Thule Group AB

STO:THULE

Earnings Call Analysis

Resilient Growth in Challenging Markets

In the third quarter of 2024, Thule Group demonstrated resilience amidst a tough consumer environment, achieving a 4% organic sales growth year-over-year. This growth was notably higher in Europe, with a 6% increase, while the Americas showed modest growth of just 1%. The continued demand for Thule's innovative products, particularly in the bike segment, contributed significantly to this performance. Gross margins stood strong at 42.9%, a 2.8% improvement from the previous year, driven by lower material costs and an enhanced product mix.

Record EBIT Margins Highlight Operational Efficiency

Thule witnessed a remarkable EBIT margin of 17.6% during the quarter, marking the highest margin for a third quarter in the company's history, excluding pandemic years. This came from an EBIT of SEK 413 million, indicating effective management of costs alongside sales growth. The company is also maintaining a solid cash flow, with cash from operations nearing SEK 1 billion for the quarter, signaling strong operational health.

Product Innovations Driving Market Position

A significant factor in Thule's success has been its aggressive product launch strategy. The company introduced multiple new products across different categories, including a new dog bike trailer, Thule Bexey, contributing to a 15% sales leap in the Juvenile & Pet category. Furthermore, Thule's car seat products received accolades, winning Europe's most prestigious car seat consumer test (ADAC), boosting the brand's reputation. The overall product innovations signal Thule’s commitment to diversifying its product offerings and capturing emerging consumer demands.

Optimistic Future Outlook Amidst Seasonal Weakness

Looking ahead, Thule remains cautiously optimistic about continuing its growth trajectory, particularly in the European market which has shown stronger resilience compared to North America. Management has indicated continued investment in new product categories and market expansion efforts, especially in the online direct-to-consumer space. While Q4 is typically slower due to seasonal trends, Thule is poised to introduce 20 new products across various markets, which could offset typical seasonal declines.

Future Financial Guidance and Market Challenges

As for guidance on the upcoming quarters, Thule expects top-line growth in line with 2023's levels, emphasizing that operational efficiencies will offset the market's challenges. Key metrics, including a year-to-date net income of over SEK 1 billion and a reduction in debt-to-EBITDA ratio to 0.5x, reflect strong financial positioning despite external market pressures. The company’s price strategy remains stable, with potential for modest price increases in existing products moving towards 2025.

Earnings Call Transcript 2024-Q3

[Operator]

Good morning, everyone, and welcome to today's Thule Group Interim Report Q3 July to September 2024. My name is Drew, and I'll be your operator today. [Operator Instructions]

I'll now turn the call over to Mattias Ankarberg, CEO and President, to begin. Please go ahead.

[Mattias Ankarberg, executive]

Thank you very much, and welcome, everybody, to this quarterly call. I am also joined here, as usual, with -- by Toby Lawton, our CFO, and we will speak to the presentation also available on our website.

I'll start off on Page 2. The third quarter of the year is a good quarter for us, despite the continued tough consumer market. We grow by 4% organically in the year, more in region Europe and the rest of the world, 6%, and 1% in Americas. We'll get back to market conditions, but we continue to see a better market in Europe than in North America. And we continue to see the growth coming from new Thule products, driving growth even though the market is tough and also from bike-related products where the market is better.

We have a strong gross margin of close to 43% in the quarter, and we have an EBIT margin of 17.6%, which is the highest ever EBIT margin for the third quarter for Thule Group, excluding the pandemic period years. And the total EBIT in absolute terms was SEK 413 million, and Toby will get back to that as well.

Cash flow remains strong as for the last couple of quarters, and we have cash flow from operations of almost SEK 1 billion in the quarter.

A couple of highlights for the quarter, and the first one is actually after the quarter finished. Yesterday, the semiannual consumer test results from Europe's most important car seat test was announced and Thule was the winner in the so-called ADAC car seat consumer test. That's the big one in Europe. So we are very pleased and proud to win that.

We have also continued to launch products in our second new category for the year, dog transportation. So we launched Thule Bexey, and we also continued to grow our D2C business and have so far now opened 6 new countries for trading with -- on thule.com, with 2 more opened in the third quarter.

On the next slide, Page 3, we'll summarize the long-term development for Thule Group. And for the -- for those of you who know us well, you know we've had a good profitable growth for many years. The graph shows the development since the IPO in 2014. And following 2 years with the sales decline after the pandemic peak, we are now -- we're continue to see another quarter adding to growth in 2024.

