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

Okay. Welcome to this presentation of New Wave Group's Quarter 4 and Full Year 2025 Figures. My name is Goran Harstedt, and I'm the Vice President of New Wave. And together with me, we have Anna Gullmarstrand, CFO at New Wave. New Wave Group, we are a growth-orientated international company, and we are focusing on acquiring, developing and creating brands for 3 business segments, and that's the promo, the Sports & Leisure and Home & Gifts Furnishing. Here we have a slide about the growth in net sales and profit during the years. And we have a good development, especially regarding the turnover the last years. Logistics and sourcing is one of the main drives for New Wave and our activities and one of our most impressive strengths compared with the competitors. We have a big sourcing operations in Asia, where we had a head office in Shanghai and working in a number of countries and now also in Africa in order to source our products in a competitive way and also in a sustainability way. Here's our 3 operating segments and sales channels. And you can see here the brands that we are using in these segments. It's especially the Sports & Leisure and Gifts and Home Furnishings brands that are known for the public due to that the corporate brands are more service brands for the concept towards the resellers who sell it to the companies which then is using their own logos or message on the items. A brief summary of the quarter. We signed a new financing agreement in December, and it have a prolongation for 3 and up to 7 years, and it amounts to SEK 3.8 billion, of which SEK 2.7 billion are used at the moment. Cotton Classics is consolidated for the full quarter for the first time in Q4. And during the last quarter, we also finalized the discussions and negotiations with the U.S. Department of Justice regarding the forgiving PPP loans. And the result was in line with the cost that we were taking in Q3. We also have quite huge effects on the currency for the year and especially the quarter. Then we have the financial information, please, Anna.

Yes. Thank you. So the quarter in brief, we have, in short, growth in both sales channels and all 3 segments. In local currency, we grew by 17.7%, of which 11.7% is from the acquisition of Cotton Classics and 6% from organic growth in local currency. And as Goran mentioned, we have a headwind from currency, which is minus 6.5%, but still reporting a growth of 11.2%. Looking at this, I think given the tough times and troublesome -- a bit troublesome times, it's -- we're quite happy with the 6% organic growth and feel that it's a proof maybe of the model that we have with diversified diversification and different sales channels and are happy to show 6% organic growth. Looking at the operating profit, it was SEK 435 million, which is a bit lower than last year. And the operating margin ended at 13.8%. And going into the details, I can see here about the sales per sales channel. The sales were SEK 3.145 billion for the quarter, which is, as we mentioned, quite higher than last year. And as you can see, we have increased in both promo and in retail. And of course, in promo, Cotton Classics is one of the big parts, but we also have growth within several brands like both Cutter & Buck and Craft are doing really well. And we also see growth in the trading and Tenson has also had a good quarter. So -- and this is the sales per operating segment. Again, currency has been tough on us this quarter, but we show increase and growth in all 3 segments. As shown and again, of course, [ in corporate gift ] and Cotton Classics. The currency, we keep coming back, but it's -- this is a picture where we can illustrate. This is the sales divided by the geographic areas that we report on. And as you can see, looking at this, it even looks like there are 3 areas that we might have a decrease instead of a growth. And if we look -- talking about currency, you can see the American dollar has been really tough in this quarter is minus 13% to us. And the euro, not as much, but it's all -- this is what makes up the net of the minus 6.5%. So taking that into account, this is the organic change, the change in local currency. So what started as a minus, you can see we have a really good development in North America, which we're really happy for. And also looking at this, it's actually only one area where it's still a minus, and it's the other Nordic countries. And that is actually explained quite easily. I think many of you remember that in the beginning of 2025, there was a Nordic Ski World Championships in Trondheim. And if Torsten would have been here, he would have told you exactly how many athletes were competing in Craft, winning in some kind of medal. I don't remember that number. But of course, in Norway, we had a lot of sales in the end of 2024. We did not only address the athletes, a lot of other sales as well. So that kind of sale, we didn't have it at the end of 2025. So that is mainly what explains other Nordic countries. Move on to the gross margin. For the quarter, it's 48.5%, which is lower compared to last year of 50%. This is the first quarter that we have included Cotton Classics, an entire quarter. And they've affected the gross margin by 2.8%, which is natural because they have a different kind of business. So looking at like-for-like, gross margin would have been 51.3%, which we think is really good because it's actually better than what we had last year, looking like-for-like. Moving down to external costs and personnel costs. They amounted to SEK 1 billion compared to SEK 887 million last year, which is an increase of SEK 108 million. And of this, Cotton Classics, the acquisition is half of the explanation of this increase. And in the fourth quarter, we also have a lot of costs regarding our new ERP system. It's actually an investment. But as accounting regulations are these days, instead of putting it in the balance sheet and taking it through 10 years, for example, this comes as a cost day 1. So it's not anything that makes the ERP more expensive, but the cost is shown much earlier in the P&L. So these 2 items together make up for 80% of the increase in external costs and personnel costs. Yes, as we said earlier, operating profit, 13.8% in operating margin. And the operating result is divided like this, as you can see here on the slide between the 3 segments. Yes. Nothing to add there. Cash flow for the quarter, SEK 534 million from operating activities. And what's worth to mention, it's fairly in line with last year, but it's worth to mention here that all the investments that we make in the ERP system, no matter if they are directly in the P&L or if it's somehow accrued in the balance sheet, it's always in the operating activities. So that never goes as investing. That can be good to know. And as you can see, investing activities, we also have a lot, and we have been investing both in automization of inventories and buildings and -- that's mainly we can see by the end of December or by the end of the year, in December really, we started -- we've told you that we are building a new fulfillment center in Dallas. So the first investment in that took place during December. So we're looking ahead. We're also looking at Ireland for a new warehouse.

