New Wave Group AB (publ) (NEWAB) Earnings Call Transcript & Summary

Okay. Let's start. Welcome to the presentation of Q4 and 2024. It has been a quite tough year, I must say, with a very tough market. I saw, for example, that market -- I saw, for example, that the index of sports in Sweden was down in Q4 again and it's for 12th quarter in a row. That have actually never happened on the 27 years we have been public or 26 or whatever it is. So I'm surprised because the economy don't take off at all. The only place we can see geographically are stronger is U.S. and partly Canada. Canada can also depending on that we still have quite more market shares. But I would say that Sweden is probably the most depressed country, as we see it in Europe, followed by Germany. We maybe see also small positive or get small positive signs in the U.K. I will not go through this. Nothing new had happened and I will talk more about new establishment later on. The only thing I can comment here because I guess, it's a lot of people that wonder what's happened with the duties and with Trump and all these things. And you can -- I can't say that we foresee those things but we did know that it will be unstable. So I'm very happy we opened up the sourcing office in Alexandria in Egypt. So we are well prepared now there. And Alexandria is also handling the North of Africa, which means that we can switch production quite quick. So I'm not so scared of that. Of course, it can be that we have containers on the way home. And yes, they put in a duty from day 1 or next week, while we have goods on the sea, we can have a hit. But for the longer term, I'm not worried at all about those things. And we are very used to handle it, I must say, because all this time we are running way with it in quota-free, it has been quota-free, it has been Swedish quotas or U.K. quotas and EU quotas and the duties ups and down depending on how they classify the countries and so on. And we are also well spread out today. So within 0.5 year or something, we can switch to any country. And I hope he don't put high duties on all countries. But if he do even that, you can say that doesn't will change anything either because then it's equal for all suppliers. And that will means that the consumer will pay it in the end. Yes, nothing new here and not here yet. Here is one very important part. We will go much more heavily into Canada and also increase, what you can say, organic, in one way establishment. So Harvest, Printer, the second biggest brands we have on corporate or promowear, we'll establish a stock as soon as possible in Montreal, where we already have the company but we don't have harvest, Printer there. And it will be active from Q4 in best case and Q1 worst case. And that's depending on the lead times. So it's as usual that we can't sell things we don't have on the corporate side. Then the second launch in Canada is [indiscernible] where we establish also a warehouse and -- or we have the warehouse, we established the stock and the sales team and so on in Toronto. And that's probably it's a little bit longer lead time on the workwear than the promowear. So that's probably Q1 '26. We will go in full with Craft teamwear in Canada and with own stocks today. Today, we sell a little in Canada from the U.S. stocks but first of all, we see big opportunities in Canada. And second of all, we need a local stock there. You can say some of the competitors, for example, on the corporate and promo in Canada have up to 3 distribution centers. So to run Canada from the U.S. is not possible. But we have very, very positive reactions in Canada regarding the teamwear as well as we have in U.S. So I hope it will start showing in the figures from second half of this year in the U.S. already, and we have already signed quite many clubs. We also are looking to and will but I can't say which quarter set up another distribution center for Clique [indiscernible]. That company developed very, very well but we have still a lousy service in the Southern U.S. So most probably it will be in Texas. It's not decided yet but we're looking for facilities as well. It's still like this that it happened most things, otherwise on the Craft side and the launch in U.S. is -- actually the interest is over my expectations. It's very, very few clients that are not really interested in distributor, sales growth. So I'm very happy for that. It's also a market that are worth much more than Europe. It's -- most of it is organized sales in private clubs and schools. And for example, a soccer player in U.S. are more or less forced to buy. We can have other negative comments about that in one way but they are more or less forced to buy all equipment and they are worth roughly double in buying per individual than a Swedish normal football club, for example. So it's a huge market. Otherwise, everything is going more or less as planned on the teamwear. We still continue to invest in teamwear and really grow. The last national team was the Swedish table tennis team that we signed yesterday, a 6-year agreement with them. And that's also -- I'm very happy for because table tennis is now growing very quick in Sweden And for example, there, of course, thanks to Olympic Games. So they will play and compete in Craft for the coming 6 years. And there you have a table tennis guys. And you can also see it, for example, now on that the interest has increased not because more or less every club have a queue for young people that want to come in and play. All clubs in Stockholm as I know, [indiscernible] they have all a lot of young people in the queue that want to train. And that's, of course, a really big hit in one way that it's, no space for everybody. And you can also notice that, for example, on television where, I think it's the first time since [indiscernible] that actually SVT was sending their [indiscernible] Singapore Smash, I think, if I remember correctly. So I'm very happy for that agreement. Yes, not too much to say. Yes, it Gifts & Home Furnishings. It's nothing new. We are still fighting. It's a toughest area for us. And I also not, of course, happy with last year. And here, we have the same problem, you can say, as on we have on the sports side. It's a decreasing sales among all the clients. So there, we will have to fight. The quarter, we increased 3%. And in one way, I don't think I should be 0 with -- I'm happy with 3%. On the other side, to make 3% in this market, I think, is very, very strong and we continue to take market share all the time. The promo sales channel is up 5%. Operating result, SEK 56 million less than last year, which I think is a very, very good result under those circumstances that we will also continue to invest in the markets and especially Germany and U.S. and continue with the warehouses, optimizations and so on. So we don't slow down those investments. And operating margin, 16.4% Also, I must say I'm not happy with but again, under the circumstances. Sales, we have