RVRC Holding AB (publ)

Welcome to the Revolution Race Q1 presentation. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to the CEO, Paul Fishbein, and CFO, Jesper Ahm. Please go ahead.

Thank you operator and good morning everyone and welcome to this conference call where we will address the report for the first quarter of the fiscal year 2025-2026. Our financial year starts 1st of July and ends the 30th of June. So Q1 means the period July 1st to September 30th. My name is Paul Fischbein and I am the CEO of Revolution Race. And joining me today for today's conference call, I have the company's CFO Jesper Alb. Before we jump into any numbers, for those of you who are new to the Revolution Race story, I will start by giving you a brief intro to the company. Revolution Race is an international outdoor brand offering a wide range of outdoor products, mainly clothing, but also shoes, bags and other outdoor related products. Everything started with pants and that product category is still the largest product category. We operate with a D2C business model, meaning that we skip the middleman and sell our products directly to our customers. We do this mainly via our own website, but also through marketplaces such as Amazon. With our D2C business model we can secure our competitive offering and at the same time maintain industry leading margins. We are a digital first company but we have recently also taken our first steps into physical retail. In April we opened our first outlet store outside Stockholm in Sweden and at the end of September we also opened our brand store in central Stockholm. Historically our brand was very much built with our community on social media platforms and today we have more than 2 million followers and over 740,000 reviews on our site. 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 approximately 130 employees. We move on and this picture I think illustrates our international presence very well. We have customers in around 40 countries. We have 18 localized web shops and now also two physical stores as I mentioned. We are fulfilling orders at two main logistics hubs with partners in Germany and Sweden and with a smaller location also in the US. We design all our products in-house and work together with more than 25 suppliers for production in Asia. Now let's take a look at our performance and net sales development. We started the financial year with a strong quarter. Net sales amounted to 392 million Swedish krona. That corresponds to a sales growth of 15.15% in local currencies compared to the same quarter last year. We believe that we are gaining market share in several markets as the overall market environment is described to remain challenging. The recent strengthening of the Swedish krona had a negative currency effect on our reported revenue since we report in Swedish krona, but the majority of our revenue is generated in other currencies. We deliver growth across all regions during the quarter. In the Nordic, sales growth increased by 19% in local currencies. In the Dakh region, growth was 18%, and in the rest of the world region, 2%. Switzerland was the market with the strongest growth during the quarter, followed by Austria. And together with growth of 14% in our largest market, Germany, this resulted in a solid overall performance in the important DACH region. In our most mature market, Sweden, we recorded growth of 18%. In the rest of the world region, we are strengthening our position in several markets, including Poland and the UK. In the US, we saw a sales decline due to higher tariffs, which impacted or contributed to lower growth for the rest of the world region as a whole. Now let's continue to look closer at the performance during the quarter. And we are also happy to report that we continue to deliver strong margins and remain one of the most profitable companies in our industry. Our numbers demonstrate our ability to combine growth with profitability despite an unfavorable currency impact from a stronger Swedish krona. And this impacts both top line, as I mentioned, but also gross margin and EBIT. During the first quarter EBIT amounted to 75 million Swedish krona corresponding to an EBIT margin of 19% and the gross margin for the quarter was 69.6%. We maintain a solid financial position with a net cash position of 163 million at the end of the first quarter and on top of that also an undrawn credit facility. Ahead of the second quarter we have carried out a planned inventory build-up and we are now well prepared for the seasonally strongest period of the year. Inventory is more or less in line with last year and we expect that the inventory levels will gradually decrease over the course of the financial year. On operational level we have strengthened our management team with the new chief product officer and the new chief technology officer and these additions strengthen both our product development and technological capabilities which will support the next phase of our journey. During the quarter, we continued our share repurchase program in line with the mandate from the annual general meeting, repurchasing shares for a total amount of 32 million. Since the AGM in 2024, we have now repurchased shares amounting to 168 million in total. And the board's proposal to the upcoming AGM in November is to cancel all repurchased shares. During the quarter, we have carried out several successful product launches. Our Shell products sold well compared to last year. One could note that it was challenging selling Shell products during the first quarter last year due to the late start of the fall. So good to bear in mind. Looking ahead, I also want to mention that we are excited to follow the launch of the new Ultra series. our most technically advanced collection to date, which was introduced now in early October a few weeks ago. The collection is using carefully selected materials designed to perform in tough conditions. And with that news, I would like to hand over to the company's chief financial officer, Jesper Alm, who will present and walk through the financial performance. With that, Jesper, please go ahead.

