Amer Sports Inc. will report results for its second quarter tomorrow morning and investors are hoping against hope that the slowdown in China did not have an outsized impact on the company’s performance in the period. Most at risk is the company’a Arc’teryx brand, which relies heavily on the Greater China market for revenue, and owned-retail in particular. The company’s other major brands, Wilson Sporting Goods and Salomon, have not relied as heavily on China, but they have not experienced the growth that Arc’teryx has experienced over the last two years in the lead up to its late 2023 IPO.

Amer raised $1.6 billion in its IPO, with much of it going to pay down debt held by the company’s largest shareholder (and China-based retailer, Anta Sports, which saw its share of the company reduced to 43 percent after the IPO. Anta Sports acquired a 50 percent stake in Amer Sports in 2019.

At the core of the concerns about the Amer Sports business going into the IPO centered around analysts’ concerns with the close connection and over-reliance to its China business, driven in large part by Anta Sports.

The company reportedly has the dubious record for the worst-performing shares by a company raising more than $1 billion in a U.S. initial public offering since 2022, data compiled by Bloomberg show.

Bloomberg is reporting that the decline has accelerated in recent weeks amid concerns over the slowdown in China, suggesting that “a push to bring high-end athletic equipment to China’s increasingly wealthy middle class was part of the company’s pitch to investors in the IPO.

Amer shares declined after its first two earnings reports as a public company, but Bloomberg said “Wall Street is mostly optimistic heading into Tuesday’s results.

Analysts anticipate that demand for its Arc’teryx brand, which gets roughly 40 percent of its sales from China and an sized portion of that coming form direct-to-consumer, has remained strong even as consumer spending in the region has been weak.

Amer shares gained 7.8 percent on Monday, July 19, signaling the optimism Bloomberg must be talking about. On the other side are those that are concerned about the China trends

In the first quarter, Amer’s regional growth was led by Greater China, which increased by 51 percent year-over-year (y/y), and the Asia Pacific region, which rose by 34 percent. EMEA grew 1 percent, and revenues were flat in the Americas, where growth in the Technical Apparel, primarily Arc’teryx, segment was offset by declines in the Ball & Racquet (Wilson Sports) and Outdoor Performance (Salomon) segments.

This may be the primary fear; if China and Arc’teryx decline (or slow), what will offset the declines elsewhere?

Citigroup analyst Paul Lejuez suggested that the fears of a China slowdown are overblown. In an August 7 note he wrote that he and his team expects Amer will beat the Street’s sales and profit forecasts for the second quarter, driven by robust Arc’teryx growth, and that it will boost its full-year projections for both metrics. Lejuez pointed to recent updates from Columbia Sportswear and VF Corp., paren of The North Face, which suggests the active lifestyle markets in China remain healthy.

“We believe strong momentum in Arc[‘teryx] continued in 2Q despite fears of a weakening global macro backdrop,” particularly in China,” Lejuez wrote in his note.

Lejuez added that with shares down 25 percent since late June on fears of a China slowdown (which he said are overblown for the Arc’teryx brand), they believe the risk/reward is favorable into 2Q EPS. “We are opening a 30-day positive catalyst watch,” he said.

CITI also pointed to web traffic metrics that were favorable to Arc’teyrx in the quarter. “According to Similarweb, Arc’teryx web traffic accelerated from +2 percent in 1Q to +9 percent in 2Q. 3Q QTD trends are +7 percent,” the firm wrote in their August 9 note.

At BNP Paribas Exane, Laurent Vasilescu also expects Amer Sports will post a beat-and-raise quarter, but only slightly. He highlighted that in addition to Columbia and North Face, Anta’s outdoor brands Descente and Kolon as well as Canada Goose performed well in the midst of a challenging environment in China.

Anta brand retail sales posted mid-single-digit growth in the 2024 first half, which ended June 30 (see SGB coverage at bottom).

All Other Brands, including Descente and Kolon Sport, excluding Amer Sports Corp. businesses under Amer Sports Holding, (Cayman) Ltd.’s joint venture, and any other brands that joined the Group after January 1, 2023, saw second-quarter retail sales increase in the 40 percent to 45 percent range versus the prior-year quarter, a trend improved from the 25 percent to 30 percent increase in the first quarter.

But Anta’s retail sales for the Fila sportswear and footwear brand increased in mid-single-digits year-over-year in the second quarter, a moderation from the high-single-digit first quarter trend and the high-teens trend for full year 2023.

UBS Group AG analyst Jay Sole said he expects Amer will maintain its annual profit projection due to current market headwinds, and said he anticipates that second-quarter results that meet Wall Street expectations and a reaffirmed annual outlook should cause the stock’s price-to-earnings ratio to expand given the bearish sentiment on shares.

Bloomberg also added that Alibaba Group Holding Ltd. reported last week that its Chinese commerce business shrank for the first time in at least a year. However, competitor JD.com Inc. posted stronger-than-expected revenue for its retail business.

In earlier reporting by SGB Media, Pou Sheng China Retail, a subsidiary of footwear manufacturing giant Yue Yuen Industrial, saw retail declines accelerating in the second quarter. The retailer, saw retail sales fall 14.1 percent in renminbi terms in June after declining 5.0 percent in May and falling 12.3 percent in April. Pou Sheng’s revenues were down 7.5 percent in the first quarter. Pou Sheng’s resulting first-half (H1) revenues were down 8.9 percent.

Second quarter same-store sales were down 16.5 percent in 2024, cycling a 12.7 percent same-store sales increase in the 2023 Q2 period

Pou Sheng has 3,458 mono-brand stores it operates for a number of global brands, plus 20 multi-brand Yue Yuen stores, in its brick & mortar portfolio. Omni-channel, a combination of B2B and B2C, accounted for 26 percent of overall retail revenue in the first half.

At Xtep International, a key retail partner for the Saucony and Merrell brands in China, and now a 40 percent owner of the Saucony IP in the country, reported its second-quarter sales results for its core Xtep Brand in the domestic market.

The company posted 10 percent year-over-year growth for the offline and online channels in China, with a discount level of approximately 25 percent for the three months ended June 30.

For the six-month first half period, ended June 30, Xtep International reported sales in the offline and online channels increased in the high-single-digit range year-over-year for the core Xtep Brand. Channel inventory turnover was said to be around four months at the end of June.

It will certainly be interesting to see if the China connection will lead to boom or bust for Amer Sports after Anta kept the company alive during tough tines. With Acr’teryx focused mostly on fall and winter gear for the outdoor athlete, the brand may have a smaller impact on the overall business year-over-year. If they can make a push for warm-weather penetration and sales in these markets they can build a broader year-round global brand.

Image courtesy Arc’teryx

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EXEC: Anta Sports Sees Fila’s China Retail Sales Growth Slow in Q2