RVRC Holding AB (publ)

Thank you, operator. And good morning, everyone. And welcome to this conference call where we will address the report for our first quarter of the financial year 2024 and 2025. Our financial year starts 1st of July and ends the 30th of June. My name is Paul Fischbein and I am the CEO of Revolution Race. And with me for today's conference call, I also have the company's CFO, Jesper Alm. For those of you who are not familiar with Revolution Race, I will start by giving you a brief introduction. Revolution Race is an international outdoor brand offering a wide range of outdoor products, mainly clothing, but also shoes, bags, and also other products. Everything started 10 years ago with pants, and that category is still the biggest product category. We operate with a digital D2C business model, meaning that we skip the middleman and sell our products directly to our customers. And we do this primarily via our own website, Revolution Race, or through marketplaces such as Amazon. So Revolution Race was founded in 2013, but launched in 2014, and we have been listed on Nasdaq Stockholm since 2021. So a little bit more than three years now. Our headquarter is located in Borås in Sweden, and we have approximately 130 employees working at Revolution Race. And of course, since we are focused on our D2C model and digital D2C models, digital way of working is central. And we strive to have an engaged customer community and high customer satisfaction. And this has resulted in more than 660,000 unique product reviews and almost 2 million followers now and fans on our social media platforms. With our digital D2C business model, we can secure our competitive offering and at the same time also maintain industry-leading margins. But also the model makes it possible for us to act fast and, for example, react to changes in the industry, which is important when the market is challenging or uncertain. Revolution Race has become an international brand, and I think this picture very good illustrates our international presence. We now have customers in around 40 countries. and 18 localized web shops. We are currently fulfilling orders at two main logistics hubs with partners in Germany and Sweden and with a smaller location in the US. We have all our employees working out of Sweden and we design all our products in-house and work together with more than 25 suppliers for the production in China or in, sorry, in Asia, that is. Now, let's take a look at the performance and sales development for the first quarter. We are starting off the new financial year with continued growth. When we look at sales growth in local currencies, it reached 5%. In SEK, our net sales amounted to 350 million Swedish kronor. Despite a challenging market environment, this means that we continue to grow our market shares, although warmer weather and a challenging market sentiment impacted sales negatively. It is clear that when we headed into the quarter, we anticipated a higher growth rate, but the late or delayed autumn softened our growth throughout the quarter and It's like the period showed mixed performance with weaker sales in August, followed by stronger numbers in September. Thus, we closed the quarter at growth levels higher than for the quarter overall. The warmer weather also influenced our product mix, for example, reducing demand for shell products significantly compared to typical seasonal patterns. We are talking more than 30% decline in the shell category, which is in August, which is, of course, had a big impact on the total number. Now let's look at the different regions and sales in the rest of the world region grew by 11% in local currencies, while in the dark region growth was 8%. Sales in the Nordic region declined by 4% in local currencies, primarily due to the negative performance in Finland, which impacted the Nordics performance negatively. In fact, we did see positive growth in Sweden. So this was the first time in a year that we saw negative growth in this region. But all in all, we are reporting growth in a market that clearly remains challenging. And this is proven by several external and also internal data points that we have at hand. When we take a closer look at industry figures, we can proudly see that we are growing faster than many of the international brands and that we are outperforming the market in general. Based on reports from, for example, industry colleagues and also other reports that are official, such as the Swedish Sport Index, who report a sales decline of around 15% in Sweden. So we estimate that the market decline with more than 10% in many countries. Our 5% growth in light of that in the quarter, therefore, clearly indicates that we are increasing market shares at a high pace. And I think this demonstrates the strength of our offering and also our business model. Let's look closer at the other highlights during the first quarter. And to support growth, both in the short and long term, we have increased our marketing investments and expanded our product team to accelerate product development. The gross margin in this seasonally smallest quarter was 70%. And we have seen price reductions and campaigns in the market, and we are not unaffected. We managed to balance discounted sales. In fact, in September, we saw a stronger gross margin than that we report for the full quarter. The EBIT for the quarter amounted to 57 million Swedish krona, resulting in an adjusted EBIT margin of 20.5% for the past 12 months. And also in September, the EBIT margin was above 20%, which is in line with our target and also important to highlight. The stronger Swedish krona compared to the same quarter last year had a negative impact on the quarter's sales and gross margin. And also additionally, we observed a negative result effect of 3 million in other operating income and expenses, which is related to exchange rate impacts on the balance sheet. We will come back to that. We maintain a solid financial position with a net cash of 131 million at the end of Q1. And on top of that, we have an unused credit facility in place. To prepare for the seasonally strong second quarter that we are now in, we have carried out a planned inventory buildup, positioning us well for the months ahead. In Q3, last fiscal year, we launched a share repurchase program which continued into the first quarter with total repurchases during 2024 now amounting to 166 million Swedish kronor, of which 69 million was used during Q1. And reflecting our profitability and financial position, the board has proposed a dividend of 1.2 Swedish kronor per share. And with shareholder approval at the upcoming AGM, the company will have distributed at least 298 million Swedish kronor to shareholders during 2024, of which 132 million is through dividends and 166 million in total through the repurchase program. To become the world's most recommended outdoor brand, taking a long-term responsibility in product development and other key areas is central. Strong customer relationships and feedback are crucial to our strategy and also our product development. And we now have over 660,000 product reviews with a record high average rating of approximately 4.6 out of 5. And this makes us very proud. I always want to repeat this as I think that this is the company's absolute most important asset. And further developing our product assortment is a central part of our growth strategy. And as a result, we launched several new products during this quarter. the first quarter that have been well received by our customers and also received high ratings from looking at the productive views for example sales of our products scenic rhyme and trace they have been strong and looking ahead we will maintain a high pace in product development and now look forward to launching a range of new products across several categories And with that, I would like to hand over to the company's CFO, Jesper Alm, who will present and walk through the financial performance. Jesper, please go ahead.