And also the warehouse in France...

Yes, of course.

We were completed in December. And we are also building a new facility for Toppoint in Poland with printing, et cetera. It's a larger big establishment we make in Poland that will be ready during late spring this year.

That's our investment. Happy to have a new finance agreement. Okay. So the full year, you know about this really now when you know the quarter, but it's happy to have Torsten here too, on picture at least. For the first time, above SEK 10 billion in sales, which is a milestone and encouraging, as he says, and we're looking forward to a journey of growth many years ahead. Looking at the sales divided by sales channels for the year. We have -- for the year, the increase is 5.1% reported increase, which gives an organic growth of 9.5% in local currency since currency effect is minus also for -- minus 4.3% for the year. So promo has an increase and retail is fairly even compared to last year. Looking at the segments, we have, even though it's small for Gifts & Home Furnishings, a growth despite the currency again through the year. Corporate, of course, includes 4 months now of Cotton Classics since they are included as from September 1. This is the same we can see the geographic areas. And I haven't added the currency here, but it's the same, of course, and headwind. But in local currencies, we show growth. And you see rest of Europe, it seems like there's a lot of growth. It's, of course, one important matter there is that that's where Cotton Classics is included. So looking at the P&L for the entire year. Gross profit, 49%, which is compared to 49.4% last year. Looking like-for-like, again, we have actually improved the gross margin compared to 2024 since that would have been 50.1%, which we're really happy about. External costs and personnel costs have increased by 6.9%. And again, it's -- they are affected by investments in the ERP system, but also other IT-related or investments. Like Goran mentioned, we have warehouse optimization and -- we -- in the fourth quarter, we also see some increase in legal expenses. It's not in general but specific areas, for example, that we finalized the -- we'll be working with finalizing the deal with the District of Justice Department in the U.S. and such. Operating profit is SEK 1,141 million, which is a bit lower than last year and gross margin is for the year is 11.4% compared to 13% last year. Gross margin here, of course, at the year result also includes the SEK 66 million that we informed you about and took the cost for in Q3 regarding this DOJ matter with the previously forgiven PPP loans. So net result, SEK 783 million, which gives us a result for this year of SEK 5.90 per share. A little bit about Cotton Classics. They've been included for 4 months in 2025 since we acquired them on September 1. And from mid-September, we introduced the first brands. In 2025, we introduced 5 brands, Printer, James Harvest, Cutter & Buck, Clique and Harvest & Frost. And as from 2026, we will also add part of Teamwear for Craft. We will also introduce some parts of Untagged Movement and also Projob. They will not have full collections, but part of it will be introduced. So we are really happy with the start in Cotton Classics, who are included within the year sales of SEK 429 million and an operating result of about SEK 34 million. And yes, and this is not sales, but the result per operating segment. Looking at the balance sheet, it's really strong. The equity ratio is 53%, well above our target. And again, also -- as well as the P&L, also the balance sheet, of course, is affected by the changes with currency with the negative translation effects, which affects, for example, the equity ratio actually by minus 2.5%. So it's quite big changes in currency this year. Cash flow, same as in the quarter really, shows that we are investing quite heavily, but this also shows the investment in Q3 in Cotton Classics. Looking at the share, we have just below 35,000 shareholders as of December. And earnings we mentioned is SEK 5.9 per share. And the Board has suggested a dividend of SEK 3 per share, which is compared to the year-end price, a dividend yield of 2.62%. This is the development of the share in the past 10 years. So we're still happy about that. But looking to the future, hoping for more. So even though he's not here, we'll let Torsten summarize this with his comment that he is very optimistic about the future. We are stronger than ever and have managed to maintain profitability despite an exceptional volatile period, a challenging market and high level of investment. That very much summarizes this year-end closing. Thank you.

