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

Welcome to the RevolutionRace Q4 '20 and '25/'26 presentation. [Operator Instructions] Now I will hand the conference over to 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 fourth quarter and also the full financial year 2025 and 2026. Our financial year starts 1st of July and ends 30th of June. So Q4 covers the period from April 1 to June 30. My name is Paul Fischbein, and I am the CEO of RevolutionRace. And joining me today for this conference call, I have the company's CFO, Jesper Alm. Before we begin and talk about the fourth quarter, I would like to, of course, mention also the important event that took place shortly after the end of the financial year. In early July, we announced the acquisition of ICANIWILL. And I'm very pleased that we, through the acquisition of ICANIWILL are taking an important next step with this first acquisition. It is an important next step of the development of RVRC Holding as a group and actually marks the beginning of an exciting new chapter for us as a group. And I will return to the acquisition and the rationale behind it later in this presentation. But first, for those of you who are new to the RevolutionRace story, let me start with an overview of the RevolutionRace brand and our business model. RevolutionRace is an international outdoor brand offering outdoor products, mainly clothing, but also shoes, bags and other outdoor products. Everything started with pants and that category is still the largest product category. We operate with a D2C business model, meaning that we skip the middlemen and sell our products directly to our customers. We do this mainly via our own website and with our D2C business model, we can secure a competitive offering and at the same time, maintain industry-leading margins. As a digital player, our brand is very much built together with our community on social media. And today, we have 2.5 -- or 2.5 million followers and almost 850,000 reviews on our site. RevolutionRace was founded in 2013 and launched in 2014, and we have been listed on Nasdaq Stockholm since 2021. Moving on to this picture, I think, illustrates our international presence. We have customers in around 40 countries and 19 localized web shops. However, we focus our efforts in 10 countries in Europe and also operate 3 physical stores in Sweden. We design all our products in-house and work together with more than 25 suppliers for the production in Asia. Now let's take a look at the performance and our net sales development. And we conclude the full financial year of 2025, '26 with continued growth and very solid profitability. Net sales for the full year amounted to a little bit more than SEK 2 billion, resulting in sales growth of 8% in local currencies compared to last year. When we look at market data, we see that the market is weak. So, despite uncertain market conditions, we increased sales and continue to gain market share in several key markets. Net sales in the fourth quarter amounted to SEK 414 million, corresponding to growth of 3% in local currencies compared to the same quarter last year. And we clearly aim for higher growth number. But given the uncertain market environment, we continue to grow and strengthen our position in several important markets. And in fact, it is clear that in some important markets, our sales is actually performing very well. So, let's have a look at our net sales development by region because looking at the financial year as a whole, sales increased in all regions. DACH grew by 10% in local currencies. The Nordics grew by 9% and the Rest of the World region grew by 1%. But if we exclude North America, sales in the Rest of the World region would have increased 6% in local currencies, while then total sales across all markets would have increased by 9%. Sales in the United States, they were high in the previous financial year and fairly high and have since then been negatively affected by the changing market conditions. In the fourth quarter, sales in the Nordics increased by 7% in local currencies and also in Swedish krona. What is interesting is that Sweden, we saw the highest growth there in Sweden with 12%. And I think this is a good example of strong performance in a mature market, particularly as we have seen reports such as Sport Index reported a 4% decline in sales of auto clothing during the same period. So this clearly indicates that we continue to gain market share. In DACH, sales increased by 3% in local currencies, and it was Austria and Switzerland that continue to perform well with double-digit growth in both markets. But we must also mention Germany, where we note a weak consumer sentiment. And despite the challenging markets, we've continued to grow market share and believe that we are strengthening our position in our largest market, even if we aim for more. And in the Rest of the World region, sales decreased by 3% in local currencies in the quarter, but excluding North America, sales in the region instead would have increased by 2% and total sales for the company, 4%. If we look closer on the fourth quarter, we continue to demonstrate our ability also to combine the growth with high profitability. EBIT amounted to SEK 66 million corresponds to an EBIT margin of 15.9% and the gross margin improved to 72.2%. During the quarter, we worked on some IT projects, for example, a new product information management system. And during the quarter, we also opened a store in Haparanda in North Sweden on the borders of Finland, and we can say that, that is developing very well. We end the quarter and remain a strong financial position with inventory of SEK 520 million and a net cash position of SEK 313 million and also on top of that, an available credit facility of SEK 600 million at