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

Welcome to this presentation of Q1 2025. We have had the presentation of Q1 2025. We have had a quite good start. And it's probably a small positive effect by the Easter comes into Q2 instead in Sports & Leisure and corporate. In Gift and Home Furnishing, we have the opposite effect actually, where Easter is a very strong period in Akousta that comes into Q2 instead. But in total, I would say it's a small positive effect by Easter. But I think it's still very, very stable. I read newspapers every day that its ups and downs everywhere. But I think it's less good environment now than 3 months ago, especially in the U.S. where people and companies are more negative and more worried. But we're still growing there as well. New Wave Group, it hasn't changed so much since the last quarter, but just below 2,500 employees, 25 countries and 3 different segments. And if I should point out something that make me more happy than other things is that we are growing actually in both channels, both retail and corporate in all 3 segments and on all geographical markets. And that I think is really a proof on how strong we are today. Important on this map is also the sourcing activities. I can't say that we foresee that what Trump should do, and we still can't. We thought some years ago that it was a chance that he will be re-elected again. And we know that it was ups and downs about tariffs and things also last time he was there. So I'm very happy we started outsourcing in Africa as well. So we are very well prepared for the situation that maybe will occur. It seems to change every day. And we have moved quite a lot of production already before this to Ethiopia to Kenya and to Egypt. And also the new buying office in Alexandria in Egypt that handle Africa is working very, very well today. So I'm not so worried about whatever tariff it will be. You can say the only thing is that it can hit us in a very short term if they put in tariffs that are valued from tomorrow. So the goods, for example, on the sea will have a duty that we haven't count on. And I also think that it's a good outcome if it's a minimum duty on 10% on all countries because then it's quite neutral compared with competitors. It doesn't matter so much where you produce. I guess China will be higher than that, however. The operating channels, corporate has a good growth, sports leisure, I would say, compared with the market a fantastic growth. And if we should point out on corporate, it's hard to point out something special. We have done investments in more or less all the brands, new collections and so on during the last years. Of course, we also increased sales forces in some countries, especially Germany. On Sports & Leisure, it's again Craft and Teamwear that are doing fantastically well. And we have a good growth also in Sweden. And here, we already have a big market share. We guess we are #1 today as a brand on teamwear in Sweden and still growing. It's also nice to see that we are really accepted now in one way for us is new sports. I mean everybody know craft, I think, from cross country, from underwear and so on. But now we are really considered to be a really good brand also in football, in handball, in basketball, volleyball and so on. So I still think we have a very, very good chance to continue to grow also in existing countries with Craft. And also the shoes starts to get more and more visible and we come into more and more distribution. There you can say that we also are helped a little bit that some competitors. It started with Nike, but now also on, for example, is cutting down their number of distributors that's actually opened up the doors for us. And I hope we can take next step now within 1 year to also launch Craft indoor for different sports. Gifts and Home Furnishing is as usual, that's good than all other things. We had a seasonal negative effect, as I said, but not so big. So we still have to try to really improve that area. You can also say about Sports & Leisure that it's very, very profitable what we're doing there, which you also, I think, can see on how the profit increased in that area. Yes, corporate, I jump those. We will go very, very offensive now in North America. As you know, since before, we introduced Teamwear and we have start now to have some stock. We don't have enough yet, but we will continue to build up teamwear there. And we have had a very good start. We signed some weeks ago, I think it was, one of the biggest football clubs or football clubs it's run by school, but I say clubs in the U.S. with 4,000 active young players. And we think the competition there is definitely not harder in this area than it's in Europe, maybe opposite actually. So I'm very optimistic there. We will launch Projob in Canada during 2026 and Harvest Printer, 2026 is beginning '26, first quarter probably. Harvest & Printer will be launched during end of this year, beginning next year. Craft and Teamwear, we also go into Canada with from hopefully, end of this year. It depends a little bit on the lead time in the production because we need to have enough stock before we really push on the bottom there. So latest Q1 2026. And we also look at more launches in the U.S. What is very actual is a warehouse in South U.S., we have still quite bad service on Patronback and Clique in South. We think we can improve that a lot through a third warehouse for Patronback. Sports & Leisure is going very well. I already talked a bit about it. Here, you have the IFA, the New England football academy I talked about and we're signing up, I would say, new clubs and new distributors more or less every week. So I think that will really contribute to the growth 2026. And we should also remember that here, we have the lead times we had in Sweden from the beginning or in all countries from the beginning. But when we start a new market, it's more or less very few clubs or schools that not are under contracts. So maybe we get access to 15% of the potential market year 1, 15% year 2 and the agreements are up to 5 years. I mean if we look at ourselves, for example, we have signed both Hammarby and Gothenburg up to more than 5 years when we prolonged it. So it will take some time, but it looks very, very good. To really also go for football, we take in Jan Andersson in the Board of Craft, and he has, I think, a very high knowledge about both clubs from small clubs up