Thule Group AB (publ)

Good morning everybody for this 2023 Q1 report. And as we had expected, it was a slow start to the year. So if you can go to slide two, please. We knew that we would be facing a tough bike retail situation with bike retailers having significant stock on hand. And on top of that, of course, we are also facing in reality a very tough comp period because last year in 2022, during the first few months of the year, there was an extreme stock buildup by bike retail. So our sales ended up at 31% down, FX adjusted, which is very much in line with our expectation. It is a small growth versus 2019, the first pre-pandemic year of 12%. So it's not Catastrophical from that sense, but of course, clearly we are feeling the situation of bike retail placing very limited orders as they instead sell down their stock. What I'm very happy with in the quarter is our ability to still deliver a very strong gross margin. Our gross margin improved to 41.2%, which is a 1.2% improvement, but actually 1.5 percentage points currency adjusted. And the key contributor to that is, of course, the fact that we during 2022 implemented price increases also mid-year because of the situation of costs out there. If you look at a positive situation as well, is this that we see that freight costs are returning to more normalized level after having been extreme during 21 second half in 2022. We also see a clear positive channel mix As retailers are having an inventory sell down period and therefore are buying less product from us, we don't have that impact in our own direct consumer where we therefore have grown our share of sales that goes direct to consumers. That was happening anyway, even without retail inventory adjustments. The channel mix would have anyway gone to direct consumer because that is the winning and fastest growing channel we have, but that it was accentuated in Q1 then when retailers sold down stock level. There was a negative effect in the fact that we still have a significant underabsorption in our factories. And that is, of course, because we have decided not only was our sales limited, but we are also on the journey of reducing our own inventory levels, which did go down in the quarter with 158 million Swedish krona. So the fact that we are seeing an inventory reduction plan going ahead at the same time as we're selling less means we're producing significantly less hours in our plants than we did at the same time last year. And in fact, we are at the end of the quarter 900 people less in our plants than we were at the same time in 2022. That has been done because we have a very efficient three-tiered staffing level in our production facilities. And we couldn't react fast enough during the second half of 22 with a very rapid and significant slowdown in the bike orders. But we could then act anyway during the second half. And now we see the positive impact from that. From an SG&A cost point of view, we are a steady level. In fact, we have a cost reduction in terms of constant currency of 17 million Swedish kronor. And that is despite a very aggressive continued product development push and an earlier than normal push also in marketing efforts, as we see a number of key launches and also fairs and events coming earlier than they used to do in the past. Overall, that meant that we delivered an EBIT margin of 17.2%, which is floors down significantly versus 2021. Two, but still a strong margin considering the negative sales development and the underabsorption of our factors. If we go to the next slide, we'll talk a bit more about the timing logic in what will be an extreme year once again to compare to. So if we look at slide three and talk about what we're seeing in terms of sales by quarter, we knew when we stepped into the beginning of the year that we would be facing the toughest quarter in terms of the comp reality in the first quarter. And the logic is clear. That was due to the fantastic sales in 2022, as especially bike retailers were aggressively filling up inventory, expecting a fantastic bike sales years. Now we are seeing the absolute opposite of that, but therefore we see also that if you look from a comp period now going forward, the second quarter is also a challenged quarter, which had 43% growth versus pre-pandemic times, while the first quarter had 64% growth. And then we have two clearly weaker quarters, which only grew 23%, respectively, 28% versus 2019, as we already then saw a dramatic and rapid bike retail slowdown on sales. So a tough first half and a very easy second half comp-wise. We therefore have had a lot of discussions and I know there's also been among investors and analysts, a lot of attempts and speculation and tries to try to find where is that point when bike retailers will find their normal inventory levels. And if you remember what we stated already way back in September last year, when we did a profit warning for the coming quarters, We announced that we felt it would not be possible for the bike retail sector to normalize their inventory levels until sometime during the peak season, which is always in the spring of the following year. We said already at that time, and we have reiterated that in the last two quarterly reports, that it's going to happen sometime between April and June. And the most optimistic people in the world were saying April. And the most pessimistic people in the world were saying around end of June. When we now look at April, it's clear that the most optimistic people were wrong. We were not among them. We did not believe it would materialize in April. And we're starting to see finally towards now the end of April, some good bike orders coming in. We know that the situation will be improving from a retail inventory level on a weekly basis now, because we see the sellout are starting to happen and we're starting to see orders picking up. So by the end of the second quarter, I am convinced that we will have seen a normalization of those inventory levels. That will mean also on a comparative basis, we will have our worst performing months versus compared to last year in the beginning of the quarter. And then as sales started to slow down of bike related products towards June, we will towards the end of the quarter see stronger comparable numbers with bike retailers having now adjusted their inventory levels. It is, of course, in general, though, still uncertain market conditions out there. And I know all of you speculating the same way, what will happen in total with the concerns that consumers have in terms of what their spending can be. And we will be needing to be very flexible on various product models and be very much on top of the trends that happen also in the coming quarters. If you go to slide four, we'll talk a bit more about what has happened in the region, Europe and rest of the world. And if you look at region, Europe and rest of the world, we saw a 26% decline versus the very strong 2022 in constant currency. It is the bike capture that was hit very hard. But we also have seen a relatively cautious retail in the total outdoor arena. And that is as people that have followed Tudle for many years and have been investors for Tudle for many years, knows that in the months of March and April, we have always said that there might be, due to when the Easter season hits and how good the weather is, you might see sales moving between those ending of the first quarter and beginning of the second quarter. So what we clearly have seen is a cautious retail sector being a bit worried about what will happen in a consumer pattern and also never blame the weather. It's just facing its timing differently, but it didn't help us that it was a week and late spring. When we look at the RV product category in Europe, which is the dominant part of our RV product sales with more than 95% of sales in that product category happening in the European region, It was a strong, solid quarter with positive growth, thanks to that the motorhome manufacturers are now starting to catch up with those order book backlogs that they've had for a very long time during the pandemic. So despite everybody's concerns about what will happen when motorhomes are significantly more expensive since the last few years, and also the discretionary spending opportunity for consumers, There is a very healthy backlog that now finally the motorhome manufacturers are filling up and sending out. As our products are mounted and assembled either by the manufacturer or at the dealership, because the consumers won't trust themselves just quickly attaching it, that means that we are partly connected to that performance. We are outperforming the market once again, as we've been doing for the last 17 years. And I'm sure we will continue to do that. But we have to be aware, as we have noted a few times, that the biggest interesting point for the RV product sector in Europe will not be what the order backlog is at the moment. There will be solid sales. It is more how many new consumers are filling up at the end of that order book now when there might be more concerns about the financing of those vehicles. We also had a very strong tax, bags and luggage performance. But that's logical, to be honest, because if we talk about tough comps, we can also talk about easier comps. And as most of you will remember, 2022 Q1, there were still significant limitations on travel opportunities for people in Asia and Southeast Asia. Those have been loosened up. And when people are commuting back and forth to work and commuting back and forth to universities, they buy laptop backpacks and other things. And when they are starting to travel internationally, they buy carry-on bags and duffel bags. So we are seeing a solid sales growth driven by a more return to normal in Asia, but also by very strong collections in our new luggage series that have been receiving very positive reviews in the marketplace. So if we look at it from that point of view, you also naturally can follow as a consequence, which geographies did best in the region. It was the Southeast Asian and Japanese markets and also China, because those are markets which had limited sales last year and also markets where we had a higher share of our sales in the packs and bags and luggage category and less in the bike related categories. We also had a very strong performance, same thing due to a week comparable last year in all the markets close to Ukraine. So we saw a significant and very natural concern after the Russian invasion to Ukraine and consumer market concerns were significant in 2022. Now there is a positive normal momentum actually in those neighboring markets. which means that we have a strong performance in Eastern Europe in the quarter. As I mentioned for the total group is also applicable specifically for region Europe and rest of the world that are direct to consumer sales shows a very strong growth in actual numbers. And then if you combine strong growth in actual numbers, albeit from a very low percentage, it still impacts us positively as we also saw a clear retail slowdown in ordering as they were selling down inventory. Our path of growing direct to consumer will definitely continue in the coming quarters. In the next page, we look at the Americas region, so on slide five. We can see that the actual number in terms of comparative versus the fantastic 2022 was a 45% decline. The reality is that in North America, we were catching up much later as we've reiterated a few times in our ability to fulfill the orders during the pandemic. So we were still more than in region Europe and the rest of the world actually selling bike-related products still into early Q1 2022 that had been already ordered for 21 late, which means the comp is extreme. If we would go all the way back to 2019 comparatives, it is actually very similar performance between the two regions. As I said, bike category is also here, the one that has hit the hardest. And also here, similarly as to the major retailers in Europe, there is some cautiousness in how much they're bringing in orders ahead of the spring. In this market, the very small niche product of RV product impacts very little. We've had fantastic growth numbers there for a while. You won't be surprised of me telling you, if you've looked at the motorhome sales and the whole caravan and motorhome industry, that that was not the case in the first quarter of 23, because it's been very slow in general in that market. With impact space and luggage, we continued to grow after commuting to back and forth to work and universities start to pick up and as people fly around more. In terms of geographies, it was the Latin American distributed markets that showed the growth, the smaller markets we deal in, And that's partly, once again, if we're honest, as we always are, it's due to the fact that we saw a relatively weak ordering in 2022 in those markets in the first quarter. Also in the North American markets, US and Canada, where we do direct to consumer sales, we saw a significant share increase of our sales in direct to consumer. Once again, a combination of us continuing to show actual growth and then as a share of course with retailers adjusting and balancing inventory it became also higher share sales if we then go over to the financials I'll leave it over to Jonas thank you Magnus we are now on slide number six

