RVRC Holding AB (publ)

Good morning everyone and welcome to this conference call where we will address the report for the second quarter of the financial year 2024 and 2025. Our financial year starts 1st of July and ends on 30th of June. So Q2 means that the period October 1st to December 31st. My name is Paul Fischbein and I'm the CEO of Revolution Race and with me for today's conference call I have the company's CFO Jesper Al. For those of you who are not familiar with the Revolution Race I will start this presentation by giving you a brief introduction. Revolution Race is an international outdoor brand offering a wide range of outdoor products mainly clothing but also other products such as shoes, bags and other products. Everything started with pants and that category is still the largest product category. We operate with a digital D2C business model and that means that we skip the middlemen and sell our products directly to our consumers. We do this mainly via our own website Revolution Race or through marketplaces such as Amazon. Revolution Race was founded in 2013 and launched in 2014 and we have been listed on Nasdaq Stockholm since 2021. Our headquarter is located in Sweden and we have today approximately 130 employees. And with our digital D2C model we can secure our competitive offering and at the same time 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 these days when the market is uncertain. Revolution Race has now become an international brand and this picture I think illustrates very well our international presence. We have customers today in around 40 countries and we have 18 localised webshops. In fact we actually opened a possibility for customers in Australia, South Africa and also New Zealand to buy our products and we are now pleased to report that our first orders from all these three new countries have been received. We are currently fulfilling orders at our two main logistics hubs with partners in Germany and in Sweden and we also have a smaller location in the US. We have all our employees working out of Sweden and we design all our products in-house and then work together with more than 25 important suppliers for the production in Asia. Okay, so now let's take a look at the performance and sales development for the second quarter of our fiscal year. And we are very pleased to present continued growth and strong results and in fact both sales and EBIT hit record levels and all-time highs during the last quarter. Sales during the quarter were particularly strong in November and net sales for the entire quarter amounting to 684 million Swedish kronor compared to 630 million a year ago. And the sales growth was then 12% in SEC and 11% in local currencies. So we continue to increase our market share and we are satisfied with this development, especially as the market continues to be challenging. In the second quarter we delivered growth across all three regions. The DACH region performed well, growing by 15% and we saw sales in Austria and Switzerland continue to show solid growth. And now Austria now being our third largest individual market in the company overall for the quarter. Looking specifically at Germany, reports showed that the overall consumption declined during October and November while we continued to demonstrate solid growth over the same period. Which I think is a sign of strength. The growth in the Nordic region amounted to 9% and sales growth in Sweden reached 15%. But the region was negatively impacted by continued weak sales in Finland. Sales in the rest of the world region continue to grow and the most important note here is that we continue to see good growth in the UK, which is the biggest market in that region. So all in all, a good quarter in many markets, despite that the market remains challenging. Based on the growth we are reporting and the data points we are also monitoring externally, we believe that we are outperforming the market overall and continue to increase our market shares. And if we continue to look closer at the other highlights during the second quarter, looking at the numbers, it is our best quarter ever and we have successfully maintained strong and industry leading both gross margin and operating margins. Sales hit our all time high and our EBIT is also a new quarterly record. The gross margin for the second quarter was .3% and the adjusted EBIT for the quarter amounted to 162 million Swedish kronor, resulting in an adjusted EBIT margin of 23.6%, which is industry leading. Our financial position continues to be strong with a net cash position of 270 million SEK at the end of Q2. And this is despite that we have been distributing a dividend of 132 million SEK during the quarter and also repurchase shares worth 59 million SEK under the repurchase mandate approved by the AGM and initiated by the board in November 2024. And also in accordance with the AGM decision, we have cancelled 3.3 million previously repurchased shares representing .9% of the total shares. Lastly, also in the balance sheet, we have an inventory position to facilitate our sales volumes. Due to logistical disturbances in the world, we have produced some products earlier compared to previous years in order to secure that we always have relevant products in stock. This I think gives us a competitive advantage and also impacts the inventory level somewhat, but all in all, we are satisfied with the inventory position. Our customer relationships and their active engagement in providing product reviews are crucial to our success. I say this often and use to repeat it, but I cannot emphasize enough the importance of our community. We have an asset light balance sheet, but our most important asset is our satisfied customers and that we have now more than 2 million followers on our social media channels and the number of unique product reviews now exceeds 700,000 with an average rating of 4.6 out of 5. We continue to expand and refine our range of outdoor products. Sales of our Alpine collection launched last winter and something that we expanded for the current season performed very well and we see growth over three times compared to the second quarter last year. And now we are selling Alpine during this season for approximately 100 million SEK. Our winter jackets, such as the new models Scenic and Rime introduced in September received excellent ratings from our customers and we are nearly sold out of these products during the quarter. And as we look ahead to the spring, we are excited about the launch of new products, including a highly exciting introduction of a new footwear program. And with that, I would like to hand over to the company's CEO Jesper Alm, who will now present and walk through the financial performance during the quarter. So with that Jesper, please go ahead.

