Thule Group AB (publ)

Good morning, everyone, and welcome to today's Tula Group Interim Report Q3, July to September 2024. My name is Drew, and I'll be your operator today. During today's call, there will be a Q&A session. To register a question, please press star followed by one on your telephone keypad. And if you wish to withdraw your question, then it's star followed by two. I'll now turn the call over to Matthias Ankerberg from CEO and President to begin. Please go ahead.

Thank you very much and welcome everybody to this quarterly call. I am also joined here as usual by Toby Lawton, our CFO, and we will speak to the presentation also available on our website. I'll start off on page two. The third quarter of the year is a good quarter for us despite the continued tough consumer market. We grow by 4% organically in the year. more in region Europe and the rest of the world, 6% and 1% in Americas. We'll get back to market conditions, but we continue to see a better market in Europe than in North America. And we continue to see the growth coming from new Tula products, driving growth, even though the market is tough, and also from bike-related products where the market is better. We have a strong gross margin of close to 43% in the quarter, and we have an EBIT margin of 17.6%. which is the highest ever EBIT margin for a third quarter for Thule Group, excluding the pandemic period years. And the total EBIT in absolute terms was 413 million. And Tobbe will get back to that as well. Cash flow remains strong as for the last couple of quarters. And we have cash flow from operations of almost a billion Swedish kronor in the quarter. A couple of highlights for the quarter, and the first one is actually after the quarter finished. Yesterday, the semi-annual consumer test results from Europe's most important car seat test was announced, and Thule was the winner in the so-called ADAC car seat consumer test. That's the big one in Europe, so we are very pleased and proud to win that. We have also continued to launch products in our second new category for the year, dog transportation. So we launched Tule Peksi. And we have also continued to grow our DTC business and have so far now opened six new countries for trading with OnTule.com, with two more opened in the third quarter. On the next slide, page three, we'll summarize the long-term development for Tule Group and For those of you who know us well, you know we've had a good profitable growth for many years. The graph shows the development since the IPO in 2014. And following two years with sales declined after the pandemic peak, we are now continuing to see another quarter adding to growth in 2024. Good to see that this year is back to good profitable organic growth. On a 12-month basis, net sales is 9.4 billion for the group. 1.6 billion of EBIT and an EBIT margin of 17.1%. Turning to page four and going a little bit deeper into the trading in the quarter by category, we can see that several of the trends we've been seeing for the year continued in the third quarter with some nuances and some updates also related to us launching new products. So starting with our biggest product category, sporting cargo carriers, the category grew by 5%, currency adjusted in the quarter, 6% year-to-date, and we continue to see that bike-related drives the growth. Particularly, we see premium bike-related products doing really well. We have launched two new products in the quarter, one niche product, which is sewn on the picture, which is a so-called vertical hanging bike carrier, mainly for the Americas market, which has done well. We've sold everything we've been able to produce so far. We continue to see very good sales of our most premium bike carrier tool, EPOS, that was launched last year. And we've also, at the end of the quarter, upgraded our best-selling tool, Easy Fold bike carrier, which also has a really nice start. So good growth in the premium bike-related products. Overall, the market for sport and cargo carriers continues to be tough with both cautious consumers and retailers, more so in North America than in Europe, but also in Europe. But we, as we've seen now for several quarters, do see more healthy inventory levels in the bike sector, particularly around premium products and particularly in Europe, which helps us. Pax bags and luggage declined by 4% in the quarter and 1% for the year so far. We continue to see good growth in Thule branded luggage and duffels. For example, the updates we've done this year to the Thule Aeon and Thule Subterra products. And we also continue to see good growth in bike-related bags products. But we also, as previous quarters, see decline in legacy products as the exit of those categories continues. If we move forward to page five, we'll cover the last two product categories. The strongest growth in any product category in the quarter was in juvenile and pet, which where net sales increased by 15% and 9% for the year. And this is the category we've had a lot of newness this year. We, in the quarter, launched an updated generation of our multi-sport and bike trailer, Tula Chariot, which has been really well received by the market and the consumers and driven very nice sales growth for us in the quarter. We did a big update to our new generation Tula Urban Glide 3 during earlier part of the year, which continues to perform really well. And we see good growth in strollers also in the third quarter. Dog transportation is a new category for the year. We continue to see good performance of the dog crate Tula Alex and continue to take market share. And we also launched Tula Bexy, our first bike trailer for dog transportation in the quarter which also added new sales and last but not least we have entered into car seats we moved into three markets germany austria switzerland at the end of may and then added belgium and netherlands and luxembourg in september which also of course adds new sales in this category so good lot of newness and 15 sales growth in juvenile and pet in the quarter which we are pleased about RV products is a mixed picture. Net sales in total were flat compared to last year in RV products, and it's down 2% year to date so far. As we've talked about several quarters earlier, the RV industry is going through a weaker period, but we do see two opposite trends in the quarter where we see a decline in sales to oe customers manufacturers and vehicle outfitters but that sales decline is offset by return to growth in the dealer channel the channel that is closer to to the consumers so overall resulting in a flat development particularly we also see in this rv category that the growth is mainly coming from bike related products in the aftermarket channel So I'd like to then on page five, sorry, six, give you a bit of a further update on the car seats launch. And firstly, just to let you know where we are, we have continued the launch with the first products was in the market in May. And we'll continue the launch in the third quarter and we'll continue in the fourth quarter. So before stepping into the timeline, maybe just to remind everybody that we are a product-oriented company. Our primary focus is to deliver a great product up to the standard. And we do feel we have launched innovative products in a fairly established product category. We clearly focus on safety. We clearly focus on ease to use. And we also think, at least by design, But in our view, that we have produced a product which is well designed. So overall, three products launched to the market end of May. A base, an infant seat and a toddler seat in Germany, Austria and Switzerland. Good reception, six international product design awards even before the product was launched. And then the rollout continued with opening up Belgium, Netherlands and Luxembourg during September 2024. We've had, just as in the German-speaking markets, a nice reception. We've had good placement with the most important premium retail partners that we are looking to enter with. We've had good positive receptions with PR, both more juvenile-focused media, but also broad media, and also with ambassadors. The rollout will continue across European markets and a few others connected to the European standard. So over 20 countries now in November 2024. And it's nice to see the good start and the good reception. And now the long-term work to build these market positions will continue. And as a last comment, also say that we do have more products in the pipeline, both for the European and the North American markets. And we will, in 2025, launch our first high-back booster seats for children of a little bit higher age. On the following page, page eight, also take the opportunity to update you on the outcome of the so-called ADAC test, the most recognized car seat consumer testing in Europe and probably the world, which was announced yesterday. And this is the big one. And we are very proud to say that Thule came out as the winner in the test. The test is based on three areas. It's safety, it's ease of use and it's ergonomics. and the products are scored on a scale from 1 to 6, 1 being the best, and Thule received a 1.6 score for the combination of the Thule Maple and the Thule Alfie, the infant of the base bundle. This is the best score of any product tested in this October 2022 test, which is, of course, makes us the winner, but it's also the best score of any product ever tested of this product type, so We are really proud of the team. I think it's a great testament to the product development capabilities of Thule Group. And I think it's a milestone for us in the car seats category and as a brand. So a good start and a good recognition for the car seats early on. And with that, I hand over to Toby to cover financials in a bit more detail.

