Thule Group AB

STO:THULE

Earnings Call Transcript 2022-Q2

[Operator]

Hello and welcome to the Thule Group Interim Report Q2 2022. My name is Alex, and I'll be coordinating the call today. [Operator Instructions] I will now hand over to your host, CEO, Magnus Welander to begin. Magnus, over to you.

[Magnus Welander, executive]

Thank you very much. Good morning, everybody, and welcome to this quarterly call. We are happy to announce the quarterly results for what I consider a strong second quarter 2022.

So if we go to Slide 2 of the presentation. We can see that a strongest sales ever in the quarter with SEK 3.3 billion in sales. If you look at what that means from a currency adjusted, we did decline with 3% versus the exceptionally strong second quarter in 2021, with Europe and Rest of World being the declining region with a minus 5% currency adjusted, while Region Americas was flat in a currency adjusted result. If you look at from a very strong North American currency situation, we grew 15% from a reported result in Region Americas.

What I'm especially proud of what we have achieved and managed to do during the spring and as shown in the quarterly results is we defended our high gross margin levels and came in at a gross margin of 42.2%, which was the same level as previous year, which, in fact, means that from a currency-adjusted point of view, we've actually improved our margin. And that has been achieved really from two things. Price increases that we have implemented and passed on to retailers and consumers, compensating for the significant cost increases that have been in the system and in the market for relatively long period of time. But also that we are getting efficiencies out of those planned investments we've been doing in the last 18 months to handle the higher capacity need versus prepandemic time lines.

From an EBIT perspective, we delivered an EBIT margin of 24.7%. And if you look at the FX adjusted, that means we've declined 2.2 percentage points. We continue to push heavily with product development. We are convinced that, that is, as we've said over several years, the best way to drive top line growth in the coming years. And as announced on the Capital Markets Day that we held on 11th of May, we are also stepping into two new product areas.

And with stepping into those, we, of course, then have product development costs also associated with categories that we, today are doing sales in, but also then with these two product areas, categories where we don't have any sales. So a strong push in product development is the main reason for why we had a higher SG&A cost in the period.

If you look at the operational cash flow, we can see that it was SEK 559 million, and we have continued to do investments in our plants in more automatized assembly. I did mention the Capital Markets Day that we held in a Hillerstorp, Sweden, where we were founded 8 years ago. It was a great pleasure to have many of you coming and visiting and seeing live the world's most modern roof rack factory and the state-of-the-art Thule Test Center and Development facilities.

At that Capital Markets Day, we really had two key news. One was our raised sales target, where we raised our target from previously, having a target of SEK 16 billion by 2030 to now SEK 20 billion by 2030. This was clearly due to, of course, the fact that we have had such a strong growth over the last 18 months and our conviction going into also new categories that we will continue to grow at a steady pace over the coming 8 years.

And those product area introduction was the second news, and we will talk more about those two new product categories or product areas later on in the presentation.

So if we go to the next page of the presentation, we'll see a little bit about the phasing between the quarters. And here, I think the key part, as always, is that we are now finally seeing what we believe to be a more normal pacing like we had before pandemic times, so like we had in 2019. We have communicated throughout the last 24 months that we have struggled to meet the huge demand increase and, therefore, have had some backlogs, which we traditionally have not had. That we have been always a company with very high on-time and full next-day delivery performance. But during the fantastic growth period in the pandemic boosted sales growth, we struggled to meet our delivery commitment. And therefore, there has been some sliding between quarters in the previous time.

We see 2022 as a more normal quarterly performance. And if you look at that, that has meant a very solid, and as I said, record second quarter once again in 2022, at 43% more than we sold in 2019, quarter 2. So a very strong growth, if you look at that period over time.

We're now stepping into the second half of the year, and you see that we have a very strong comp period, especially in Q3. And if we look at it also, we have to remember that it is still very uncertain times. We see clearly, as all companies, still some key supply chain disruptions in general in the marketplace. We also have some specifics with the RV manufacturers struggling to get chassis to build motor homes on. We believe and see in the clear feedback we have with good data from all our key customers that retailers have good levels or high levels of stock. So what we will now see in Q3 will be a situation where we will see how consumers truly behave in the later part of the summer vacation.

If we go to next slide, we can see the quarterly performance and the year-to-date performance by the periods. And if we look at it, we can say that clearly, year-to-date, we have a solid growth on top line and are maintaining a good level at high EBIT margins that we have prided ourselves with. We have a target, as you know, over 20% EBIT. And I'm happy to say that we're holding a year-to-date at 23.8% margin level. So very happy with that performance.

If we go into the next slide, we'll look at those two new product areas that were introduced at the Capital Markets Day. A little bit of a recap, but I think an important recap for everybody because, of course, for the future growth of our company, these product areas will be key contributors.