The sales of 2,226,000,000 SIC in the quarter was 31% below the sales for the same quarter prior year, excluding FX effects. This is on an expected level, and as in the previous quarter, sales of bike-related products continued to be slow. Please bear in mind that we are looking at tough comps from last year's first quarter, and part of the strength in that quarter was because of sales of bike carriers at the end of 2021 spilled over into the comparison quarter. Q1 2022, that was due to delays that we had in 2021. As Magnus said, our customers are still reducing inventory, so our sales do not reflect end customer demand. On the positive side, we saw an increase in sales of packed bags and luggage and a continued good level of sales in the area of RV, recreational vehicles. The gross margin is slightly higher than for the same quarter last year, and the improvement comes from our ability to quickly adjust variances in production volume, drastically reduced freight cost and effects from price increases. Regarding freight costs, last year we had to accept container prices on sea freight that were almost 10 times the current level. Operating expenses have increased slightly from 522 million SEK to 534 million SEK but excluding FX effects It's a reduction of 3%. Savings are coming primarily from sales and marketing costs as a consequence of the lower variable costs relating to sales. We are continuing our spending on product development. As a percentage of sales, the operating expenses are 24% compared with 17% prior year Q1. The EBIT margin of 17.2% is 5.6 percentage points lower than last year's 22.8, but only 1.3 percentage points below the average for 2017 to 2019, that is before COVID. The finance net in the quarter is lower than Q1 2022 because of higher interest rates and higher utilization of our banking facilities. The tax for the quarter of 84 million SEK corresponds to a tax rate of 23.3%, which is in the middle of our guided range, 22 to 25%. We now move to slide number seven. Operating working capital was 3,418,000,000 at the end of Q1 2023. Excluding currency effects, the inventory has decreased by 200 million SEK compared with the same time last year, which is in line with expectations since the first quarter of the year is not a big quarter for bike-related products, and that is what we stocked up last year. Inventory levels on these products will come down substantially during the coming two quarters. Accounts receivables of 1,085,000,000 SEK are lower as a consequence of the lower sales, and so are accounts payables compared with prior year. As a percentage of sales, the operating working capital is 36.6% at the end of Q1 2023. The operational cash flow for the quarter was much higher than last year, primarily because of the increase in inventory in Q1 2022. The stock build up we usually have in the first quarter is going the other way this year. Capital expenditure was 59 million in the quarter to be compared with 148 million for the same quarter last year. The capital expenditure relates to investments made in our production. As we have communicated, the capital expenditure for the full year will come down in 2023, but proportionally not as much as in the first quarter. Thank you. Thank you, Jonas.