Thank you, Mattias. Good morning, everybody. And we can turn to the income statement, slide eight. And I'll start off showing you here the revenue in quarter three. We had a revenue of 2.344 billion SEC in the quarter, which was an organic growth or an FX adjusted growth of 4%. which means our year-to-date FX adjusted organic growth is also at 4%. Moving down the table to the gross margin, you can see we had a gross margin in the quarter of 42.9%. This is 2.8% up versus last year. The positive trend in gross profit continues. We have effects from lower material costs, which is the biggest impact. Also some better mix, which is driven by the new product launches in premium price points, which Matthias has talked about. And also some better overhead absorption from better production levels this year. If you move down then to the EBIT margin, you can see the EBIT margin in Q3 improved by 2.1% versus last year. And this is driven by the higher gross margin. And finally, just on the right-hand side, you can see for the year-to-date numbers, if I move to the year-to-date column, net interest expense was 59 million so far this year. Taxes, 339 million, which is an effective tax rate of 22.6%, so very stable effective tax rate. And then net income year-to-date for the year is now 1.159 billion SEC, so well over a billion SEC in net income so far this year. If I flick on to the next slide, slide nine, sales by quarter. And the first thing to point out here is you see the seasonality of the Tula business. You can see quarter two is actually our biggest quarter. So quarter three, which we're reporting now, is the tail end of the season. And I can also point out, obviously, that Q4, the coming quarter, is clearly the smallest quarter of the year. And it's the summer season in the northern hemisphere, of course, which drives this for us. And if we look at the growth rates for quarter three, you can see in the box on the right that the reported currency growth was 1%, but FX adjusted its 4% in the quarter, so 4% organic growth again, and versus 2019, which is the pre-pandemic period, then it's a 30% growth. If I move on then to the cash flow, slide 10, And here you can see that we had clearly a strong cash flow generation in the quarter. If you see the line cash flow from operations in the quarter, we had 955 million SEC in cash flow generation. And this was driven by reduction in accounts, receivables and inventory. And we continue to have a positive trend on reducing inventory this year. And we expect to beat our target that we've communicated of 200 million SEC inventory reduction for the year. On the right hand side, you can see the year to date numbers as well. And so far, the capex this year, just to point out the capex below cash flow from operations is 183 million so far this year, which means when you sum those up, a free cash flow from the operations is 1.741 billion is what we've generated from the operations this year after capex. And all this has, of course, a strong deleveraging effect. on our balance sheet. So the debt to EBITDA ratio at the end of quarter three, 2024 has been further reduced and is now down to 0.5 times, debt is 0.5 times the last 12 months EBITDA. So with that, I will hand back to Matthias. Thank you, Toby.