Good to see that this year is back to good profitable organic growth. On a 12-month basis, net sales is SEK 9.4 billion for the group, SEK 1.6 billion of EBIT and an EBIT margin of 17.1%.

Turning to Page 4 and going a little bit deeper into the trading in the quarter by category. We can see that several of the trends we've been seeing for the year continued in third -- in the third quarter, with some nuances and some updates also related to us launching new products.

So starting with our biggest product category, Sports & Cargo Carriers, the category grew by 5%, currency adjusted in the quarter, 6% year-to-date, and we continue to see that bike-related drives the growth. Particularly, we see premium bike-related products doing really well.

We have launched 2 new products in the quarter, 1 niche product, which is shown on the picture, which is a so-called vertical hanging bike carrier, mainly for the Americas market, which has done well, and we have sold everything we've been able to produce so far.

We continue to see very good sales of our most premium bike carrier, Thule Epos, that was launched last year. And we've also, at the end of the quarter, upgraded our best-selling Thule EasyFold bike carrier, which also has a really nice start. So good growth in the premium bike-related products.

Overall, the market for Sports & Cargo Carriers continues to be tough with both cautious consumers and retailers, more so in North America than Europe, but also in Europe. But we -- as we've seen now for several quarters, we do see a more healthy inventory levels in the bike sector, particularly around premium products and particularly in Europe, which helps us.

Packs, Bags & Luggage declined by 4% in the quarter and 1% for the year so far. We continue to see good growth in Thule branded luggage and duffels. For example, the updates we've done this year to the Thule Aion and Thule Subterra products. And we also continue to see good growth in bike-related bags products. But we also, as previous quarters, see decline in legacy products as the exit of those categories continues.

If we move forward to Page 5, we'll cover the last 2 product categories. The strongest growth in any product category in the quarter was in Juvenile & Pet, which -- where net sales increased by 15% to 9% for the year, and this is a category we've had a lot of newness this year.

We, in the quarter, launched an updated generation of our multisport and bike trailer, Thule Chariot, which has been really well received by the market and the consumers and driven very nice sales growth for us in the quarter. We did a big update to our new generation Thule Urban Glide 3 during earlier part of the year, which continues to perform really well, and we see good growth in strollers also in the third quarter.

Dog transportation is a new category for the year. We continue to see good performance of the dog crate grade Thule Allax and continue to take market share, and we also launched Thule Bexey, our first bike trailer for dog transportation in the quarter, which also added new sales.

And last but not least, we have entered into car seats. We moved into 3 markets: Germany, Austria, Switzerland at the end of May, and then added Belgium and Netherlands and Luxembourg in September, which also, of course, adds new sales in this category. So a lot of newness and 15% sales growth in Juvenile & Pet in the quarter, which we are pleased about.

RV Products is a mixed picture. Net sales in total were flat compared to last year in RV Products, and we see down 2% year-to-date so far. As we've talked about several quarters earlier, the RV industry is going through a weaker period, and we do -- but we do see 2 opposite trends in the quarter where we see a decline in sales to OE customers, manufacturers and vehicle outfitters, but that sales decline is offset by a return to growth in the dealer channel, the channel that is closer to the consumers. So overall resulting in a flat development. Particularly, we also see in this RV category that the growth is mainly coming from bike-related products in the aftermarket channel.

So I'd like to then on Page 5 -- sorry, 6, give you a bit of a further update on the car seats launch. And firstly, just to let you know where we are. We have continued the launch with the first product was in the market in May, and we will continue the launch in the third quarter and will continue in the fourth quarter.

So before stepping into the time line, maybe just to remind everybody that our -- we are a product-oriented company. Our primary focus is to deliver a great product up to Thule standard. And we do feel we have launched innovative products in a fairly established product category. We're clearly focus on safety. We're clearly focused on ease to use. And we also think, at least by -- but in our view, that we have produced a product which is well designed.

So overall, 3 products launched to the market end of May, a base, an infant seat and a toddler seat in Germany, Austria and Switzerland. Good reception, 6 international products, design awards even before the product was launched. And then the rollout continued with opening up Belgium, Netherlands and Luxembourg during September 2024.

We've had, just as in the German-speaking markets, a nice reception. We've had a good placement with the most important premium retail partners that we are looking to enter with, but good positive receptions with PR, both more juvenile-focused media, but also broad media and also with ambassadors.