Well, thank you, Paul. And good morning, everyone. I'll talk you through our financial performance during the first quarter. Cross-profit amounted to 245 million SEK for the quarter, which is in line with 247 million for the first quarter last year. This equals a gross margin of 70% compared to 72.2% a year ago. The gross margin was negatively impacted primarily by a greater price reduction compared to the same quarter last year, but also the stronger Swedish Krona compared to the same period last year had a negative impact on both this quarter sales and gross margin. Moving on to operational expenses, we see an increase. We see a slight increase in personnel expenses compared to the same quarter last year. The increase in number of full-time equivalents is now, the number of full-time equivalents is now 132, and attributable to, amongst other things, Strategy to invest more in product development. Personnel costs as share of net sales remained at 7%, corresponding to the cost last year. Other external expenses increased to 158 million compared to 154 a year ago, which as a share of net sales of 45% is in line with the level last year. The cost increase in absolute terms is explained by these costs primarily being variable in relation to sales. EBIT for the quarter amounted to 57 million compared to 67 million a year ago, corresponding to an EBIT margin of 16.3% compared to 19.5 a year ago. The difference of 3.2 percentage points is the consequence of the lower gross margin, 2.2 percentage points and other operating expenses of approximately 1 percentage point. The adjusted EBIT margin last 12 months amounts to 20.5%. The balance sheet remains stable with limited changes. Networking capital increased to 318 million compared to 249 million a year ago. Changes in networking capital is primarily driven by an increase in trade payables and higher inventory levels. Inventory has increased as planned to enable higher sales during the seasonally bigger second quarter. The inventory amount to 577 million of which 447 million was goods in warehouse at the end of the first quarter compared to 420 million a year ago. Cash flow from operating activities came in at minus 82 million during the quarter and primarily as a consequence of the seasonal inventory buildup. Our financial position is strong and we had a cash position of 142 million at quarter end and net cash of 131 million when adjusting for lease liabilities. And as previously, we have an undrawn credit facility of 600 million available. And that expires in 2028. New supplier agreements with improved payment terms have shifted payments forward slightly during the quarter compared to the corresponding quarter a year ago. So in conclusion, Revolution Race has a strong financial position. Our aim is to distribute 40 to 60% of profit for the year in accordance with the dividend policy. And as a result of the company's continued growth and strong cash flow, the board has proposed a dividend of 1.2 SEC per share, representing a dividend growth of 40%. In addition, and as Paul mentioned, we have repurchased shares up until now for a total amount of 166 million. We currently hold 3.3 million shares. Provided AGM approval of the dividend, the combined distribution to shareholders during 2024 will amount to approximately 300 million. So I think that sums up my part and I'll hand over back to you, Paul.

Thank you, Jesper. So to conclude, I want to say that Revolution Race is well positioned for the future with a large community, many satisfied customers, high profitability and also a solid financial position. Our customer offering built on high quality products at competitive prices is successful and we have established with that a strong market position. And by remaining true to our strategy of avoiding middlemen, we are confident that we can continue to drive growth. We estimate that we continue to outperform the market in general as we continue to gain market shares in a challenging market. And at the end of the first quarter, we had higher sales growth than for the full first quarter. And we are now looking forward to the most important period of the year. And note that sales growth in October compared to the corresponding period last year was slightly above the sales growth for the full first quarter of 2024 and 2025. So we are very excited and look forward to the upcoming weeks and months and historically our peak season. And that concludes our comments on the result. And before we finish, I would like to take the opportunity to thank the whole team at Revolution Race. And of course, our customers, followers, shareholders and partners. I look very much forward to continue to build on Revolution Race success together with all of you. And with that, we are now happy also to answer questions. So therefore, I ask the operator, do we have any questions?