On page 11, I want to summarize the product launch year in 2024. As you probably are aware, this is the most intense product launch year we have ever had. And we have done several launches of three different types. Firstly, we have upgraded several versions of our existing best selling product. And that's an area that gives quick sales effect and delivers good growth for us. And it creates newness in the market, of course, in the quarter. To give an example, we have launched a new generation of Tudor Chariot, our best child bike trailer. Of course, in our view, the market's best multi-sporting bike trailer. And which has done really well for us in the third quarter. We've also launched some new innovations in existing categories. We have launched Thule Outset, the world's first towbar mounted tent in Q2. The world's first removable awning, Thule Side Hill, in this quarter, Q3. And as I mentioned earlier, Thule Revert, the vertical hanging bike carrier that has actually evolved. Self-assisting loading and unloading of bags, although you can have six bikes on the back of a car. So new innovations in existing categories also drives newness in sales, of course. And then thirdly, we have launched the two new categories in 2024. As mentioned earlier, Tule Beksi, the dog bike trailer, has been launched now in Q3 to complement the Tule Allax, the dog crate for cars that we launched in Q1. So we've talked a lot about new product launches, and it is an important learning for this year that newness really drives growth, even though the market is tough. And we will get back at the fourth quarter tomorrow. conference call with the plans for 2025. But given the strong reception of newness in 2024, we will of course keep a high pace also in 2025. On page 12, I would like to take the opportunity to talk a little bit more about updating our best sellers. We give a lot of attention and rightfully so to the new product categories. But we also see some really nice benefits from upgrading some of the existing products. As an example, we launched an upgraded version of Thule Easy Fold, now Generation 3, at the end of the third quarter. It is the world's most sold bike carrier, and it just got better. Thule Standard, we always strive to deliver the best product for the market and always improve. And this new generation has an intuitive click-in, click-out bike arm. It makes it easier to one-handed load and unload bikes. It can easily, with an add-on, transform from a three-bike carrier to a four-bike carrier. It also has a larger wheelbase that accommodates larger bikes and also larger e-bikes. As you may be aware, we're also designing with sustainability in mind. And this is another great example where we've had good success in achieving our targets. So the new generation Thule EasyFold is The product has about a 50% lower CO2 emission versus the previous generation. It uses less aluminum. The aluminum it does use is largely hydropower produced, and we also increased the share of recycled plastics as part of the plastics used. So well done to the development team also on that end. It is available through selected channels this year, and then more widely next year as we ramp up production volumes. And the price is about 100 euros above the previous generation product. So a good example of how we drive newness, upgrade the portfolio, add new features and drive a more premium price point and premium portfolio in our product through our product development. So summarizing on page 13, we had a good quarter in a tough market in the third quarter, as we talked about already. As we look forward, both to the market and to our own priorities, a couple of comments from us. On the market side first, we expect the market's trends largely to continue. So generally a continued tough market, particularly in North America and particularly around the RV and even more specifically the OE or the manufacturer side of the RV business. We do see a better market situation in Europe in general, and particularly for bike-related products, which we also expect to continue. And we do importantly also clearly see that new Thule products drive growth, and we of course expect that to continue as well. So some nuances, but largely continuation of the market trends we are experiencing at the moment. Our own agenda stays the same. We are very focused on delivering the priorities that we set out for this year, 2024. And they are four, which we have updated you on throughout the year so far. More product development is number one. More launches than ever. Talked about that already. Making sure we get a good start to the new categories, dog transportation and car seats. about being more visible for the consumer and driving growth also through actions on that end, showing more to sell more and continue to grow on D2C, and also to improve further the efficiency in our supply chain, discontinuing some external warehouse services and reducing inventory levels. And lastly, as we now move into the fourth quarter, the high season is completed, as Toby mentioned, but we do have a quite exciting product categories where we have started to take market share six new Tule.com markets on D2C to continue to add growth we have a record number of international design awards and just won the most recognized car seat award which of course gives positive energy for us at Tule and we have importantly an intense period to launch car seats in over 20 countries in November so very exciting final quarter awaits as we as we wrap up the year. So with that, we turn to operator to take questions and answers.