Thank you. Any questions?

Nicklas Skogman, Nordea. A couple of questions from me, please. Maybe we can start off where we ended on the high level of investments. Where do you see 2026 compared to '25 in terms of investments in both systems and sales force and marketing, et cetera?

Yes. Regarding the system, I think Torsten mentioned it already last quarter that we see that we will continue to invest in IT through 2026. We have been investing in a model, a template for the group, but it needs adjustment in each country where we come. So -- and like I mentioned in the beginning, we take this -- the greatest part of this would put directly in the P&L. So through 2026, we still expect to have additional costs regarding IT.

So higher next year or just additional cost?

No. Additional in regard to what's normal, but we have had additional the entire year. So it's -- I think the level will stay with IT cost through 2026.

Okay. And the other parameters there, marketing and sales force, et cetera?

Of course, those are more guided of what we see that we think is profitable at the time. So it's harder. But the legal advice was specific for this year. So that's not anything that we plan for next year and specific areas like the PPP loans, for example. So we expect those to be lower.

Yes. great. And then on the -- I think the growth in the Sports & Leisure division was the big positive surprise in this report, at least for me. What did you see -- I estimate almost, I think, 12% organic growth. You can correct me if I'm wrong, but what do you see driving this growth in this quarter specifically?

In the third -- fourth quarter, sorry, we can see, I mentioned both Cutter & Buck and Craft doing really well. Good sales, good margin. So they've done -- I think they are driving it in Sports & Leisure.

We can also say that the sports retail was quite bad also during Q4. But our sports brand were quite good in the teams, cross team were developing very, very good, not connected in that way to the sports retail. So I would say that the main factor that we increased quite good in sport was due to Craft Teamwear and also Cutter & Buck.

Yes.

Okay. Perfect. But then I mean, the profitability in that division was down a lot. So what's going on there then?

It's partly it's the investments. We took some marketing costs, and that was mostly in Sports & Leisure in the quarter.

Okay. So did you have any negative impact from tariffs in the quarter?

It's really hard to say exactly what the effects from tariffs are, but I'd say not that we haven't had any negative impact at the P&L for 2025. Prices were increased in June. So we could take up the prices. And that has very much faced the incremental tariffs that we have had. So altogether, we don't think that has had an impact.

Okay. Great. And then the last one, just looking at your markets generally for all segments, do you see any changes in the last couple of months or so?

He's nodding or shaking. What we could say is that we think that the fourth quarter is -- gave us some positive feelings. It's always hard to tell what that will bring us in the future. But looking at the last quarter, we saw some positive signals. For example, like we mentioned Craft and Cutter & Buck, had really good sale.

Alice Beer, ABG here. Just a quick follow-up on the margin in the Sports & Leisure sort of segment. The margin hasn't been great all year. Could you talk a bit about the dynamics there and what needs to happen for that to change going forward?

The gross margin or...

The EBIT margin in the Sports & Leisure?

EBIT margin. Well, it's been a tough market. You all know, especially in retail. So I think today, if you look in Sweden, all big chains have had some kind of reconstruction or like. So of course, it's been tough. Again, that's why we are happy to see that the fourth quarter and especially for us, we see that our competition -- competitors, they have even lost sales, and we are actually growing both reported and organically. So we're quite happy about that. But it is a tough market, of course. So we're happy to -- we spoke about our business model. And what we see now is that it gives us strength, having these different channels where we can offer our products to more customers in more ways. And also, like Goran mentioned, Teamwear, not being as sensitive for market changes since you're going to let your kids do sport. You take away many things before you take away that. So that's why we think we've seen positive trends for our sake.

Okay. Great. Just a couple more for me then. Unemployment rates have been very high in the quarter, and they've grown year-over-year. But still, I mean, 16% promo growth, it's quite impressive given that. Could you just speak a bit about the demand in the promo channel? What's the appetite like there?

Yes. Of course, that is including the acquisition of Cotton Classics. It's in the promo, but it's good to see. We're happy to see because we've been discussing this that unemployment rate is tough for the promo, of course. But we've been successful. And we see that there is different demands like for -- in U.S. the promo business with the embroidery and everything is also in sporting areas and events, and there are many different -- not only companies and company names. So yes, we're happy about the growth in promo.