The rollout will continue across European markets and a few others connected to the European standards, so over 20 countries now in November 2024. And it's nice to see the good start and the good reception. Now the long-term work to build these market positions will continue.

As the last comment also say that we do have more products in the pipeline, both for the European and the North American markets. And we will, in 2025, launch our first high back booster seats for children of a little bit higher age.

On the following page, Page 8, we also take the opportunity to update you on the outcome of the so-called ADAC test, the most recognized car seat consumer test in Europe and probably the world, which was announced yesterday. And this is the big one, and we are very proud to say that Thule came out the winner in the test.

The test is based on 3 areas: its safety, its ease of use and its ergonomics. And the products are scored on a scale from 1 to 6, 1 being the best, and Thule received a 1.6 score for the combination of the Thule Maple and the Thule Alfi, the infant and the base bundle. This is the best score of any product tested in this October 2022 test, which is, of course, makes us the winner, but it's also the best score of any product ever tested of this product type.

So we are really proud of the team. I think it's a great testament to product development capabilities of Thule Group. And I think it's a milestone for us in the car seats category and as a brand. So a good start and a good recognition for the car seats early on.

And with that, I hand over to Toby to cover financials in a bit more detail.

[Toby Lawton, executive]

Thank you, Mattias. Good morning, everybody, and we can turn to the income statement, Slide 8. And I'll start off showing you here the revenue in quarter 3, we had a revenue of SEK 2.344 billion in the quarter, which was an organic growth or an FX adjusted growth of 4%, which means our year-to-date FX-adjusted organic growth is also at 4%.

Moving down the table to the gross margin, you can see we had a gross margin in the quarter of 42.9%. This is 2.8% up versus last year. The positive trend in gross profit continues. We have effects from lower material costs, which is the biggest impact, also some better mix, which is driven by the new product launches in premium price points, which Mattias has talked about, and also some better overhead absorption from better production levels this year.

If you move down then to the EBIT margin, you can see the EBIT margin in Q3 improved by 2.1% versus last year, and this is driven by the higher gross margin.

And finally, just on the right-hand side, you can see for the year-to-date numbers, if I move to the year-to-date column, net interest expense was SEK 59 million in -- so far this year. Taxes, SEK 339 million, which is an effective tax rate of 22.6%, so very stable effective tax rate. And the net income year-to-date for the year is now SEK 1.159 billion, so well over SEK 1 billion in net income so far this year.

If I flick on to the next slide, Slide 9, sales by quarter. And the first thing to point out here is you see the seasonality of the Thule business. You can see quarter 2 is actually our biggest quarter. So quarter 3, which we are reporting now, is the tail end of the season. And I can also point out obviously that Q4, the coming quarters, is clearly the smallest quarter of the year, and it's the summer season in the Northern Hemisphere, of course, which drives this for us.

And if we look at the growth rates for quarter 3, you can see in the box on the right that the reported currency growth was 1%, but FX adjusted, it's 4% in the quarter, so 4% organic growth again, and versus 2019, which is the pre-pandemic period, then it's 30% growth.

If I move on then to the cash flow, Slide 10. And here, you can see that we had clearly a strong cash flow generation in the quarter. If you see the line cash flow from operations in the quarter, we had SEK 955 million in cash flow generation, and this was driven by reduction in accounts receivables and inventory. And we continue to have a positive trend on reducing inventory this year, and we expect to beat our target that we've communicated of SEK 200 million inventory reduction for the year.

On the right-hand side, you can see the year-to-date numbers as well. And so far, the CapEx this year, just to point out, the CapEx below cash flow from operations is SEK 183 million so far this year, which means when you sum those up, free cash flow from the operations is SEK 1.741 billion is what we've generated from the operations this year after CapEx.

And all this has, of course, a strong deleveraging effect on our balance sheet. So the debt to EBITDA ratio at the end of quarter 3 2024 has been further reduced and is now down to 0.5x, that is 0.5x the last 12 months EBITDA.

So with that, I will hand back to Mattias.

[Mattias Ankarberg, executive]

Thank you, Toby. On Page 11, I want to summarize the product launch here in 2024. As you probably are aware, this is the most intense product launch year we have ever had. And we have done several launches of 3 different types.

Firstly, we have upgraded several versions of our existing best-selling product, and that's an area that gives quick sales effect and delivers good growth for us. And it creates newness in the market, of course, in the quarter. To make -- give you an example, we have launched a new generation of Thule Chariot, our best child bike trailer. Of course, in our view, the market's best multisport in bike trailer and -- which has done really well for us in the third quarter.