Thank you, Mattias. We will now start today's Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. And if you wish to withdraw your question, then it is star followed by two. Our first question today comes from Danny Schmidt from Danks Bank. Your line is now open. Please go ahead.

Yes, good morning, Mattias and Toby. I hope you can hear me. Maybe starting off with what you finished saying, Mattias, when it comes to a quite exciting Q4, although it's the smallest quarter, and referring, of course, to the car seat launch in the rest of the EU, as I understand it, also, I guess, the UK and Norway. Yes. Could you tell us so far what you've seen and experienced? You had the Dash launch in May. You've had the Benelux launch in September. And I know that you were quite sort of deliberately cautious when it came to launching Dash, singling out a couple of sort of premium retailers and being sort of very strict about sort of getting it right and so on. And how's that been developing as you get into the latter part of this year?

Hi, Daniel. Thank you. Yeah, I can start until you may add. I think a couple of points, Daniel, to your question. Firstly, of course, we're pleased to see the reception overall with the awards, the test winners, and to your point also that we got very good placements with the most important sort of premium retailers. That's one. We've been really focused on getting a good start and getting that – premium positioning right rather than going for volume, as you are aware. Secondly, on sort of volumes themselves, they are as we have expected. We have had good volumes in the first couple of months. We've had a good sell-in and a start in Belgium and Netherlands. That's good, too. Of course, Q4 with more markets is going to add volumes to that. I mean, the Dash and the Benelux are big markets, but more than 20 new ones will, of course, add volumes too. And then maybe last point is you are completely right. We are doing this to get a great start rather than to get a massive volume from the get-go. We want to make sure we get both the start and the positioning right. But also, just as a reminder, we are producing these products ourselves in our own factories, and we want to make sure we get this right. production of high quality with good efficiency and trim all the sort of production lines and teams in. So there is a limitation to how much both can and will produce for the first couple of months as we ramp this up. But overall, we are very pleased with the start and really excited to launch in Q4 and very excited about 2025 when we have things more up and running, so to speak.

Okay. And the fact that you won this very prestigious test yesterday, I think it refers to the German market, which is, of course, probably the biggest market in Europe. Is that going to be sort of a major... major push uh for you guys in the market when it comes to marketing your product in continental europe especially germany is this adding a lot you think or is it sort of very good to have and gradually it will be something that consumers will recognize or is it recognized immediately yeah so you know this is the big one if there's one you want to win it's this it's recognized uh

immediately across the German market. If you would do a little bit of a media run through yesterday of sort of all the major German newspapers, you'll probably find an article around this. It's also very quickly picked up in the industry among premium retailers and among sort of ambassadors in this space. It has carried over into other countries as well. We see it internally already in the Nordics and in the UK, how sort of the bus is building. So it is very, very good. Now, of course, there's absolutely no guarantee that the sales numbers are a direct consequence of the consumer reward, but this is a great help and a great start. I mean, we have to remind all of ourselves this is the first product we launched and we won already. So it's a really good positive vibe for us that this win.

Yeah. Clearly. But just connecting that maybe then to the inventory levels, which are down a lot more than what you have aimed for. And of course, I appreciate that it swings a bit depending on what court you're in. But currently, we're at around close to 700 million inventories being down versus the end of last year. And And I guess you have some ethics in that and you have some raw material in that. But also on an underlying basis, it's a lot more down than I guess you anticipated. And with this launch that you have now in the rest of Europe, and of course, it's only one product, but it's a fairly big and it's something you produce yourself. What's sort of reasonable? Where should we end up when we close the year in terms of inventories?