So we announced the entry into what we call Dog Transport Products, that is in a very attractive growing niche category. We feel it's a very logical extension of the Thule product portfolio. Dogs are more and more becoming close family members. I'm sure many of you have dogs or have recently got into being dog owners. And if you don't, I'm sure you know, many friends and family members around you that truly see the dog as a much more closely knit family member and, therefore, people are more prepared to spend money on quality products when they do things with their dogs.

There are many ways to transfer dogs in a car or on a bike. And that's the two parts where we will focus first in broadening a portfolio. Currently, in the marketplace, there is relatively wide price points with some very cheap low-end products, but also starting to see a bigger growth in the premium segment of this. And that's where, of course, we will play with the Thule brand, only in the premium segment where we see the strong global Thule brand that will stand out versus those niche brands that are the bigger players today.

There are stricter safety standards and laws being implemented in more and more markets as well. But it's not so much the regulatory that steers this category. It's more the consumers' desire to be active with their and taking care of their new family members with the dogs they have. Then if you look from the size perspective, this is about, we estimate, a SEK 2 billion market in the premium segment with a nice growth.

Then the less surprising category or product area that we announced. So we announced that we would go into the product area of child car seats. That is something that I think most analysts and investors felt was a very expected addition. It is a perfect fit to our product portfolio, having done strollers now for a number of years and having been a strong player in everything around car transport. This is a [significantly ] safety-oriented category where actually regulations play a big role in increasing demands already in place in Europe and tougher restrictions and regulations in North America in the coming years.

That segment is also something where we feel very comfortable in terms of where our sales channels are today and where our brand stands today being a player in that category. So if we are looking at it totally, we estimate the global market size in the premium segment to be a SEK 14 billion market.

Our ambition then with these two product areas is to continuously add logical extensions to where we touch and deal with our consumers around the world. And due to the logic of what is happening, we can go to the next slide of the presentation. We've also decided that with the new additions of these two new product areas, we will rename the current product category, Active with Kids, instead to be Juvenile & Pet Products, which will then include the four product areas that are in this category today.

Why are we adding these categories in product areas into what we do? Yes, it's a great fit. They are big markets. There's a global market. There's a positive market trend. There's high gross margins for the leading players, there's a sizable share in the premium, definitely so in car seats and clearly growing into dog transport. These products do have a desire for both good functionality, but also nice design. And as I said, both from a retail channel to market perspective and a design and competence perspective, there is a strong brand and competence fit.

And as always, when we look at new product area entries, it is, of course, one of those parts where a possible addition of an M&A could speed up our journey, and we will continue to look also in these two product areas, if this could become a better and quicker way to grow. But we are setting ourselves up to be successfully with a pure organic growth into the product areas as well.

If we go to the next slide as I already alluded to, we will be adding these two product areas as new additions to what we currently do within Active with Kids. So that means we will add this to the strollers, the bike trailers, the bike seat and the child carrier products in what will now be called a bigger Juvenile & Pet Products category. We will, therefore, become the leading global player, if our ambitions are paying off in the coming years within this field. And also, as I said, touch the consumers in many more daily usages by offering these type of products.

The first product in the new additions is actually already a little bit sneakily added into the market. And in the image, you see a person biking with a dog in a bike trailer behind him, and that's because we've added a dog trailer kit to one of our juvenile bike trailers that is already launched in the market this year. Otherwise, these new product areas, so both the car seats and the dog transport product in the car will be coming to market in 2023.

So a very positive addition. And with that positive addition, it made sense with that combined with our strong performance in the last 2 years to also review the financial targets. And at the Capital Markets Day, we therefore, updated them, as I mentioned in the introduction.

So if we go to the next slide, I can then remind you that we maintained our high ambition on sustainability targets that we've already presented. We have also maintained our targets, in terms of maintaining above 20% EBIT margin. And we maintained the target of minimum 75% of annual net income in cash dividend. The updated target, therefore, was the revenue target. And previously, we had a target to double the 2020 revenue by 2030, which meant an actual ambition to hit at least SEK 15.6 billion by 2030. We now raised that target to reach, at least, SEK 20 billion by 2030.

The conviction of a strong continuous performance as well as our conviction of the market trends and the addition of both new products in the current categories as well as the additional two new product areas in the bigger product category, Juvenile & Pet Products, is behind that more ambitious revenue goal.

If we go to the next slide, we will look in a bit into the regional performances then once again in the second quarter. And if we start with the biggest region, Europe and rest of world, what we can say is that saw a decline in sale, in product categories or products that were related to bike. And that is then noted to be versus an extremely strong second quarter '21.

