RVRC Holding AB (publ)

Welcome to the Revolution Race Q4 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 full year and fourth quarter of the fiscal year 2024-25. Our financial year starts 1st of July and ends 30th of June. So Q4 means that the period April 1st until June 30th. My name is Paul Fishbein and I am the CEO of Revolution Race and joining me today for today's conference call also I have the company's CFO Jesper Ahl. For those of you who are new to the Revolution Race story, I will now start by giving you a very short intro. Revolution Race is an international outdoor brand offering a wide range of outdoor products, mainly clothing, but also other products such as shoes and bags. Everything started with the pants and that category is still the largest product category. We operate with a D2C business model, meaning that we skip the middlemen and sell our products directly to our customers. And we do this mainly via our own website, the Revolution Race website, but also through marketplaces such as Amazon. And with our D2C business model, we can secure our competitive offering and at the same time maintain industry-leading margins. Revolution Race was founded in 2013 and we launched in 2014 and we have now been listed on Nasdaq Stockholm since 2021. Our headquarter is located in Sweden and we have approximately 130 employees. This picture illustrates our international presence. We have customers in around 40 countries and 18 local webshops. We are fulfilling orders at our two main logistics hubs with partners in Germany and Sweden. And we also have a smaller location in the US. We design all our products in-house and work together with more than 25 suppliers for production in Asia. So that was a short intro. Now let's take a look at our performance and also net sales development. And we conclude the full financial year of 2024 and 2025 with continued growth. During the year, we have strengthened our positions and significantly increased or market shares in many key markets. Net sales for the full year totaled 1.9 billion Swedish krona, which is a growth of 6% in local currencies for the full year. The last 12 months has been characterized by a challenging market environment, and I think it's important to highlight also the recent strengthening of the Swedish krona. And that had a negative currency effect on our reported revenue. We report in SEK, Swedish krona, but the majority of our revenue is generated in other currencies. And this currency effect was most significant in this fourth quarter when the Swedish krona was strengthened. In the fourth quarter of the financial year, the net sales increased by 4% in local currencies and amounted to 405 million Swedish krona. Looking at the different regions in the quarter, the Nordic region continued to perform well as sales grew by 15% in local currencies. And I think that clearly demonstrates that we continue to increase market shares. For example, when we compare with the Swedish report called Spot Index, it is clear that we grow faster than the market again. We are also continuing to strengthen our market positions in the important DACH region. Switzerland reported the highest growth in that region during the fourth quarter, followed by Austria. Both markets grew by more than 20% in the quarter. But in Germany, our largest and most important markets, looking at the size of that market, conditions continued to be challenging, but we are nevertheless continuing to increase market share and we hope that the market will start to grow again soon. For the financial year as a whole, we delivered growth across all regions. The DACH region grew by 7% in local currencies. The Nordic region also grew by 7% for the full year. And for the full year, we saw solid growth in several markets where we believe there is significant potential for continued expansion. This includes Austria grew by 22%, Switzerland 23%, and UK 11% in local currencies. Now let's also continue to look closer at the performance during the fourth quarter. And as mentioned, we saw significant currency effects on revenues and also then margins during the quarter. In Swedish krona, the operating profit for the quarter was 63 million. In Swedish krona, the EBIT was lower than last year, but In fact, when adjusting for currency effects, the operating result for the fourth quarter was roughly in line with the results for the corresponding quarter last year. And I think this is important to understand. And we can, of course, deep dive into the currency impacts during the Q&A if you wish. Looking at the full year, underlying earnings in local currencies improved compared to the previous financial year. For the full year, the reported adjusted operating profit was 383 million and that was in line with the previous year's result of 389 million. when we take into account the net effect of other operating income expenses, which was four million this year compared to plus two million in the previous year. So if you take that into account, the results are in line. On top of this, one can also add the currency related top line effect, especially in the fourth quarter, in order to make the full comparison with last year. And I really think it is important to understand this dynamic when understanding the business. We report in Swedish krona, but 90% of our revenues are generated outside of Sweden, especially from countries with Euro. And looking at the cost side, we have a higher degree of cost in SEC compared to the revenue. So of course, we are impacted when currencies fluctuate. Our full year adjusted EBIT margin amounted to 19.9%. So we continue to deliver strong margins and we are proud to be among the most profitable companies in the industry. And I think this demonstrates also our ability to combine growth with profitability despite challenging times. Our financial position remains strong. Inventory levels are well balanced and the inventory is expected to also gradually decrease over the upcoming 12 months. At the end of the fourth quarter, we had a net cash position of 177 million SEK. And on top of that, we also had an unused credit facility of 600 million SEK. Swedish krona and as we today report the full year we also report that the board also proposes the dividend in light of the company's position the growth the cash flow during the year the board of directors proposes a dividend of 1.35 Swedish krona per share. This is in line with our dividend policy and implies an increase of the dividend for each year since the company's IPO. On top of this, we also continued our share repurchase program as part of our efforts to optimize the company's capital structure and create long-term shareholder value. In total 337 million Swedish krona was distributed to shareholders during the financial year of which 132 million through dividend for 2023-24 and 205 million Swedish krona through share repurchases and during the fourth quarter 1.1 million shares were repurchased for a total of 51 million Swedish krona. And we aim to continue with this as our ambition is to reduce. We have a long term view on this and our ambition is to reduce the net cash position in a balanced way through dividends and also share repurchases without creating a net debt position when excluding seasonal fluctuations. And we do not foresee any big capex investments in the business in the near future. If we continue, our close relationship with our customers continues to be one of our most important assets and the driver of our success. Today, we have more than 2.2 million followers across our social media channels and more than 730,000 product reviews with an average rating of 4.6 out of five. And that level of engagement builds trust, adds value, strengthens loyalty and gives us a real competitive advantage. And this is a core part of our strategy and something we monitor very closely. But we have also been busy developing by the other parts of the company. For example, in April, We opened our first physical outlet store and soon we will open a brand store in central Stockholm. So stay tuned for that. While we are a digital first business, we also see clear value in meeting our customers physically in selected locations. And these stores complement our e-commerce offering and help us to strengthen the brand and also to reach new customers. And we can also say that we continue to evaluate more future store openings, including also potential locations outside Sweden. And we of course remain selective in our approach, but hopefully we will be able to tell you more about this soon. On the product side, we continue to broaden our outdoor range. Our GP and Orban pans are still our biggest sellers, and we continue to develop our assortment. Operationally, we are building for scale. We have signed an agreement to move our Nordic warehouse to a new automated logistics center outside Stockholm. And the large automation project with the robotical system was recently deployed at our German site. And both these initiatives will support higher volumes going forward. And with this presentation, I would like to hand over to the company's CFO, Jesper Alm, who will now present and walk through the financial performance. Jesper, please go ahead.