Well, thank you, Paul, and good morning, everyone. I'll talk you through our financial performance during the second quarter. Gross profit amounted to 481 million SEK, which represents a growth of 12% compared to the 431 million a year ago. And it equals a slightly improved gross margin amounting to .3% versus .2% a year ago. Moving on to operational expenses, we see an increase in personnel expenses in absolute terms compared to the same quarter last year. The increase in number of full-time equivalents is up to 134, and that's primarily attributable to the product and production side of the organization, which is in line with its strategy to invest more in product development. Personnel costs as share of net sales was 4.7%, which is in line with Q2 last year. Other external expenses increased to 290 million compared to 252 million a year ago, and which as a share of net sales of 42% is in line with the level last year. The cost increase in absolute terms is explained by these costs to a large extent being variable in relation to sales. EBIT for the quarter amounted to a record high 158 million compared to 143 million a year ago. And adjusted EBIT amounted to 162 million compared to the 146 million that we showed a year ago. This translates to an EBIT margin of .9% and an adjusted EBIT of .6% compared to the .8% last year. And the adjusted EBIT margin over the last 12 months amounts to 20.6%. The balance sheet remains stable with changes in line with seasonality. Networking capital increased to 118 million compared to 84 million a year ago. And changes in networking capital is primarily driven by an increase in trade payables and higher inventory levels. To address uncertainties around the global logistics disruptions, we have bought forward purchases of important products to compensate for increased time at sea. This ensures high availability of key products and has resulted in a higher inventory level in support of future sales volumes. The inventory amounts to 592 million of which 403 million was goods in a warehouse, which compares to 322 million a year ago. And goods in transit being at sea has increased from 94 million last year to 161 million this quarter. Cash flow from operating activities came in at 327 million in Q2. Our financial position is strong and we had a cash position of 280 million at quarter end or a net cash position of 270 when adjusting for lease liabilities. We still have an undrawn credit facility of 600 million SEC available which expires in 2028. So in conclusion, Revolution Race has a strong financial position. Revolution Race aims to distribute 40 to 60% of profit for the year in accordance with the dividend policy. Based on the resolution passed at the AGM in November 2024, a dividend of 1.20 SEC per share was distributed to shareholders during November, corresponding to a total of 132 million SEC. This represents a dividend growth of 40% and a payout ratio of 43%. In addition, we repurchased shares during the previous financial year and during the first and second quarter of the 2020-25 financial year for a total amount of 225 million. We currently hold around 1.6 million shares of 109.6 million shares outstanding. In accordance with the AGM decision, we have also cancelled 3.3 million previously repurchased shares and that represented .9% of total shares. So I think that sums up my part and I'll hand back over to you, Paul.

Thank you Jesper. So to sum up, we are of course happy to report record numbers, market conditions remain challenging, but we start to observe signs of an improved consumer climate in some markets such as Sweden. And as a result, we have also seen stronger performance in Sweden and as that market stabilizes, we are well positioned with a strong financial position, satisfied customers and a competitive offering that continues to deliver high quality products at competitive prices. So we see strong potential to continue our growth journey and we also note that sales during the first weeks of January shows some growth compared to the same weeks last year. And that concludes our comments on the result. And before we finish, I would like to take the opportunity to really thank the whole team at Revolution Race, but also our customers, shareholders and partners. And I look forward to continue to grow and create value for the future with all of you. And with that, we are now happy to answer questions. So operator, do we have any questions?

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

Good morning, Paul and Jesper. Thank you for taking my questions and congratulations on a strong report. I think I start off on looking at the gross margin here, which has been of course much stronger than we in the market anticipated and quite stable in this market. Would you say that you are experiencing less markdowns now in the market compared to a year ago or how should we view it?