Okay. Great. And then just about Cotton Classics, have you learned anything in the quarter that might change your view on how long it will take to get the margins up there? And also, just could you remind us of the EBIT seasonality in Cotton Classics?

Well, we have only had them for 4 months. So we're still learning. And I think to be honest, I'd guess these are the 4 best months of the year that we've had the honor to include Cotton Classics in our group. We are learning consistently, and we are very happy to -- only 4 months into owning them, we have already introduced 5 brands, which have been very well received and are introducing more brands. So yes, if we've learned something from that, maybe we learned more from the B2C, which make us faster this time. I'd say, what you've been around longer. Do you have a comment?

Yes. We can say that what we learned from B2C, it's the same thing with the Cotton Classics, and we see that they really are the same. So we can use the knowledge that we have received from B2C also in Cotton Classics. And we also learned from B2C that it takes a bit longer time to get the turnover on our own brands through their customer base than what we thought when we acquired B2C. And that's the same thing here. But as Anna mentioned, it's been very well taken by the customers. And the cooperation with the management and the old owner is really working well. So yes, we are confident that we will have a good development there.

Just a final one then. Inventories were up in the quarter. Should we view that as you're expecting higher demand? Or are you just preparing to fill up the new warehouses?

Both really. We are expecting higher demand, and we have learned that having the stock is the key to getting the sales. For example, now Cutter & Buck has done really well, and they were really -- they built up the inventories, which is one of the key success factors to giving them this growth in the fourth quarter or during the entire year 2025, actually. So -- but also, of course, having new stocks, we are setting up also the brands that need to go to Cotton Classics for our brands and setting Ireland, Goran mentioned France. So a combination really.

I can also comment here that it's a bit -- quite many inbound deliveries are at the end of the year. And how much comes in December and how much comes in January could be -- so I think this year, it was a bit more in December than it was last year that came a week later in January instead. So that also affects. Any more questions?

We have some from the YouTube audience.

Yes. No tricky ones now.

Well, I guess, yes. Can you please provide more detailed seasonal variations for Cotton Classics? I think I recall you said in Q3 that the result would have been negative if they have been consolidated from January. What should we expect now going on to [ Q2 ] from quarter-to-quarter?

We don't have that data, so we cannot elaborate in detail. But of course, if you look at the market in general, the way promo works, the first quarter is generally a tougher one and the fourth, a better one. So we expect Cotton Classics to follow the same pattern.

Yes. Can you give more color on the improved organic growth and discuss the demand since both in promo and in retail? What does that mean for the 2026 outlook?

How do we color the organic growth? Organic growth is color. No, it's -- we're, of course, very happy to have organic growth and that we show it in all areas. We have increased the inventory, which, of course, is a sign that we are expecting, not only hoping, but -- or maybe both hoping and expecting for continuously good sales in 2026.

Yes. What's the reason for the decrease of the dividend?

Actually, we have this dividend policy of 40% of the result over a cycle. And this year, we're just sticking to the policy really. And this year, looking at the result, of course, we had an additional cost for the PPP loans. We've been doing a lot of investments. And we also believe we do a lot of good things with the cash within the company. So -- but sticking to the policy really.

Thank you. Have you seen some effect during the second -- first quarter or even the quarter we just experienced with, consider the cold in the Europe -- in the Nordic due to winter weather.

Yes, we'll be freezing every morning. No, of course, that came after the year-end. So we don't give any forecast information, but it's not hard to guess that we have had better sales in winter clothing in the beginning of 2026 than we had in '25.

I understand. Can you also tell us how you -- a little bit more to understand the view of the operational expenses in 2026, including certain temporary high costs for ERP, automation, IT and marketing?

Yes. The ERP is easier because we are -- we do know that we are going to go in -- we are launching -- we launched France January 14. We're launching U.S. during spring in second quarter. And we're also launching in Belgium, the [ Texas ] companies. So we do have ERP costs going through 2026. That's for sure. Marketing, of course, is more to a situation, we can choose if it's good, we're going to have the cost or if it's not good, we're not going to have it. So that's more -- we have to see what happens in the market.

How is the Cotton Classics acquisition split across the segments as in how much is in Corporate and how much in Sports?

Everything is in Corporate. That was an easy one.

Investments for future growth has been high in 2025 and the operating margin continued down. What can we expect in terms of cost level in full year 2026 relative to 2025?

We don't give any forecast, of course. But again, Cotton Classics will be included for an entire year. That will have an effect, of course, but also on sales. So -- and regarding ERP, I think we have additional extra costs like we mentioned, and that's probably going to stay about the same through '26. But apart from that, it's more from what happens in the market.