What we can see in the market in bike retail is that, in general, there is a very good level of stock levels and even too high, in some cases of cheaper bikes as many of the retailers anticipated a strong bike performance, ordered more bikes, and the bike manufacturers were more capable of ramping up the production of lower-end bikes quicker. Unfortunately, on higher-end bikes, so more expensive downhill e-mountain bikes and other more expensive e-bikes, the ramp-up has been slower from the main bike manufacturers, as Shimano and other players as well as the battery makers have struggled to keep up with demand. So if you look at juvenile -- sorry, at bike retail at the moment, they have slightly too high stock of some lower-level products and still some challenges on delivering premium products on time.

That is not a perfect mix for Thule here because ideally, as we have noted over several years, the more advanced and heavy and more expensive bike is, both from a product use and a product price point logic, there is a higher share of Thule sales in those products. Overall, though, it's important to remember that if you look versus prepandemic times, 2022, Q2 still has shown over time, the highest cargo growth of all the product categories. So bike has and is very strong still, just that it was comparing to an exceptional second quarter.

The two categories within Sport&Cargo Carriers that are doing well and doing best is roof rack and roof boxes, and we see that as consumers continue to take local vacations and shorter trips close to their homes, and that continues to be very strong.

Within the RV Products category that is quite significant in the Region Europe and rest of world, we have a strong demand and strong performance in the dealership channel. The dealership channel is often referred to by people within the RV industry as aftermarket, but it is, of course, much more associated with a dealership similar to the car dealership. And there, we are doing better because they have various amounts of both used vehicles and new vehicles on their lots and their performance is strong, while the situation for the motorhome manufacturers is more challenged as they continue to struggle with capacity from not getting enough chassis to build their vehicles on.

Demand is still strong in the Europe and rest of world and the lead times and order books are long, but they are struggling to get enough capacity as many manufacturers of vehicles generally are at the moment. It's nice to see also that there are relatively small product category of Packs, Bags & Luggage in this region continue to grow nicely with both commuting to university and work picking up, and also some pickup on international air travel in Asia, although from very low levels and still limited travel. But overall, the Packs, Bags & Luggage product category did very well in the region.

If we then move to the next page and look at Region Americas. As I said, a flat performance in currency adjusted with a strong growth, thanks to a strong currency on the reported. Here, it is similar performance as for the product categories in Europe and rest of world with no major difference. The difference is more associated to which categories have the biggest share within the region's sales. So here, Packs, Bags & Luggage especially has a much more significant share of our regional sales. And as I mentioned, similarly to Europe, we had a strong growth in those bags that we use for everyday commute into university and offices.

And also here, it is clear that the North American region has been the region where air travel has picked up the fastest and quickly came up to similar almost back to prepandemic levels, which means we've sold a lot of duffle bag and carry-on bags as well in this region. We also have had some very successful launches of new product collections, like our fully sustainable recycled material to the Aion Luggage Collection, for example. Also in this region, the roof boxes did do very well as the roof racks, but especially roof boxes.

And as for Europe and rest of world, also in this region, we have seen across the bike-related categories, a weaker performance versus the fantastic 2021 spring. The small niche category of RV Products continued also to grow very strongly as it's been doing for a number of quarters.

If we then go to looking at what it means from a financial perspective, I leave it to Jonas to walk through some of those slides.

[Jonas Lindqvist, executive]

Thank you very much, Magnus. We are now on Slide 11, and I will, as always, concentrate on the quarter. As Magnus mentioned, we are looking at tough possible comps in the same quarter last year. It was and still is the strongest quarter in the Thule history. No other quarter has had an EBIT margin of over 27%. And I'm sure you remember that the most important reasons for that quarter to be so strong, profit-wise, was that there was very limited impact material and transport cost increases. Those came in as of Q3 last year.

Reported sales for Q2 this year came in 3% higher than last year. But if we apply the current exchange rate for las year's Q2, we get 3% lower sales this year than last year for the quarter. Magnus, sorry, we can hear your breathing. If you can move your phone a little bit from your mouth.

The reported gross margin of 42.2% is on par with the same quarter last year. And if we apply the same exchange rates, similar to what we did for sales, we actually get an 0.5 percentage points higher gross margin than in the same quarter last year. And it's very pleasing to be able to show this maintained gross margin and the current market conditions. The successful implementation of price increases have offset the negative effects coming from the higher cost of material on freight.

The EBIT margin, 24.7% to be compared with 27.4% in Q2 last year. And to put the lower margin in the quarter into perspective, the 24.7% is higher than in the second quarter of any of the pre-COVID years. The finance net -- sorry, and the selling expenses, if we move down the P&L have increased from SEK 409 million to SEK 487 million or 2 percentage points seen in relation to sales. As a percentage of sales, it's gone from 12.7% to 14.7%. Selling expenses have increased primarily because of spending on product development and costs for handling our increased inventory levels. There is also an item under operating revenue in the comparison number for Q2 last year, and it relates to the release of a provision created when we acquired the Tepui roof tent business.