We've also launched some new innovations in existing categories. We have launched Thule Outset, the world's first tow-bar mounted tent in Q2, the world's first removable awning, Thule Sidehill in this quarter, Q3; and as I mentioned earlier, Thule Revert, the vertical hanging bike carrier that has actually self-assisting, loading and unloading of bags, although you can have 6 bags -- bikes, sorry, not bags, on top -- on the back of a car.

So new innovations in existing categories also drives newness and sales, of course. And then thirdly, we have launched the 2 new categories in 2024. And as mentioned earlier, Thule Bexey, the dog bike trailer has been launched now in Q3 to complement the Thule Allax, the dog crate for cars that we launched in Q1.

So we've talked a lot about new product launches, and it is an important learning for this year that newness really drives growth, even though the market is tough. And we will get back at the fourth quarter conference call with the plans for 2025. But given the strong reception of newness in 2024, we will, of course, keep a high pace also in 2025.

On Page 12, I would like to take the opportunity to talk a little bit more about updating our best sellers. We give a lot of attention, and rightfully so, to the new product categories, but we also see some really nice benefits from upgrading some of the existing products.

And as an example, we launched an upgraded version of Thule EasyFold, now generation 3 at the end of the third quarter. It is the world's most sold bike carrier, and it just got better. Thule standard, we always try to strive to deliver the best product for the market and always improve. And this new generation has an intuitive click-in/click-out bike arm, makes it easier to one-handed loaded and unload bikes. It can easily, with an add-on, transform from a 3-bike-carrier to a 4-bike-carrier and also has a larger wheel base that accommodates larger bikes and also larger e-bikes.

As you may be aware, we're also designing with sustainability in mind, and this is another great example where we've had good success in achieving our targets. So the new generation Thule EasyFold product has about a 50% lower CO2 emission versus the previous generation. It uses less aluminum. The aluminum it does use is largely hydropower produced, and we also increased the share of recycled plastics as part of the plastics used. So well done to the development team also on that end.

It is available through selected channels this year and then more widely next year as we ramp up production volumes. And the price is about EUR 100 above the previous generation product. So a good example of how we drive newness, upgrade the portfolio, add new features and driving more premium price point and premium portfolio in our product -- through our product development.

So summarizing on Page 13. We've had a good quarter in a tough market in the third quarter, as we talked about already. As we look forward, both to the market and to our own priorities, a couple of comments from us. On the market side, first, we expect the market trends largely to continue. So generally a continued tough market, particularly in North America and particularly around the RV, and even more specifically the OE or the manufacturer side of the RV business.

We do see a better market situation in Europe in general and particularly for bike-related products, which we also expect to continue. And we do importantly also clearly see the new Thule products drive growth. And we, of course, expect that to continue as well. So some nuances, but largely continuation of the market trends we are experiencing at the moment.

Our own agenda stays the same. We are very focused on delivering the priorities that we set out for this year 2024, and there are 4, which we have updated you on throughout the year so far. More product development is number one, more launches than ever, we talked about that already. Making sure we get a good start to the new categories, dog transportation and car seats.

We've talked about being more visible for the consumer and driving growth also through actions on that end, showing more to sell more and continue to grow on D2C and also to improve further the efficiency in our supply chain, discontinuing some external warehouse services and reducing inventory levels.

And lastly, as we now move into the fourth quarter, the high season is completed to -- as Toby mentioned, but we do have a quite exciting fourth quarter ahead of us. We move into this quarter now with 2 new product categories where we have started to take market share, 6 new to the dot.com markets on D2C, continued to add growth.

We have a record number of international design awards and just won the most recognized car seat award, which, of course, gives positive energy for us at Thule. And we have, importantly, an intense period to launch car seats in over 20 countries in November. So a very exciting final quarter awaits as we wrap up the year.

So with that, we turn to operator to take questions and answers.

[Operator]

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

[Daniel Schmidt, analyst]

I hope you can hear me. Maybe starting off with what you finished saying, Mattias, when it comes to the quite exciting Q4, although it's the smallest quarter and referring, of course, to the car seat launch in the rest of the EU, as I understand it, also, I guess, the U.K. and Norway.

Could you tell us so far what you've seen and experienced? You had the DACH launched in May. You've had the Benelux launched in September. And I know that you were quite sort of deliberately cautious when it came to launching DACH, singling out a couple of sort of premium retailers being sort of very strict about sort of getting it right and so on. And how has that been developing as you get into the latter part of this year?