If we then go to the next page, page eight, and talk about what is so key for a true global lifestyle brand. We are in a very positive momentum in terms of the strengthening of the Tuzla brand. And one of those key efforts that has been recently implemented is that we made a significant upgrade of the most important consumer interaction point we have, Tuzla.com. So in March 21, we went live with a significantly enhanced Tuzla.com. We do that mostly because it's our most important channel to drive sales in all channels. We also will get, we are convinced, a help and boost in driving more share to direct the consumer by having significantly improved the site. It wasn't like the site was bad before. It was actually, according to many, a very good site, but we've taken all the learnings we've had over the last few years and new expertise into truly user interface designed approach because we, with very different product categories, some more emotionally easy buys, like a good looking Thule Ion carry-on bag. and some where you truly need the technical advice to make sure you have bought the right product, like a roof rack for a specific car, means that the whole approach that we guide the consumers through is needing to be different in terms of how we assist them as an online expert advisor. At the same time, we have one global brand with a fantastic lifestyle positioning. So if we correctly, like we do better today on the refreshedtoddler.com website, show and cater for that feeling and propose other new products, we are convinced it will drive sales in all our channels. What we also are doing significantly is to use our great product offer to now when the world is back to a more normal place and everybody is allowed to travel around and be it fairs and events is we are once again with all the very exciting launches that we're doing for a trade for next year but also for consumers in stores this year we have dialed up our efforts and as i said have some earlier than normal seasonality facing of some of our marketing spend the image on the below right is an image from the copenhagen airport where we showcase during the big Swedish and Danish winter sport holidays, our new Thule Caprock roof platform and a lot of other cool Thule products to showcase the lifestyle that our brand enables. If we go to the next page, I'll talk a bit more about them on the new product launches as we are on page nine. We are doing some key consumer launches in the spring 2023. We quickly have mentioned some of them here, but I can tell you there are many more. The Thule Approach Tent is the most spacious rooftop tent in the market. It is also recently awarded with a new Red Dot Design Award. And also, if we look at our fantastic Thule Arcos Rear of Car Premium Hardshell Box, It has garnered significant attention in the marketplace as not only is it great looking and very practical, it actually enables to reduce the famous range anxiety for all those e-car buyers. In fact, in several studies proven both by ourselves, but also external third parties and media, It is, in fact, with a number of car models, the fact that if you put a Tula Arcus at the back of your car on the tow bar and load your bags in that one versus having the same bags in the trunk of your car, it actually reduces battery consumption. So that has been a very big PR and media attention grabber. I already mentioned the fantastic Thule Caprock. That is something for the true outdoor enthusiasts, those people that used to love the Land Rover Defender and nowadays maybe are already drooling about the Grenadier coming out with very cool vehicles. But it actually works for a normal vehicle like a Subaru or a Volvo also to create that platform for new adventure and put a lot of gear on top. And then, as I will show you more soon on another page, a fantastic launch of Thule EPOS, a revolutionary premium rear car bike carrier that hit the stores as of last week. A fantastic step up on what is today's the world's best, the Thule Easyfold XT. And now we're taking another level with the Thule EPOS. We're also coming with a number of key launches, as you are aware. 423 and I think we were a little bit hot to trot to show the Telepos. Since we are on the image of the Telepos, I can mention and show a little bit what it does. It is foldable. It has wheels. You can roll it out to your toe bar. You can just tilt it on your toe bar. You have a loading ramp. It can grab virtually any type of bike in any type of position on the bike. There is the possibility to add a locking for a key lock for your bikes. There's the possibility to have a bike repair stand sitting on the carrier. And when it's sitting, which is the below picture on the low end, when it is not having bikes on, you don't even need to tilt it away to open your trunk because you can just fold down the arms. So to go back, and you don't need to go back to the slide, but can we still mention it? The fact is that we are launching also our dog products as expected in Q3, the Thule Alex dog crate, the world's safest dog crate. And we will also, of course, launch a number of new bag collections, etc. also want to use this opportunity to let you know that we have decided to delay the launch of our car seats to the market which were planned for q4 in 23 to the spring 24. the reason is we have had longer than expected lead times of deliveries of the assembly equipment and some of the electronics for those products and we want to be 100 sure of course from a pure safety point of view but also from a mass manufacturing capability that once it hits the stores we can continue with solid supply throughout the launch period and the ramp-up period. So we are entering into a very exciting trade introduction period and that trade introduction period will start with a huge fair that is called Eurobike where among other things Telepos as you see on the screen will be showed but also some very high volume driving new products that will hit the market in 24. so if we go to the last page page 11 that is a key focus on what we're doing at the moment preparing for those launches our growth strategy remains unchanged we will definitely focus on driving profitable organic growth with great products we have the strongest assortment of new launches we've ever had in the history of the company in the coming 18 months and it is high volume driving type of product so it's not niche products so feel very strong about that we are continuously dialing up the efforts of the lifestyle brand with the bring your life tagline We are, of course, capable now of handling growth since we have invested well in the back end of our business. So we are underutilized a little bit with the sales we see at the moment. And we are continuing to support those right retailers with the right tools to sell. But we will see a much faster growth in our direct-to-consumers sales channels. So when we look at all those exciting news, we also have clearly a reality that we have a low level of production staffing. That's a reality. We can't say anything else because not only do we have less sales, we also have a higher inventory ourselves. So we decided to ensure that we reduce that inventory. We will be running with lower production levels. But the plants are extremely well invested with modern equipment, modern automation lines and ready for that volume growth that we're convinced will come. And as you sell down inventory, you, of course, generate a lot of cash, which means we will be very cash strong. So as a conclusion, before we open up for questions, it is a tough first half to comp against. We have a very easy second half to comp against. There is a fantastic number of launches hitting the market, both for the season 23 and for the season 24. There is, however, many uncertainties still in the world. So we need to be quick to act and as flexible as we've been in the recent years. And we will be that. And I will be around also for one more quarterly report, but we are already well underway, myself and Mattias, in ensuring that he is well-versed and running fast when he hits the ground running in August. So with that, we leave it to you, Bruno, to lead the questions. Thank you very much.