Well, thank you, Paul. And good morning, everyone. I will briefly talk you through our financial performance during the fourth quarter and the full financial year 24-25. Gross profits amounted to 281 million for the quarter, slightly lower than compared to the 293 million a year ago. And this equals a gross margin of 69.4% compared to 71.9% last year. The decrease in gross margin is mainly attributable to a non-favorable currency effect on net sales in relation to cost of goods for resale. Gross profit for the full year increased to 101.344 billion compared to 1,312,000,000 last year, sorry. And this equals a gross margin of 69.8% compared to 71.3% last year. We note that the personnel expenses are in line with the same quarter last year. The number of full-time equivalents was 132, which is flat compared to the last quarter. The increase versus last year is primarily attributable to the product and production side of the organization, which is in line with the company's strategy to invest more in product development. Personnel costs as share of net sales were in line with last year. Other external expenses were 182 million compared to Q4 last year of 185 million. And this as share of net sales, approximately 45%, were in line with last year. EBIT and adjusted EBIT for the quarter and those amounts are the same. They amounted to 63 million compared to 74 million a year ago. This translates to an EBIT margin of 15.5% compared to 18.3% last year. The non-favorable currency effect affecting reported revenue and the gross margin had a corresponding impact on the operating profit. Adjusting for the adverse currency effects, profitability is roughly in line with the comparison period. Adjusted EBIT for the financial year amounted to 383 million compared to 389 million the year prior. And further adjusting for other operating income and expenses, the underlying EBIT was flat. The balance sheet remains stable with changes in line with seasonality. Networking capital increased to 261 million compared to 187 million a year ago. And the changes in networking capital is primarily driven by higher inventory levels and a decrease in cash. A dividend of 132 million SEK was paid out during the second quarter last year being November 2024. Our continued repurchase of shares amounted to 51 million SEK during the fourth quarter and for the full year that amount was 205 million. The inventory amounts to 521 million, of which 439 million was goods in warehouse compared to 448 million a year ago. Goods in transit has decreased slightly from 76 million last year to 72 million at the end of the year. And inventory is well balanced and expected to gradually decrease during the current financial year. Our financial position is strong and we had a cash position of 189 million at quarter and year end or a net cash position of 177 million when adjusting for lease liabilities. The credit facility of 600 million SEK remains available and undrawn. Cash flow from operating activities came in at 85 million SEK during Q4 and primarily attributable to changes in inventory and operating receivables. In conclusion, we have a strong financial position. We aim to distribute 40 to 60% of net profit annually in accordance with the dividend policy. And as a result of the company's continued growth and strong financial position, the board proposes a dividend of 1.35 sec per share. This represents a dividend growth of 12.5% compared to the 1.2 sec per share paid out last year in November. This proposed dividend amounts to approximately 144 million SEK in total, representing a payout ratio of around 50%. And I note that we over the four years since IPO and the first dividend in 2021 have more than doubled the dividend per share. And in addition to the dividends paid out or now proposed during the quarter, we continued repurchasing shares in line with the AGM mandate. And the total amount was, as previously discussed, 51 million. SEC and since the AGM in November 2024 we have repurchased 3.2 million shares out of the 109.6 outstanding and that for a total consideration of 137 million SEC and with that it's over and out from me, Paul.