[Mattias Ankarberg, executive]

Daniel, thank you. Yes, I can start. And Toby, you may add. I think a couple of points, Daniel, to your question.

Firstly, of course, we're pleased to see the reception overall with the awards, the test winners, and to your point also that we've got very good placements with the most important sort of premium retailers. That's one. We've been really focused on getting a good start and getting that premium positioning right rather than going for volume, as you are aware.

Secondly, on sort of volumes themselves, they are as we have expected. We have had good volumes in DACH the first couple of months. We've had a good sell-in and the start in Belgium and Netherlands. That's good, too. Of course, Q4 with more markets is going to add volumes to that. The DACH and the Benelux are our big markets, but more than 20 new ones will, of course, add volumes, too.

And then maybe last point is you are completely right, we are doing this to get a great start there, to get massive volume from the get-go. We want to make sure we get both the start and the positioning right. But also, just as a reminder, we are producing these products ourselves in our own factories, and we want to make sure we get this production of high quality, with good efficiency and trim all the sort of production lines and teams in.

So there is a limitation to how much both can and will produce for the first couple of months as we ramp this up. But overall, we are very pleased with the start and really excited to launch in Q4 and very excited about in 2025 when we have things more up and running, so to speak.

[Daniel Schmidt, analyst]

Okay. And the fact that you won this very prestigious test yesterday, I think it's the first to the German market, which is, of course, probably the biggest market in Europe, is that going to be a sort of a major push for you guys in the market when it comes to marketing your product in Continental Europe or especially Germany?

Is this adding a lot, you think? Or is it sort of very good to have and gradually will be something that consumers will recognize? Or is it recognized immediately?

[Mattias Ankarberg, executive]

Yes. So this is the big one. If there's one you want to win, it's this. It's recognized immediately across the German market. If you would do a little bit of media run through yesterday of sort of all the major German newspapers, you'll probably find an article around this.

It's also very quickly picked up in the industry among premium retailers and among sort of ambassadors in this space. It has carried over into other countries as well. We see it internally already in the Nordics and in the U.K. how good of the buzz it is building. So it is very, very good.

Now of course, there's absolutely no guarantee that the sales numbers are a direct consequence of the consumer award, but this is a great help and a great start. I mean it's -- we have to remind all of our sales, this is the first product we launched and we won already. So it's a really good positive vibe for us that -- this win.

[Daniel Schmidt, analyst]

Yes, clearly. But just connecting that maybe then to the inventory levels, which are down a lot more than what you have aimed for. And of course, I appreciate that it swings a bit depending on what quarter you're in.

But currently, we're at -- around close to SEK 700 million inventories being down versus the end of last year. And I guess, you have some FX in that, and you have some raw material in that. But also on an underlying basis, it's a lot more down than, I guess, you anticipated.

And with this launch that you have now in the rest of Europe and, of course, it's only one product, but it's fairly big and it's something you produce yourself, what's sort of reasonable, where should we end up when we close the year in terms of inventories?

[Toby Lawton, executive]

Daniel, I can take this. Toby here. But yes, we are ahead of our expectations when it comes to inventory reduction. It's been a really good job by the team in reducing inventory. It's -- you could say it's driven by good work in terms of optimizing inventory levels and also working through older inventory to reduce the aging of inventory.

So it's definitely a clearly positive effect from the hard work put in. I think you could also say it's a tougher market than we're hopeful, you could say. If it was strong market growth, we -- and a bigger growth rate, we would have had to build inventory a bit more.

So we -- you could say our -- in managing our expectations, we -- yes, we didn't expect this kind of level of reduction, but it's clearly a positive effect. But I would say, you have to bear in mind as well in Q4, we normally build up inventory. So I think we're at the low point now for sure in terms of inventory. So it will go up a bit in Q4, but not -- yes, we're still be well ahead of our target.

[Daniel Schmidt, analyst]

Okay. You did well, of course, in this quarter, no doubt about it compared to many others. But one area which is, of course, a concern in the market is the RV business when it comes to the OEM side. And I think it did surprisingly well in this quarter, keeping it flat with the help of the aftermarket.

If you look into Q4, could you update us or remind us of sort of the share of sales that normally goes to the RV segment in Q4? And on that sort of -- is that the same split as usual when it comes to OE versus aftermarket? And how did that develop in Q4 last year? We just want to remind us on that.