Yeah, hello, Emmanuel. I think as you mentioned, we have managed to maintain a stable gross margin despite that the market has been challenging. We have seen, it's hard to say exactly how the market has performed in terms of markdowns compared to a year ago. But we, I think when it comes to price reductions, we have had roughly the same, we have seen roughly the same levels at our end compared to a year ago. We think that I often get the question why if we have increased prices and I think that it is important for us to to stay very committed to our position in the market with good quality products at competitive price levels. So we have also during the period, we have successfully launched new products. And of course, all these new products, we have been extremely prudent or we haven't seen any markdowns on your product launches. So that has also contributed to a stable gross margin in a competitive and challenging market.

Okay, perfect. Thank you very much. And is it possible maybe to give us some more colors on the different month in this quarter? You are mentioning November as particularly strong. Maybe if you can maybe see or give us some color on how that developed into December. Yeah,

I mean, I think we actually gave a comment on October when we announced the latest quarter results saying that the growth in October was slightly above the growth that we reported in our first quarter. I think that was 5%. So slightly above that. November was definitely an important market in terms of sales. And I think that for sure November is by far or definitely the most important month during the quarter and for the for the full year. So without specifying too much, November is significantly higher than December nowadays. Looking back a couple of years, definitely see a shift from December sales happening in November instead.

Perfect. Thank you very much. And looking into next quarter then, I mean, if you're seeing slight growth now, should we expect maybe continued or maybe some more pressure on markdowns from your end into the next quarter in order to drive higher growth?

No, I think that is not the plan. We don't plan to grow by increasing markdowns. I don't think that that's the way to do it. But looking at the current quarter or the first weeks at least of that quarter in November, we do see that the market is challenging. As you know, we have more than half of our sales being generated from Germany. We of course read the newspapers and see reports that Germany looks very challenging. And we are of course extremely humble about that. So but what we have seen so far during the last couple of weeks in January is that compared to the same weeks last year, we have seen some some growth this year, which is of course promising.

Perfect. Thank you. And the last two couple of questions from my side here. Did you say that the Alpine collection has sold for a total of 100 million SEC or will it be around that number post Q3 or so?

It's more it's it's more an estimate of how much we will sell during this full Alpine season. I mean, we are now at the end of January. We still have February and maybe some some sales in March. But we have of course have had a fantastic development of our Alpine sales of our Alpine collection so far. So it is an estimate, but I'm pretty confident that we will be very close to 100 million this year, which is at least three times higher than last year. So this is extremely promising and also give us confidence as as a widening of the assortment and entering new product categories and develop many of our product categories is an important growth pillar for for a company. And this is, I think, a sign that our customers are satisfied with what we deliver and it's a way of capitalizing on that database. So satisfied customers and continue to develop the assortment of outdoor products that you can use for outdoor activity. So I think this is very promising.

Yes, indeed a very impressive development. And how does the Alpine collection compare in size to the footwear collection at the moment in terms of turnover?

So they're actually pretty close if we if we do if we hit those 100 million as I mentioned, but bear in mind that the Alpine collection is only sold during a limited period during the year and the footwear is for the full year. So, so now I think that the Alpine collection or the ski collection is has shown a very promising start and hopefully we look forward to next upcoming years and we will continue to develop that collection with new new products and new colors and new functionalities. So, so very excited about that.

Very, very fun to hear. And lastly from my side here, you're opening up in in three new regions. Is that also a sign that the development in South Korea and Japan has at least been decent? Okay, or how should we view it, you think?

I don't think we should over interpret the opening of these new English speaking countries. It is very easy. The investments are pretty low for us to open up in new countries. We do use our dot com site, the American site and open up the possibility for customers to buy from us. So what we have done, we have secured that we can ship to those customers so the customers can return and that payment can be done. But otherwise, it's like the customers are buying from the US website. We have already received orders from these countries and we get it almost on a daily basis. So, but you should not over interpret it. We have, as you know, we have 18 localized web shops. Those are the countries that we focus more on and then we have opened up the possibility for customers in up to 40 countries in total. And I think this is only an additional step of that. But it's not that we are focusing on Australia and New Zealand for the moment. But opening up is at least the first small step in that direction.

Yeah, interesting, fun. Thank you very much Pauline for taking my questions. Thank you.

The next question comes from Benjamin Wallstedt from ABGSC. Please go ahead.