the end of this quarter. And if we summarize the full financial year, adjusted EBIT amounted to SEK 425 million. That corresponds to an adjusted EBIT margin of 21%, and that confirms our continued industry-leading profitability. And of course, this is very strong and something we are also very proud of. During the year, we strengthened our operating platform. We completed the relocation of our Nordic warehouse operations to a modern automated logistics center. And we also continue to develop our physical retail presence selectively, opening a brand store in Stockholm and also the store in the fourth quarter in Haparanda. And as I mentioned, the Haparanda store has performed very well. And as I also mentioned, we have worked on some IT projects during the year, especially in the fourth quarter. So our result is strong and our financial position remains strong. Therefore, we can conclude the financial year 2025 and '26, and the Board of Directors proposes a dividend of SEK 1.5 per share. And this proposal is in line with our dividend policy, and we are happy to be able to continue to grow the dividend again. So even if this report should focus on the Q4 numbers, I want to talk a little bit about the acquisition of ICANIWILL that we actually announced in July. And I am very pleased that we, through the acquisition of ICANIWILL are taking an important next step in the development of RVRC Holding as a group. We have always had a disciplined approach to capital allocation, and we will continue to have that. We will continue to have a strong focus on organically develop RevolutionRace, but have for some time considered adding M&A as a capital-efficient complement to our growth strategy. And if we look at the transaction, RVRC Holding is acquiring 90.1% of ICANIWILL. The initial purchase price corresponds to a valuation of SEK 700 million in enterprise value for 100% of the company. There is a potential additional consideration of up to SEK 175 million payable in 2 tranches, and they are based on performance during 2026 and '27. This initial purchase implies an EBIT multiple of 9.5x based on the LTM data as per June '26. And if we assume full payment of the additional considerations, the total purchase price will correspond to an EBIT multiple of 7.8x. And the acquisition is financed through a combination of existing cash, available credit facilities and the transfer of our treasury shares. Now let's take a closer look at the ICANIWILL company. And ICANIWILL is a Swedish sportswear brand founded in 2012, headquartered in Stockholm in Sweden. The products are primarily sold through a digital D2C-first model like RevolutionRace and has like RevolutionRace also built its brand together with its community, having now 620,000 social media followers and more than 230,000 product reviews with a rating of 4.5 out of 5. On the numbers, LTM sales per end of June was at SEK 470 million. Growth is strong. Q4 sales are expected to reach SEK 124 million, representing a growth of approximately 30%, which was also roughly the growth in Q3. Margins have also improved with this growth. Adjusted EBIT reached SEK 73 million for the full year '25-'26. That's up from SEK 52 million the year before. And that's an EBIT margin for the full year of approximately 15.6%. And that's a step-up from past numbers. And in Q4, the EBIT margin was at 16.3%, which is also higher than the same period last year. Looking at the geographic mix, the Nordics account for over 80% of the sales with Germany and the rest of Europe representing the remaining. However, those markets are growing faster. What is interesting to note is the potential in Germany and DACH as Germany grew over 50% in the calendar Q1 '26. By channel, ICANIWILL is at around 87% D2C and 13% wholesale. And by gender, 82% of sales are to female customers and 14% to male customers. As part of our M&A strategy, we have developed an M&A framework, and we can clearly see that ICANIWILL meets all our M&A criteria. ICANIWILL is clearly a digital-first D2C company with a strong community. Growth-wise, it meets our target, and we see that the company grew around 30% in the last 2 quarters, respectively. Profitability is good and size-wise, ICANIWILL is right in the middle of our size range. The product category within and training apparel with functional materials is a natural adjacency for our assortment. And valuation-wise at acquisition, the EBIT multiple, as I mentioned, is 9.5x, but falls to 7.8x, assuming the full additional purchase price is paid. Operationally, it shares very similar characteristics to RevolutionRace. It's e-commerce, it's asset-light and it's cash generative. And this is something that we truly understand. And lastly, we know many of the people at ICANIWILL and understand that the cultural fit is there. Our integration philosophy is a decentralized philosophy with a focus on best practice sharing rather than full operational integration. And this picture illustrates that the companies and brands will operate separately but have the same owner in RVRC Holding. We believe this approach preserves entrepreneurial drive and the brand's identities and offering and local market knowledge, both within RevolutionRace and ICANIWILL, and it also causes less disruption to management, employees, customers and partners. And the structure is also an attractive proposition for the ICANIWILL management who seek continuity. And we, of course, see a strong signal of commitment that management want to stay and continue to build ICANIWILL, but also become an important shareholder to RVRC and thus believe in our joint future. So with that, I would like to hand over to our CFO, Jesper Alm, who will take us through the financial year for the fourth quarter and for the full year. So Jesper, please go ahead.