The finance net in the quarter is lower than Q2 last year because of higher utilization of our bank facilities and higher interest rates. The tax of SEK 180 million corresponds to a tax rate of 22.3%, which is in the lower part of our guided range of 22% to 25%.

If we move to Slide #10 and look at the operating working capital and cash flow, the operating working capital was SEK 3,914 million at the end of Q2 '22, which is considerably higher than at the same time previous year and relates primarily to the increase in inventory. Last year's level of inventory was too low to meet the demand and also to be better able to meet the challenges that we face in the supply chain, we decided to increase inventory level. Our capacity to provide short delivery times to our customers is now restored and this is an important part of the Thule business model, as Magnus also mentioned. We are also less vulnerable to further disruptions than we have been in the past 2 years.

What we said when we decided to increase our inventory was that the products that we stock must be core products that we sell in large quantities, and they must have very limited exposure to obsolescence, which means we have not stopped products where we are planning to release new models or new colors that will make the ones on stock obsolete.

The operational cash flow for the quarter was SEK 559 million to be compared with SEK 801 million last year in Q2. When comparing these 2 quarters, isolated quarters, not consecutive ones, the main driver behind the difference is accounts payables that had a positive effect on the cash flow statement last year when we increased production and a negative effect this year in the quarter when we return to more normal level of production. Capital expenditure was SEK 113 million in the quarter. And as also Magnus said, it relates to investments made to increase our production capacity, primarily through automation.

Thank you. And now I hand back to you, Magnus.

[Magnus Welander, executive]

Thank you, Jonas. If we then go to the last page of the presentation. As you heard, we see a strong continued performance, and we are realistically looking at what will be very significant challenges in terms of short-term flexibility and short-term management of the business. We will, therefore, if you look at 2022 second half, continue our focus on the long-term strategy, which is pushing growth investments via a significant product development push to fuel that future growth with the biggest ever introduction year we've had in 2023.

We will be bringing key new products into all our current product categories. And as you heard me mention also introduce towards the end of the year into the two new product areas of child car seats and of dog products. So a very strong launch year with a very busy autumn, showcasing these new products to retailers for them, the bigger launch and sales out of the stores in spring and autumn of 2023.

That means also that the capacity expansion that we have been undertaking over the last 2 years to catch up with the increased demand levels and the higher revenue is now coming to a good position during '23. We announced already way back in 2020 in the autumn that you will see '21, '22 and '23, clearly being higher CapEx years to catch up with the increased demand levels as well as preparing for the new product categories, which we will assemble in our own plants in Europe.

And with that, we also are taking steps of automizing our new production lines for products that are key products in the current product categories. We also continue our online B2B solutions to simplify our collaboration and making life easier for retailers in how to work with us. The most important aspect of that is always ensuring a very high on-time and full service, which I'm happy that we've restored. But of course, you also have other tools in terms of marketing, ease of ordering, et cetera.

And I'm very happy that our new B2B tool that was launched during the spring is definitely creating some good efficiency gains, both from a retailer perspective as well as for us. And we will continue to also push our direct-to-consumer solutions and tools.

If you look at what we also have focusing is, of course, to protect the margins in what is still and expected to continue to be a very challenged global supply chain situation with significant disruptions still going on. We should not forget that there are still very long shipment times versus prepandemic levels, and there are still some very significant global logistics bottlenecks. I just have read some report the last few weeks that when you look at the biggest players in both European and North American industry, many people expect that the very challenged supply chain situation will continue throughout '23 and well into '24.

There are still some localized challenges with the Asian supply base. And I'm sure you still read about entire cities or regions being closed temporarily due to COVID, et cetera. And of course, we need to be, as all other companies, quick on our feet in ensuring that we can handle that. And also as one way to do that is to have higher than historical inventory levels.

We have already informed you that we are implementing further price increases as of July. They are already in place as of July 1. And those are on certain product categories where we've seen continued increases of input materials and freight. And we will continue to work with all of those assembly plant investments we've done to get those efficiencies out that we have planned.

And in closing, as I said, many uncertainties in the short term and a very strong conviction in the long term is how we see our business.

With that, I hand it back to the operator and open up to questions.

[Operator]

[Operator Instructions] Our first question for today comes from Daniel Schmidt of Danske Bank.

