Amer Sports: Arc'teryx underpins its market debut

Amer Sports was a deal that was consummated with an investor consortium led by Anta Sports in 2019. At that time, the Group registered 7% 10-year CAGR in revenue from 2009 to 2018. Within its portfolio of brands, Arc’teryx is a high-performing business with strong growth profile. Other major brands that anchored the portfolio include Salomon and Wilson.

Five years on, Amer Sports has taken the route of a public listing, on the back of a stronger management track record of operational performance. Revenue growth has accelerated to double-digits in the past few years with their push into direct-to-consumer channels, especially for Arc’teryx. Among the 138 Arc’teryx owned retail stores globally, 63 of them are located within Greater China, attesting to their local expertise and collaboration with Amer Sports’ investors like Anta and Tencent. Placing the geographical focus into perspective, Greater China’s contribution to total revenue went from 8.3% in 2020 to almost 20% currently.

Against this backdrop, the success of Greater China can be attributed to the rising popularity of Arc’teryx. Positioned as a technical yet premium brand, that afforded much of the pricing room to increase profitability margin of the brand. What management is trying to pull off right now is the replication of this retail strategy for their other brand, Salomon. This requires the company to accelerate the store expansion from the current 30 owned retail stores to a far greater footprint in the country.

Coming from a traditional wholesale distribution model, improving Salomon's direct-to-consumer presence is important in promoting brand awareness and cultivating a unique in-store customer experience to further grow the brand. With Arc’teryx loyalty program boasting 1.7 million members just in Greater China alone as compared to Salomon’s 1.5 million members globally, there is indeed some catching up to do in terms of customer engagement.

Overall, Amer Sports has decided to come back to the public markets after the 2019 delisting from the Nasdaq Helsinki. The company has demonstrated operational resiliency, expanding gross margins from 47% in 2020 to the latest reported figure of 52%. Having divested some non-core brands like Precor and Suunto, Amer Sports hopes to return to a healthy trend of operating profit.

A key risk to that is going to be the reliance of its manufacturing supply chain to China. About a-third of their products are sourced and manufactured in China, which had led to disruptions before. That being said, this is not uncommon for the industry and hence, it is not an issue specific to Amer Sports. The trend of diversifying supply chains to other parts of Asia and globally may alleviate some of these concerns, but that move can potentially introduce higher costs for the business.

Regaining its status as a public company (this time on the New York Stock Exchange) reflected management confidence that the difficult work of steering the company in the right direction has largely been completed. The show of support from the investor consortium, including minority partner Chip Wilson (who is the founder of Lululemon Athletica and who has said that he will be devoting more time to help Amer Sports) will certainly be welcomed by shareholders. While the IPO was priced lower than initially expected earlier this month, the shares have since traded higher than the IPO price of US$13 per share.