Thank you, Paul, and good morning, everyone. I will briefly cover the financial performance during the fourth quarter and the full financial year '25/'26. Gross profit amounted to SEK 299 million for the quarter compared to SEK 281 million a year ago. And this equals a gross margin of 72.2% compared to 69.4% last year. The increase in gross margin is mainly attributable to currency effects on goods for resale. So in essence, this is the weaker USD for purchasing, only partly offset by a weaker euro and both currencies versus the reporting currency being SEK. Gross profit for the full year increased to SEK 1.4 billion compared to SEK 1.3 billion last year, and this equals a gross margin of 70.5% compared to 69.8% last year. Personnel expenses are higher compared to the same quarter last year, and the number of full-time equivalents was 147 compared to 132 last year. The increase includes staff in our retail operations and now that is 3 stores in total. Other external expenses were SEK 191 million compared to SEK 183 million a year ago. As a share of net sales of 42%, the number was higher than last year, and this is partly due to investments in IT and marketing. EBIT for the quarter amounted to SEK 66 million compared to SEK 63 million a year ago, and this translates to an EBIT margin of 15.9% compared to the 15.4% a year ago. Adjusted EBIT for the financial year amounted to SEK 425 million compared to the SEK 383 million a year ago. And the current adjusted EBIT margin then is 21% compared to just below 20% last year. Our financial position is strong. We had a solid net cash position of SEK 328 million at quarter end or a net cash position of SEK 313 million when adjusting for lease liabilities of SEK 15 million. The credit facility of SEK 600 million remains available and undrawn as of June 30. Cash flow from operating activities came in at SEK 31 million in Q4 compared to SEK 85 million for the same period last year. The lower cash flow compared to the corresponding quarter last year is mainly attributable to ongoing inventory buildup and changes in operating receivables. The credit facility of SEK 600 million was undrawn at the end of the quarter. But following year-end, the revolving credit facility was increased by SEK 300 million to a new total of SEK 900 million. And further following the acquisition of ICANIWILL at the beginning of July, we entered into a net debt position. The inventory amounts to SEK 520 million, of which SEK 336 million was goods in warehouse being sellable compared to SEK 439 million a year ago. So inventory has increased by SEK 111 million compared to Q3, and that is driven by an increase in goods in transit. Net working capital decreased to SEK 172 million compared to SEK 262 million a year ago. Changes in net working capital is mainly attributable to increase in accounts payable. We aim to distribute 40% to 60% of net profits annually in accordance with the dividend policy. And as a result of the company's continued growth and strong financial position, the Board proposes a dividend of SEK 1.5 per share. This represents a dividend growth of 11% compared to the SEK 1.35 per share paid out last year. The proposed dividend amounts to approximately SEK 161 million in total, representing a payout ratio of around 48%. And I note that we, over the 5 years since the IPO and the first dividend in '21 have more than doubled the dividend per share. In addition to the dividends paid out or now proposed during the quarter, we continued repurchasing shares in line with the AGM mandate and the total amount repurchased was SEK 68 million during the quarter. And at the end of the financial year, we held 2.8 million treasury shares, of which 2.6 million approximately were used as consideration shares in the acquisition of ICANIWILL. So treasury shares remaining after the acquisition is approximately 200,000. And with that, it's over and out for me. Paul?