to national teams. We need to strengthen the competence inside those team sports. We have a very good competence, for example, in cycling in the company in running and so on in the sports we have been for a long time. But we need to really build a good network in the big team sports as well. Gifts and Home it's not so much more to say. We fight with it. It's tough. And when it comes to acquisition, for example, we will not look into this area before we are profitable enough in what we already have, which we are not today. The quarter, organic growth of 9%, which I think is much, much higher than the market on all segments. It's actually also I haven't checked that Jan, but I think it's an all-time high in sales for Q1. I think we did that we were beating also 23%. And the promo, 12% and the retail channel, 6%. I'm curious now to see what the sport index will be in different countries. I'm actually not surprised if it's a minus again for the 13th or 14th maybe quarter in a row. But it's not published yet. So it would be a good benchmark. The Sports and Leisure segment, plus 11%, which means that we take very much market shares, if I'm right, in that the market actually is down. Operating profit increased by SEK 26 million, still below 23 years level, but compared with the investments we are doing in the market, I'm quite pleased with it. And also the operating margin improved a little bit. And here, I had some comment earlier today that it's far below the goal, and it is, but we should also remember that Q1 are always less quarter with worse profit levels. Historically, it has been like that for, I think, 30 years. So it's not so surprising. A good stable start, as I said, and the markets continue to be challenging, and we think it will continue that way. We see in some countries, now in general, for example, Germany, it seems that the economy going in the wrong direction from a quite bad level. But we trust in what we are doing ourselves and will continue to grow anyhow. The only thing that scares me a little bit is if you have a total crash in the economy that some people think might come depending on the U.S. political. So if we have a situation that was last quarter 2008 or first quarter 2009 or the beginning of the pandemic, of course, it will be more or less impossible for us to grow if the market really is crashing, but I don't think that will happen. Sales from nearly SEK 2.2 billion. And as I said, all channels increased and also all geographical areas. And in one way, I'm especially happy for Sweden actually, where we have a high market share and still had a good growth. Yes, it's more or less what I just have said about the tariffs. I think it's as it always is, that people get panic at the same time and so on. I had the question earlier today, if we should slow down our investments in U.S. and also Europe. And my answer is opposite. If it's any time we should invest, it's when competitors are shaky, they couldn't fulfill the service levels and so on. So if we should go in any direction compared with what we have said is actually to increase investments. And it's better that we drop a little bit in profit and are extremely strong when the turnaround is coming. Financially, sales talk about organic growth in average 9% and the different channels, promo 12% and retail 6%. I guess that and this is a guess, but I guess the corporate side is more or less on the same level as last year. We don't think it's minus the total market. We think around 0. And retail, we think is minus, but we don't know yet. Yes, the different segments you can see also it's, like we said, growth in all of them. And that I also think is very good if the market gets a little bit more shaky that we are very diversified. For example, if you see on the Teamwear business, I don't think we will see that the market goes down even if the economy really slowed down. I think it's one of the last things actually parents who are telling their kids that they have to stop playing football or stop running or something. So I think that market will be stable whatever happen actually. Yes, North America, plus sorry, yes, plus 26% of the sales now. New from here is that we include Canada and North America, correct? Yes. So we have for North America as a region. And Sweden, you can say we're quite good growth and the share that Sweden has for the sales is down again now to 20%. Benelux, also positive development. And there, you can say we are also consider ourselves as market leader today, especially on corporates, not on retail. Nordic countries, also very stable. And there, finally, Norway starts to pay off the investment we made there in all the skiing teams, our merchant skiing teams. Rest of Europe, 22% and then other countries that are only now, I think, the Hong Kong and Chinese activities, Asia. That's also from Asia. Gross margin, very stable, actually a small plus 0.1%, but it's so little as it's impossible to plan for is can be a product mix or a big trading order or not that quarter and so on. But at least you can say it's very stable. And it's increased in Sports & Leisure. And I think as bigger the teamwear part of the total business there is, it can go even a bit higher there and a little bit lower margins than corporate gifts. External and personnel costs are up and it's mainly 2 reasons. It's the investments we're doing in the markets and the sales force and so on, plus the inflation. I mean we are not immune against salaries going up in most countries and either. But I think the cost side is under very, very good control. And operating profit a little bit better than last year and operating margin a bit higher. So it's a good start, I would say. And here is maybe not so much that we haven't talked about. Corporate was a little bit down in North America. That's new actually. It's been a growth until now. And trading operation was up. Sports & Leisure, as I said, very strong development and also growth in there. And Gift is a little bit down, up in sales and a little bit down in profit. And Sweden was good, but the other region was less good there. Cash flow, also, I would say, very stable from operations, SEK 290 million compared with SEK 204 million. So investments are increasing. That shouldn't be any surprise for anybody since we continue with optimizations in warehouses and also in just changing ERP system. We're in the middle of that maybe we're rolling out the first now.

