a quick follow-up on Technical Apparel and the segment margin there was down year-over-year on really impressive top line growth. I think you said there was a timing of government grants that affected the Technical Apparel profitability. Any comments on how you're thinking about fourth quarter and the drivers of operating margin expansion into next year for Technical Apparel?

Andrew Page, CFO

Yes. The margins for Technical Apparel in the fourth quarter are strong and in line with expectations. For the entire year, I anticipate those margins to be in the low 20s, with the fourth quarter expected to exceed those margins. The issue with government grants is that we received a larger share of grants in the third quarter of last year compared to this year, which impacted the margin for this year's third quarter on a comparable basis.

Alexandra Straton, Analyst, Morgan Stanley

I just wanted to focus on the China growth acceleration in the quarter. It definitely stands out versus a more somber narrative from a lot of your peers. So can you just help us square that difference between you and then maybe the broader Sportswear Group and then how you're thinking about industry dynamics in China into the fourth quarter and then next year?

Andrew Page, CFO

We are quite pleased about the Q3 results in China, and we closed the lineup for the pattern we liked that we projected in all three brands, especially Salomon and Wilson, they're growing extremely well in the China market. Based on the Q3, we think we got a good level of foundation to finish the whole year in China with very solid growth. In Q4, I just want to call out for two major seasons sitting in Q4, which are Golden Week and Double 11. Overall, our overall achievement for these two major events are quite satisfied and has reached above our expectations. We have a good confidence for China this year and we will have a very good result in 2025. For next year, I think the foundation is there. All three major brands have a unique proposition in China that really attract many younger consumers in different segments. We are in a very unique position to compete in markets, so we are quite optimistic also for the 2026 Chinese market. Thanks, everyone, for joining. We'll see you in three months for our fourth quarter results. Have a great day.

Operator, Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.