New Wave Group AB (publ) (NEWA-B.ST) Earnings Call Transcript & Summary

Very, very welcome to the presentation of Q3 and to this day that we hopefully will spend together all of us. If we start with Q3, I'm quite happy with the quarter, or you can say I'm actually happy with all points, excluding the one-off cost we had in the U.S. But otherwise, the growth is up to 8.3% if you combine organic with acquired in local currencies, I should say, because in the whole P&L, the currency effect quite a lot on all lines. So we have come closer to the minimum of 10% again that we want to have in growth. Here is really nothing new. The number of employees will increase the coming quarter due to Cotton Classic that are -- if I understood correct, Anna, is in this figure with 1 12 part of the employees there. So that will increase. We are out in 25 countries now and the segments you know. Yes, nothing have changed here. I think I recognize most of you, so I think you are familiar with those 3 different segments. The only thing the big change is actually under Corporate, where you now have done since 1st of September, Cotton Classic in. But the external brands they are selling, we will not take up as a brand here, and they have started to sell our, and I will come back to that in the afternoon. Yes. On the 1st of September, we consolidated Cotton Classic, which is very, very nice. We have that as a point in the afternoon, so I will not talk much about that in this presentation. We had one-off costs for the COVID loans in the U.S. that are taken in Q3, and we also announced it before the report a couple of weeks before. I don't remember the exact date. And the currency continue to have negative reflections for us. I think that it will be more stable, but no one knows. Quarter in brief, 8.3% sales increase and including currencies -- in local currencies and including the -- I thought it was closed, sorry. But in SEK, it's 4.2% then. Promo channel was very, very strong, I would say, with 7.2%. Retail was much weaker. And you can say the spread we have between those 2 distribution channels, I'm very, very happy with because if we were only depending today on retail, it would be a very, very tough situation. In general, I was quite disappointed when they released, for example, the Swedish Sport Index for the third quarter. If I remember correctly, it was first 13 quarters in a row that were negative. And then Q1, Q2 was a little bit up. And I hope that, that was a real change. But now Q3 came out with a small minus again. So I'm very, very happy for the Promo channel. And also if we see on a certain brand, like Craft, if we're only depending today on selling out from shop and didn't have Teamwear. Corporate, it would be a very, very tough situation because the market on consumers is tough all over Europe actually. And it's a little bit hard to understand for me because now people have started -- consumers have started to have more money again, but obviously, they don't spend them. And I talked to a lot of operators for restaurants, and they have the same tendency even in Stockholm, where the restaurants actually are quite full. People spend less. They buy more cheaper wines or 2 glass of wine instead of 1 bottle and so on. And it's a bit strange. The only segment that's really doing well in retail today is the low-price segment. But it's a good combination. All regions are continue to grow in local currencies. Operating profit, if we exclude this one-off in the U.S. on SEK 66 million, it was just above last year, which I think is very, very strong actually because we have a very high pace of investments in automatization and systems and also new markets now. So that could have been actually much, much worse. Also, I think we should point out an extremely strong gross margin. So you can say we don't use discounts and such things to hold up the sales. And that's also very, very nice. And this comes down in operating profit then after one-off on SEK 253 million. Yes, sales, SEK 2.390 billion. I hope we soon can have a first quarter over SEK 3 billion. Sales, plus 3.6% and organic, we have talked about. And I think if retail becomes a little bit better or the situation in the sports retail, especially where which are the biggest retail channels for us, I think we can have and will have a very, very nice growth actually. Corporate, net sales, we have talked about Sports & Leisure, also Gifts & Home was a little bit down. And this is then not in local currencies, I should say, because then it looks quite different. And geographical markets, North America continued to be the biggest one. What's happened there? North America is biggest. Sweden actually had a quite nice growth, which are a little bit surprising because we have very high market shares here now on most things. Benelux, #3, and it's -- we have just taken Benelux out from the rest of Europe. And the Nordic regions, quite flat or flat. Rest of Europe is up. And there, of course, in rest of Europe, Cotton Classic comes in nowadays. And we will look at that for not next year, but the year after because now all Cotton Classic sales going into -- I think it is -- is everything going into Austria, Anna?