[Mattias Ankarberg, executive]

Yes. So then I can start and then Toby can add. I think you're right about the trends. And as a quick reminder, we are mainly -- we are all exclusively in the European RV business. I think it's good to keep in mind.

We did say at the previous quarter's call that we did see some positive signs in the aftermarket or sort of dealer wholesaler side, but starting to see some tougher signs on OE, and that's exactly what we've seen in Q3. With some of the major OE -- RV OE players decreasing production through various ways of doing it with a clear decline. And therefore, our short sales to that channel, of course.

But a good growth in the aftermarket business, where consumer pickup in terms of vehicles sold out as well. Probably, the industry is pushing a little bit, but still good to see that growth.

And as a side comment, there is also the world's biggest RV fair in Germany in Düsseldorf at the end of August, which had same record-high attendance as they had last year. So the interest seemed to be -- remain quite high on the consumer side.

So on the fourth quarter, RV is -- it's a small quarter for us in total. RV is a higher share of the quarter in general. And part of why it is a higher share is that the OE is typically producing sort of more flat volumes across the year that -- compared to our seasonal business around bike, which is more spring and summer. So typically, that is a higher share of RV and a higher share of RV OE in the fourth quarter, which we expect to be tough for a while longer.

[Toby Lawton, executive]

Maybe I could just add there that we -- the OE manufacturers, they basically took downtime in the summer, which we've talked about, which we've seen the effect of. And they're also talking about also a downtime during quarter 4 and around the year-end break, Christmas break as well. So some -- yes, it's clear that their volumes are going to be a bit lower in Q4 as well.

[Daniel Schmidt, analyst]

Yes, but we already saw that also in Q3 with longer production stops than normal. But that also is going to come back in Q4. Is it going to be tougher to neutralize that impact with the aftermarket in Q4 than it was in Q3? Is there any reason, given what Mattias said there in terms of more even production throughout the year and RV being a little bit bigger part of Q4 than it is in the other quarters -- versus Q3, yes, please?

[Mattias Ankarberg, executive]

Yes, it's a higher shares. Yes, yes, It's a higher share. So mathematically, that's correct, Daniel. But I think one of the many beauties of this company is that we are in several product categories and several regions.

So we will work, of course, long term to develop each category as best we can. But that specific space, as we also commented on, we do see the toughest situations in all of our footprint within North America and in RV OE. And as I said previously, we don't expect that to change in the short term.

[Operator]

We will now take our next question from Gustav Hagéus from SEB.

[Gustav Sandström, analyst]

I guess, that's me, Gustav Hagéus, with SEB. I'm looking at the results here. Quite amazing that you achieved 50% EBIT growth on basically flat top line. And it relates, obviously, to the gross margin improvement because sales and admin is up 6%.

So on a 12-month rolling basis, gross margins are now 41.4%, if I did my calculations right. So basically, back to the peak of where they were in '21. Obviously, back then, you had almost 24% EBIT margins on a rolling 12-month basis at some point. And now you're at 17%.

So can you comment a bit on the -- first of all, the higher selling and admin costs here in the quarter year-over-year, does the Thule we know today with higher D2C, higher priced products in the mix, more categories demand, higher OpEx compared to previously?

And the development going forward now that you actually started to launch these new products, will they sort of phase down? That would be interesting to hear and also the gross margin going forward given that, I guess, you're under-absorbed a bit here again now given inventory reductions. It would be interesting to hear.

[Toby Lawton, executive]

Gustav, maybe I can start on the gross margin point. You're right on a rolling 12-month basis. We're now back up at the high point, and so the development has been good the last 12 months on gross margin.

It did swing a lot during the pandemic, but we see -- we do see that we now have growth in the new categories, which is driving premium price points, but we also get the benefits of lower material costs. You could say during the pandemic, there were big swings in material costs, but that situation has stabilized a lot now, and we're getting the benefits of the lower material cost trend for the last sort of 12 months coming through into production costs as well.

I would say our production volumes are still not where they were in the pandemic because it was still very high production then. But we -- the trend is successively improving as we grow. So it's -- yes, absolutely, it's back up to where it was during the pandemic.

And then maybe I'll hand over to Mattias.

[Mattias Ankarberg, executive]

Absolutely. Yes, on SG&A, to your point, Gustav, it's higher than in previous periods. And there are, I guess, 1 or 2 maybe reasons for that, but it's all related to investing in growth. We are investing heavily in develop -- product development for a long time, but particularly higher level the last 2 years around there, as we are now in 3 more categories and have now launched car seats, which is a big thing for us.