Perfect. Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. If you'd like to withdraw the question, press star followed by two. And please do also remember to unmute your microphone if it's your turn to speak. Okay, we have our first question comes from Daniel Schmidt from Dankse Bank. Daniel, your line is now open, please go ahead.

Yes, good morning, Magnus and Jonas. A couple of questions from me. And starting off with what you said in terms of that you're starting to see orders pick up when it comes to retailers and especially, I guess, bike retailers after a very slow start to the year and also maybe the start to April. If we would get to a normalization of bike inventories among retailers in the end of Q2, Are you then sort of insinuating that that would lead to growth in that segment in the second half of this year, given the comp level that you have?

I'm not only insinuating it, I'm 100% sure that because the Q3 and Q4 22 were so weak in bike, so clearly we will grow in bike in the second half of the year, no doubt.

Yeah, okay, good. And just trying to get to some more details on sort of the slowness of the start to the year and also maybe Q2. And of course, as I said, you are seeing sort of orders pick up. But do you feel that direct to consumer? and the other segments bags especially maybe also rv and the fact that you are launching you do have a couple of more new sort of high runners or new models in in high runners in the legacy business out and you mentioned epos will that be able to compensate a bit better as we go into to the spring

No, I think reality is this. April was such a huge month last year and it is such a key month and a slow start of April there for me is in practice, of course, that we will not be able to compensate for that in the quarter. It will be dragging us too much. But when we come towards the end of the quarter, the comps are starting to cool down. And at the same time, retailers will have adjusted inventory fully down. So it is going to be one of those quarters where it is actually like that already today. For every day of the month that we move forward, it gets better and better, so to speak. It started terribly in the beginning of April, and for every week that it goes, it goes better and better. But it will be only towards the very end of the quarter until it starts to be okay, so to speak.

i.e. where we sort of could reach the same levels as last year and then from there hopefully grow. Is that sort of how you should view it? Absolutely. And then maybe given that it's so many moving parts and the gross margin really surprised me in a positive fashion being up 120 basis points and that was despite the underabsorption that you're experiencing in production and also higher raw materials On the other hand, you do have the tailwind from freight. Is there any way to quantify these effects, the freight, the raw material, the underabsorption, and how we should view it sort of going forward?