discussed, increase. Yes, it's, all said already. Operating segment. You can say promo was then up, that Sports & Leisure is up 6% is quite fantastic in a market that are down, down, down. So there, I am very happy. Gifts & Home Furnishings, a little bit down. If you look at the areas, U.S., 3% up, Sweden, 6% down and I think it's 2 reasons for Sweden. The one is again the market and the economy. The second reason is that we are much more difficult to grow or defend the sales in the country. We saw big market shares as we have here. It's actually much easier for us if you look in other countries where we have much smaller market shares. Central Europe, plus 5%. I'm very happy with that and also rest of the Nordic countries is plus 8%, which I think is a very strong number. And that's especially Norway that have a very good growth. Finally, you can say the investments that we did inside skiing in Norway where we took the biathlon team, the cross-country team, a Nordic combination, finally pays off in sales. It took longer time than I thought but it's not the easiest market in the world on skiing because you have so many Norwegian brands in it. Now people start to think Craft is Norwegian, that's very good. And Southern Europe, minus 4% and fine, the other countries, which is Canada and trading, plus 38%. And then I've said every report that the trading business is very up and down. It a few big orders. Sometimes they come in 1 quarter, sometimes the next quarter. So it looks very good but it's not as good as it looks. Another quarter when it's not good, it can be better than it shows because we have it in order but not delivered. And as we see then, U.S. is the biggest market for us today. If you look at the gross margin, 50% there, I'm quite happy actually, even if it's lower than last year. I think it's very, very stable, or to have 50% in this market, I think, is really good. And I was a little bit afraid that it could have been lower because, as I said, both I think in Q1, Q2 and Q3 reports, we have the price pressure down especially on the basics and basics is, as you know, a huge business for us, we have T-shirt, polos and sweatshirts and so on. So they are quite set aside. Otherwise, external cost, I think it's under pretty good control, both external and personnel costs. If we look at what the inflation have been the last 1, 2 years, I think it's good control. And I'm very happy for the warehouses we already have done without amortization and the warehouses that are in progress for that because that's one way to really increase efficiency. And it comes down in operating profit on SEK 462 million and a significant lower financial costs, SEK 27.6 million against SEK 38.1 million. So it's down, if I count quick, nearly around 25%. And the profit per share then around SEK 2.6 million. Here, I think I have already mentioned most things but you can say that Q4 was actually a bit stronger compared with the quarters before. So for example, again, I'm very, very happy with the Sports & Leisure and those figures. And it's also show that I think Craft is also in the long-term in a very good way. Cash flow, SEK 413 million -- no, sorry, SEK 545 million, which is also, I think, good. And if we look at the cash flow for the year, that we will do later. The balance sheet, again, extremely strong. We had a goal to have an equity ratio on 30% before the financial crash. And after our experience there, we raised it up to 40%. And today, we are, I think on 60% -- is it Lars or 63.7% or something? SEK 7.2 billion in own capital. And this, of course, gives us the possibilities to continue to look after acquisitions and hopefully do some acquisitions. I think I get questions about that every interview that why haven't anything happened? And the answer is quite simple. We haven't found any that we really think is attractive enough. And we should absolutely not go around and buy companies just to show growth. I mean we acquire we do it, I should live with it for a long, long, long term. And we must also see the possibility to grow them both in sales and profit. But I don't know -- how many do you think we have looked at over the last 2 years, around 100, 200, something . So more than I can count, we can at least. And sooner or later, I hope it comes up, something and it's good to have the financial muscles to do it. And also, of course, now when we build up new stocks and new launches in U.S. and Canada, we have a very, very safe financial situation and we're able to do that. And there, of course, I can say already now that the cash flow will, of course, be affected in Q4 or Q1 negatively and the stock will increase when we go in and do those things in Canada and U.S. So it's not a surprise for anybody. January, December, more or less sales in line with prior year and also in both channels. Here's not so much to comment. Here is then clearly U.S. the biggest market now with 2% growth. And you can say, Sweden, it's still a little bit better than it was in Q4, if you look at the year. But otherwise, it's very, very similar. And here, you can see other countries comes down with minus 1% when it was 38% plus in Q4. So it's very, very much up and down in this trading business. 49.4% in gross margin, same comments I have on the quarter. I think it's good. And an operating result on nearly SEK 1.3 billion, which feels quite good. I mean it's -- we have said 4 or 5 years ago that we should do 13.2% in a bad economy, no one believed it. And now we're delivering that in bad times. So I'm quite positive to what we can do in a little bit better economy. Yes. There is not so much to comment actually. Cash flow on the year, nearly SEK 1.3 billion means that we take out the whole profits actually as free cash flow from operating. Investing is mainly 2 things. It's automatization of the warehouses that continue. I think next one to be operative is at Netherlands. Next one, yes. And we go for it also in Germany and France, that's more or less at the same time. And the other thing that start costing some money is that we change the ERP system. So we have the cost to implement a new one but it's still not in operation. So we have also cost for the old one. Yes. October, December then, despite the market we managed to increase a little bit. And as I said, today I'm happy for 3% growth. I shouldn't be here. But I'm still happy for it in one way and that's according to the market. Yes, more or less, I think most have been said here. And about the future, I feel safer than ever. We have a very good organization. We have managed to keep up service and keep up with investment during those tougher markets. We see still a lot of opportunities actually in all areas, excluding Gifts & Home Furnishings that are more difficult than the others. It's possibilities also there but it's not so many or so big that it can be on Craft or on corporate. Strong balance sheet and we continue to look at acquisitions. So that's basically that. Now you're welcome to ask questions.

