New Wave Group AB

STO:NEWA B

Earnings Call Analysis

Challenging Start for New Wave Group in 2024

New Wave Group faced a tough first quarter in 2024, with net sales dropping by 7% to nearly SEK 2 billion, impacted by a shifted Easter holiday. Net profit fell by SEK 100 million due to lower sales and higher marketing costs. Despite these challenges, the company's gross profit margin remained stable at 49.7%, and cash flow improved significantly. The Sport and Leisure segment saw some regional growth, while the Corporate and Gifts segments faced broader declines. Leadership remains optimistic, forecasting growth, especially in the Sports segment, through increased marketing and inventory investments.

Navigating a Challenging Market

In the first quarter of 2024, New Wave Group faced headwinds due to a difficult market environment. The company's net sales dipped by 7%, totaling roughly SEK 2 billion, a decrease of approximately SEK 140 million year-over-year. This was significantly affected by the timing of Easter, which resulted in the loss of 2 to 3 business days compared to the previous year—a destructive factor for promotional sales. The declines were seen across both the promotional and retail segments, leading to lower sales across most regions.

Mixed Performance Across Segments

The results varied across the company’s three primary segments. The corporate segment saw a broad decrease in sales, while the sports and leisure segment only gained traction in Central Europe. Conversely, the gifts and home furnishings division experienced slight declines. Gross profit margins remained stable at around 49.7%, compared to 50.7% in the prior year; the decrease was primarily attributed to price pressures on basic items in the corporate sector and reduced margins in sports and leisure products.

Increase in Operating Costs and Effect on Profit

Operating results tumbled to SEK 185.5 million from SEK 313.5 million in the previous year, driven down by reduced sales and the negative impact of the Tenson acquisition, which alone decreased the operating result by SEK 3.3 million. Despite these challenges, the company successfully maintained cash flow, reporting an increase from a negative SEK 193 million to a positive SEK 203.7 million. The improvement in cash flow is indicative of better operational efficiency amidst tough market conditions.

Strong Financial Foundation

On a positive note, New Wave Group continues to possess a robust balance sheet, with equity exceeding SEK 6.8 billion and an equity ratio of 63%. Furthermore, the net debt remains manageable at approximately SEK 2 billion. This financial stability provides the company with a strong platform to navigate the current economic climate and invest in future growth opportunities.

Anticipating Future Growth

Looking forward, New Wave Group remains optimistic about recovery and growth opportunities within all segments, particularly in sports and leisure. The global market for sportswear is forecasted for an upswing, bolstered by strategic investments in product development and marketing, specifically for brands like Craft and Cutter & Buck. The company expects an uplift in sales in the second quarter, driven by improved daily orders in the sports retail channel, countering any adverse effects from the Easter timing.

Guidance and Market Outlook

Management expects the operating margin to continue at 9.3%, down from the 14.7% of the previous year. The future looks promising, with indications suggesting a recovery sooner rather than later. Notably, the company anticipates that the first half of 2024 will see margin pressure persist—especially in promotional products—yet remains hopeful for takeaways in the second half, driven by operational improvements and market dynamics.

Commitment to Shareholders

In summary, New Wave Group emphasizes its dedication to long-term thinking, stability, and hard work while striving to enhance shareholder value. Their proactive stance amidst market challenges, combined with a healthy balance sheet, positions them well for potential growth as recovery trends emerge across the markets they serve.

Earnings Call Transcript 2024-Q1

[Goran Harstedt, executive]