Yes, the rest of Europe.

Yes. So -- and there, we should divide if we can, when we have had it for a year, the different markets. Gross margin, I mentioned, I think it's a very strong margin. It actually surprised me a little bit as well. And that also, I think, show our position on the market because with this weak market, a lot of companies discounting extra and so on, and we can actually continue to grow with full gross margin. And the quarter on 51.1, I think is -- I'm not 100% sure of what I say now, but I think it's the highest ever actually. So that's very, very nice. External cost increase. We have -- we will start to increase the IT costs again from at least 2027, I would say. And the reason that the IT cost increase is that we just right now pay actually for 2 systems, the old one and the new one. So it's not so much we can do about it. Operating profit, SEK 253 million, and the contribution from Cotton Classic was SEK 14 million this quarter. Here's the operating segments. And it's not so much to comment, I think. Of course, they are affected then very much on Sports & Leisure on the one-off costs and also a little bit actually on Gifts & Home because it's all related, of course, to the U.S. entities. Cash flow, operating minus SEK 249 million, and that's planned. So that's nothing that worry us at all. It's both that we increased stocks and the new investments and launch we are doing with Teamwear in U.S. We also opened up now in a new warehouse in Ireland outside Dublin in January. And we also launched a new concept in Corporate and merchandising called Untagged Movement, where the launch actually was this week, first at an exhibition in Germany, Germany and Belgium. And then it should be rolled out in all countries in January, all European countries, I should say. For 9 months, Sales increased by 2.6% and Promo up 5%. I also wrote in the report that it's -- I hope that we have the toughest time behind us on Corporate because the growth has been better and better. And also, we today meet much more positive clients, and clients are more active today than they were a year ago. Then we can say it's very hard to predict because what is good today can be bad tomorrow because of what's happened around in the world, and it's still very unstable. But hopefully, it's a trend. And per operating segment, it looks like this. And the geographical areas. And now this is in SEK. So for example, North America is much, much better in local currencies. And that's a little bit surprising for me that U.S. is still -- I wouldn't describe it as strong, but it's much more stable on the market than I expected with all those things that has been and you wake up one morning and it should be 100% duty on China, next day, it's 50% and the third day, it's -- they delay it. And yes, it's a total mess actually. So I'm surprised that the market there are as strong as it is. Gross margin also, yes, 0.1% higher than last year if we look at the 9-month period. And the rest is more or less the same comment as it's on the third quarter. And operating segments, operating profit on different segments. And here, you can say I'm -- I would be quite happy with all segments, except Gifts & Home Furnishing if it was not for the SEK 66 million in the U.S. then. Still a very strong balance sheet after consolidation of Cotton Classic, we still have 52% equity. So we can continue growing both by more acquisitions if we find the right ones. And also, of course, we want to speed up the organic growth with the new investments, with the new warehouses and also with a lot of new products. We have I think I can say that we haven't had so much new products launched in many, many years. I think last time we had so much new was actually when we launched Craft Teamwear. So we have a very good pipeline on products. Cash flow, it's not so much to comment. Rolling 12 months, we are on SEK 9.7 billion in sales. I -- we would have been over SEK 10 billion if we had the same currency in the past, but I hope still we can go over SEK 10 billion very soon in the rolling. Gross margin good. Costs, we have talked about. Operating margin, 12.1%, which I'm, of course, not happy with. But I think we -- if we can be between 12% and 15% until we are coming down a little bit in investments, I think it's still very good. And I think we then have a very, very strong position to actually start climbing up against our goal that of 20. Yes. Yes. That's more or less what I had to say. And then we can open up for questions, if you have any.

Magnus Roman, [ SPF ] Markets. Yes. First, I'd like to ask about the underlying gross margin being so strong. I think you said it's a record. I think looking back at Q3, it is. If you look at absolute quarters, you have had a better Q4. But how would you describe the main drivers here behind the strong gross margin? I mean you mentioned that you have not been discounting, but can you help us understand the viability of this?