Yes, we're in the middle of the work, but the rollout implementation is done.

Yes. It's exciting in some places, for example, is in one of the warehouses in the Netherlands, we have a new system, iRobotics that we launched with automatic picking. And at the same time, it's a new ERP system. So that will be, yes, exciting to see. Is it 1st of May in operation?

1st of June.

1st of June. So it's all new at the same time. Continued strong balance sheet. The only thing we can point out there is that we had a hit on SEK 400 million on capital due to especially the dollar rate. But again, I'm not looking so much at that. I'm more interested in how the development is in local currencies. And anyhow, we kept actually the equity percent or a small increase even in equity ratio. And we should also remember we had some years when the equity was increasing when the dollar was increasing. So it's ups and downs on the currencies. Rolling 12 months, I hope we can break at least the SEK 10 billion this year for the first time and go up there. And operating result on rolling 12 is 13.3% or nearly SEK 1.3 billion. That's more or less Q1. So I open up for questions, if you have any.

Karl-Johan Bonnevier from DNB Markets. I saw in the quarter report that you're starting to give us some new data on gross margin per segment and trading operation size. Are those numbers that you will continue to give us so we can keep following it?

Yes.

No, no, we are just getting information sir. And on those, what is your own reading of what happened in those? You commented something here, but if you're looking at the trends over the year and how did this affect Q1 and then how we can work with these numbers going forward?

I think the only big effect is what we have said about [indiscernible] some years that the trading business vary up and down. And it can be in order around SEK 50 million coming in Q1, 1 year and next year, Q2 or you lose it and so on. And it's on a very low gross margin. So that's the main reason we're doing it. Otherwise, I would say it's very stable in the different channels. It more depends, the outcome of the gross margin in corporate is more depending on how big part of the turnover that actually go to pure basics, one color T-shirt, one color Polos, one color sweatshirt than anything else. And in sports, I would say the main trigger there, if the gross margin is up or down is how much of the sales that we will go into the teamwear where we have higher. And you can say on the opposite side of sports as more as we increase choose in percentage of the sales, if we do, which I don't think because Teamwear is growing so quick, but choose have a lower gross margin. And the reason we haven't published it before is mainly because we are especially on corporate, it's more or less no public companies. So it's information that actually is in one way, market way's not so good to give.

Excellent. And I also saw in the annual report that coming back to your discussion about Trump impacts and logistics flow and so on that you have scaled the Egyptian operation in a fantastic way during last year. Is that still an opportunity to scale it even more and to compensate things here if you need to do that.

It's already done. I met the owner of the main Egyptian factory in China a few weeks ago, and we will double the capacity on that. So we have already confirmed that we can double the capacity. So it's already done.

I guess it's just trying to manage a fluent situations and good luck with it.

Thank you. I mean it's impossible to foresee what will happen, but we are very well equipped. We have a lot of different countries on different continents. It doesn't scare me at all. And then up from that, you can say, especially on corporate, most of our clients is in Europe or in U.S. We don't have any multinational competition. And that's also make that we can move supplies. I mean we can stop some production in China tomorrow if we want and take those without being a problem for the factories because we can take that capacity to Europe instead and then start immediately and produce for U.S. in a bigger way in, for example, Egypt. So the only thing that are a little bit tricky is the most complicated functional garments like complicated jackets, for example, because there it's not so much alternative to China today. But on garments and all the basics and so on, I don't see any problem. And teamwear also already spread out between Asia and Egypt.

Daniel Lindkvist, Danske Bank. So just quickly on the U.S. operation with the inventory, how much inventory is in place in the U.S. right now? And when will you be at the levels you aim for?

On teamwear.

On the teamwear side totally.

You can say we will not be on what we're aiming for before the end of this year. And I actually don't know the exact figures that are on stock now, but I would guess on SEK 100 million. And we will need at least 2, 3x.

I'll take another one then. So looking at growth opportunities for the moment compared to the inventory, how do you see that? Do you have what you would need for the growth, so to say?

I would say we have, but not yet in some areas like teamwear U.S., we don't have enough yet. But in general, I would say we have.