Thank you, Jesper. So to sum things up, through the acquisition of ICANIWILL, we are taking an important next step in the development of RVRC Holding. Together, the group now has a base of -- base with net sales of approximately SEK 2.5 billion and an adjusted EBIT of close to SEK 500 million. ICANIWILL will continue to operate as an independent brand with its existing management and its own identity. At the same time, our experience of geographical expansion provides good opportunities to support ICANIWILL's continued growth, particularly in the DACH region. and ICANIWILL will be consolidated from the acquisition early in July. Also turning to inventory, our salable inventory was lower than at the corresponding point last year, but while the value of goods in transit was higher. Now inbound deliveries have increased since the end of the quarter, and we believe that our inventory is now better positioned ahead of the important autumn and winter season. Finally, also a quick word on current trading compared to last year. It should be noted that the strong sales growth of 15% reported in the -- for the first quarter last year was partly supported by outlet sales and also favorable weather in Germany. We see market conditions, particularly in Germany, that were weak in Q4. It looks like it will continue to be challenging for some time. But despite this, we note that RVRC Holding in July continued to deliver pro forma sales growth in local currencies. And that concludes our comments on the results. Before we finish, I would like to thank everyone who contributed during the quarter and throughout the full financial year. That includes our employees, customers, partners, shareholders. And I would also like to take the opportunity to warmly welcome the ICANIWILL team to RVRC Holding. Together, we are now entering an exciting new chapter. And with that, we are now happy to answer questions. So therefore, I ask the operator, do we have any questions?

[Operator Instructions] The next question comes from Benjamin Wahlstedt from ABGSC.

I have a few questions. So first of all, I was wondering if you could share your view on the German market growth in the quarter, please? I understand this is a difficult task.

Sorry, I could not hear you properly. Can you repeat the question, please?

I will. So I was wondering if you could share your view on the German market growth in the quarter, please?

Yes. We have seen -- first of all, we have seen industry colleagues that --I'm sure you have seen also that have reported their quarterly results and also disclosed the performance in Germany. And from what we can see, it looks like the market and what we can read from those reports is that the market seems to be challenging and weak. And we can see that we are outperforming them and thus increasing our market shares. We also have access to other kind of data, for example, from partners like Google, where we see that our traffic and the sort of share of brand search for our brand compared to the total market that it looks like the market is also weak based on that number and that we increase market shares when it comes to searches for our brand. And then, of course, we also read what other people are reading when it comes to different kind of macro reports and note that Germany as a -- the consumer sentiment in Germany still seems to be challenging.

All right. And if you could distill that. I mean, is it possible to give like a number for market growth? Just your best guess is probably better than.

Best guess is negative.

I was wondering as well if you could give us a bit more color on the gross margin bridge. What share of the improvement is FX driven, for example?

A majority of the improvement is FX driven, and then we obviously always have the components of market mix and product mix, but both the purchasing currency, USD relative to primary sales currency euro developed positively in the quarter. And as we've stated before, we have a delay in the effect of the purchasing price. And also, we comment on outlet sales where we've seen lower outlet sales, which means that is kind of a market mix where we have slightly improved gross margins as well.

I was wondering as well if you could elaborate on the temporarily higher IT costs in the quarter. Any comment on the magnitude specifically is helpful, both for Q4 and Q1, although I suspect you'll be reluctant to comment on Q1.

Yes. So to start with, these are temporary. It's a project. The project has been focused on Q4. The costs are below SEK 5 million. They will continue into Q1 on a smaller scale for completion. So the cost in Q1 will be lower than what we saw in Q4.