Hi, Daniel. I can take this. Toby here. We are ahead of our expectations when it comes to inventory reduction. It's been a really good job by the team in reducing inventory. It's You could say it's driven by good work in terms of in terms of optimizing inventory levels and also working through older inventory to reduce the aging of inventory. So it's definitely a clearly positive, positive effect from the hard work put in. I think you could also say it's, you know, it is a tougher market than we thought. uh you know we we hoped for you could say so if if it was strong market growth we you know we we and a bigger growth rate we would have had to build inventory a bit more so so so we you could say our in managing our expectations we we um yeah we we we didn't um we didn't expect this kind of level of reduction but it's um So it's clearly a positive effect. But I would say you have to bear in mind as well in Q4, we normally build up inventory. So I think we're at the low point now for sure in terms of inventory. So it will go up a bit in Q4, but we'll still be well ahead of our target.

You did well, of course, in this quarter, no doubt about it, compared to many others. But one area which is, of course, a concern in the market is the RV business when it comes to the OEM side. And I think you did surprisingly well in this quarter, keeping it flat with the help of the aftermarket. If you look into Q4, could you update us or remind us of the share of sales that normally goes to the RV segment in Q4 and Is that the same split as usual when it comes to the OE versus aftermarket and how did that develop in Q4 last year? If you just want to remind us on that.

Yeah, so then I can start and then Toby can add. I think you're right about the trends and as a quick reminder, we are mainly in, we are almost exclusively in the European RB business. I think it's good to keep in mind. We did say at the Previous quarters call that we did see some positive signs in the aftermarket or sort of dealer wholesaler side, but starting to see some tougher signs on OE. And that's exactly what we've seen in Q3 with some of the major OE players decreasing production through various ways of doing it. with a clear decline in therefore our sales to that channel of course but a good growth in the aftermarket business and consumer pickup in terms of vehicles sold out as well probably the industry is pushing a little bit but still good to see that growth and as a side comment there is also the world's biggest RV fair in Germany in Dusseldorf at the end of August which had the same record high attendance as it had last year so the interest seemed to be remain quite high on the consumer side so on the fourth quarter RV is it's a small quarter for us in total RV is a higher share of the quarter in general and part of why it is a higher share is that the OE is typically producing sort of more flat volumes across the year that compared to our seasonal business around bike which is more spring and summer so Typically, that is a higher share of RV and a higher share of RVOE in the fourth quarter, which we expect to be tough for a while longer.

Maybe I could just add there, but the OE manufacturers, I mean, they took downtime in the summer, which we talked about, which we've seen the effect of, and they're also talking about also downtime during quarter four and around the around the year end break christmas break as well so it's um yeah it's it's it's it's clear that their volumes are going to be a bit lower and yeah in q4 as well yeah well we already saw that also in q3 with longer production stops than normal but that also is going to come back in q4 yeah um

Is it going to be tougher to neutralize that impact with the aftermarket in Q4 than it was in Q3? Is there any reason, given what Mattias said there in terms of more even production throughout the year, and are we being a little bit bigger part of Q4 than it is in the other quarters?

Yeah, it's a higher share. Versus Q3, at least. It's a higher share. So mathematically, that's correct, Daniel. But I think one of the many beauties of this company is that we are in several product categories and several regions. So we will work, of course, long term to develop each category as best we can. But that specific space, as we also commented on, we do see the toughest areas. situations in all of our footprint within North America and in RVOE. And as I said previously, we don't expect that to change in the short term. Thank you.

We will now take our next question from Gustav Sagan from Equity Partners. Your line is now open. Please go ahead.

Hi, I guess that's me. Gustav, I guess, with SCB. Thanks for taking my question. I'm looking at the results here. Quite amazing that you achieved 15% EBIT growth on basically flat top line. And it relates obviously to the gross margin improvement because sales and admin is up 6%. So on a 12-month rolling basis, gross margins are now 41.4% if I did my calculations right. So basically back to the peak of where they were in 21. Obviously, back then you had almost 24% EBIT margins on a rolling 12-month basis at some point, and now you're at 17. So can you comment a bit on, first of all, the higher selling and admin costs here in the quarter year of the year? Does the tool that we know today with higher DTC, higher priced products in the mix, more categories, demand higher OPEX? compared to previously and the development going forward now that you actually started to launch these new products will they sort of face down that'd be interesting to hear and also the gross margin go forward given that i guess you under absorbed a bit here again now given inventory reductions would be interesting here thanks hi guys maybe i can start on i mean the gross margin point i mean you you're right on a rolling 12-month basis we're now back up at