Thank you Jesper. To sum up We report continued growth and high profitability in a market that remains challenging. We have over the years strengthened our positions in several key markets. We have continued to develop our product range and taken important operational steps to support future growth with store openings as an example. Looking ahead, Market environment remains uncertain, but we are well prepared with strong margins, a solid financial position, good products and most importantly, satisfied customers. We are in a good position to take next steps. And we are now preparing for the key season, the autumn and winter season. We continue to focus on profitable growth. And at the beginning of this new financial year, quarter to date, we note the sales increase in local currencies at around 10% compared to with the same period last year. So happy to see that. And that concludes our comments on the result. Before we finish, I would like to take this opportunity also to thank the entire team at Revolution Race, our customers, our shareholders, and also our partners. I look forward to continuing to grow and create long-term value together 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 Benjamin Wallstitt from ABGSC. Please go ahead.

Good morning. I am going to dwell on growth for a little bit. First off, perhaps, do you have a view of the underlying market growth in the quarter, please?

Sorry, can you repeat the question? The growth in the first quarter, you mean?

No, in Q4. Do you have a view of the underlying market growth? That is the Yeah, the market growth in the markets that you were acting in.

Yeah, so we report in the quarter that the Nordics, if we look at the three regions, the Nordics is growing 15%, which we are very pleased with. We see that Sweden, for example, are growing with 13%. So that is nice to see. Good growth in the market where we have been present for a long time. In the DACH region, we are also pleased to see high growth in Austria and in Switzerland, over 20% in both those markets. In Germany, for the total DACH region, we had a growth of 3%. So obviously, Germany being such a big market in terms of size in that region has a big impact on that growth. I think it is safe to say that it is important for us to really focus now on making sure that Germany continues to grow again at a higher level than what we have seen in that last quarter. Looking at the rest of the world, I think what is important is that we have seen that the biggest market in that region, UK, continues to grow. I think that is important, even though the the growth number or actually decline in the full rest of the world. We report that in that quarter. I don't know if that really answered your question.