Thank you. Magnus Raman, Kepler Cheuvreux. I have a few questions. We could start perhaps with what you write in the report here about the teamwear initiatives, the investments, you expect some revenue, you write, in the second half of '25. Perhaps if you can help us just understand sort of the size of that. And then you write that you -- we should have to wait a bit longer for a positive operating profit contribution, is a bit longer, would that be '26? Or should we look into '27?

On the teamwear side in U.S., it will definitely -- they are there to promise profit '26. How much the sales effect, it's very, very difficult to say because it's still like this that we have quite or very low stocks in U.S. and we're building them up now. But the profit, '26 on Craft teamwear in U.S., I promise. And then the interest has been actually over our expectations there, so. Germany is another story. There I think we will have to wait a little bit more because it's also so depressed in -- the economy there.

That's very clear. Great. Maybe flipping to another promise that you provided -- you after acquiring Tenson, you expected to reach SEK 500 million revenue. I think, believe you just -- you said '25 first. And then when we had the Capital Markets Day, it was pushed to '26. What's your projection now? What year do you think you would reach that target?

I think we still have a chance to do it '26. And if we don't, it -- I don't think it will be below SEK 400 million at least. So it's -- but it's also very -- it's more difficult to predict on the sports retail because one big chain can change the whole picture. And you never know what season you get them. So for example, if we get Intersport Germany to sign off we can be over those SEK 500 million. If not, we have a problem to reach it. So it's much more, I would say, easier to predict the corporate side, where we have nearly 50,000 resellers in Europe and mostly small and you can see the trend all the time. And on the retail, it's totally opposite. It's a few chain. I mean, if you look at the market here its XXL, Intersport, Stadium and a bit of [ SKN Group ] that's [indiscernible]. That's I would guess, 85% of the volume there.

Speaking of which, could you mention if you have made any gains or wins on that side, on the retail side in terms of contracts for Craft shoes?

I think the last one that will take it up now is XXL. But I don't remember which season. Is it for spring? Probably. It's probably for the spring, or late this fall. I'm not 100% sure of.

And how about internationally? Or do you see a path where you first gain traction in the Nordics and it's bound later internationally.

I'll pass that question over to the next report, Magnus, because the in selling for next season is right now. So we actually don't know.