you know, the high point and, you know, so the development has been good the last 12 months on gross margin, you know, did swing a lot during the pandemic, but we see, you know, we do see that we, We now have growth in the new categories, which is driving premium price points, but we also get the benefits of lower material costs. You could say during the pandemic there were big swings in material costs, but that situation has stabilised a lot now and we're getting the benefits of the lower material cost trend for the last 12 months coming through into production costs as well. I would say our production volumes are still not where they were in the pandemic because it was still very high production then, but the trend is successively increasing

improving as we as we yeah as we grow so so it's um yeah absolutely it's a it's back up to where it was during the during the pandemic and then maybe i'll hand over absolutely yeah no on sdna uh to to your point gustav you know it's it's higher than in previous periods and uh there are um i mean i guess one or two maybe reasons for that but it's all related to investing in growth um we are We've been investing heavily in product development for a long time, but particularly higher level the last two years around there as we're now entering more categories and have now launched car seats, which is a big thing for us. The other part of this is the products don't sell themselves, so to speak. When you want to build up a new category with car seats in so far six markets and another 20 as an example, of course, activating that product means getting PR, events, in-store presence, et cetera. So there's sales and marketing costs associated with launches as well. It's a fact that launching something in an existing product category where you have an established distribution and brand awareness, et cetera, is more cost efficient than moving into new categories. So the consequence or I should say maybe rather the what you see in the numbers is a consequence of us entering new product categories and investing for future growth in the existing categories. But again, particularly related to the new categories.

Thanks. And the levers or the bridge going into next year on OPEX, where do you see in terms of launching costs, will they be coming up next year year over year given that you have entered more markets year over year or are we at the peak now and i guess a more uh hypothetical question where do you think you need to be in terms of gross margins to reach your financial targets in a few years time well um

if I can answer that in a structured way. I think the most important driver of us reaching the financial targets is sales growth. I think we've seen that throughout this year, but also throughout Thule history, that we do get good operational leverage on sales growth. Now, in the short term, of course, we have to invest in new launches and building up new categories to get that sales growth off the ground, so to speak. And, you know, obviously one of the other good things about Thule is that it's quite a lot of these decisions are discretionary. We could reduce development spend and reduce the sales and marketing investments if we wanted to. So we can manage this actively, which is good. Obviously, there's been some, I shouldn't say one of, that's the wrong word, but there's been some initial costs of getting to market with some of these new categories that that won't repeat again next year. So the decision is really up to us around how much to continue to invest for growth versus focus on profitability for the next year. And we'll get back to you by Q4 about our view about the launch calendar for 2025. But as just an overall comment, it's clear that newness drives growth also in this market. And as commented on earlier, we don't see a major positive shift in market trends in the short term. So we will continue to invest for growth and we will continue to sort of keep our foot on the gas pedal, so to speak. So I know it's not a quantitative answer, Gustav, but that's the directions how we're thinking about this. And we are really focused on getting to that 20 billion SEC 2030 and 20% EBIT margin. And the key to do that is to have good sustainable sales growth in many areas.

I appreciate that. Just one final nitty gritty, sorry for sticking with the growth or with the margin discussion, but since you took down inventory in the quarter, I appreciate you also write that you had lower costs related to having lower inventory, so less costs for external warehousing and so forth, but can you quantify a bit what was the impact to gross margins from under absorption versus lower costs for inventory and how should that play out if you produce in line with sales into next year? What will the delta be on gross margins next year? That'd be interesting. That's my final question.

The reduction of inventory drives cost reduction as well in terms of warehousing in particular. So that is a cost benefit that we have, but that's shown in SG&A primarily. In gross profit, it's basically the yeah the transport uh in and out the customer that but but in um the warehousing cost reduction is not is not an impact in gross margin basically and that should stay next year and under absorption effects i'll just say we've reduced just sorry on the first part just we've reduced the warehousing and that that the warehousing capacity and warehousing costs following the inventory reduction, that impact will hold on to going forward as well. And sorry, Gustav, second part of your question.

And in the quarter, the under-absorption effect, was that material, given that you reduced inventory in the production?

Yeah, it wasn't that. It was, yeah, in the quarter, yeah, not that material.