Thank you, Paul, and good morning, everyone. I will briefly cover the financial performance during the first quarter of the new financial year. Gross profit amounted to $273 million for the quarter compared to $245 million a year ago. And this equals a gross margin of 69.6% compared to the 70% flat last year. The slight decrease in gross margin is mainly attributable to currency effects on net sales and goods for resale. We note that the personnel expenses in absolute terms are slightly higher compared to the same quarter last year, while the number of full-time equivalents remained at just above 130. Personnel expenses as share of net sales were basically in line with those of last year, the first quarter. Other external expenses were 169 million SEK compared to 158 a year ago, and this as a share of net sales was approximately 43%, and that is lower than last year. EBIT, as Paul mentioned, EBIT and adjusted EBIT for the quarter amounted to 75 million compared to 57 million a year ago. And this translates to an EBIT margin of 19% compared to 16.3% last year. The non-favorable currency effect affecting reported revenue and the gross margin had a corresponding impact on the operating profit. And the primary contributor to the strong margin was good efficiency in marketing. Last 12 months, adjusted EBIT now is in excess of 400 million SEK. The balance sheet remains stable with changes in line with seasonality. Networking capital decreased slightly to 296 million compared to 318 a year ago. And changes in networking capital is primarily driven by slightly higher inventory levels and an increase in current liabilities. The inventory amounts to 586 million, of which 500 million was sellable or goods in warehouse, compared to a total of 447 million a year ago. And goods in transit has decreased from 118 million last year to 66 at the end of the first quarter. And ahead of the second quarter, we completed the planned inventory buildup to prepare for the peak season that we're now entering into. And reminding that inventory levels are expected to decline gradually over the financial year. Our financial position is strong, and we had a cash position of 181 million at quarter end. or net cash of 163 million SEK when adjusting for lease liabilities. The credit facility of 600 million SEK remains available and undrawn. Cash flow from operating activities came in at 27 million SEK in Q1. So in conclusion, we have a strong financial position and are well prepared for the upcoming dividend payment. Our aim is to distribute 40 to 60% of net profit annually, which is in accordance with the dividend policy. And as a result of our continued growth and strong financial position, 1.35 SEC per share, which represents a dividend growth of 13% compared to the 1.20 SEC paid out per share last year. And the proposed dividend in total amounts to 144 million, representing a payout ratio of 50%. In addition to dividends being paid or proposed in this case, as the AGM is coming up soon, during the quarter, we continued repurchasing shares in line with the AGM mandate of last year, acquiring shares for a total of 32 million SEK. And since the AGM in November 24, we have repurchased 3.8 million shares out of the 109.6 that we had outstanding a year ago. for a total consideration of 168 million SEK. And with that, it's over for me, Paul.

Thank you, Jesper. So to sum up, the market environment is still described by many as challenging, but we are well positioned ahead of the peak season that we have in front of us. Our strong customer offering, our leading margins and our high customer satisfaction gives us a solid position when we now continue our journey. With autumn and winter approaching, we hope for a cold and snowy season that provides great opportunities for outdoor activities and experience also in nature. And as I mentioned, we are now entering the most important season of the year. The second quarter has just started and the real peak season lies ahead. But having said that, we can report continued sales growth at the beginning of the second quarter as well. That concludes our comments on the result. Before we finish, I'd like to take this opportunity to thank everyone who has contributed to a strong start of the new financial year. Our employees, customers, partners and other stakeholders. 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 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 Emanuel Jansen from Danske Bank. Please go ahead. The next question comes from Benjamin Wahlstedt from ABGSC. Please go ahead.

Good morning. I hope you can hear me. A few questions from my end. So first of all, continued growth, you say, in the report. Historically, continued growth without a magnitude has meant growth around 5%, if I'm not mistaken. I was wondering if you could elaborate or give some additional color on the magnitude of growth.

Hello Benjamin. So we are only a couple of weeks into the historically most important quarter. It has only been three weeks and we know that the The higher volumes, they lie sort of in front of us in November and in December. So we, as always, we choose not to provide a guidance for what we think about this quarter. So what we say is that we have seen continued growth when we compared these first three weeks of October compared to the first three weeks of October last year. But we don't specify it more than that. We think it's not relevant since the higher volumes will lie ahead.

Fair enough. Another slightly different topic. FX, while I understand the translation impact on EBIT is negative in the quarter, could you say anything on the impact of the gross margin in Q1 from FX, please?

I think I'll hand over to Jesper.