Yes. And I can add to that, that we have chosen to implement it's, for example, a product information system to implement that now so that we are ready and don't have to do big deployments when we are right in the middle of our peak season. So even if it has a bigger impact on a smaller quarter such as Q1 and Q4, we believe it was the right thing to do it now so that we are ready and don't have to deploy big projects during the peak season.

And finally for me then, I was wondering about the personnel cost increase. I understand that adding in-store staff drives personnel costs in absolute terms. However, the annualized cost per employee is up some 10% as well. And I would imagine retail staff has a dilutive mix effect on the cost per head. So any additional color on personnel costs would be helpful.

Yes. As you mentioned, we have added headcount due to the opening of stores. That is clear. And there is, you could say, a temporary effect also on staff when it comes to some IT-related projects. And we don't expect -- and then, of course, there is a salary review that always takes place in May. That has been in line with sort of market. And -- but we don't expect staff costs to go up from here. It should be now on a stable level.

Is it possible for you to share where these increased IT costs landed or the split between external OpEx and personnel costs, just roughly?

Both. The projects are external costs and then we've -- and also, to some extent, consultants related to that, that is external costs and staff cost is -- we've seen a ramp-up of IT staff over a longer time period. But the projects are mainly external.

The next question comes from Emanuel Jansson from Danske Bank.

You can hear me. I was wondering if you could continue maybe on the sales trend during the quarter. Is it possible to maybe give us some more flavor on the sales trend month by month during the quarter? And I remember the last quarter, you mentioned there was a quite of a slowdown in March, specifically in the German markets.

Yes. Just on a very high level, May was the strongest month. June was the weakest month.

And did you experience any negative local sales growth in Germany during the quarter? Specific month.

Germany followed -- I mean, Germany has such a big impact on our total numbers. So May was also the strongest month in Germany and a weaker month in Germany in June compared to last year.

Fair enough. And could you potentially also talk a bit about the other markets because I assume that the Switzerland and Austria is growing quite well. And also maybe give us some flavor on the U.K. market and that would be very helpful.

Yes. As you mentioned, Austria and Switzerland are growing well, double digit and in some cases, over 20%. And yes, the Nordic region, especially Sweden, which is a mature market, also continues to show good development. And then we have the Rest of the World region where it's heavily impacted or that region is impacted by the development in the U.S., where we have deliberately slowed down or basically almost turned off the operations since a year ago, and that has a big impact on that region. I think it leads to a difference of 6, 7 percentage points in growth in that region. So U.S. obviously impacts the rest of the world region a lot. So meaning that the rest of the -- that region is growing. And within that region, we have 3 focus markets that we focus on, and that's U.K., Netherlands and Poland. And those are developing in line with, I would say, expectations. However, one should also note that we total level, we always try to sort of balance growth with profitability. For us, profitability is important. And as you can see, we are delivering a 21% EBIT margin for the full year. And when a very important and highly profitable market such as Germany slows down, that has some sort of indirect impact on how much we can invest in marketing in the rest of the world regions such as U.K. But U.K. is growing.

And also, I think it was in Q2, you said the ambition was to have a new logistics setup for the U.S. in place after the summer within a couple of months. We are now in August. Is the new setup live? Or what's the situation now.

Yes, it is now live since a couple of weeks ago. So, we are slowly, slowly increasing our efforts into the U.S. again. But it is live. Now we are importing all our products to -- based on comps value, meaning that we can now -- we are now back to offering our products on a more competitive level than we could do last year. So yes, a couple of weeks ago now from July, it is live.

So will you say in the near term, is it lighter given the comparable base and also the new setup that it's more reasonable to expect some growth again on the U.S. market?

Well, we don't want to guide. But I think it is clear that comps in U.S. are more or less from July this year, quite easy since we more or less stopped operations in U.S. a year ago. So hopefully, we will see impact from that. We know that we had good interest from U.S. customers before market conditions change. And we also see -- we have seen also a continued growth in popularity if we -- based on followers on, for example, our social media platforms. So comps are easy. We are -- we have the new infrastructure in place, and we are now slowly increasing our in the U.S. Can you still hear me, Emanuel?