A little bit is the product mix and that we grow, for example, in Craft Teamwear, where we have good gross margins. One part this quarter is also that the trading was less, which is what we operate with the lowest margin in the group. But then also, I think we have a very, very strong position, and we have had a strong service for a long time now. So I would say on the market, we have an extremely good reputation. We gain clients, very few or no one leave us. And we don't need to use the prices and argument as it is now. So it's a totally different situation that we had, for example, 12, 13 years ago when we had [ taken ] down the stocks and couldn't service the client and clients left us. And if you want to keep them, you have to give them extra support and discounts and so on. So I feel quite confident that we will continue with a high gross margin, and maybe not on this level because another quarter, the trading can come up, for example, and then it goes down a bit. But on the main business, I think we can continue to have a very good gross margin. And we should also remember that Cotton Classic operate on around 25% that take the gross margin down also not so much in Q3 because it was only 1 month in the figures. But -- so if you include that as well, I think Q3 was very, very good.

Yes. And speaking of which, you mentioned that we will speak more about Cotton Classics later, but one -- can't help just to ask one quick question here on the EBIT of September. Is there anything you would like to highlight to make us not too enthusiastic because if we analyze this EBIT, we might get very enthusiastic about the prospects here.

I'm enthusiastic. No, it's -- again, I mean, I have -- if you exclude -- and I think I said that also after Q2, if you exclude the first 6 months of the pandemic and the last quarter and the first 2 quarters of '08, '09, I think this is the absolutely most difficult situation to navigate in with the different wars, Ukraine, Gaza, now also Sudan. You have Trump where we don't know sometimes from week to week what duty we will pay in the U.S., depending on country, of course. So it's -- I mean, right now, I'm feeling quite optimistic and it looks better, but that can be changed on Monday. So it's a very tricky situation. So I think that a bigger turnaround in the market, in general, we will not have before we have a more stable situation.

And you mentioned the tariff and we might hear more about that in the presentation later perhaps. But can you -- do you know or can acknowledge if you expense the cost of the tariff at the point of sale of that good that you brought in that was tariff or if it is already at the point of purchase?

The problem is -- now it's going into the purchase, of course. And then I don't know, I think...

So when we will see the gross margin -- negative gross margin effect essentially if it is at the point of sale of these goods. I believe in the case of H&M, for example, they have warned off later into this year that we will see increasing negative effects due to that effect.

Sometimes, sometimes not. And it depends on if the goods are already sold when it's shipped, which is a minor part. Otherwise, we also adjust the selling prices. I mean, if they increase tariffs from 20% to 100%, we can't absorb that. But as it is now, I would say we had a few millions, I think, in extra costs in Q2. Q3, I actually don't know the figure. I don't know if you have any figure on that, Anna?

[indiscernible].

I said I think the result was directly affected with some millions due to tariffs in Q2. But I don't know about Q3, if we had anything there.

The result is affected in many ways. It's a bit tricky to navigate because it's both in cost and also increases in price. But for example, I know that since May, going forward, [indiscernible], for example, has had $3 million additional tariffs. But that is not in the P&L because it's a net effect in the P&L so far.

But you can at least say, I can add that I'm extremely happy that we start moving a lot of production already last period to mainly Africa because if we should be stuck totally in China now, then it would be a huge problem.

Any other questions? In that case, we have some questions that have been sent to us. Cotton Classic contributing with 14% profit margin in Q3, still see 5%...

Sorry, SEK 14 million, if I remember correct, not 14%.

All right, SEK 14 million in Q3. Still see 5% as a good level for 12 months period. There's no question mark there. So I don't really know...

Yes, you can say that September, they had a very good month. Of course, we hope that continue. But I think that -- still that it will take some years even if we have been much, much faster with those with B2C before we get them up. So if they can do like 5%, 6%, 7%, I think it's good. We should also remember that they are a typical company that look as New Wave did in the past when we only have Corporate. So September, October, November is very strong months. If we were consolidated them 1st of January, they will have contributed with a big loss because generally, they have all the marketing costs and low seasonal sales. So it's also a question on timing and that we should change their operating margin very, very fast that I don't believe in. Maybe we can climb 2%, 3% a year with the start from half year or something because I don't want to answer more now because then it's not interesting enough.