Thank you. I was more referring to your growth versus the markets, the competitors.

Okay.

The overall market.

Yeah. So, yeah, we have access to a couple of data points. One obvious one is, of course, if we look at quarterly results from industry colleagues, we note one colleague who had a sales decline in a quarter. And then with our 4% growth in local currency, we obviously outperform the market, if you take that as some sort of mark for the full market. We also note spot index in Sweden. reporting 9% in Sweden. We grow Nordics with 15. So higher growth also here. And then we have access to a relevant peer group through payment suppliers that we work with in different markets and also a lot of search data which are often very highly correlated from Google, which is often highly correlated with market share development. And there we can see many markets declining double digit. And we are outperforming the market basically in every market without going too much into detail.

Perfect. Thank you very much. And then looking at Q4, I was wondering if you could talk a bit about the growth by month, please. It seems the start of the quarter could be like somewhat similar to the quarter's growth overall and I was wondering really are there any differences in the growth rate between May and June?

Well April was pretty weak the start of May the first week of May was really strong and May in general was compared to the full Full quarter strong. Also June was much stronger than April. So April was weak. May, June strong. So in fact, seeing also that we have been able to grow double digit at around 10% in June. This quarter, we have now seen three months in a row with good growth. So we are, of course, pleased to see that. So, yeah, it's an uncertain market. It's jumping a little bit into a quarter, but during the last three months, we have a good feeling.

Thank you. I was wondering if you could confirm whether you agree that growth comps towards the end of Q2 is easier to meet than in July?

No, it's hard to guide on that. The only thing we can note is that last year, I think, if I remember correctly, I mean, we normally don't talk so much about weather, but last year we noted that there used to be some sort of impact, weather impact on our Q1 because fall always comes it's but it more it's it's a question of when it comes last year we saw a very hot and dry august and that was of course unfavorable to sales a year ago we saw a i don't know if you remember we saw a pretty deep drop in sales of shell products as an example that was correlated with a dry August. So I'm not going to forecast about the weather, but I think that's a good thing to bear in mind also.

Perfect, thank you. And then finally for me then. In Q3, your OPEX to sales ratio improved rather materially compared to the previous year. Could you talk us through the difference between Q3 and Q4 in terms of the OPEX development, please?

I'll hand this to Jesper.

Thank you for that question. If we start by looking at the comparison quarter last year, Q4, the cost structure is very much in line. And your question is relating to the previous quarter, Q3, where we had a beneficial position and that was a a very good quarter from a cost perspective so we're now back to some kind of normality and one must bear in mind the over representation of SEC in the cost base so many of the fixed costs are SEC denominated and obviously then we have a negative currency impact on those costs When it comes to marketing, marketing was pretty much in line with Q3. Slightly higher, but in line. We had logistics costs that increased. And in logistics, we also have an overrepresentation of SEC as a currency. So we have that disadvantage. We have... a smaller quarter, which means that the fixed logistics costs come in at a higher share. We have the average order value actually coming down slightly, which means that we have normally higher logistics costs per sales. And we also had customs relating to our export to the US that we know that there is a turbulent situation when it comes to tariffs and customs in relation to the US. And that has also affected us during this past quarter. So I hope that gives some flavor to the cost structure very much in line with the same quarter last year and obviously higher than the previous quarter. And that is size, currency, and a few other items.

All right. Perfect. That's all for me. Thank you.

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

Good morning, Paul and Jesper. I hope you can hear me. A couple of questions from my side and just jumping back to the general market growth that we just recently talked about. But I think in the last quarter Q3, I think you stated that the market, or you estimated that the market was in general down more than double digit decline in Q3. You think that the market in general has improved sequentially versus Q3?