Yeah, I think the most important in the first half of this year is, of course, that we did do price increases mid-year 2022. As we now have those prices in place, we are getting a positive price effect, which is compensating, as you said, for those very significant costs that we saw at the same time last year. So our pricing power is the key positive contributor. And that will continue in Q2, clearly, right? But then as we come into Q3, we're now comparing with like-for-like prices because that's when the second price increase round was done in 2022. but it will contribute and help also in the second quarter. The other positive factor is, of course, a higher share of sales in direct to consumer is positive for the gross margin. And although from a small basis, when that category is and that channel is growing and at the same time as a retail was placing fewer orders due to selling down imagery, the share grew faster than it would normally. That will continue partly into Q2, but then it will be more the normal comparison that is That means we will grow faster in direct-to-consumer, but not at the same extent. So that positive contribution will taper off a little bit and be less positive contribution. The freight, I'm convinced, will continue to be a positive contributor. But the reality is the worst prices were in Q1 and Q2. So the upside versus last year is less towards the end of the year because freight prices were coming down. And then the product mix, which is negative at the moment, as we are doing better with the low margin categories, that will start to be positive towards the second half of the year. So I wish I could make it easy for you, but as you said yourself, there is a lot of moving parts going into this.

I hear you. Maybe also the raw material, that was a negative in Q1. Is that going to turn into a tailwind as we get to the summer?

it only really goes in to be a tailwind when we've sold down our inventory because we have to be clear about the fact that we bought that inventory at high material costs so there is no true tailwind utilizing the higher cost products that we do have on inventory and we will be driving down inventory significantly in q1 q2 and q3 as well so we we don't get that positive boost effect of the current market prices And it isn't as much maybe as some people think, but we're definitely not getting any effect positively on it.

Okay. And then just a final question related to Tula.com and direct to consumer. And you mentioned that you've done sort of an upgrade of your sort of front office, basically. Is that sort of... Is there more needed in order to grow that business to become twice as big in terms of investments? Or are those sort of investments now in place in terms of infrastructure?

We feel very comfortable that we will be able to double what we're doing without needing to do significant investments. Those investments have been done over the last few years. In terms of reach, you're right, Daniel, we will add a few more countries, but we are in the key countries where you believe where we can in a good way at good margin, reach those consumers with the service levels that a consumer would expect from a strong brand in a direct to consumer reality. So we will add a few more countries in the European region to this, but we are really in the core markets that will drive the volume. And we do have all those key investments in place. So now it's the tactical and classical just utilizing those tools on a continuous basis in doing a better job.

Yeah. And maybe a last one and follow up on that. And when it comes to product development spending, you made it clear that I was still quite elevated in Q1. But you also said in connection with Q4, the product development spending in absolute terms, if I got you right, is going to be lower in 23 versus 22. Is that more going to happen in the second half of this year?

That's correct. So we see a very aggressive spend at the moment. We're bringing some volumes. But if you look at a comparative logic, as we highlighted, 22 had a very heavy spend in the second half. So we'll be comparing. easing realities differ but we have at the moment with for example telepos and some of other products that we are also showing to trade a very significant spend as we speak in the first half so there is there's a little bit of facing logic more in in when we spend it thank you that's all for me thank you our next question comes from gustav huge from

SEB. Gustav, your line is now open. Please go ahead.

Hi, guys. This is Gustav Huge. A few questions. That's your new nickname, Gustav. A few questions. Firstly, on inventory, again, could you just kind of elaborate a bit on geographical differences? Is it fair to assume it's a bigger issue in parts of North America than

continental europe or could you help us out a bit on bike related absolutely yeah you're right i saw your study that you've done and it is correct which is quite normal as as historically it tends to be that the swings are always bigger in the u.s they run out of inventory more aggressively and they overload on inventory more aggressively so you're absolutely right the bike retail inventory situation is worse in north america than it is in continental europe And it is also, we have to say, for me, it is quite interesting to see how much it can differ even between brands and companies in terms of retailers in some markets making sure that they are really on top of it while others clearly have too much. And so it isn't as clear as saying country A has too much and country B doesn't. It even is between retailers and even between specific cities for retail chains. But it is clearly worse in North America. You're right with that.

Yeah, makes sense. And referencing the same study that we published, it sort of indicates that perhaps there will be a swing from too much inventory to perhaps an intention from the retailers to go a little bit lower than what they would consider normalized a few years ago. Is that part of your guidance here that you assume that they will go from high to low before they start to reorder? Or how do you want to think about that inventory cycle?

Yeah, you're right. It's already clear for us that retailers are already choosing to go lower than they would normally do at this time of the spring season where they would want to have more. And I understand that having been burnt and also needing cash. So I think it is clear that that they are waiting longer and longer versus what they would normally do in terms of being ready for a season of bikes. So it's going to be slower thanks to that or due to that. And then I am not guiding in the second half for another bullwhip the other way that they get then overly hungry for inventory. I don't think they will. I think they will run the entirety of 23 on relatively meager inventory levels. Yeah, makes sense.

And then I have a question, Magnus. You bring forward the direct consumer opportunity, invest a lot and revamp it. Is there a risk here that perhaps your business, DTC, is sort of putting some stress on your relationship with the external retail? And to the extent that your products are sort of a buy sale to when someone buys an expensive bike and the guy on the floor is sort of quick to say, should you perhaps get a, how are you taking that bike home today? Is there a risk of that extra sale you get from floor sales are sort of hurt by more competition from yourself?