In line with the year. Yeah. Thanks.

Okay, thanks. Our next question comes from Adela Dashian from Jefferies. Your line is now open. Please proceed with your question.

Thank you, and good morning. Just to follow up on the previous RV exposure discussion in Q4, my understanding is that you have or are continuing to launch the new products even now in Q4. So if that is the case, should, I guess, the share of different product categories be more tilted away from RVs in the coming quarter? Or do you still think that the RV weakness is going to be that pronounced for it to have as big of an impact as it did in Q3? What's the view on that?

Good morning. No, you're right. I think we were just trying to comment on history before. But as we've seen this year, you know, RV has been your date, small minus and other categories are growing. And given all the dynamics we talked about and that you also described, we expected RV share to not swing back to a higher share, rather the opposite in the fourth quarter. So that's correct.

Makes sense. Thanks a lot.

As a reminder, if you would like to ask a question on today's call, please press star followed by one on your telephone keypad. And if you wish to withdraw your question, then it is star followed by two. Our next question comes from Matt List from Kepler Chevro. Your line is now open. Please go ahead.

Yeah. Hi. Thank you for taking my question. A couple of them. Sorry. Yeah. Just coming back to the launch cost for the car seat and congrats on the awards there, but will they continue to increase in the fourth quarter or is it sort of a peak here in the third quarter for those? I mean, since Q4 is a smaller quarter, it could be more sort of having a larger relative impact.

Yeah. No, the, the, um, very specific now, but let's see, on the car seat, SG&A related costs in Q4, there's not the peak in development cost if we start there because we have launched these first products. Now there are more in the pipeline, but there's not a peak in Q4. There will be more sales and marketing costs because we are now live in six countries and we're adding over 20 countries in Q4. So there we will for sure see increased costs in Q4.

And should we expect those to be material compared? I mean, it's the smallest quarter. I mean, you barely break even in the 12th quarter. Is it sort of in terms of money?

In money terms, is it sort of... It matters for sure. But if it would have been a very big effect, we would have commented on it proactively.

Sure. And then I guess the awards are sort of impressive and so on, and it seems that you're moving well here in Europe. Do this to an extent sort of make you more likely to continue in the U.S. market as well, or is it something that is not affecting that decision?

Well... We are moving forward with developing products and they are well underway for the U.S. market. So we would have done that anyways, to be honest. So I think in all honesty, not the direct impact on the decision to on the U.S. portfolio or the entry timing. Of course, it does on a sort of more wider in a wider picture kind of way. give more confidence to our ability to deliver the best product to the market also in car seats. So increased confidence, I guess, a little bit.

Great. And well, coming back to pricing, I mean, the product launch has improved pricing in general terms, I guess, but Do you expect to be able to make or do you need to make any price adjustments? I mean, normally you make the price adjustments early next year. Is it sort of something that you plan to do?

Yes, we are. We have historically, exactly as you commented, done, and the industry is doing price increases on a January 1 basis. During pandemic, it was a bit different. But this year in 2024, we decided to keep basically prices flat on comparable existing products. And the increase we have seen is due to new products. For 2025, we will go back to the historical approach. We will have price increases as of Jan 1. So on sort of existing products, we will see a price increase in line where we have been throughout the history before the pandemic, which is in total of around 1.5% to 2% in that span.

Okay, thank you. And finally, just about the upcoming election, the U.S. put some focus on potential tariffs to European-produced products entering the U.S. market. Could you just update me on the balance there between sales and local production, if you're affected by any potential tariffs?

Absolutely. We will be affected by tariffs, but we do have, I think, a quite fortunate situation that we have two sites, two factories in the US locally. So we have one factory in the Chicago area that does rooftop boxes, among other things. And we have one factory on the East Coast in Connecticut that does... aluminum and plastic products in production terms by carriers, for example, which is a big product for the North American market. So some products we import from our European facilities, some raw materials and some parts we, of course, import, but we do have two manufacturing sites in the U.S. and quite established network of local and regional suppliers as well.

Okay, great. Thank you very much. Thank you.

Our next question comes from Benjamin Walshett from ABG. Your line is now open. Please go ahead.

Hello, guys. This is Benjamin stepping in for Frederick today. I'll try to sneak a question in as well. Could you share what part of growth in a petting juvenile is directly attributable to model ranges that did not exist a year ago, please? Or at least give us a guidance on that figure.