It looks like it has improved. In Sweden, for example, we have seen that spot index have actually now turned to positive numbers. uh looking at some of the other data points that we have sort of access to uh it looks like it has slightly improved in some markets not all all 40 markets where we operate but some of the most important ones so hopefully optimism will will come back and it will have some sort of positive impact on our numbers also but the short answer is yes slightly

Okay, great. And I don't see you mentioning any specifically on promotional pressure in this quarter. Do you still see high promotional pressure from competitors in the market in general or how has that situation developed?

I think you can. I mean, it's we still see a high degree of activities, but we don't feel not from our perspective that that has increased. I think it is sort of it has stabilized on a somewhat new normal. But so no news really on that front. But if you ask for like

more activities on price reductions or clearances or that kind of activities in the market yeah okay fair enough and also looking at the the gross profit of course you're mentioning the FX headwinds of course but I think it was talking slightly about the geographical mix also affecting the gross profit. Can you maybe elaborate a bit on that and maybe also give us a view on how the profitability are between the three regions?

Yeah, I mean, you can very high level and roughly say that two percentage points of gross margin is related to currency And there's also this market mix that you are referring to. You may know that Germany is a profitable market for us. We have slightly lower profitability in the Nordics, especially in Sweden, looking at gross margin. So when Sweden and Nordics is growing slightly faster, that sort of has a negative impact on the gross margin. But those two together sort of adds up to the whole difference compared to last year. Currency and marketing.

Okay, great. Thank you. And what's your view on the FX impact here going forward on purchasing, etc., given the current state at least on the FX side here? Should you see a gradual improvement throughout 2025 or when should we see maybe some support from or some tailwind again from ethics?

Yeah, it's hard to guide on that, obviously. But as you may know, 100% of our COGS purchase orders on our products is made in US dollar. And the Swedish krona has been strengthened versus the US dollar for a couple of months now. But it takes a little bit more time to see the impact on on that because those products are sort of paid now, but we have to wait until we actually sell those products, until we see the P&L impact. Jesper, if you want to elaborate on this also.

It relates back to the inventory mix. Some of the products that we normally sell out seasonally will obviously replenish from scratch. And that's those pieces or those products will have the impact right away. We have an inventory of 500 million sec plus that is related primarily to our never out of stock products and obviously in those cases we have higher COGS products to sell before we see the impact of the current beneficial dollar situation. So it will be a gradual improvement. But we should also bear in mind that we've seen a strengthening of the SEC versus the euro and obviously even more versus the US dollar. But we buy in US dollars and we sell in euros primarily. So one must take those currencies into consideration when we see the potential improvements over time. it will be a gradual gradual process and it will start during autumn or after summer now basically and gradually improve and then it's down to the turnover of the inventory perfect that's very clear thank you for that and maybe last question from from my side here you're talking about

dry august last year was that mainly affecting germany or maybe should we interpret that that the the 10 organic sales growth that you're seeing now that you may be seeing some recovery now in in germany and and in the dutch region

It's hard to guide, but we saw two things last year in this quarter. We saw very dry. We saw a dry August impacting especially shell products. both in the Nordics and in the Dutch region. But on top of that, we also saw some sort of weak macro in Finland. I don't know if you recall, but Finland in general was weak at that time. That has significantly changed actually over the last couple of months for us. We see much better performance in Finland compared to a year ago. But it's really hard to guide on what we on how much weather will impact our sales going forward. But it had an impact a year ago, definitely. We saw, I think, a decline of 38% of Shell products compared to the year before. And that was most certainly highly correlated to a dry and very hot August. So we hope for some rain.

Yeah and these products are quite profitable I assume.

Sorry?

I assume these shell products are in general quite profitable for you right?

Yes they are. In terms of profitability on average the most profitable product category are pants but of course we have some we have a good sales of pants also when the weather is somewhat More unstable and getting closer to the autumn. So autumn, winter are the best seasons for us without question, without doubt. And again, autumn will come. It's a question of, you know, will it come in August? Yeah, maybe in the Nordics. But when will it arrive in Germany? Will it arrive in August or September? In some cases, like early October, that always has an impact. But it will come. We are not worried about that.