[Daniel Schmidt, analyst]

A couple of questions from me to start with. Just coming back to what you finished off by saying many uncertainties in the short term. Could you shed some light on what happened towards the end of the quarter? And you talked about the bike-related business coming down, of course, and you also said there's been a lack of high-end bikes but maybe too many low-end bikes, which is a negative mix for you guys. Are you seeing any sort of better restocking of high-end category looking into Q3? Is that going to help in that case? Or is it more about the consumer sentiment, if we start there.

[Magnus Welander, executive]

Yes, I think you -- if you take the bike category, Daniel, you can say that it is still the one where retailers are the most confused, so to speak. They are sitting on too much of certain product, and that is never good because that means that they will likely focus a little bit on selling out cheap bikes, et cetera.

Unfortunately, that might also then mean that they will prefer to sell out a cheap bike trailer rather than selling one of our premium ones because they sit on them on stock otherwise all throughout the year. So if you look at Q3, I don't think we'll see an improvement in terms of how bike category will be doing versus what we saw in Q2. It will be a challenged quarter. And that quarter will then serve as a little bit of a balancing, I think, in terms of retail structures ahead of the '23 season.

If you look at the other product areas and product categories, you can see that generally, we have a very good momentum in other products around active traveling, active vacationing. And that is partly because they didn't grow as wildly as bike did in '21. So they're growing for more reasonable -- still very strong growth in '21, but continued growth in '22 as people have chosen to do those vacations.

So I think the bike industry will still have a challenged quarter 3. We will still have a challenged quarter 3 in all bike-related products. And that will serve as a little bit of a balancing for coming into '23 in a better way in terms of balance.

[Daniel Schmidt, analyst]

Still the high season, of course, when it comes to bike-related equipment in Q3. But that is also changing quite a bit entering Q4 where you will have more Packs, Bags & Luggage, which is likely to be in recovery mode, I think. So is that how you should view it?

[Magnus Welander, executive]

Absolutely. You're absolutely right. We have a much better category exposure in terms of performance in quarter 4 than we have in quarter 3. That is correct.

[Daniel Schmidt, analyst]

Yes. And trying to sort of stack that up against. So that, to me, will be a bit more of a negative mix in terms of product categories way into the total group sales compared to last year. But at the same time, we are also seeing sort of raw material prices and freight costs coming down quite a lot now since March. And I do appreciate that you have longer lead times and you have higher inventory now than you had the previous year, so it would take a bit longer for that to filter through. But you're also raising prices now against since 1st of July, and you showed very strong pricing power in Q2. When do you think that you will see the benefits of lower raw material prices and freight costs coming into the P&L numbers?

[Magnus Welander, executive]

That is, I think, from '23 onwards because as we clearly have highlighted, we have been building up inventory as well. And that -- when you do that, there is a bigger lead time aside from pricing falling into cost of structure before you sell the product. So if everything aligns in the right way, which we hope with our efficiency gains, et cetera, and with the right product mix, that should help us, if anything, from '23 and onwards.

[Daniel Schmidt, analyst]

Okay. And then just sort of another question on the inventory. You're right that you have higher handling costs now due to the inventory situation. And given that you exited Q2 with higher inventory versus entering Q2, I guess that's still going to be the same, and also given what you said in terms of keeping high sort of customer service in terms of deliveries, that's also going to be true for the second half of this year. Is that a fair assumption?

[Magnus Welander, executive]

That's correct. And the reason is that we do own some of our own larger warehouses, but we also have, due to cost efficiency reasons, over time and flexibility. For Western Europe and for North America, we also have outside warehouses. And when you keep more stock and when you have more handling of that stock, therefore, you do have higher costs. And we will continue to have that in the second half.

[Daniel Schmidt, analyst]

And out of those 200 basis points that Jonas has mentioned in terms of SG&A versus sales, how much is related to what we just talked about and how much is product development, you think?

[Magnus Welander, executive]

Significantly bigger on product development and sales-oriented costs, and this is a smaller part of it. But it's clearly a part worth mentioning, but it's definitely smaller than the product development push and the increased sales and marketing efforts.

[Daniel Schmidt, analyst]

Okay. Good. And a final one for me. You as always, have sort of an M&A agenda, but it's not very sort of -- it's not the top of your agenda maybe, even though you make acquisitions every once in a while, but they are few and far in between, like you usually mentioned. You do mention now, again, that you would consider to make M&A, of course, also in the new categories. Does it cause any conflict at all to make an M&A, an acquisition in new categories at the same year that you're launching organically? Is that sort of something that you would be willing to do? Or is that too much of a hassle and too complicated?

[Magnus Welander, executive]

No, we're definitely -- we would be willing to do it as long as it's the right company for the right reasons. So what we've always said is we want to earn and run our own agenda. If you do things organically, you can always enter a category and you can run your own time line agenda. If you base it on M&A, it becomes more erratic. There is a risk that you overpay for something to have it or that it isn't available when you want it.