Hi, Benjamin. We have decided this year to give quarterly sales growth numbers per product category, but we're not going in more detail than that. So I guess the only comment we'd make is that it's a combination. It's a combination of upgraded existing products. We talked about the Tula Chariot already and the strollers and There are sort of new categories, dog transportation and car seats. So it's both.

All right. Thank you. It was worth the shot.

Our next question comes from Carl Dijenberg from Carnage. Your line is now open. Please proceed.

Thank you very much. Good morning, guys. So just one question from me. I think... It would be helpful if you could share a little bit what you're seeing in the market development here. I mean, I guess quite impressive to see that you're growing organically both in Europe, rest of the world, but also, I guess, predominantly in region America, given that there's been quite some discussion around promotions and maybe consumer sentiment having been a little bit weaker since the summer. So I just wanted to ask there if you can allude a little bit to what you're seeing in the U.S. Is this promotion pressure easing a little bit here when we go into Q4, or has there been any, let's say, material difference there throughout the quarter?

I think the trends are very much the same. Thank you, Carl, for the question. It's very much the same as previous quarters. It's a tough market in the U.S. It's been quite cautious on the consumer side. We don't see consumer sentiment picking up, really. There was... hope i guess during spring but that sort of turned down and now it's sort of flat on the retail side quite promotional cautious on inventory and orders uh last couple of promotional periods i don't think any major retailer has been really happy about sort of the effect to drive volume through through discounts either um so it's um quite stable, um, at, uh, at, uh, it's, it may, maybe, uh, improving slightly, but that would be an optimistic view, I think of the North American market. So, um, quite, quite stable at the level as we've seen before.

Yeah. Yeah. Yeah. And, and, uh, the discussions around promotions, I mean, is that having any material effect on, on, uh, Let's say your operation performance, can you still keep your selling prices fairly much in line with what your planning and anticipation has been going into this period?

We manage quite well and I think one key sort of distinguishing factor about the US market is that the promotions are set in windows and then there is a recommended retail price. It's quite structured in that way. We haven't seen any negative impact per se of discounting or any price impact of us. It's just that the consumer demand is low, if you like. What we do see, though, still is that, and which continues to play to our favor, is that newness works. New products sell well to that premium consumer, also in the US, also in a tough market. And I think that's the important message. And that's why we may be able to get above that zero line for region Americas in Q3 2024. Okay.

Thank you very much.

We have time for one final question. A follow-up from Danny Schmidt from Danks Bank. Your line is now open. Please go ahead.

Yes, Daniel here again. I hope you can hear me, Mathias. Just a follow-up maybe on the SG&A discussion that we just recently had when it comes to marketing spend and all that. But if you look at production development cost, which you have – Guided for it to be sort of flattish in 24 versus 23. Do you see it panning out that way or where are we?

Yeah, no, I think we're in 24, Tobbe, you can add, but in 24 versus 23, that's where we will land as, you know, guided.

It's not going to be higher simply, rather sort of in line or lower.

Yeah, we think it's in line. 24 would be in line with 23, just as we've been saying all year.

Yeah. And you don't want to come to 25 now or could you give any sort of indication for 25?

Well, I think let's get back to that in Q4. But I think the main message I think from us is that obviously there's been some pushes that creates initial costs in car seats, both in development and in launching. And the beautiful thing is that we can decide what investments to make in growth for the future. But We clearly see this year that newness is driving growth and we will continue to focus on growth and focus on launches. So it's not so much about the input as the output, but it is about continuing to keep the foot on the gas pedal and more specific launch calendars and discussions on cost levels. Let's wait with that until Q4.

Maybe just a final one.

Sorry to state the obvious in a way, but as we drive growth, we drive the leverage of those costs as well on development and SG&A. So it's the right thing to do to improve the margins through leverage of those costs as well.

Yeah, sure. And maybe a tiny question that we used to talk about a lot before. You mentioned legacy products. continuing to decline. How much of sales is that now?

Yeah, in packs, bags and luggage. No, it continues to decline. And now packs, bags and luggage is, the majority is Tula branded business. So it's, if you like the effect from the kind of steady decline in legacy products is getting smaller over time.

But you don't want to give a number.

Maybe we will give a number, but let's do it in a structured way maybe then. That concludes the Q&A session on today's call.

I'll now hand back over to Matthias for some closing remarks.

Thank you very much, everybody, for joining this quarter's call. Thank you, operator, and look forward to talking to all of you again in a quarter's time.