I don't think so, because the reason is we're not penalizing all the professional and great retail partners we have. We are always selling at full price. We're providing fantastic on our own direct to consumer. We're providing fantastic service and assistance to help those retailers as well. And I think in reality, you have a little bit of situation. Maybe I think Adidas is probably the best. natural point of comparing with where they new management have maybe changed the view of how aggressive they should have been and what they're doing we've never been as aggressive as adidas was for a while maybe overly hurting their situation so i don't see us hurting any retail relationships due to that and your price point in europe where you cannot decide retailer price versus

Will you be price competitive in Europe on your DTC offering?

I think there will always be products cheaper than ours. You will always find on Idealo or Pricerunner and Preciact a retailer prepared to sell at discount that we don't sell at. But as we see it over time, what we see with strong brands, that that discount level is less than it is with more medium brands. We can actually already see that in the marketplace this year when we have seen too much inventory in general. So I feel that, yes, if you would go purely on price, but if you've done all your search, you've found that perfect right product, you've been guided right, there is a certain number of consumers that are prepared to buy it straight from the brand, even if they might be able to find it from another site at a discount. And then there are other consumers that will always prefer to hunt for that discount and we're okay with that as well, because we're also very profitable selling to those retailers.

Okay. And then lastly, from me, I know you you was in last quarter, you said that while the RV backlog in Europe looks big, you were a bit concerned about potential recalls and those orders.

uh sort of uh not not being backed really what have you seen any recalls from your end from european rb or is that backlog seemingly a true backlog recalls is maybe a word that paints everybody bad because it sounds like you have a product recall so what you mean is somebody stepping out of line and saying i had an order but i don't want it anymore that is not what order cancellation yeah order cancellations yeah so order cancellations we have not when we talk to the three big players they're not seeing order cancellations in any significance. And I think it is one of those where it honestly is, it will be more on how many new ones that fill up because vast majority of those that sat in the long order backlog have been very, very keen on that vehicle they're finally getting. It is less of a concern, I would say, from this financial impact on the ones already in the queue and more of a concern of how a new person, because there's a great visitor numbers at all the big fairs and events around RV still. But are people as prepared to commit when now those vehicles are significantly more expensive than they were a few years ago? And at the same time, cost of life has become more expensive as well. That's going to be telling, I think, throughout 2023 from those three big ones for Knaus-Tabert and Triganau or how they announced that.

And if I can sneak one last one in, a bit of news that you are pushing the launch for baby car seats then into the next year for Europe. Does that impact your entire rollout? You had North America's rollout in H2 2024, if I recall correctly, and other regions 2025. Is that whole ladder pushed forward?

Yeah, I think in practice you want to make sure that everything lands well. I will not be here when they make those decisions, but I think it's logical to say that you absolutely want to land well, you want to roll it out, you want to prove your technical solutions, you want to ramp up your productions. So it's likely, even if I'm not going to be the decision maker for that, I see it likely that the team will postpone all those other markets at the same time period. Thank you so much. Thank you.

Our next question comes from Carl Dijenberg from Carnige. Carl, your line is now open. Please go ahead.

Thank you. Morning, Magnus. Just a couple of follow-ups. I think most of it has already been answered, my questions. But I have to go back to the gross margin development here in Q1. I understand the dynamics here with the price adjustments and freight, and also that you've adjusted your production capabilities. what was the reason why why we didn't order this is science of this in q4 and then you're talking about freight rates already coming down in the second half of last year and and i guess the mid-year price adjustments from 22 also had an impact in q4 um so so yeah anything on that would be helpful

There's a number of factors. The most important one is, as we said, we did not sit and wait on taking decisions to reduce staffing levels, but we took the choice, as we mentioned during Q2 and Q3, with incoming components and having committed to seasonal workers to actually use those incoming components and those seasonal workers to fill up inventory. That happened during Q3. In Q4, we were then in, as we did mention, in the worst possible situation, very low sales, no production to fill up inventory, but still some of the staffing costs associated because we hadn't got them all out as quickly as much as we would have wanted. So Q1 was we had more time to be ready to have staffing levels in the right way. There is a higher, you know, there is a higher sales. Sales does have an impact in economies of scale. We are selling more in Q1 than in Q2. So you do get an absorption than in Q4 last year. Right. So you do get an absorption from that. So those are two key things in the matter. And then there is the freight impact because although they started to go down, we're now seeing some of those materialize in the full impact of what we're doing. So that's the main reasons.

Okay, perfect. That's very helpful. And then I wanted to ask you on the DTC development here again. Obviously some nice development here in certain regions. And I just wonder if you could remind us of the share of sales to see on the group level today and maybe also the respective share of your sales in America and Europe and the rest of the world.

So overall, direct consumer is a very small share of our sales. We're talking low single digits for the group today. We have the strongest markets is US and Canada, where it's 13 and 12% last year in those two markets. Then we have Sweden as the only other market where it's above 10%. And then we were very new in some of the other European markets, those other seven European markets. So now we're starting to see growth in the bigger European markets being live now in Germany, UK, France, and the Benelux region. And so, of course, what we will and expect to see is a strong continued growth in those markets where we're already established. And to Daniel's question before, we are going to add a few more countries as we move on as well. But it is mostly going to be driven the growth from those markets where we already are live.

Okay, perfect. And final questions from my side on the inventory development, your inventory development and not among retailers. And then down sequential here in Q1 and also talking about, we've been talking about in the fall of last year as well, a reduction here in the coming quarters. I'm just wondering if you could say Anything on your full year ambitions here going out of 2023 and then pre-pandemic years? I think Q4 Inventories has been around one billion. Obviously, it's a much larger company today.