So the organic growth is our main focus even in the two new product areas. But of course, as always, in new product areas, there is a greater economies of scale effect or quicker-to-market effect than in current product categories. So those are the areas we would look at. But no, I wouldn't hold me back just because we're doing things organically. If the right M&A opportunity in those two product areas come up, we could time that at the same time as well.

[Operator]

Our next question comes from Gustav Hagéus from SEB.

[Gustav Sandström, analyst]

I have a question related to the inventory buildup. There's usually an impact -- positive impact on margins if you overproduce, helping capacity utilization. Is there any way to quantify that effect in H1 and if sales and inventory would have moved in parallel versus how it was now? And any view on potential impact this inventory trends the way you're hoping for in H2 in terms of margin impact?

[Magnus Welander, executive]

Gustav, no, we won't give you any details on that. And actually, if you look at the situation on what we've seen over the -- with all the disruption going on, I don't think I can confidently say, I don't see it impacting us positively or negative in the second half versus the first half, due to those reasons. So you won't see impact on our performance due to inventory buildup versus inventory reduction in our performance.

[Gustav Sandström, analyst]

But was it a material or noticeable effect in H1 margin or Q2 margin?

[Magnus Welander, executive]

No, because we have such a flexible setup in our staffing levels, right? So what we do is we build all our staffing levels in our manufacturing setup on a very clear three-tiered approach with six employees, seasonal employees in Thule and then agency in workers adding that flexibility. If you compare with a little bit what Daniel was into, with what goes on with costs and freight, et cetera, and then the offsets of production and our capability of ramping up and ramping down fast, you won't see significant boost impact in first half or a negative impact in second half by producing less in our margins.

[Gustav Sandström, analyst]

Okay. That's very clear. And when we talked, I think it was early this year a bit before the year end last year, I remember you said that ambition or your ambition, I believe, was that you would have volume expansion this year versus last year. And obviously, a lot of things have happened. But do you think still there -- do you still think that there is any potential for that to materialize as the rest of the year 2022? And what do you think would have the need to be in place for that to materialize?

[Magnus Welander, executive]

Yes. If you look at it since considering that the first half is so significant share of our sales, and we haven't had volume growth. As we have indicated, we have a total year expectation of price impact of high single digits. You can then realize that we haven't had volume growth, therefore, also with a challenge Q3 and an easier comp in Q4, I don't think we will see volume growth in this year, with having lost Russia, Ukraine, Belarus sales with a different market than when I made that assumption.

[Gustav Sandström, analyst]

That's reasonable. And then I'm thinking about going into next year, probably looking at a lower consumer spend and you have raised prices quite substantially and already quite expensive versus your peers, obviously, better products, usually, but still. Would you be willing, if need to be, to sacrifice market share to maintain your price next year? Or will you consider promotions or taking down pricing in line with the inflation rates if they come down -- raw mats say, come down to maintain that market position of yours and in your key categories for an responses is what I'm referring to?

[Magnus Welander, executive]

Yes. If you look at it, we are always doing market-based pricing even product by product rather than product area or product segment or subcategory, right? So we will be very -- we have been and will continue to be very tactically smart as we do market-based pricing where we believe we can still keep volumes the way we want to keep them, and raise prices because that's what has been needed due to cost structures. But it is a market-based pricing approach. So we're going to be tactically looking at each product and say, what's the right price for those products to keep growing and both keeping a strong margin, but also driving a strong volume.

If you look at that, that means by default, we'll do some mistakes. We do that every year. It's a higher likelihood you make some mistakes when it's more erratic and more wild as it's been. Generally, you can say the premium more mid-priced to premium competitors we do have, they have followed suit and made logical steps like us. It is at a lower price point where we've started to see the first bankruptcies from some of our competitors at the lower price points because they haven't decided to raise prices enough. And when you -- they haven't done that. They've sooner or later started to run into issues.

So the first bike carrier competitor that went bankrupt was a low-priced U.S. competitor, for example, which is according to us, when they didn't raise prices enough at the midyear '21 and definitely not enough when they started the year '22, we could do a very quick backwards calculation and say they won't be around, if they continue to price this way.

So generally, we will be selective and market-based also going forward, protecting strong margins. But that means strong margins can only also be achieved. You do need to sell volumes. So we're going to be very tactical going forward as well.

[Gustav Sandström, analyst]

Yes, that's very clear. And then on the topic of price, you raised price now in July, but the year-over-year impact in H2 versus H1, as you can see it, is that going to be a bigger or smaller number in percentage?