And to get things off the ground like you now indicated for North America and late '25, '26, is there, say, big variability how you see this coming into the calendar? Is it, say, a fluent decision? Or have you already done the decision now for the things you're basically are indicating?

We have done the decisions. And we should also remember that we do several things also in Europe. We opened up a new warehouse as soon as we find one in Ireland. Ireland today is one perspective a small market, but if we can do like SEK 600 million, SEK 700 million in Norway. I think Ireland is very interesting because it's outside the EU today sorry, it's in the EU today, and it's dominated by English companies that are not in EU. And it's no one either on teamwear or corporate have a warehouse in Ireland. And then we launch teamwear in the U.K. Also will start probably second half of the year. Again, it depends on the lead times where the capacity we can get in production. And also, we will launch Spain. So it's a lot of things going on in Europe also.

It's good to see that you're talking growth again. So you seem excited about it.

I am. I think the possibilities are bigger than ever. And also, I think we feel very, very confident with both the teamwear and the sports and also with the corporate. And I think I'm pretty sure that we are on corporate the absolutely best company to work with in Europe for the resellers, still not in U.S. because our assortment is too small there compared with the one that have really broad assortment. But it is also something we should do in the future to broaden it up there. And we already do, for example, in Canada with Harvest Printer and those launches. So I feel we're in a very strong position and a lot of competitors are weak. You can't say that, of course, that some of the biggest brands in sports are weak. But on the corporate side, we're probably one of the 2, 3, 4 strongest companies in the world right now, both financial status, collections, products, service. So it was a long time since we felt so confident. Then of course, as I said, if the economy is totally crashing, so it's the same situation in the beginning of the pandemic or financial crash of '08, '09, of course, it will affect us also. But I think in most situations, we will be able to continue to grow whatever happens with the internal situation we have and also very good and stable management. So yes, and probably and hopefully, some more really good opportunities will come up on acquisitions also because it's quite many competitors that are not strong today. So it can actually increase. So maybe we should hope it should be a little bit more shaky if we think longer than 6 months.

So just quickly on Germany, you touched upon it briefly. What's your ambition level in Germany now? And are you holding back somewhat due to the economy or...

No. We are not holding back. But I think we will have not as good development that we thought and hoped when we thought the economy should turn around. But again, a lot of competitors track back. They can't fulfill service. They have much weaker balance sheets and so on. So I prefer to have 2, 3, 4 quarters that are a little bit less good, a little bit less good maybe in operating profit than to stop investments. So we will continue. And as I said in the beginning, if we should go in any direction, we should even increase investments if the market gets even more shaky. So...

But the takeaway today is basically U.S. is the easiest way forward at this point and the highest ambition set.

I wouldn't underestimate teamwear in Europe either actually. I mean I think we are a market leader already after 6 years in Sweden on teamwear. And I think we passed Adidas now also. And I don't think we will do that in Germany, but if we can take 3%, 4%, 5% maybe market share, it's huge amounts of money. And that I think we are able to do also, for example, in U.K. and so on. So we shouldn't I believe very hard on that too.

Could you please provide more detail on the respective drivers of the strong sales growth, ideally also volume versus price taken?

You can say the big thing there is the investments we have said we have done the last one, 1.5 years where we have increased sales forces in some countries like Germany. We have developed new products, and we grow very much on the teamwear side. So it's no secret. Yes, it's normal work, you can say, but we work a little bit faster now than we did some years.

And investments in tangible fixed assets are quite a bit higher. What is you referring to?

Automatization of warehouses and the ERP system.

On the tariffs, isn't it correct that 100% tariffs on China have been effective for 2 weeks now? Did you have any shipments arriving to the U.S. during this period? And have it received any info on how it was handled and what tariffs were imposed on such shipments, if any?

I actually answer is that I don't know if we have had some shipments. But in that case, it's not any big amount because then I would have known.

Thank you. How is Tenson doing in this challenging market?

Slower than we expected, but still okay and growing. So I think Tenson will be very, very good within a few years. So I haven't changed my mind there. But then you can say also, of course, when especially sports retail has a very tough time. It's more tough to be a new brand also because then I should throw an old brand out in case it's a tougher market there. But I think we're doing okay.

How much of craft sales are done through its own e-commerce?

A very small part. I don't do you know the percentage?

I don't know the percentage, but it's a minor portion of the total. Absolutely.

And a follow-up question. How well is that, that business work? Any delivery time complaints or anything like that? In the e-commerce segment for craft.

No, not as I'm aware of. But again, it's a small portion and maybe therefore, we are also profitable.

That was all the questions we had there.

Okay. Thank you all for listening.