RVRC Holding AB (publ) (RVRC) Earnings Call Transcript & Summary

Welcome to the RevolutionRace Q2 presentation. [Operator Instructions] Now I will hand the conference over to the CEO, Paul Fischbein; and CFO, Jesper Alm. Please go ahead.

Thank you, operator, and good morning, everyone, and welcome to this conference call, where we will address the report for the second quarter of the financial year 2025 and 2026. And our financial year starts 1st of July and ends the 30th of June. So Q2 means the period from October 1 to December 31. My name is Paul Fischbein, and I am the CEO of RevolutionRace. And joining me for today's conference call, I have the company's Chief Financial Officer, Jesper Alm. For those of you who are new to the RevolutionRace story, I will start by giving you a brief introduction. RevolutionRace is an international outdoor brand offering outdoor products, mainly clothing, but also shoes, footwear, bags and other outdoor products. Everything started with pants, and that category is still the largest product category. We operate with a B2C business model, and this is important to understand. It means that we skip the middleman and sell our products directly to consumers. We do this mainly via our own website, RevolutionRace, but also through, for example, marketplaces such as Amazon. And with our B2C business model, we can secure our competitive offering and at the same time, also maintain industry-leading margins. Going back, our brand was very much built on our community on social media platforms. And today, we have more than 2 million followers on those platforms and over 750,000 reviews on our site, product reviews. RevolutionRace was founded in 2013 and launched in 2014, and we have been listed on NASDAQ Stockholm since 2021. Our headquarter is located in Sweden, and we have today approximately 140 employees. This picture illustrates our international presence. We have customers today in around 40 countries. We have 19 local web shops, including that we recently opened our Canadian site, and we also currently have 2 physical stores. We design all our products in-house in Sweden and work together with more than 25 suppliers for the production in Asia. So, let's now take a look at our performance and net sales development in the quarter. Q2 is historically the biggest quarter, and we are very pleased to present a quarter with record sales and the strongest result in RevolutionRace's history. Net sales over the rolling 12 months, that means the full year 2025 passed for the first time SEK 2 billion, and that is, of course, a milestone for the company. Net sales in the second quarter amounted to SEK 726 million, resulting in sales growth of 11% in local currencies if you compare it with Q2 last year. Despite the continued uncertain market environment, this means that we continue to gain market share, and we strengthen our market positions. During the quarter, net sales, margins and also earnings were negatively affected by currency effects. That follows a stronger Swedish krona as the majority of our sales are generated in other currencies than SEK. And for example, we have 75% to 80% of our sales in euro, while we are reporting the quarterly results in Swedish krona. On top of the underlying currency effects, in this quarter, we had a currency-related negative item of SEK 1 million compared to a positive item of SEK 5 million last year. So only here the difference amounts to SEK 6 million compared to last year. So, all in all, we would, in fact, have an even higher profitability if you remove these currency effects when comparing with last year. Looking at the geographic split of sales, we delivered growth across all our 3 reporting regions during the quarter. Sales in our largest and most important region, the DACH region remained strong and increased by 14% in local currencies. Germany, our largest market grew by 11% in local currency, while sales in Austria and Switzerland continue to perform very well. In the Nordics, sales growth increased by 6% in local currencies. And also yesterday, we saw the Swedish spot index data. It was published showing that outdoor sales in Sweden declined by 9.2% in the calendar fourth quarter. So, in contrast, our sales increased by 2% during the same period. And I think this clearly reflects our continued and significant market share gains. Sales in the Rest of the World region increased by 6% in local currencies. Excluding U.S., this rest of the world region would have grown by 10% in local currencies. And currently, we are not focusing on our U.S. sales since we are revisiting our logistics setup in order to match new tariff conditions, but we hope to be able to again focus on U.S. later this year. Let's continue to look closer at the second quarter, and we continue to deliver strong industry-leading margins. And once again, we show our ability to combine growth with solid profitability even in a challenging market environment. Earnings grew faster than sales during the quarter and amounting to SEK 180 million, corresponding to an adjusted EBIT margin of 24.8%. Gross margin for the quarter was 69.8%. We saw negative currency effects from the stronger Swedish krona as most of our revenues are generated in other currencies, primarily euro, as I mentioned, while we report in SEK. We can move on and look at cash flow. Cash flow from operations was strong in the quarter, amounting to SEK 360 million. We continue to maintain, as a result, a solid financial position with a net cash position of SEK 341 million. And that's actually despite having distributed dividends of SEK 143 million during the quarter. And on top of that, we also repurchased shares for SEK 39 million under our share repurchase mandate. So, all in all, we feel that we have a healthy position. Looking also at some product development, we've continued to develop and expand our Alpine segment ahead of the winter season. But we have also launched new products, for example, for cross-country skiing and also winter running that has performed well in the beginning. These launches and our new premium collection, the Ultra Series that was also launched in the quarter have been well-received. And looking ahead to the coming quarters, we see further product development and launches that will strengthen the offering going into the spring season. One example of that is our best-selling auto plans, which are being updated with additional length options. And with that, I would like to hand over now to the company's CFO, Jesper Alm, who will present and walk through the financial performance. Jesper, please go ahead.