The other part of this is the products don't sell themselves, so to speak. When you want to build up a new category with car seats in so far 6 markets and another 20 as an example, of course, activating that product means getting PR events, in-store presence, et cetera. So there's sales and marketing costs associated with launches as well.

It's a fact that launching something in an existing product category where you have an established distribution and brand awareness, et cetera, is more cost efficient than moving into new categories. So the consequence -- or I should say maybe rather the -- what you see in the numbers is a consequence of us entering new product categories and investing for future growth in the existing categories but -- again, particularly related to the new categories.

[Gustav Sandström, analyst]

And the levers or the bridge going into next year on OpEx, where do you see in terms of launching costs? Will they be coming up next year, year-over-year given that you have entered more markets year-over-year or be at the peak now?

And I guess, a more hypothetical question, where do you think you need to be in terms of gross margins to reach your financial targets in a few years' time?

[Mattias Ankarberg, executive]

Well, if I can answer that in a structured way, I think the most important driver of us reaching the financial targets is sales growth. I think we have seen that throughout this year, but also throughout Thule history that we do get good operational leverage on sales growth.

Now in the short term, of course, we have to invest in new launches and building up new categories to get that sales growth off the ground, so to speak. And obviously, one of the other good things about Thule is that it's quite a lot of these decisions are discretionary. We could reduce development spend and reduce the sales and marketing investments if we wanted to, so we can manage this actively, which is good.

Obviously, there's been some, I shouldn't say one-off, that's the wrong word, but there's been some initial costs of getting to market with some of these new categories that won't repeat in -- again next year. So the decision is really up to us around how much to continue to invest for growth versus focus on profitability for the next year.

And we'll get back to you by Q4 about our view about the launch calendar for 2025. But it's just an overall comment. It's clear that newness drives growth also in this market. And as commented on earlier, we don't see a major positive shift in market trends in the short term. So we will continue to invest for growth, and we will continue to sort of keep our foot on the gas pedal, so to speak.

So it's -- I know it's not a quantitative answer Gustav, but that's the directions how we're thinking about this. And we are really focused on getting to that SEK 20 billion 2030 and 20% EBIT margin. And the key to do that is to have good sustainable sales growth in many areas.

[Gustav Sandström, analyst]

I appreciate that. Just one final nitty-gritty, sorry for sticking with the growth -- or with the margin discussion. But since you took down inventory in the quarter, I appreciate you're also right that you had lower costs related to having lower inventories, so less cost for external warehousing and so forth.

But can you quantify a bit what was the impact to gross margins from under-absorption versus lower cost for inventory? And how should that play out if you produce in line with sales into next year, what will the delta be on gross margins next year? That'd be -- that's my final question.

[Toby Lawton, executive]

Well, Gustav, we -- the reduction of inventory drives cost reduction as well in terms of warehousing, in particular. And that -- so that is a cost benefit that we have. But that comes -- that's shown in SG&A primarily in gross profit. It's basically the -- yes, the transport in and out to customer, but in -- the warehousing cost reduction is not impacting gross margin, basically. And that should stay next year.

[Gustav Sandström, analyst]

And the underabsorption effect...

[Toby Lawton, executive]

Yes. I'd just say we've produced -- just -- sorry, on the first part, just we've reduced the warehousing capacity and warehousing costs following the inventory reduction. That impact will hold on to going forward as well. I'm sorry, Gustav, the second part of your question.

[Gustav Sandström, analyst]

And in the quarter, the underabsorption effect, was that material given that you reduced inventory in the production?

[Toby Lawton, executive]

Yes. It wasn't that. It was -- yes, in the quarter, yes, not that material.

[Mattias Ankarberg, executive]

In line with the year.

[Operator]

Our next question comes from Adela Dashian from Jefferies.

[Adela Dashian, analyst]

Just a follow-up on the previous RV exposure discussion in Q4. My understanding is that you have -- are continuing to launch the new products, even now in Q4.

So if that is the case, should, I guess, the share of different product categories being more tilted away from RVs in the coming quarter? Or do you still think that the RV weakness is going to be that pronounced for it to have as big of an impact as it did in Q3? What's the view on that?