Total understand. Yes, indeed, very hard to predict. Thank you very much, Paul and Jesper. That was all my questions for now. Thank you.

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

Good morning, Paul and Jesper. A couple of questions from my side. Firstly, I'll follow up here on current trading. So you mentioned here the current trading of 10% roughly organically up year-on-year. And I was curious if you could tell us roughly what the year-on-year change was in your comparison period. July and beginning of August 2024.

Compared to the year before that?

Yes, the growth for the decline.

I'm afraid I don't have that in front of me, the growth for the first five, six months compared to the year before that. But we know, of course, what the growth was for the full quarter.

Yeah, the reason why I'm asking is to try to understand if this 10% organic growth in your current trading, if that's based on very easy comps.

What I remember and can say in general that July was actually pretty strong last year. It was August that was weak. And obviously we have not only we haven't even been through half August. So we are compared to a fairly okay July last year. And now compared to now August was weak last year.

Yeah, perfect. That's very helpful. And then if we stay on Q1, the current quarter, Are there any particular markets here that are performing strongly in the beginning of Q1 that's driving up your current trading? And I'm asking this because the German apparel market sales data that we have, that looks slightly weaker sequentially as we enter Q1 actually, so July and early August.

Yeah, we haven't guided on that, so I'm afraid I think it will be a bit tricky to comment on that. So I think we have to stick to that. Have seen quarter to date or financial year to date the growth at around 10%. So happy that we are at double digit.

All right. Yeah. Okay. And then on the rest of the world, growth continues to accelerate, declining even. And if we disregard FX, which is one part of it, of course, what else can you tell us about the performance in your many markets here? Large versus small markets. What's the road forward? Do you have less focus on this? Or what's the plan?

Yeah, so I mean, the rest of the world, it contains many markets, as you say, many of them are very small. I think it also boils down to that we have an ambition to balance growth with high profitability. We have our financial target to maintain a An EBIT margin of 20%. I think it is important for us to really continue to aim for that. We had 19.9 in SEC. If you take the currency effect into account, we were actually above the 20% that we have as a goal. So it's a way of balancing and you could argue that some of these smaller markets, they get less focus in a situation where we feel that it is important to balance growth and EBIT. I think some of the smaller markets get less focus out of that. I think that's fair to say. And also the other part of that is that In the more mature markets, I think it's obvious to say that we have a higher degree of recurring customers also. We have a stronger brand, higher brand awareness. We have many more customers in Germany, in Sweden. So that means that it is more efficient also for us to drive sales in those markets. you one could argue that in terms of investments at least they get less focus but having said that it is also important that the bigger markets such as uk which is the biggest market continues to grow which is the case yeah perfect and that actually ties into my my other question on on marketing so you spend a lot on digital marketing each quarter

And I'm wondering here if you've seen any impact on web traffic and consumer patterns due to the AI operators that are reshaping SEO. If you've seen it already and or what do you expect for the future?

I think that's a really good question. In terms of prices. we have seen it's pretty stable compared to a year ago, both on the Meta platforms and Google. Those are the two main channels that we invest in or use as marketing on. Meta slightly, slightly up, Google has gone down slightly, but it is really interesting to follow what will happen with, consumer search patterns, you can somewhat see small differences, but in searches, maybe but it's, it's very hard to say exactly what it means. But something is we follow it and monitor it very closely, of course, since it is an important part of our marketing strategy.

Okay, perfect. That's all from me. Thank you for the answers.

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 before we wrap up, let's see if we have any questions online. I will ask Jesper to tell me if there are any questions and then maybe if there are questions, please read it and I will try to answer them.

Yes, we have received a number of questions, but as far as I can see, those have already been discussed in the questions asked just recently. So I would say that we have already covered the questions that were sent via the web.

Okay. So with that, thank you Jesper. So with that last comment, thank you all for joining us today and for your interest in our journey. May I also remind you that the report for the first quarter will be announced on October 23. So with that, thank you and goodbye.