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Emmanuel Janssen from Danske Bank. Please go ahead.

Paul and Jesper, I hope you can hear me. A couple of questions from my side. If you start on the gross margin, you mentioned that the gross margin strengthened in September. Was that due to less pressure from price competition in markets, or did you choose to forego some revenue in September, or how should we see it?

Yeah. Hello, Emanuel. I can try to answer that question. So in general, the performance of September was pretty much stronger than what we saw in August. We saw this quarter was very special because it had sort of different sentiments. And also so and as a result of a stronger September month, I assume that the market in general also were a bit more hesitant to have aggressive campaigns and price reductions. And I think that if we look at a data point that was announced from the Swedish spot index, we can also see that they are confirming that August in Sweden, at least, Sweden is only accounting for 10% of our sales, but nevertheless, it's our second biggest market. So it says something about the performance in the market, at least. And we saw that August had a negative growth at Spot Index, but also they report a positive growth in September. So I guess that... Since the market underlying was stronger in general, I think that also we could see a decrease in aggressive campaigns and price reductions also. And I guess that is also one reason why we could see a stronger gross margin in September compared to the full quarter. May I also maybe add there because the declining gross margin was affected by mainly three things. One is currency and we can leave that alone. The second thing is the price reductions that I mentioned but also the third component is product mix and I think that the weather component in august or the the warmer weather and the less sort of rain that we we saw in in august had an impact on on sales and on and and the product mix if we take example the the the sales of shell products i think i mentioned this in in the introduction here we saw a decline of of a number of uh more than 30 percent decline in in uh in august compared to august last year and uh so and and As a result, also seeing some of those products that we sell when autumn has arrived has slightly higher gross margin than some of the products that we sell during summer. That also had some sort of effect on the total gross margin as well.

I think that was very clear and actually the start of my next question then, but I assume then that we could conclude that the Shell products start to grow again in September and possibly in October as well, year of year.

Yes, and the growth in September in general was much better than the quarter in total. And also in October, we have seen that the The overall growth has started in October compared to October last year. We've seen a growth slightly over the growth that we saw last year. The report we just announced today is our smallest quarter. So deviations and maybe a postponement of the fall has some sort of impact in this small quarter. We know that fall will come every year. The question is when that seasonal change will happen. Last year, it was actually a bit more cold in July and August. We had a pretty strong sales growth. I think it was 24% in SEC last year. So that also gives you an indication that there is somewhat a weather component, especially in the first quarter when the season changes.

Okay, great. And on to the sales growth here then. Can you maybe elaborate a bit on what you have observed at the end of September and in October regarding growth in your different markets? Is it similar to what you saw in Q1, seeing high sales growth rest of the world and that while seeing negative sales development in the Nordics or especially Finland, it seems like.

Yeah, in fact, we actually saw growth in Sweden for the full quarter, and obviously that was even stronger in September. So I mean, growth in Sweden was okay for the full quarter, but especially, of course, in September, Finland remains challenging, I must say. we are digging into why the performance in Finland is a bit weaker. What we do see is that we actually continue to increase market share also in Finland, even though the numbers are weak. And this will be based on the internal data reports that we have access to. For example, we see We see the demand for searches on search engines such as Google increasing at a much higher pace than the market in general for Finland when it comes to outdoor markets. So I guess that the main explanation behind the weak Finnish performance is the weak market development, but also having in mind that that is the market where we have the highest market share also. So I guess when the market is low and with a high market share, we are definitely affected of that as well, and not something that we can really control.

Okay, great. What have you seen so far in the rest of Europe, so to say, so far in October?

We haven't disclosed the performance in October region by region. What we have said is that we have in October, which is the beginning of this quarter that we are in now, we've seen a growth that is slightly above the 5% in local currencies that we reported for Q1.

Okay, fair. And maybe a last question from my side here as well on the inventory. We also see that the goods in transit have doubled compared to last year. Is that driven by new product categories or anticipated high demand or how should we view it?