Thank you for that one. So we're still at the point where the weaker euro has had a bigger impact than the weaker USD. That goes for the first quarter. And as we state in the report, we expect the benefits of the weaker US dollar to become more visible going forward.

Perfect. And the reason I'm asking is your gross margin has been lower in Q1 versus the preceding Q4 in all but one cases historically. If not driven by FX, what drove the Q1Q improvement in the gross margin in this quarter? Is it just strong sales of shell products?

Yeah, it is. I mean, gross margin is a combination of FX, product mix, market mix. And so, yeah, it's a combination of many, many components. And also, to some extent, the competitive landscape, we see that it is still challenging. So that has had an impact as well.

Right. I was wondering as well if you could say anything about any sort of changes made to the Alpine collection in terms of order sizes, et cetera, compared to last year. I assume we should not expect 200% growth this year as well.

no but i mean we launched our alpine or ski collection two seasons ago that year we had sales of it if i recall right um around 30 million last year last year's season we um saw sales within that category north of 100 million and of course we expect growth to continue. We don't provide any, we don't disclose exactly how much we have bought for but we definitely expect the good momentum within Alpine category to continue to grow and to facilitate that we have

course placed order so so that that can be realized realized perfect thank you and then uh fine no i have two more uh first of all uh strong marketing efficiency in the quarter what what is the reason and or under what can you say about that that's a good question um

It sort of boils down to hard work, a lot of focus and a lot of tactical decisions and actions. So very well performed by the team. So there's no sort of silver bullet or a magic hand that lies behind this. It's more... It's more boiled down to hard work and we're happy to see the impact of that hard work also paying off.

Do you think they can repeat that hard work, so to speak?

Well, I mean, our job is to sort of go to our office every day, more or less do the same thing and try to improve everything we do on a daily basis. And I think that that is something that we have seen now and hopefully we will continue to do that. That is the plan.

So it's not any sort of external actors such as Google pricing or anything like that? No, I don't think so.

smarter decisions. We have added some new colleagues to the team who have also brought in some new knowledge that has also been an important contributor to the marketing efficiency that we now see. So extremely happy to see that, of course.

Perfect. Finally from Ethan, you note that US sales are slow due to tariffs. Could you remind us what the share of sales to the US is approximately

So approximately before the tariffs, it was at around 3% in total. Now that has declined heavily due to underlying, it's due to the new tariff situation that we have. So we are not so exposed to that as a company in general. But that decline has an impact on the growth in the rest of the world region. I think that is also important to bear in mind. We're talking about three, four percentage points impact in that region. So we saw... growth in the rest of the world of 2% in local currencies in the quarter so you can sort of if you exclude the US development you can add 3-4 percentage points to that growth in that region.

Perfect. Sounds like a slow US is not really that big of an issue. That's all I had. Thank you very much.

The next question comes from Andreas Lundberg from SEB. Please go ahead.

Yeah, thank you, Andreas Lundberg with SEB. If I start with market development, you talk about continued challenging markets. Why do you think you are growing so nicely despite all that? And also, why do you think you grow so nicely across the board if we exclude perhaps the U.S. market? Thank you.

Hi, I think it sort of boils down to what I just mentioned. We have improved our operational efficiency within marketing, but also I think we have a very strong customer offering. that has been strengthened over and over again. I think also bearing in mind that last year we had a more challenging situation. We had for example a decline of sales of shell products due to a bit warmer and hotter a bit a drier summer and late entry of the fall i think that is something also to sort of note which obviously impacts the the comparison numbers

Thank you. And I'm back to the marketing question. I think you said last time that you were more cautious on putting on marketing given the weak demand. How would you characterize that in the first quarter?

Well, we haven't really... We report quite early in this quarter compared to the industry. We haven't really seen so much market data yet. I used to refer to reports such as spot index in Sweden and we haven't seen any industry colleagues reporting yet, so it's a bit hard to say. What we do see is that the Swedish market is a bit better, but on a high-level basis, I can't really see that, for example, Germany has improved in terms of customer demand compared to a year ago. It seems to remain a bit challenging still in Germany.

Okay, thank you. I was more looking into the marketing at first. I think you said you were cautious putting on marketing costs when the demand was weak or weaker in recent quarters. Have you still been cautious on marketing in the rest of the world? I guess that's my question.

That's a very good question. I mean, our policy is that we have a financial target that we want to aim. Our aim is to grow at 20%. We're not there yet. But at the same time, we want to maintain an EBIT margin of 20% as well. On a full year basis, now this is the smallest, seasonally smallest quarter of the year. We report 19%. So, I mean, we want to balance growth and EBIT. And to some point, that puts a limit sort of on how much you could actually spend on marketing, for example, and other costs. So, yeah.