I think there are three factors if you look at why inventories will be higher. Also, in the coming years, I'm sure that Mattias and team will keep the inventory levels high. One, because we're a much bigger company. Two, because we're into new categories where we don't have a historical long professional track record of being on top of things. And so you're going to need, if you want to have a good service level, as you do need, if you want to take market share in a new category, you're going to need to be a little bit higher stock level than you are in something where you've been forever in and you can forecast extremely well. So reality due to new categories that will be higher due to much bigger company will be higher. And actually, even if people think that supply chains are back to pre-pandemic reality, the world has gotten a lot more complicated and a lot more complicated and longer lead times. So if you then choose to be a high service provider with high on time in full next day delivery, which is what we do, you're going to need to hold more inventory due to that factor as well. So we haven't given an exact, and I don't want to commit on Mathias and team's behalf, but clearly we have a target to significantly reduce down in 23. And then as we see how things roll out in 24, I think they will potentially reduce a little bit more, but they will be keeping on pretty convinced higher levels than we used to have.

Okay, perfect. That was all from me, so thank you very much.

Thank you. Our next question comes from Adela Deshine from Jefferies. Adela, your line is now open. Please go ahead.

Hi, Magnus and Jonas. A few questions from me. The first one relates to the timing of your sell-through in the second half. So given that you have such high on time involved delivery time, what you're selling in the second half, is that going to be delivery for building up stock levels for 2024 or will it be more real time demand?

What we sell in the second half of 2023 is what is sold to consumers in 2023. There will be nobody building up inventory levels for 2024. Those build-ups, if they will happen for inventory levels, will be then, as historically done, more in the months of March, February, March, early April. where historically retailers have wanted to be sure they have the things in house in case the spring hits hard, so to speak, and early, they don't build up and keep inventory in a normal reality during the second half of the prior year. So what we sell in the second half is sales to consumers.

And in that case, you would then expect a very strong first half of 2024 if, let's say, inventory levels are completely deplenished.

Once again, strong versus a terrible comp, because then we will, Mattias will have the discussion, say it was a weak comp because we had very high inventory levels. If you then take it more from a long-term perspective, I believe 24 will be normalized retail levels and normalized sales, which is not the extremely strong 22 numbers. It is not the extremely weak 23 numbers. And you're going to need to go back a bit on that. So it's going to be a complicated reality because versus the very weak this year, It will look good, but in reality, I think it will be more normalized when we in the year sell products.

Got it. That makes sense. And then I have a similar question, but related to the RV products. So you've been having pretty good growth for over a year now, but at the same time, the manufacturers are just seeing that growth starting in Q4 and now in Q1. Could you explain... Who were you selling to throughout 2022?

Absolutely. Historically, our biggest share of sales has gone to big dealerships. So you would go as a buyer or a consumer wanting to buy a small motorhome, you would go to big dealership, you would look at a lot of different versions. And then there were two ways you would potentially buy it. In normal times, when lead times had been working, they would have a number of vehicles on display. You would say, I like this vehicle, but I want it with this bike carrier, that awning, and that tent. The dealership would then say to you, come back next week, and I will have assembled it for you. They would order that from us. They would assemble it, and the consumer would pick it up. Part of the orders were done the other way, that that same consumer would go to that dealership and say, I want a cool new motorhome, but I want this super-duper cool new one from Knaus Tabert. And then Knaus-Tabbert was offering maybe a summer package deal where you could get all this extra cool, you could get the fridge from Dometic, you could get the awning from Thule, you could get the toilet from somebody else, et cetera, in a package deal. So for us at Thule, it was about slightly more than half of this was dealership sales historically, and a little bit less. What then happened when the manufacturers were struggling to make new vehicles, the dealerships sat on a number of vehicles. So we could sell to those guys much more, and we sold very little to the manufacturers. Then now, when the dealers are not having so many vehicles because the manufacturers haven't sent them any for quite some time or very few, what we see the good numbers is that when the manufacturers are now doing things, they are showing up at the dealerships, but also there are manufacturers now finally delivering those fully kitted out that some people ordered maybe even 12, 18 months ago with also tool accessories included. on them from the beginning. So that's the logic of why we have seen a better split than the actual manufacturers.

So I'm just trying to, so does that mean that the inventory levels of your product, that the dealerships are pretty high at the moment because you have been delivering your product?

No, because they have been using those, aside from bike related, actually, even there in the most, even in RV products, they have a little bit too, they were too excited about bike, even in the RV products category. But otherwise, it's normalized inventory levels for awnings, tents and other things in that sector.

Okay, thank you very much.

As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. Our next question comes from Karin Rintas from ASHB. Karin, your line is now open. Please go ahead.

Yeah, good morning. This is Karin . I missed the first part of the presentation, so I apologize if you have to repeat something that we have already discussed. But the first quarter sales are stronger in Europe than we are in America. Is this all about the inventory levels that you already discussed, or is there something else explaining this deviation?

It is also a category exposure where RV products is doing better, and we have a large chunk of sales in the region of Europe and the rest of the world, which is RV products and a very tiny niche part of it. So that product category exposure difference, of course, helps the European numbers partly, right? But aside from that, it is this inventory level situation. And also, as I said in the beginning, was that we had an extreme comp period specifically in 22 Q1, filling up inventories later on, catching up with orders that we had from our retailers. that we caught up already in the second half of 21 in Europe, truly only catching them up in 22 Q1 in America. So when you look at the Q1 numbers versus 19, actually the two regions compare relatively similar.