Good morning and welcome to this presentation of New Wave Group's Interim Report for the First Quarter 2024.My name is Goran Harstedt and I'm the Vice President of the Group.New Wave Group, we are a growth company that designs, acquires, and develops brands. We work in 2 sales channels in order to have a good risk diversification and that's the promo market and the retail market. We are operating within 3 segments; corporate, sports and leisure, and gifts and home furnishing. And within these segments, we are working with both sales channels, the promo and the retail. The vision for the corporate segment is to become the leading supplier of promotional products to corporations in Europe and one of the leading suppliers in the US. And this we wanted to achieve by offering a broad product range, strong brands, advanced expertise and service and a superior all inclusive concept.The vision for sports and leisure is to establish Craft as the world leading sportswear brand and making Cutter & Buck, a world leading golf apparel brand. The brand Auclair should take a leading position on gloves in Europe. We also use the Paris Glove strong distribution in Canada for establishing our other brands in Canada. Overall, we want to be one of the leading sports suppliers both in Sweden and in other European countries and in the US. All-in-all, our brands shall give us a position among the largest sport suppliers in the world. And the third segment home gifts and home furnishings where the vision is to make Orrefors and Kosta Boda one of the world's leading glass and crystal suppliers. And a part of vision is also to involve utilizing innovative and playful design to make Sagaform a prominent player in northern Europe in both promo and retail markets.If we then look into the quarter, net sales decreased to 7% to about SEK 2 billion. We had a challenging market for both promo and retail. We had a negative impact due to the Easter that was in March this year instead of April as it was last year where we lost 2 to 3 business days which mostly affected the promo sales. We probably have some shifts in sales within Sports and Leisure into the second quarter. We believe that we continue to take market shares depending on the result of the other competitors. The net profit decreased about SEK 100 million due to lower sales and increased costs for marketing and pre-sales measures. We have a stable gross profit margin around 50% and we had a positive cash flow development during the quarter.As mentioned, we had net sales amounted to almost SEK 2 billion which is about SEK 140 million lower than last year. We had no effect of currencies and acquisition stood for 1% of the sales. If we look into the sales channels, we had a decrease of 6% in promo and 8% within retail.Here you see the 3 different segments and the net sales development compared with last year. And then if we look to the net sales in the different geographic areas and the operating segments, it looked like this. If we look into corporate, we had decrease in all regions. Sports and Leisure, we had an increase in Central Europe, but decrease in all other regions. And Gifts and Home furnishing was slightly decreased in the regions. The gross profit margin amounted to 49.7% compared with 50.7% last year. It's mainly corporate that had a lower gross profit due to a slightly price pressure on basics, the more cheaper products. Also, Sports and Leisure had a decreased gross profit margin while Gifts & Home furnishing had an increase in the margin. The external costs and personal cost increased from SEK 717 million to SEK 749 million and that's mainly due to the acquired business of Tenson and also increase primarily related to some higher rental costs and higher costs for sales and marketing. Operating result amounted to SEK 185.5 million compared with SEK 313.5 million and that's due to lower sales and Tenson acquisition reduced the operating result by SEK 3.3 million. The result for the period amounted to SEK 121.1 million.If we then look into the different segments, corporate as mentioned before, we had lower sales in all regions, lower gross profit margin and slightly higher cost level. Sports and Leisure increased sales in Central Europe while the other regions decreased slightly lower gross profit margin. We have increased marketing activity within Sports & Leisure and the acquired business of Tenson had a negative impact of SEK 3.3 million. Gifts and home furnishing lower net sales related to the Nordic countries slightly improved gross profit margin and lower result mainly related to lower net sales.The cash flow from operating activities increased with about SEK 400 million from minus SEK 193 million to plus SEK 203.7 million. The investing activities increased a bit with about SEK 24 million -- SEK 23 million, mainly due to continued automatization of warehouses.We continue to have a very strong balance sheet with an equity of more than SEK 6.8 billion, an equity ratio of more than 63% and a net debt of about SEK 2 billion.If we look into the rolling 12 months, continued good turnover and gross profit margin despite a challenging market. Net sales about SEK 9.4 billion, operating result SEK 1.45 billion, result of about SEK 1 billion.CEO comments, which are more described in the quarter report. We had a tough start on 2024, but we continue to take market shares. We have a stable gross profit margin and a good cost control. We had a good cash flow and inventory is at a good level which provides better conditions in the coming periods. Operating margin amounted to 9.3% compared to 14.7% previous year.If we look on the future, we are very strong in all our areas of operations. Sports and Leisure has an exceptional good growth opportunity going forward, with all the investments we have made in Craft, Cutter & Buck and Tenson. We have invested in product development, optimization of warehouses and and also marketing activities. The corporate segment is also well equipped for growth with a good inventory level and a high level of service, and investments have been made in products, marketing and sales organizations. Within Gifts and Home furnishing, we believe that the slowdown has almost ended and that growth is on the horizon.We strive to make everyone who buys our products, happy customers, and if you choose to invest in New Wave Group, we want you to know that we promise to take care of our investment in the best possible way we can through long term thinking, growth, stability and hard work.Now it's time for questions and we will use a microphone, so also the public that follows on the net could hear the questions. Please.