Good morning guys and well done. A few questions from me as well. I was wondering first following on your point Paul on taking market share, if you have a feeling for what the outdoor market growth in the quarter is. Any rough estimate? Yeah,

we actually did receive. We saw that the, at least in Sweden, it's our second biggest market, accounting for roughly 10% of our business. In Sweden, Svensk Handel, the Swedish Trade Association reported spot index early this week. And they break out the performance of the outdoor clothing market, reporting a decline of 14, 14% during Q4. And we are growing 15%, 15 during the same period. So at least that indicates that we are in our second biggest market is definitely increasing market share. I think that's at least a good number to benchmark. We have access, we base the assumption that we increase market share on the report that we have access to and the spot index in Sweden is one example. We have access to data from Google. For example, looking at the different kind of searches, payment providers, we can see how our peer group is performing and how we are performing in relation to that. And I think it's safe to say that we do see the same signs, maybe not that we are growing 30% market share across the line, but definitely double digits in many of the important markets.

Perfect. We are pretty

close in our reporting, in the reporting cycle, we do expect some reports also from many of the industry colleagues in the upcoming weeks, which will of course also deliver additional information on market performance.

Yep, absolutely. I was also wondering if you could give us any indication at all on the relative size of the months in Q3 and potentially if there are any significant differences in comps to be aware of.

March is definitely the biggest month in our Q3. Relatively the other months, it's like maybe it's less than 50% of the total quarter, but it's a very important month. January is normally a bit slow after the peak season. February is like a middle month and then the most important month is March, without giving exact numbers.

Perfect. Thank you very much. And then finally from me, the rest of the world underperformed the other two geographical segments. Any additional flavor on what sort of markets might be faring a bit less good? You mentioned UK as a winning country, but what's on the other side of the spectrum please?

I think most of the countries are growing, especially the one that we're focusing on. And of course it is promising to see that UK is continuing to show very good, promising development. It is growing much faster than the total growth in the region, but also for the company in total. So that is of course promising. We have good momentum there and it is the biggest country now in that region. And it's also a market that we hope very much can sort of take off. Our Q2 is slightly more geared towards existing customers. It's very campaign active. We do send out offerings via email for example to customers in the existing database. So you can see slightly that we do sell more to existing customers versus new customers. And that is of course also impacting the split slightly between the regions. We did hope for slightly more sales in the rest of the world region, but all in all, especially with UK standing up positively, we are satisfied with the development.

Perfect. Those were all of my questions for now. Thank you very much.

The next question comes from Victor Hansen from Carnegie. Please go ahead.

Thank you, operator. Hi Paul and Jesper. Victor from Carnegie. First off, congratulations on a good report. I think it's good to

see

sales growth bouncing back. And my first question here, a follow up on Germany from the first speaker. So I'm wondering what explains the high growth here in Germany. So we know that the consumer is very weak in Germany. Some say that we're not even at the top yet consumer wise. So is there possibly any trading down effects benefiting you or what else could explain the strong momentum in Germany that helps you?

Yeah, I think it's extremely hard to be to give an exact answer. But I mean, we have seen over the last couple of years when the market has been weak, that we have managed to try to repeat that during many calls now, but we have managed to continue to increase market shares. And I think that our core offering is very strong also in a challenging market. We do, you know, we sell products sometimes over under 100 euro, which is a good price point, good products at competitive price levels. I think that is something that attracts also in challenging times attract some consumers. We have seen that in markets like Sweden, even though the market has been challenging, we have seen negative growth. We have been pretty certain that we have continued over the during that period that we have increased market shares. And I think that this Q2 really shows that that is a fact in Sweden. So we are humble about the situation in Germany for sure. We understand that consumer confidence is decreasing. But I think that also in I think that we have a proposition that could be really appealing during both good times and bad times. So I think the answer goes really back to our strong consumer customer offering and the high degree of customer satisfaction that we managed to maintain.

Yeah, understood. Thanks for that answer. And another and final question from me. On the outlook, Paul, you mentioned here, quote, some quote, some growth unquote. I was hoping you could expand a bit on that. So compared to the Q2 printer of 11% organically, how does it compare? So I know that January is a relatively small month, but but still, I just speaking for myself, I interpreted that slightly lower than the 11%. Give you some context.

Well, what we do see is that the market remains challenging. That is for sure. We've seen new comments from industry and experts during the first weeks of January also. So it looks like that the consumer retail in general remains challenging. And we are, of course, humble about that. What we have seen so far is that we have seen some growth during the first weeks now of the quarter in January compared to the same same period last week. And due to the sort of market situation we have chosen to to use that sort of phrasing and I don't think that you should interpret it more than that. It is it is higher than the same period last year,

simply. Yeah, okay. That makes sense. Thank you very much.

The next question comes from Johan Fred from SEB. Please go ahead.