[Magnus Welander, executive]

So if you look at it, to remind everybody, we then -- as normal, we did a January 2021 price increase. Then we had to surprise the market, as many companies decided to do in the spring of '21 and do more or less a semi force majeure pushed through price increase for July 1, 2021. We then chose, as a company, not all companies did that, but we chose to say we were struggling to keep the normally high on-time and full delivery performance, and we did have a backlog at the spring time when we announced the July 2021 price increase. We, therefore, informed customers that had they already placed the orders, even if they would get the shipment after 1st of July, they would get the price that they had ordered it for.

Some companies decided to raise those prices as well, we did not, which meant that it wasn't a clean July 1 price increase that implemented. It fell throughout a little bit the Q3 in 2021. We then raised prices again, as we always do, 1st of January '22. And at that time, we announced that the prices for 2022 would only be valid for 6 months. Therefore, our July 1 price increases are absolute from that first date of the year.

When you do all these comparisons because we've raised prices on a market-based pricing logic, you can say that the effect we're expecting totally with everything going on is similar between the years on pricing or between the 2 halves of the year, sorry, between H1 and H2. So similar comparative effect.

[Gustav Sandström, analyst]

Okay. That's very clear. And lastly for me, there's been a few peers of yours that have reported, I believe, of improving supply chain now in H2 and you indicate similar. Is -- are you willing to sort of take down your tactical inventory in H2? Is that something we should expect to see? Or are you still going to hold some of your components and semifinished goods in the event of a further supply disruptions in H2? How do you feel about that now?

[Magnus Welander, executive]

Maybe I wasn't clear enough. I may be a little bit less optimistic than some of my peers. I actually believe that there will be continued disruptions. What has improved is the length of shipment times temporarily, right, which peaked at more than 110 days from Asia to North America. That has been going down slightly. But if one look back at historical performance, around Black Tuesday and Christmas and then Chinese New Year, they tend to go up against quite significantly in those months.

So I believe there will be still very long shipment times and still continued disruptions. We will, therefore, hold higher inventory levels than we've historically done. We will, as we have ramped up our capacities in our own assembly plants, be able to handle a little bit of more ramping up and down temporarily with ourselves, and that will allow us still to work with reducing calmly and slowly our inventory levels, but we won't see significant reductions of inventory levels. We don't trust the supply chain enough simply. Yes.

[Operator]

[Operator Instructions] Our next question comes from Karri Rinta from Handelsbanken.

[Karri Rinta, analyst]

Yes. Three questions, please. Firstly, about the bike-related products that you singled out in the report. If we focus on the biggest categories there, maybe the bike carriers and bike trailers, and if I say volumes, volumes were down 20% compared to last year. Would that be roughly the right ballpark? And if so, where volumes compared to 2019? That's my first question.

[Magnus Welander, executive]

So we don't give those clear indications, but you're not too far off. You're off a bit, and there is huge differences between products within those categories. So we have certain bike carrier models that we're selling more units than we sold last year and others were selling significantly less than we sold the same period last year.

If you look at it and do a comparison and realize that we are at a total for the company, 43% above what we were in the same quarter last year, and if you then do the math of what our price increases indicatively been, you realize that we're running at volumes that are, as a total company, well above 20% more than we did and bike has performed the best, as I mentioned, in that total. So that gives you an indication of where we stand in volumes versus prepandemic levels.

[Karri Rinta, analyst]

Right. That's helpful. Then marketing costs or selling expenses. You mentioned that there is some extraordinary costs right now related to the inventory and whatnot. But going forward, do you still believe that you can keep the marketing -- or selling expenses to sales at below 15% and even in 2023 when you have this very significant launch here?

[Magnus Welander, executive]

Yes. I think if you look at it, if you look at our long-term target, we've always said an EBIT margin well above 20%. We are holding very true to that. So we will, at times, when we go into new things, push heavier with marketing cost. But at the same time, we also have, at the moment, a very significant product development and product management costs for those two new product areas, which is then not offset with any sales at the moment. We will be selling products next year. So there is a natural offset also in an SG&A realistic logic for new things coming. So yes, we will be able to hold to similar levels that we've had.

[Karri Rinta, analyst]

Great. Then finally, your own direct-to-consumer e-commerce sales, how have those developed in the last year? Have you seen the same sort of fatigue that many online retailers have been reporting in the last months? Or are you still up on a year-on-year basis?

[Magnus Welander, executive]

Yes. If you look at it, it's natural that we are doing better than a general online reality because we are fresher and newer. So it's always easier to grow if you're relatively new in something and haven't been doing it for that long because over time, people realize that we do sell direct to consumers. So from that perspective, we are not performing as we've seen some other generalist, onliners, struggling more. And I think partly, we can talk about how good we are, but it's also partly from the fact that we are relatively new into it, and we're still in a growth momentum, thanks to that.