Well, thank you, Paul, and good morning, everyone. I will briefly cover the financial performance during the second quarter of the financial year '25-'26. Gross profit amounted to SEK 506 million for the quarter compared to SEK 481 million a year ago, and this equals a gross margin of 69.8% compared to 70.3% last year. The slight decrease in gross margin is mainly attributable to currency effects on net sales and goods for resale. Personnel expenses are slightly higher compared to the same quarter last year, and the number of full-time equivalents increased to 140 from 134 last year. The increase is mainly due to the hiring of staff for our physical stores, but personnel expenses as share of net sales were in line with those of the same quarter last year. Other external expenses came in at SEK 287 million compared to last year of SEK 290 million, a slight decrease. And as a share of net sales, that was approximately 40% and obviously lower than last year. Adjusted EBIT for the quarter amounted to SEK 180 million compared to SEK 162 million a year ago. And the EBIT amounted to SEK 177 million compared to SEK 158 million a year ago. This translates to an adjusted EBIT margin of 24.8% compared to the 23.6% last year and the EBIT margin at 24.4% versus 22.9%. The adjustment in this quarter of SEK 2 million is related to an AGM approved incentive program. And normally, Q2 is the only quarter where we have an adjustment. The non favorable currency effect affecting reported sales and the gross margin had a corresponding impact on the operating profit and also noting a certain overrepresentation of SEK-denominated expenses. So, the underlying currency adjusted result has some upward potential compared to the reported. And adjusted EBIT for the last 12 months amounts to SEK 418 million. As Paul said, the balance sheet remains stable. changes in line with seasonality. Net working capital decreased to SEK 81 million compared to SEK 118 million a year ago. And changes in net working capital is primarily driven by lower inventory levels and the decrease in current liabilities. The inventory amounts to SEK 494 million at quarter end of which SEK 378 million was goods in warehouse compared to a total of SEK 592 million a year ago. Goods in transit has decreased from SEK 161 million to SEK 88 million. And ahead of the quarter, we carried out the planned inventory buildup to meet seasonally higher sales volumes, and we're now satisfied with the inventory levels. Our financial position is strong, and we had a solid cash position of SEK 358 million at quarter end and a net cash position of SEK 341 million, adjusting for lease liabilities. The credit facility of SEK 600 million remains available and undrawn. Cash flow from operating activities came in at a strong SEK 360 million during the quarter, which means in conclusion that we have a strong financial position and are well prepared to manage ongoing market uncertainty while maintaining financial discipline and operational flexibility. We aim to distribute 40% to 60% of net profit annually in accordance with the dividend policy. And as a result of the company's continued growth and strong financial position, the AGM in November, we sold on a dividend of SEK 1.35 per share for the previous financial year, which implies a growth of 13% compared to the dividend of SEK 1.20 a year ago. The dividend in total amounted to SEK 143 million. And in addition to the dividend paid, we continued repurchasing shares in line with the AGM mandate during the quarter, acquiring shares for a total of SEK 39 million. Also, in accordance with resolutions of the AGM, we canceled 3.8 million treasury shares, which corresponded to 3.5% of the total number of shares outstanding. And with that, it's over and out for me, Paul.