And a follow-up question on the first one. How will the focus on -- will the focus improving the operating margin -- will there be more focus on improving the operating margin ahead?

Yes. I think that's the long-term goal, of course. I'm happy to see that, that doesn't make us scared to make short-term decision or long-term decision that have short-term impact like these investments have had. We do them, of course, for a good reason that we see future growth, future profit, future increase in the EBIT margin. So looking at a really short period of time, it might have a negative impact, of course. But we -- for the long run, this is actually -- we're, of course, looking to improve the margin by doing this.

IT investments alone impacting this quarter's result by approximately SEK 32 million. Could you provide some guidance on when we can expect these investment levels to normalize?

Actually, SEK 32 million is external expenses. So including the personnel costs, it's even SEK 35 million. We are -- as mentioned earlier, we are expecting to have -- the fourth quarter, I need to mention was extra high on this IT cost, but we are expecting to have, like we mentioned earlier, additional costs for IT through 2026, especially in maybe the first 3 quarters, but let's say, 2026.

Okay. A question about the CapEx. CapEx level Q4 was high. How does this look for 2026?

The CapEx included also apart from automization because the CapEx doesn't include the ERP, as we mentioned earlier, it's in the -- it's not in there. So it's -- Goran mentioned, we have a new facility in Poland that affected quite a lot in Q4. We also have started to build the fulfillment center in Dallas, almost SEK 30 million and almost SEK 100 million for Poland. So those are -- of course, we have also a new facility in Holland or in the Netherlands, as it's called now, which were -- the premiere was in November. So we have -- and also like Goran again mentioned, France. So yes, lots of investments.

How do you view the current inventory levels looking at your growth ambitions for next year -- for this year, 2026?

If Torsten would have been here, he always thinks they are too low. So no, like we said earlier, it's -- the level of the inventory is meant to reflect what we are expecting and what we want to sell. So what's the question again, sorry?

How do you view levels looking on the current inventory levels for your -- how does that affect your growth ambitions for 2026?

Hopefully, we have the inventory that will help us grow. It's a key for growth to have the inventory. That's the line of business that we have. Having the inventory is the way we can serve our customers, and it's a service we are paid for. So...

Is the ERP system delivering as promised in countries where it has been operational?

Actually, it's only operational in one country yet. So -- and it's been all well.

Two.

Yes. And after year-end, it's another country. We also -- of course, we don't only do the ERP when we are doing things, we also improve on our warehouse management system and in both Holland and in France, which we went live here 2 weeks ago. They have a new automization system called HAI Robotics, which is implemented at the same time. But so far, it works really well. So it's going to be even better the more when we get all the companies, of course, in the same system because then we're going to really see the use of being in this new system. But it's been really good. So far, so good.

Yes. We're nearing on our last questions here. Seeing Craft Teamwear growing, is that negative for Sports & Leisure margin at the moment given investments in the U.S.?

Teamwear, say it again.

Seeing the Craft Teamwear is growing. Is that negative for Sports & Leisure margin at the moment?

No. The Sports & Leisure margin is doing well, and the gross margin is up as well.

And the follow-up question is from the same guy here is, can you give us some more details on the development in Teamwear U.S. and in Germany?

We don't give as much specific, but we -- as we mentioned -- have mentioned earlier, Teamwear in the U.S. is quite in its birth, but it's in the beginning. So it takes time to process a market like that to gain -- open all the doors, but they -- they're working on getting new clients. It's only about plus 1 year ago, we had only one client. Now we have many clients, which then are working on their clients. So it takes time, but so far, it's positive.

Thank you. Can you -- and this is the last question. Can you give any hint about the development for Tenson Q4 and ahead of 2026?

Yes, hints we gave. Tenson was -- I think the expectation of Tenson has been quite high, and we've been hoping for this to come sooner, but we now see -- even though we still think we should be bigger by now, we see growth in the fourth quarter, both in retail and in corporate for promo. And we are really looking forward into 2026 to hopefully see some more growth within -- also within promo. Tenson is going to be launched in the U.S. as well. So yes, positive ending for Tenson in 2025.

And that was all the questions. I leave the microphones to you for final remarks, both of you.

Thank you. Yes, as mentioned, we think that we made a quite good year last year, both margin-wise with the gross margin and especially the turnover. And we think that we have a good base for continuing to take market shares. We invested more in marketing activities and took marketing costs on the corporate side last year because we saw the opportunity to take market share, and that we've been successful with, and we will gain very much from that in the coming years. Thank you for your interest, and thank you for coming.