The goods in transit is related to higher purchases of course and the higher purchases is in order to build up an inventory so that we can facilitate higher sales volumes now in our peak season that we we expect in November and December. But to be more clear around the goods in transit, we have seen delays up to maybe three weeks due to the disturbances in the logistical or supply chains. It doesn't have a big impact on the business. Most of the goods that were on sea at the end of December, that exact day, has now landed in inventory. But the increase of the goods in transit is related to higher purchases, but more specifically I would say longer lead times due to disturbances. Up to maybe three weeks. But so all of that, most of it has landed now in time for the peak season, so we don't expect any material problems because of that.

Perfect, thank you. That's very clear. Well, thank you, Poon Jasper. That was all of my questions for now. Thank you very much.

Thank you.

The next question comes from Nicholas Ekman from Carnegie. Please go ahead.

thank you yes sorry i might miss the first part of the presentation here so apologies if i ask something you've already commented on but um first question is really on current trading when you say that sales growth has been slightly above the growth seen here in q1 that seems to indicate you're still seeing growth rates more kind of in the mid to high single digits but but clearly below 10 percent is that the correct reflection

We have chosen to say exactly what we have said. I can repeat it and maybe try to explain why we disclose it in that way. So we are disclosing that during October, compared to October last year, we see a growth that is slightly above the growth that we saw in the previous quarter, which was 5% in local currencies. The reason why we don't specify it more than that is... uh because we haven't really we haven't closed the books for october yet so it's um that is what we underlying can see uh but we we do see that the um the underlying growth is slightly above the five percent that we just reported okay fair enough um and and given that we're now seeing local currency growth of five percent here in the quarter and

slightly above in current trading and you have a 20% growth target, how confident are you that this is a temporary slowdown that we're seeing? And I'm asking particularly considering that you actually grew very strongly in previous quarters in still a very challenging consumer environment. So how can we be confident that this is a temporary slowdown and not sort of a slowdown overall for the brand specifically?

Yeah, so... I think when we set the target that we are aiming to grow at 20% per year, that was under the assumption that the market was sort of in a more of a normality, so to speak, where we can expect a market growth of, I don't know, maybe 3-4% or something like that over time. And we have seen now during the last quarter in clear indications, we can take some quarterly results from industry colleagues. We see some industry reports that I mentioned, for example, the Swedish spot index. We have access to very trustable internal reports from, for example, payment providers and search engines indicating that the market is in general, in all the 40 countries combined, so to speak, is down around 10%. So if the market is down 10%, which is, of course, nothing that we can really control, that I guess is both due to general consumer sentiment, but also in somewhat maybe also related to some weather components. So if that is down around 10%, then we grow by 5%. meaning that we are not that far off from our target, actually, of growing 20%. So it is clear that we are growing market share of around 15%, if you understand the calculation that I'm trying to make, which is not that far away from the 20% target that we have. So I have no idea, of course, and no insight on when the market will ease up, It is challenging, but at some point I'm confident that it will. And I think that at that time, if we can just continue to increase our market share and recruit new customers and continue to have satisfied customers, I think that we are very well positioned when the market is looking more positive. And then I'm confident that we will be able to reach our growth targets.

Very fair point about your relative performance. But do you know, and I guess it's early days here, but is your impression that the market in general has slowed in Q1 relative to previous quarters or the 10% decline? Is that more a reference to kind of the trend you've seen in the past few quarters?

If we look at the data reports that I'm referring to and compare them to, for example, the same sort of reports in calendar Q1 and Q2, the first half year of 2024 and also second half of 2023, it is clear that the market was even weaker in this latest quarter than previously. So it was a challenging quarter. It's too early to say how October is performing. We don't have access for obvious reasons to quarterly reports from our industry colleagues. So that's hard to say, but Q3 was more challenging than previous quarters, definitely.

Okay, thank you. Thank you so much for taking my questions. Thank you.