Thank you, Jesper. So, to sum up, the market situation and also broader conditions remain uncertain. It's difficult to assess, but we believe that we are well prepared, have a strong business and a strong financial position. The outdoor market has been challenging in recent years. But during this time, we have shown that we have continued to strengthen our competitive position. With our strong customer offering, the industry-leading margins, high customer satisfaction that gives us a solid foundation for continuing our profitable growth journey. And having said that, we can also say that we are pleased to report continued sales growth also during the first weeks of January. And that concludes our comments on the results. And before we finish, I would like to thank everyone who has contributed to our performance during the quarter, includes employees, customers, important partners and also shareholders. And with that, we are now happy to answer questions. So we have a question to the operator. Do we have any questions?

[Operator Instructions] The next question comes from Emanuel Jansson from Danske Bank.

Hope you can hear me. A couple of questions from my side. First off, a really strong quarter. It's impressive to see growth across all regions, excluding U.S. And I know it's still early days into the reporting season. I think you have touched a little upon it, Paul, already, but we saw -- we saw Corp's number yesterday. But I wonder if you could maybe touch a little bit more on the broader market development in this quarter versus the previous one, how you think that has developed?

Yes, Emanuel. So yes, I'm sure you saw that also we received data from the Swedish Trade Association reporting the spot index data and also they disclosed the performance of the outdoor industry. And we have now -- we have seen over the last 3, 4 years, almost every quarter a decline. I think the calendar Q2 was actually an exception where we saw an increase in the market. It is difficult to estimate where the market will go from here. We can say that in Sweden, we had lower growth actually compared to many of our other markets. So, it seems that Sweden continues to be tough. We had only 2% growth in Sweden, but compared to the spot index data, it was down 9%. So, you can argue that we are actually growing by roughly 11% in Sweden compared to the market. We see on an overall basis that we continue to grow in January. That is what we are disclosing today. We don't provide any guidance. And as I also mentioned, the world, it's very difficult to sort of assess where the market will head from now. And we also, on top of that, we operate in so many markets. And I guess you also saw some data from Germany, for example, reflecting the market performance in Germany in December. They were also pretty weak. So hopefully, it will turn around and be stronger. But having said that, for us, we believe that we are very well-positioned. We feel that also in tough market conditions, we have a strong offering. And I think we have been showing for some time that we can also grow in tough times.

Following up on that, how did momentum look on a month-to-month basis for you? And were there any specific markets that stood out as particularly strong performance during this time period?

Market-wise, I would say that we have 2 markets really standing out, and that is within the DACH region. Switzerland and Austria are performing very well, both delivering 20% plus growth in this quarter also. So that is very promising to see. It seems that we have a very strong -- we have strong momentum in the whole DACH region. Germany, of course, being the biggest market still. And it's -- for us, it's the highest population, biggest market. But Austria is getting closer to more structural becoming one of the top 3, 4 countries. And in total, and Switzerland is, in fact, the country with the highest growth of the sort of focus markets that we have. So both we can sort of -- can highlight those 2 markets as very strong performing markets.

And considering that we had a fairly mild winter here in the Nordics, at least, I'm curious about the Alpine Collection that you mentioned. It was such a hit last year. How has that performed this time around? And are there any other categories that you would like to highlight? And I also assume that the cold weather in the start of January is not negative for you, right?

Yes, it shouldn't be negative, of course. We enjoy cold weather, business-wise. As you say, it was a bit mild, at least in Sweden, but also in Europe during the Q2. I think a colder winter would have been more favorable. But we have seen some lower temperatures and more snow in January. However, the Alpine Collection is maybe not -- I mean, it is, of course, weather related, but not maybe as weather related as sort of other winter jackets because Alpine Collection is more correlated to people traveling to the Alpine resorts rather than temperature. So maybe not that high correlation with the weather for that specific segment. What we can say is that this is the third season that we have specific Alpine Collection. First year, we had sales of roughly for season, I would say, because the season goes into the current quarter as well. And we saw sales first year after launch of around SEK 30 million. Second year last year, it was around, if I remember correctly, SEK 100 million plus. And we see growth in this season also compared to last year. So that also looks promising. But the season is not over yet, so to speak, when it comes to the Alpine. It goes into February as well.