Great. Okay. And then I will leave it to other questions as well. But just one more on the tariffs here. You mentioned then opening up a procurement office in Alexandria. I presume that, would procurement there have been cheaper, you would have done that already before. So could you help us understand what's the price difference, how much more expensive, tariffs set aside, would procurement there be compared to China?

It's not so much more expensive in Egypt because it's totally duty-free to U.S. And in China, you had duties on even before Trump changing or try to changing. So the buying price is not affected so much. And then we also -- I mean we shouldn't forget Northern Africa, Bangladesh, China, Vietnam and India. I mean, we're sourcing so many countries. So -- but the duty -- I think the old duty on China from the beginning on textile was up to 26% on some materials at least. So -- but it doesn't worry me at all. Well, what can happen is that we have, as I said, a couple of containers or volume on the sea, on the way home and he changed the rules from today to until tomorrow, then we can't do anything. I mean then we have to pay the duty, that's all, when it's arrived. But yes, no one knows, I think.

But I guess it's true that you've been saying before that in America, they don't have much of local sort of, it's here what you call a textile industry, right? But I guess that competitors have different sourcing footprints where some competitors already source from other locations than China. There should be a different -- there should be a major sort of different shakeup in competitive -- price-competitive power if such a tariff would...

I can say that it depends on what product you're talking about because it's totally different in different product groups. If you take cotton products, they produce a lot of cotton the U.S. And most of them send it to Mexico or Bolivia or yes, Southern America and then back again. And then it has been duty-free all the time or when it's made of American cotton. If you look at jacket, polyester and functional garment like Craft, it's hardly no production in South America. It's very, very much the basic cotton and yes, I think it's the best answer I can give you. But again, there's nothing that worry me. It can be, again, that is hit 1 month or 2 months or so on. But that's it. And we have to live with that. And then, of course, also we have the possibility on duties that comes into most of the suppliers to raise the prices as well.

Regarding the warehouses you mentioned, you are supposed to open in Netherlands, France and Germany. How do you take care of your lessons learned from Canada, et cetera. Can you...

First of all, we are not opening new warehouses there. It's old warehouses that gets automized.

Okay. So you develop them.

So it's not any new construction, so to say. Sorry, France is, yes.

France is in solution, okay? Will have the same solution then in Canada?

We have 2 systems now.

Yes, we are working with 2 solutions. AutoStore is one and Pi-Robotics is the other one.

Okay.

And Netherlands is the first time we really go shop with Pi-Robotics and test that. Otherwise, we have AutoStore in all existing.

Okay. Good. And the next question is the ERP system you mentioned. I'm a little bit curious about that because ERP can be huge or it can be smooth. How far are the proceeds thus far?

The implementation of the new ERP, it proceeds as planned. The first implementation will be now in May in Netherlands. But we have put quite much resources in order to be as safe as possible in the transition. So no worries today, at least.

[ Andreas Lundberg, SCB ] What working capital/inventory do you need for the coming years now and pushing more into the U.S. and Canada?

U.S. and Canada, I would estimate that we need to be built up when everything is there and promowear and then teamwear on both sides and so on, SEK 0.5 billion roughly. But of course, that also depends on the sales. So we -- you can say that the stocks were built up from day 1, it will be approximately SEK 400 million. And then, of course, as the sales are not coming, we are not reordering as fast as we do, if not. So something around there. And if it goes like I hope, I hope we need much more than that within 3 years.

And given the setup now in more automation and so forth, what kind of inventory levels or inventory ratios do foresee, let's say, 2 to 3 years out?

So that will not change because of that. What really changes that we will be even better on service and supply our clients and it will we go faster and we will then deduct the personnel costs. So it's not less capital tied up.

Okay. And on the fixed capital side, what do you foresee for the coming 2 years?

Lars, what is it we increase there?

I think we have planned now next year at least for 2 -- sorry, yes, we have planned now for 2 additional AutoStores in next year. So that is approximately, yes, some SEK 60 million. And then, of course, it depends on how much you -- we are going to aggregate from that or take on new countries. But I would say that we -- let's say that we are on the line that we have this year approximately or a little bit less than this year in total investment.

It depends also a little bit if we find -- we are also looking into Eastern Europe, where we are quite -- we are very, very small there and there we are also looking for to establish the corporate business that can maybe be added on both on stock value and investment [indiscernible].

Magnus, just a few follow-ups here. Firstly, on the questions about the inventory position. You mentioned here, SEK 300 million just to start. SEK 300 million, SEK 400 million just to start if I took you right and then climbing up to SEK 0.5 billion or north.

Hopefully more.