Good, thanks for pointing that out. Then in Europe, can you discuss specifically Germany, because my hypothesis is that Germany was a really strong market in Q1 last year and then now facing a really tough comp, clearly weaker. Is that correct?

Actually, in the European markets, there isn't huge differences in market performance if you look in individual product categories. And thanks to the German market actually being a strong market for us for RV products, the Germans love their motorhomes. That actually helps the European-German market performance. But overall, I would say, if you look at various product categories, a surprisingly similar performance, aside from those Eastern European countries next to Ukraine, where there was a complete stop of orders in March last year. And that's why we're growing in these markets, because March is normally a strong month for us. And then, as we also mentioned in Southeast Asia and Asia, we're doing well because there we do a lot of bag sales. And in those countries, they weren't traveling in 22 Q1. But aside from that specific Eastern European focus, I categorize very similar performance in the European markets.

All right. Then going back to this weather comment, is there any difference in how weather impacts Europe versus the US? Because I've seen some report that some of the resorts that typically cater to skiers and mountain bikers are still catering to skiers and maybe it will not open at all for mountain biking this summer.

Yeah, it's been a weird reality in North America because it's very much West Coast, East Coast reality where the snow is It was fantastic on the West Coast, right? So all our ski products did fantastically well in the West Coast, Canada, West Coast, US, and down to Colorado. But while the classical not-so-fun ski resorts, to be brutally honest, on the East Coast were struggling... now they're struggling the other way around it's been terrible weather there now while it's still very wintry over on the west coast so i think those things normally normalize out a few weeks into the season but it's been a strange start of the season in north america definitely great then finally going back to the direct to consumer so how do you i mean this is more of a long-term strategic question because uh we've seen a trend that some of the uh pioneers in this like yes the nike

when they have pushed hard for the direct to consumer, that means that they have also quite aggressively cut the number of physical retailers that have traditionally sold their product. Of course, I can understand the temptation because in short term, that will probably mean that your margins will go up. So what would be your sort of instructions or guiding words to Matthias to not make this mistake?

I think Mattias is a very savvy direct consume online versus retail with all his experience in that. But I can say the team here is also savvy. And I think that combination is we're not going to be dramatically reducing the number of brick and mortar stores where you can buy a tool product because our product makes a lot of sense in brick and mortar. What maybe is obvious that we won't be needing as much in the future is mediocre, pure online isn't the ideal channel for our products. So if you have great omni-channel players, which have a good online presence and really good store for pick up and store and showing, we're very happy with those retails. If you have strong, truly service adding high quality online players with a strong presence, it makes a lot of sense. But some of those online retailers that grew 10, 15 years ago, purely on providing a pretty crappy service and on the logic of the brands couldn't do themselves. Generally, I don't think they will be around that much in the future and until they shouldn't be with them either.

Thank you very much.

Thank you. Our next question comes from Daniel Schmidt from Danxibank. Daniel, your line is now open. Please go ahead.

Thank you. Just a follow-up from me, Magnus. I think you mentioned, maybe I got it wrong, so correct me if I'm wrong, but did you bring forward some marketing spend? Was that what you said, basically?

We did, and that was because we actually managed to launch the Thule Epos bike carrier a few weeks before it was planned to be launched. So some of those marketing costs, which is our biggest launch ever in the category of bike carriers, came actually, therefore, in the Q1, which were planned and normally historically would have happened in Q2. So that was the reason for that.

and and are you saying that that is going to even out in q2 or is that sort of uh yeah over the year we will see a more normalized we spent it slightly earlier but if you look at our spend that we would normally do it for the full year we will be at normalized spending levels would you care to say that you how far above normal you were in q1 or does it is it a meaningful number or

No, I wouldn't do that. You've tempted me for so many years already to say those type of things, Daniel. I'm not going to fall for it in my last two quarterly reports.

Maybe then just a last follow-up on direct-to-consumer. A lot of focus on that today. As we talked about, you upgraded Tula.com. Does that sort of Have you also done upgrades when it comes to delivery capacity or was that already state of the art or is that needed going forward?

That was already state of the art. And I reiterate our single most important purpose of upgrading was to drive sales in all channels because it's the consumer interaction point. Many of those people will then go to an REI store or a Stadler store or even buy it on a baghouse.de or something. So YF doing great job, it will drive sales in all of them. There will be a natural help also for the direct consumers. But in terms of the back end, we have already for years been servicing smaller retailers with that pick and pack type of setup. And so that's why we are so comfortable in now rolling out more markets and planning to take greater share because we know we can handle the whole customer service logistics, payment provider solutions really well.

All right. And these European markets that you're not currently in when it comes to DTC, will they be added this year?

They will come throughout 2023 and 2024. But I think as we have a true online DTC expert coming on as a CEO, I'll leave it to him to drop some of those fun news when he comes in.

Thank you.

Thank you.

currently have no further questions i would like to hand back the floor to magnus please thank you bruno then i want to thank everybody for uh listening in to the q1 report and look forward to tell you a lot more about how the things have developed during the spring in our q2 report in july thank you very much bye