And I think you also mentioned it slightly, but also now that we are a quarter down the road, is there anything else you want to add to the reception of the Ultra series?

I think it has been well received. It has been well received. It was a good launch. However, it is volume-wise in relation to our total sales, it's a small collection. It was more a brand-related launch. So, I don't think that one should financially expect that collection to have a big impact on total sales. But hopefully, long-term, it will have a bigger impact on brand, and we can show the customers and the market that we are also able to produce products that can be used in tougher conditions, even more premium material, more minimalistic design and so on. So, it was more a project of stretching the brand and maybe one should not short-term expect big impact on numbers from that collection.

And regarding your OpEx and cost control, you have clearly have a solid grip on your cost base here. And I'm guessing there's some improved efficiency in your marketing activities. Do you see this level of cost control as sustainable moving forward? I mean, also now launching new products and product categories and also, you're seeing high growth again in the rest of the world. I assume that you will need to put some more effort into marketing as well. Or how should we view it going forward?

Yes, we have seen, I think we mentioned that in the Q1 report, and we see that also in this report that we have been able to see higher efficiency when it comes to marketing, and that is, of course, a big cost item in the P&L that is important. Our ambition is to always maintain cost efficiency across the line. But at the same time, also balance that we want to continue to grow market position and continue to grow our top line and sales. And we have a target to maintain and operate with an EBIT margin of 20% on an annual basis. So, you can argue that the business model is scalable. But if we can just maintain that, that will indirectly mean that we sort of continue to invest in growing the business at the same time.

And last question from my side. And last but not least as well, I mean, Haparanda might not have been the first place on everyone's radar for a new store opening. What was the logic behind choosing that specific location?

It's actually pretty simple. If we look at our heat map on where we have highest sales per capita actually in the world, in Europe, we have highest numbers in the northern part of Sweden and in the northern part of Finland. So that is actually the area where we have the highest degree of popularity and highest market share. So even though the population is, of course, smaller than in big cities or big areas, we were offered an opportunity. And yes, we choose to sign a lease agreement based on that opportunity, which we feel were pretty competitive and interesting. And we know that it is just on the border between Sweden and Finland, and there's actually a lot of business being done in that area. It is a store -- neighbor with another big store called IKEA and the other neighbor is some what I call Sustainable Ag. So, we feel that it is a very interesting location also.

Yes, really, really interesting. And I assume also given that you open up another new store that the first 2 are developing quite good.

Yes, we are very satisfied with the opening of both outlet store and the brand store in Stockholm that was actually opened in this quarter as well. So, it has been a very promising start. And I think I mentioned the last time we took a quarterly call that we are evaluating more retail opportunities. We do believe that it adds value as a complement to our e-commerce business. And so, I think one can expect a couple of more stores over the upcoming years to be opened. Having said that, e-commerce is definitely our main channel.

The next question comes from Victor Hansen from DNB Carnegie.

A couple of questions from my side. Firstly, Germany. So, the market data has been quite weak for Q2, while you posted impressive double-digit growth. So, I'm wondering if you could give us some more flavor on what's driving your growth here in Germany. Any silver bullets?

Unfortunately, not. I think it boils down to a lot of details and well execution in operations and hard work, good team, strong team. But I think that we simply have a very competitive offering. that seems to be very appealing to the German market, but also Austria and Switzerland. And we continue to have a good momentum in Germany, while we at the same time, see that the market conditions are a bit challenging in Germany for sure. So, no silver bullet, more hard work going to the office every day, doing more or less the same thing and try to do it better and better every day.

Understood. If we switch over to orders, it grew 6%, while your average order values were flat, which means up 5% adjusted for FX. I'm wondering how you want to prioritize between these 2 items going forward, AOV and order growth.