Sounds wise. Maybe one for Jesper. You talk about gradually lower inventory from here. Is that more seasonal effect or is it anything else?

No, we see a structural effect. We have, obviously, the seasonal pattern is roughly the same as every year, but we aim to structurally decrease the inventory share of net sales throughout the year, as we've talked about previously. quarter we were slightly high on inventory levels due to slightly lower sales growth in that period than expected and we've taken measures to to reduce the inventory levels over time so we think we're in a in a good place and we're going to improve that over the year that's the plan cool and lastly on your recent

who are opening in downtown Stockholm. What's the learnings? What do you take with you from the start? Thank you.

I mean, it's a bit early to say too much. We haven't been open for a month yet, but we are satisfied with the start. We obviously can monitor the number of visitors and the interest it has generated. it's a bit early to draw any big conclusions but we definitely feel that this is a very good strategic complement to the e-commerce business and we are evaluating opening up more stores however as you may know we are a bit careful with We are very selective and we do it with a step-by-step approach. So sales-wise, I mean, it's a very small share or total sales, but strategically and brand-wise, we feel that this can really support our journey of building a brand. Thank you so much, guys.

Thank you. Thank you.

The next question comes from Emanuel Jansen from Danske Bank. Please go ahead.

Hi, everyone. I hope you can hear me now. Sorry, I had some trouble with the technical equipment. I think a lot of the questions have already been answered at this point, but obviously impressive growth in the quarter with Germany rebounding significantly. What would you say are the main drivers in this quarter in that region? Is it, as you mentioned, on the comparable base of shell products or new products or stable market overall in Germany?

Hi, Emanuel. We can hear you now. I think, as always, this boils down to... a combination of a couple of components. I think, as I mentioned in conjunction with an earlier question, it boils down to better performance when it comes to acquiring customers and marketing. I think that we have been very well in terms of execution when it comes to call it campaign planning or merchandising on site. And I think there's also a component of of whether we, I try always to avoid speaking about weather, but in this first quarter, weather is sometimes, is more or less, is a component because we see a higher, we simply see higher sales when fall enters. And fall will always enter, it's more a question of when it enters. Last year, it came very late. This year, it came a bit earlier. And obviously, that has an impact on, for example, rain clothes or shell products. So I think combination of some external factors such as that I just mentioned, but also internally improving the operational efficiency, especially within marketing. And as always... I think we have a strong competitive offering. We develop new products. We have adjusted our many details in our fleece assortment for it. Just to lift one example, we have launched new products. And so continuously improving the customer proposition is also an important factor. So no clear answer more than a combination of many things.

And this rhymes well with the Swedish market as well, right? Or maybe a little bit slightly more stable market here versus?

I mean, we have seen that the Swedish market has bounced back over the last couple of quarters. In the last quarter, I think we had access to Spot Index. Spot Index is a report from the Swedish Trade Association reporting quarterly. We haven't seen any number from the calendar Q3 yet, but... calendar q2 it was uh reported that um it we saw growth for the first time after 13 quarters or something so that is definitely a sign of that the market has bounced back slightly The only data point I've really seen so far related to the calendar Q3 is some numbers from payment providers actually showing that the market continues to be slightly better in Sweden. But we can't really see that happening in Germany yet. But bear in mind, this is not a big amount of data points that I'm based on.

Yeah, okay, great. And do you think that the 18% organic growth that we saw in Sweden, is that extraordinary high or given that this is considered as a relatively mature market for you? What should we expect going forward, I mean?

Good question. I think... I mean, 18% is a good performance. Again, bear in mind that it's compared with a pretty weak quarter. We were disappointed when we stood here a year ago. That's also important to bear in mind. But on top of that, no real questions on what to expect on the Swedish market. But it's definitely an outperformance compared to the... to the market in the annual we are very comfortable to say that we are gaining market share in sweden and in also many other markets which is important of course and and promising okay great thank you very much and and looking into the this current quarter then have you seen you're stating that you still see growth uh can you maybe elaborate on the

if you see continued growth across all three regions in terms of organic growth still.

I mean, as I mentioned earlier, I think we should be a bit careful saying too much about the quarter we are in now. It's only been three full weeks. And it's the beginning of the quarter and the big volumes are ahead of us. So it's more or less the smallest weeks. We expect those weeks that we just have behind us, the smallest weeks in the quarter. So... we don't want to guide or disclose more than saying that we do see continued growth in the first weeks of October compared to the exact same dates last year.