Okay, I understand we don't have more questions. But before we wrap up, let's see if there are any questions online. And we see that there are. So I will do like this. I will read the question and then try to answer it. First question is from Johan Boström. saying number of employees is up 8% year over year and quarter over quarter while personal costs is stable year over year and 20% lower compared to previous quarter. Can you explain this dynamic and what to expect going forward? And yeah, as we have mentioned earlier, we are now investing in increasing the team with mainly new team members in the product development team that is driving the number of employees up year over year. And that is something that we have focused on over the last couple of quarters. I think that we are now well positioned. We don't expect the number of employees to grow that fast anymore. So I think we have a good balanced position in that. And then when it comes to costs, that is more of a balance of salaries and other kind of costs that are related to the type of roles that we are hiring. Was the growth in October last year in line with the full quarter, so the growth in October last year. I'm looking at the ESPR here, if you can recall the growth in that specific month. And I'm not sure that we have actually disclosed the growth rate of October last year. So I think we should be careful commenting on that. Then we have a second question from Andreas. Do you see any tendencies that the demanding markets are bottoming out or do you expect continued challenging markets during the coming quarters? That's extremely, of course, hard to say. What we do see is that we have at least been able to grow slightly above the growth rate that we reported for the first quarter, which was 5% in local currencies. It's hard to predict and we don't guide on what we actually do think of the future. So I'm afraid I think we should not comment on that more than that. Can you elaborate more about the situation in Finland? Is the weak development just due to weak market? I think our weaker performance in Finland is mainly related to the weak market. Now, the weak market in Finland during the last quarter is related to, I guess, a weaker consumer sentiment. I think there is a weather component that is maybe even more relevant the further north you get. And when we do look at, I can repeat that, when we look at, for example, reports from payment suppliers, we do see that sort of mirrors the full online DTC market, uh, within the outdoor segment, we do see that we are in fact increasing market shares. So I think that the weaker performance in Finland is mostly correlated, uh, to, to, um, to the market development. And then the last question online is, can you mention some more markets beside UK that had particularly good development during, um, Yeah, I can actually mention Austria. Poland also had good growth during the quarter in the rest of the world region on top of Great Britain. We have another question here from Axel. Can you say anything about what the average price per share is? has been in the total buyback program? And I think I will hand that question over to Jesper.

Yeah, we have a disclosure on that in note six of the report. So for the purchases made the previous financial year, the average was 52.6 per share. And what we've done during Q1 is 46.6. for a total average of just below 50 SEK per share.

Okay, thank you. And it seems that we have gotten one more question from Benjamin Wallstedt at ABG. And it looks like I have to read the question that we have got. It says, campaigning impact on the gross margin. I would like to ask if this is driven by you as in you reduce prices more aggressively, or if this is driven by the customer in the mix shifted through no action of your own. And I think I tried to address that earlier. I think that the decline in gross margin is related to a couple of components. One component is price reduction. And we could see that in that weaker market performance, market development, we saw a higher degree of price reductions and we were not unaffected by that. So we also took some actions in order to sort of be in line with some of the competitors. The decline in gross margin also was related to some currency component. And on top of that also, product mix. I think I addressed that earlier. You mentioned a gross, then another question is, you mentioned a gross margin above the Q average and also a 20 plus EBIT margin for September. Does this deviate from the norm or what is the typical seasonal pattern here? So normally we do, if we focus on the EBIT margin, we have a target to maintain an EBIT margin of 20% for the full year. The quarter we just reported is the smallest quarter. So we have seen EBIT margins below 20% earlier and for the full quarter. September is seasonality, definitely the strongest quarter, strongest month in the quarter. So it's not that September was necessarily very strong. I think that the full quarterly result is more maybe related to a week or August. But we wanted to highlight September in order for everyone to understand that underlying business is actually performing in line with what we expect with higher growth in September and also a healthy EBIT margin above the 20% target that we have. I was wondering if you could give us an ID of the Shell product share of sales. So I guess that is related to the sales of Shell products declined significantly compared to last year during August. And this is more of a seasonal product category, which normally is pretty high during fall. And since the fall came pretty late, sales was not as strong as it was last year in this category during August. Country manager. Next question. What is the magnitude of new hiring and product development, please. Um, as I just mentioned, we have, uh, recruited new members to the team, um, mostly, um, related to their product development. And, um, uh, we have, we are now in a situation where we are satisfied with, uh, the composition of the team. So we don't expect that to go up more than it has. So, uh, uh the question was what is the magnitude i think that uh yeah we have increased number of employees to just above 130 now and uh maybe one should could uh expect it to go up single digit or something like that just to get an idea of magnitude uh next question from ben amin is country managers hiring on your site what is the expected impact and cost uh The main impact is, of course, to be able to focus more on revenues. And that is what we hope for. And talking about impact and cost, I think we're talking about two, three headcounts or something like that in midterm. So that gives an indication of that magnitude. We have received one more. I think the last question from Emanuel Jansson at Danske. That is, what sales growth did you see in August year over year? That is not something that we have disclosed, but what could easily assume that the August number was weak since the full quarter was 5% growth and September was pretty strong. So one could therefore expect that the August number was not something that we had hoped for more, so to say. Okay, and with that, I would like to thank you all for joining us today and for your interest in our journey. We are eager to engage with you again in the near future as we continue to share our developments. And may I also remind you that our report for the second quarter of our financial year will be announced on January 30th. And with that, we say thank you and goodbye.