[Operator]

Our next question comes from Mats Liss of Kepler Cheuvreux.

[Mats Liss, analyst]

A couple of questions. First, just to get a feel about the performance during the quarter. Could you say something about that, I mean, April to June? Was it sort of -- did the [indiscernible] thing trend? Or was it sort of stable on the same level? Yes.

[Magnus Welander, executive]

It was a -- if you look at the group level, it was a similar performance throughout the quarter from a group level.

[Mats Liss, analyst]

Yes. And then -- I mean, you mentioned the price increases being implemented 1st of July. And I guess just -- it seems that you are sort of raising practice less than a year. Well, in 1st of January, is that right?

[Magnus Welander, executive]

Sorry, could you repeat that again, Mats?

[Mats Liss, analyst]

Yes. Regarding the price increases, you previously have mentioned that you increased the prices by high single digits at -- when you -- 1st of January and then 1st of July, it seems that it's somewhat less. Could you give some indication there about...

[Magnus Welander, executive]

Yes, okay. So what we've said is that full year effect with those assumed price increases that we've done will be high single digits. So if you look at it, we then have much less price increases. Now 1st of July, also because we haven't seen the same growth of cost structures as we saw ahead of the 1st of January 1.

For some products, there are price increases being implemented clearly also here now in July, but it's not across the board in the same way, and it's not nearly as much. Total impact, as I indicated, to Gustav for the year is similar in the H2 as it was in the H1 on price.

[Mats Liss, analyst]

Yes. Got it. And -- well, you had a negative organic growth here in the second quarter. And I guess you mentioned that the third quarter will be -- continue to be demanding year-over-year comparison. And this is sort of at the same level, similar to the second quarter, the organic outlook.

[Magnus Welander, executive]

Yes. If you look at the product category exposures, as I mentioned to Daniel, and as Daniel was correctly assuming, if you look at what we normally sell as we now see a more normal phasing, we have a category exposure in quarter 3 towards less performing categories that is bigger, similar to Q2. While in Q4, we have a category exposure more to well performing currently in 2022 categories. So logically, if you look at challenge in comp logic versus current 2022 performance, the challenge is bigger in Q3, and it's a more positive category exposure in share of sales in Q4.

[Mats Liss, analyst]

Got it. And -- well, you launched a new business area later on this year. And just looking at the retailers, they do expect to use the same retail doors? Or what, do you need new ones for those [indiscernible]?

[Magnus Welander, executive]

If you take the product area of child car seats, it's very much retailers. We already sell either strollers or other car-related products with. So we feel very good about having the right channel for our car seats.

For the dog products, it's the right channel to impart, but there is also a specific juvenile retail channel, online dominated where we will need to open up some new accounts. We feel very comfortable because we've already started discussions with those accounts that we will be able to enter with, both into those new retail channels for the dog transport products.

[Mats Liss, analyst]

And just to get a feel for the launch, do you sort of enter the market with a full assortment? Or you're just sort of entering the premium, premium segment with some special extra products? If you could you say something there?

[Magnus Welander, executive]

Yes. For dog transport, we will enter at the very top end, and then we will broaden downwards. So in '23, you will see very premium product in dog transport. And then in '24 and beyond, you will see more broader assortment.

If you take the child car seats, we have, as announced, decided to focus on one region first, that is Europe. Regulations are for car seats for children different -- significantly different by regions. And we will do a broad launch in Europe first with an infant seat and a toddler seat sharing the same base. So that's a more -- also a premium offer, but a relatively broad offer. And then we will follow with a North American portfolio and additional product in Europe the coming years after that.

[Mats Liss, analyst]

Okay. Great. And finally, just about cash flow. I guess you built some working capital in the second quarter. Is it sort of even -- well, will it sort of improve in the second half? Could you say something to that?

[Magnus Welander, executive]

We are very confident that we will -- as we have said, we have a similar phasing performance at prepandemic levels, and we are very comfortable knowing what our choices have been on inventory. But the rest of our cash flow situation, we are very comfortable that it will perform in a normal seasonal pattern as historical years.

[Operator]

We have no further questions for today. So I'll hand back to CEO, Magnus Welander, for any further remarks.

[Magnus Welander, executive]

So thank you, everybody, for taking time this hot July period in listening into our Q2 report, which I'm very happy with what we've been able to do in terms of margin performance in a challenged reality.

We step into a very exciting autumn in terms of what we will be sharing with our retailers in terms of new launches that will come to market in 2023, a challenging third quarter ahead of us, but we feel very confident on our long-term strategy. So with that, thank you, and have a great summer.

[Operator]

Thank you for joining today's call. You may now disconnect.