Yes, exactly. So how much is visible now in the inventory position as of end of Q4?

We don't know that because we are just placing order and we don't know the lead times. So hopefully, if I could wish something, it should all be in place in Q4 but that will not happen because the lead times are too long.

But what you're saying is that in the inventory position as of end of Q4, it's not much of value?

And again, Magnus, I can't answer because it depends on what lead times we get on building up the Printer, Craft teamwear and corporate in Canada. My hope is that it's in place in Q4 because that means that we really can start selling in Q4. But as the lead times are right now, I would say that the main part of it will be Q1 but we try everything we can to get this faster. So that's the biggest stock we have in Q4 as more positive, we can be about the year after.

Right, right. Then on the profitability you mentioned here for this year an achievement to reach 13.2% EBIT margin considering the weak market conditions. And then in the CEO Letter, you've been mentioning possible weakness in the market for the coming 1 or 2 quarters, i.e. H1 this year but expect then a demand recovery in H2. If we would assume that there would be no demand recovery in H2, so we would have a similar situation throughout 2025. Would you say that you would be satisfied with a similar sized margin then or satisfied is not the right word but it would be reasonable to expect a similar size.

If it's no improvement at all in the economy, I think it's realistic to be around the same. But as you said yourself, I will not be satisfied at all with it.

Got it. That's clear. And then just also on this quarter with the other countries, it was an increase of about SEK 65 million in sales. And is that all trading orders or some Canada?

It's also Canada that are growing. But the main part always there, when it's up and down, the main part of the ups and downs are trading.

Right. So then the main part of the 3% growth in Q4, year-on-year growth is the trading orders?

Yes. But it could have been Q3 or Q1. So it's very, very hard to predict. I mean the biggest order we still have had there was Costco, for example, some years ago, that ordered 400,000 polo piques on 1 order. And if we deliver in Q1 or Q2, it's a huge difference. So it's growth included in Canada but main part, I would say, is trading business part of the ups and downs.

That's interesting. But perhaps one final on this because many investors I speak to you are curious when I relay what you say about Amazon and Costco placing these massive trading orders with you. Could you perhaps elaborate to make us understand why these massive global players place trading orders with New Wave Group?

Because we have a extremely great sourcing operation in Asia.

Is it price or is it sustainability? Is it price only? Or is it your ability to secure sustainability practice?

[indiscernible] Sustainability, quality, price, it's a lot of different factors. So it's -- and there are, of course, different clients are different. Some of them have very, very high demands on sustainability and are prepared to pay a bit more for it. Other clients want to pay less but it should be okay in a sustainability point of view but there, you can say that you can have -- you know all those classifications with OEKO-TEX and organic and not organic and so on. But we see a clear trend that is going to more and more sustainability. But it's a huge price difference. I mean if we take a product from the Cottover collection, I would say it's 40% -- at least 30%, 40% more expensive to produce than a T-shirt that are still okay, that's in, for example, nonorganic. So it's very, very different. And most often it's American, most often it's the American companies have a higher demand than Europe, which sounds in my ears and I think it's a little bit strange, if you see what's politically going on in the U.S. compared with Europe. But companies -- and we are aware of it.

Very interesting. And just one final, final. You said that -- you mentioned here, you signed many clubs now in the American initiative in teamwear. Could you help us understand a little bit what clubs are these? How many youths are invested in these clubs? What sports? How does the contract length look like and so on?

I don't know the exact answer because I can't follow [indiscernible] but then one of the biggest one we have signed now have 3,000 players. And the length on the agreement is most often always 3 to 5 years.

Is it soccer, that 3,000...

All kind of the -- we are going after all kind of clubs, track and field, tennis, soccer, -- the main part so far has been soccer. But we will, of course, also go to table tennis or to track and field. We are already doing. And it's easy to say what we're not doing there. We are still not doing baseball, American football because we don't have anything for them.

We have 1 question that has been sent into us. What will you do to improve Gifts & Home Furnishings?

Everything. Now -- but, first of all, we work quite hard to get a better gross margin. We have cut down costs quite heavily and the biggest one [indiscernible] mainly in the fourth quarter and it's still not in effect, all of it, if I -- help me if I'm wrong here but I think I'm right. And...

Can you repeat what he said?

I beg your pardon.

Can you repeat what he said?

Yes. He said that it will have -- the cost cuttings we have done has full effect from March next year. And then it's, of course, a lot of activities to try to improve sales. But that's in all companies whether they are doing good or bad.

That was all we have. Thank you.

Thank you very much. .