Yeah, hi. Good morning, guys. Thank you for taking my questions. Just following up there on Victor's question on the current trading. I'm looking at your or the report last year's report and then you stated that sales growth in January was in line with the prior quarter when you reported sales growth of 20%. And in your statement today, you said that sales during the first few weeks of January showed some growth compared to the same weeks last year. How should we interpret this? I know you've tried to clarify this, Paul, but if you don't mind, how should we interpret the statement? And yeah, how are sales tracking compared to your Q2, the recently announced numbers? That is my first question. Thank you.

Yeah, so we choose not to guide. We have chosen historically and also in this report just to sort of report what we have seen so far. So last year we did see growth, if I recall correctly, that was in line with the growth in the previous quarter. That was clear. So we choose to report it. And this year in January, we do see some growth compared to the same weeks a year ago. And I think that is as close as we sort of report that we can give on current trading. And hopefully that helps to interpret it. But I think it's up to you guys to interpret it even more if you want to. But last year we could be more clear because it was very much in line. And this year it is. Yeah, we do see some growth compared to the same period last year. And that is what we report simply.

Yeah, thank you so much for that answer. And yeah, I think we are satisfied with that answer. So a follow up then on the Alpine collection. You said that the season or sales throughout the season will amount to roughly 100 million SEC. And you, as I interpreted, stated that this is a growth of 300 percent. Is that correct? From the same period prior, from the prior period?

Roughly, yes. Slightly over maybe, but roughly.

Okay, yeah, fair enough. And the final question on rest of the world. Sales have slowed sequentially for the last five quarters or so. How are the different geographies in the segment developing? And what seems to be the issues here? Why are sales slowing from a fairly low base as well? Yeah,

I think first of all, I mean, in total it also boils down a little bit that we have a financial target that we want to balance our growth in total with also delivering a healthy EBIT margin on a total level. And in the rest of the world, we see we have much lower market share compared to mature markets such as Germany and Sweden. So resulting in that we need to invest more in recruiting new customers in those markets. And we did choose to do that in the UK and we have seen very promising growth in the UK and it's the most important markets. And Q2 is more geared. I think I mentioned this earlier is more more we can see more sales from compared to other quarters generated from existing customers. And since we are offering campaigns to people who, for example, do subscribe to our newsletters and other kinds of channels. So I think that is also one explanation that we do see higher sales from existing customers. And those are, of course, being generated from bigger markets. And I think it is important also to balance growth and growth initiatives with continue to deliver a healthy EBIT margin on total level.

Very clear. Thank you so much for that answer. And any any comments on how the US is performing? You said that UK is performing well. But what about the other the other markets in the segment?

We have other markets, especially Europe, I think in the rest of the world region. And the other countries that we are sort of excited about is in Europe, Netherlands and Poland continues to show good growth, not the same growth as UK. And those, I would say, are the countries outside the Nordics and the Dutch countries that we are focused on for the moment. US continues to sort of grow, but we take it a bit slow. It's not we don't put any in any heavy investments. And it is important for us to always secure that we do operate on at least breakeven level in all new markets. And that, of course, puts some sort of limitations on on how much we can invest in wealth. But we choose to sort of operate on that level. And I think this served us well historically to be disciplined on continue to deliver healthy margins during our journey.

Lovely. Very clear. Thank you so much. And congratulations on on a record quarter.

Thank you very much.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments or written questions.

Thank you, operator. And before we wrap up, let's see if there are any other questions online that we haven't answered yet. Maybe I'll ask Jesper here to read the question and then I will try to answer.

Yes, thank you. We've received a couple of questions, two questions from Philip Vettakvist. And one is relating to rest of the world that has already been answered. And the second question is as digital marketing costs rise rapidly and customer acquisitions become more expensive, how will that affect the margins in the future?

So first of all, we have a financial target that we want to aim for for a growth of 20 percent and at the same time maintain an EBIT margin of 20 percent on an annual basis. And so that is, of course, a target that we aim for. So when we look at digital marketing costs, I think it has been pretty stable compared to two years ago. We can see slightly that in our segment costs at we have two big channels, of course, Meta and Google. And we can see a slight, slight, slight increase, but that's very small when it comes to a Meta. But when it comes to Google, it's a slight decrease. All in all, digital marketing costs are more or less in line with what we saw last year in the same period. But please have in mind also that these are numbers that are sort of related to our product segments. And so that's important to note also.

Good. And that sums up the questions received by online. OK,

so with that last comment, then I would like to thank you all for joining us today and for your interest in revolution race and our journey. And may I also remind you that our report for the third quarter in our fiscal year will be announced on May 6. So with that, thank you and goodbye.