Fair enough. And on this new Ultra series, I know it just recently was launched, but have you seen any signs of good receivings yet? And how will the rollout compare to the Alpina collection?

Interest has been very high. And as you mentioned, it's only been, I think, 10 days. And the collection is very much sort of geared towards ski and alpine. So we're not really in that season yet. But sales has started in a good way. And we see a lot of interest. We obviously know how much we have bought. So you can more view this as a way of sort of lifting the status of the brand in general more than expect extreme volumes. And without disclosing too much, we don't expect Ultra Series to be at the same levels as sort of the base Alpine assortment, the Atlas and the Axel products that we have as is in our ordinary sort of Alpine collection.

Great, thank you very much. And can you maybe elaborate or give us some more color on what kind of customer you want to acquire from that? type of product category.

The idea is actually to target our existing customers more than obviously we always want to to get new customers, but we think that we have a very loyal customer base and this is a way of offering products in a slightly more premium segment than we used to have. So you can view this as a premium collection to our customer base. And so, I mean, we have our concept of, we used to speak about the unmatched value and the Ultra Series, the aim of the Ultra Series is to remain with an unmatched value. So if you compare these new products and the functionalities and the technical specifications and the material, you it should be a very competitive offering if you compare this with the competitive brands and competitive products. So the idea is to target our existing customer base, but obviously we also hope to attract some attention from new customers as well.

Very interesting. And maybe last question from my side and perhaps something in for the longer term here, but Can you provide any overview or development of your strategy and development in the Asia market? Because my impression is at least that you have brought in at least some expertise through personnel with knowledge of this region. Is that correct? And can you maybe provide us some updates on your thoughts about that region and market?

Asia for us is... Today, when it comes to Asia, it's a part of the world where the production is taking place. We have a small sourcing partner in Vietnam that we're working with. 100% focus on production and product development. We have, as you know, a year ago we opened up the site in Japan, in South Korea, but it's not the focus market for us.

Okay, fair enough. Thank you very much Paul for all your answers. Thank you very much.

Thank you.

The next question comes from Peter Hermannred from First Partners Holding 5, as please go ahead.

Hello, congratulations. You see a continued sales growth in October, and Benjamin indicates that that has historically been more like 5%. But when I look at the heading of your quarterly report, it says continued sales growth, and you had 15% in the third quarter. Should we maybe think that what you're saying for the start of this quarter is basically saying it's not a catastrophe, it could be just acceptable or it could be great, but you don't want to indicate anything more?

I think you should not over-interpret it. I think you should, I mean, you should definitely believe that it's higher. The sales during the first three weeks this year is higher than the first three weeks in October last year. We choose not to disclose more than that at this point because it doesn't really matter how strong the performance is in these initial weeks because we expect much, much, much higher volumes in November and December. So the peak lies in front of us and we want to be a bit careful in disclosing more than we actually know and don't specify too much because we don't expect that to have a big impact. The impact will come later in the quarter. Thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you, operator, and thank you all for all the questions. Before we wrap up, let's see if we have received any questions online. I look at Jesper and ask him to maybe... Read a question if there are any.

Yes, we have received a couple of questions. One of them is partly answered already, but I'll read it out anyway. So the new Ultra series seems to be priced in line with the established outdoor brands. And wasn't your strategy as a D2C company to be cheaper?

Yes, that is our strategy. Our strategy is to maintain our unmatched value. If you compare this Ultra series, you can call that our premium line with other brands premium line. We see that we are in many cases at half the price level as many of the competing brands. So there's no change in strategy. And we have already in the past... had two sort of segments in our range strategy. We've had our base assortment and the pro assortment. And now we have also launched a statement assortment, which is consisting of this ultra series. So you have to compare it with other brands premium lines. And then we are at the competitive level.

Which leads into the next question. With several ranges across different price points, how are you planning to structure your offering in order not to confuse customers?

I think it... boils down to continue to be disciplined, offer quality products with our design element consisting of slightly more colorful products, tighter fit and good price points compared to similar products in the market. And I think that is important to bear in mind. We have not chosen to enter the cheapest segment in the market. I think it's always important to compare with products that are on par in terms of technical specifications, materials and so on.

And those were the online questions received.

Thank you. So may I then say with that last comment, thank you all for joining us today in this call and for your interest in our journey. And may I also remind you that the report for our second quarter will be announced on January 29th. So hope to see you then. And with that, thank you and goodbye.