First of all, we have to recognize that the AOV that we present is in SEK. So, you have an underlying growth in euro, which is the predominant currency for orders late or orders put during the quarter. Obviously, we want to increase sales both in terms of number of orders and always increase average order value. That is the primary driver of profitability. So, there is no difference between the 2 items. We want to grow both definitely. But bear in mind the difference between SEK average order value and the underlying euro average order value.

Final question for me. Also, a bit on the FX theme. So, the gross margin trend has been negative for 8 of the last 9 quarters if we look year-on-year. And this should partly be due to mix as well. In the report here, you again mentioned that the weaker U.S. dollar should support your product margins ahead. So, I'm wondering, will you invest this extra product margin in, for instance, price or marketing? Or should we expect your margins to improve from the weak dollar going forward?

I mean if I understand the question correctly, we don't base tactics of daily operation so much on currency fluctuations. It's that would add too much complexity to operations. I think currency movements or fluctuations is what it is, not something that we can control. I think that it's better that we focus on what we can control. Yes, we have seen that the gross margin is slightly lower than last year. It is mostly related to a lower euro as we report in SEK. But going forward, as you mentioned, we do expect the weaker U.S. dollar to come into effect. But that takes a longer time because you have to turn around the whole warehouse and it's also related to when we actually pay those invoices. So, for example, we are now -- we have just finalized purchase orders for the autumn/winter season, and those products are expected to come into the warehouse late spring during the summer. And so, it takes time, and we -- the vast majority of the warehouse consists of products included in the running assortment. So those products are sort of specified as never out-of-stock product. So, it will take some time. But gradually, of course, we do expect that lower U.S. dollar to come into effect also into the gross margin, keeping everything else fixed.

The next question comes from Nicklas Skogman from Nordea.

Two questions. On the gross margin, I mean, if we think about the net benefit and filtering through when you have sort of the dollar weakness fully into your COGS and then the euro SEK not being as negative as it's been in the past couple of quarters, we're looking on Q4 -- your fiscal Q4 seeing a pretty big impact, correct way thinking?

Well, the U.S. dollar, I mean, that impacts our purchase cost. The gross margin is obviously impacted by other things such as market conditions, I don't know, price reductions, potential price reductions in the market. Euro is an important factor as we -- most of what we sell is in euro. Average order value is another -- and the basket composition, we have, for example, higher gross margins when it comes to pants compared to footwear. So, it also depends on how successful the different product categories perform. But I mean, keeping everything -- all other factors fixed, we can see today, for example, that the U.S. dollar in comparison to the SEK is almost 20% lower. So yes, that is obvious and that will affect the purchase cost if it remains at this level.

And that we have a continuous forward development on the currencies, which will continue affecting our top line and gross margin. So, we have a picture of what it is today. If the euro and the dollar develops in different directions going forward, that will obviously also have an impact. But underlying, we benefit from the U.S. dollar weakening more than the euro. But as you can imagine, it's extremely hard to guide on where the currency -- what that will mean.

I'm just thinking where we stand today, but that's good enough. On the gross margin topic, how is the sort of campaigning intensity now? Is it more than a year ago or less than a year ago?

I would say generally on the market, levels are more or less the same. However, we did see -- November is an important month during the quarter, and we did see some sort of shift during November. We saw that many of the players on a general basis actually were more active during the full November rather than only Black Friday and Black weekend or Black week. So, it was clear, and I think that can be also be confirmed from other verticals online that it has been more spread out during November. So that was a shift. However, the most aggressive campaigns were, yes, more or less in line with last year, not more, but not less.

All right. And then could you give some flavor on the Rest of World countries? I see you're growing there 10% in local currency if we strip out the U.S., which is obviously facing some challenges of its own.

Yes. I mean the biggest countries in that region, it is U.K., Netherlands and Poland, and that is also the markets where we focus the most. And what can we say about that performance? I mean, U.K. is also highly impacted by currency. But some -- Poland and also Netherlands are performing very well, almost in line with the Austrian growth in the quarter. So that is also promising.