[Andreas Lundberg, analyst]

Andreas Lundberg with SEB. I think you talked already in relation to Q4 that the first quarter will be challenging for various reasons, but were there anything that surprised you, now when you have the quarter completed?

[Goran Harstedt, executive]

No, I won't say so. First quarter is always a bit difficult for us to see how where it's going. That's the quarter where we have most variances between the years. And this quarter nothing special happened. Besides that we had a rather tough market and especially the sport retailers still have a tough market. We can see that the sports chains still have a decrease in the sales. Also in Q1, if we look into the Swedish sports retailers as an example, they had a decrease of 5.2% in first quarter. And we see that they also still use their overstock they had since the past, but no major issues according to our opinion in Q1.

[Andreas Lundberg, analyst]

You also touched upon that you see growth soon within the Gifts category. What about the other 2 major areas of your business?

[Goran Harstedt, executive]

We see growth opportunity in all 3 segments and not the less in the sports sector. We see so many positive trends indications in the market. It's more a timing if it will come very soon or if it will take some months before the sales pick-up again, but we see many positive indicators within that segment. But also in the promo market we see more and more positive indicators that should be able to get us growth within that segment too.

[Andreas Lundberg, analyst]

Lastly from me, you touched upon you gained market share and some of your competitors are having problems. Can you explain it more in detail, what has happened and why are you gaining share versus others and so forth?

[Goran Harstedt, executive]

We don't have so many public figures to get in the promo market. We have some in the US [indiscernible], but we get quite much information anyhow by being on the market we can see that most of the other promo wholesalers are suffering much more than we do and that's mainly because they don't have the stock that we have. Most competitors have harder times to get the stock in time also and that's especially within the sports, where we have been much more successful to get the goods in delivery to our warehouses without especially much delays.

[Karl-Johan Bonnevier, analyst]

Karl-Johan Bonnevier from DNB Markets. Looking at the phasing of sales costs, marketing costs, have you done anything different this year compared to previous year or is it just a continued increased investment that indirectly is hitting the quarter?

[Goran Harstedt, executive]

Well, we have followed a plan regarding marketing and sales investments, so we have not done anything strange in that way. But we have increased, we have been present at more exhibitions during quarter 1 than we did last year. We have invested more in catalogs and marketing materials than we have done in the past in order to meet a demand that we believe will be coming during this year. And according to the accounting rules, we take the cost immediately even though it's meant for the whole year or the full season.

[Karl-Johan Bonnevier, analyst]

Makes full sense. And when listening to your commentary, it still sounds like you're still planning for a sales acceleration, if not in Q2, then in the second half of the year?

[Goran Harstedt, executive]

Yes, we do.

[Karl-Johan Bonnevier, analyst]

And coming back also to the comment about you gaining market share. When you look at your promo resellers, is there, say, is it good, decent business momentum for them or have you experienced the increasing receivables outstanding and these kind of things, are they in good shape?

[Goran Harstedt, executive]

They are in quite good shape, but they also see a tough market, of course, as we do and today quite many companies have been more careful with the spendings on promo, which we have seen the last year, and that's followed the recession so to say. But facing the recession we have now, we think we are performing, and also our customers is performing very well.

[Karl-Johan Bonnevier, analyst]

But no increasing bad debt problems for you at this stage or anything like that?

[Goran Harstedt, executive]

No. Any more questions?

[Operator]

We have a few questions from the web. We'll start with the first one. Can you provide some more color on the remarks that sportswear looks to improve in Q2?

[Goran Harstedt, executive]

Maybe you look into the comment that we see a shift in sales into Q2, and that's a part of the Easter effect you can say, that since the pre-order to the sport retail was lower this year, we count on trying to compensate that through more daily orders to the sports retail and there we saw an increase at the end of Q1. That was quite good, which will hopefully continue in Q2.

[Operator]

And what can you say about the margin pressure within promo? Do you see this continuing throughout the year?

[Goran Harstedt, executive]

Maybe not for the full year, but it will at least continue the rest of the first half year. And as mentioned, it's on the basic, the more cheap styles.

[Operator]

And we take one final question here from the web.

[Goran Harstedt, executive]

Yeah.

[Operator]

You have previously expected a turnaround for the Sports and Leisure business in Q2. Is this still the case?

[Goran Harstedt, executive]

Yes. We believe that we will have a good Q2 for the Sports and Leisure. Absolutely.Thank you. Thank you very much for coming.

[Operator]

Thank you.