[Mattias Ankarberg, executive]

No, you are right. I think we were just trying to comment on history before. But as we've seen this year, RV has been year-to-date small minus, and other categories are growing. And given all the dynamics we talked about and that you also described, we expect that RV share to not swing back to a higher share, rather the opposite in the fourth quarter. So that's correct.

[Operator]

[Operator Instructions] Our next question comes from Mats Liss from Kepler Cheuvreux.

[Mats Liss, analyst]

A couple of -- sorry. Yes, just coming back to the launch cost for the car seat, and congrats on the awards there. But will they continue to increase in the fourth quarter? Or is it sort of a peak here in the third quarter for those? Since Q4 is a smaller quarter, it could be more sort of having a larger relative impact.

[Mattias Ankarberg, executive]

Yes. The -- very specific now, but let's see, on the car seat SG&A-related costs in Q4, there's not the peak in development cost, if we start there, because we have launched these first products.

Now there are more in the pipeline, but there is not a peak in Q4. There will be more sales and marketing costs because we are now live in 6 countries. We're adding over 20 countries in Q4. So there, we will, for sure, see increased costs in Q4.

[Mats Liss, analyst]

And should we expect those to be material compared -- it's the smallest quarter. You barely breakeven in the fourth quarter. Is it sort of up in terms of money? In money terms is sort of...

[Mattias Ankarberg, executive]

It matters, for sure. But if it would have been a very big effect, we would have commented on it proactively.

[Mats Liss, analyst]

Sure. And then I guess, the awards are sort of impressive and so on, and it seems that you're moving well here in Europe. Is that -- do this to an extent sort of -- well, make you more sort of likely to continue in the U.S. market as well? Or is it something that you -- is not affecting that decision?

[Mattias Ankarberg, executive]

Well, we are moving forward with developing products, and they are well underway for the U.S. market. So we would have done that anyways, to be honest. So I think, in all honesty, not the direct impact on the decision to -- on the U.S. portfolio or the entry timing.

Of course, it does on a sort of more wider -- in a wider picture kind of way give more confidence to our ability to deliver the best product to the market also in car seats. So increased confidence, I guess, a little bit.

[Mats Liss, analyst]

Great. And well, coming also back to pricing, the product launches improved pricing in general terms, I guess. But do you expect to be able to make up -- or do you need to make any price adjustments? Normally, you make these price adjustments early next year. Is it sort of something that you plan to do?

[Mattias Ankarberg, executive]

Yes, we are. We have historically, exactly as you commented, and the breadth of the industry is doing price increases on the Jan 1 basis. During pandemic, it was a bit different. But this year in 2024, we decided to keep basically prices flat on comparable or existing products, and the increase we have seen is to new products.

For 2025, we will go back to the historical approach. We will have price increases as of Jan 1. So on sort of existing products, we will see a price increase in line with where we have been throughout the history before the pandemic, which is in total of around 1.5% to 2% in that span.

[Mats Liss, analyst]

Okay. And finally, just about -- the upcoming election in the U.S. put some focus on potential tariffs to European produced products entering the U.S. market. Could you just update me on the balance there between sales and local production, if you are affected by any potential tariffs?

[Mattias Ankarberg, executive]

Yes, absolutely. We will be affected by tariffs, but we do have, I think, a quite fortunate situation that we have 2 sites, 2 factories in the U.S. locally. So we have 1 factory in the Chicago area that does rooftop boxes, among other things. And we have 1 factory in -- on the East Coast in Connecticut that does aluminum and plastic products in production terms by carriers, for example, which is a big product for the North American market.

So some products, we import from our European facilities. Some raw materials and some parts, we, of course, import. But we do have 2 manufacturing sites in the U.S. and quite established network of local and regional suppliers as well.

[Operator]

Our next question comes from Benjamin Wahlstedt from ABG.

[Benjamin Wahlstedt, analyst]

This is Benjamin stepping in for Fredrik today. I'll try to sneak a question in as well. Could you share what part of growth in Pets & Juvenile is directly attributable to model ranges that did not exist a year ago, please? Or at least give us a guidance on that figure.

[Mattias Ankarberg, executive]

Benjamin, we do -- we have decided this year to give quarterly sales growth numbers per product category, but we're not going in more detail than that. So I guess, the only comment we'd make is that it's a combination. It's a combination of upgraded, existing products. We talked about the Thule Chariot already and the strollers. And there are sort of new categories, dog transportation and car seats. So it's both.

[Operator]

Our next question comes from Carl Deijenberg from Carnegie.

[Carl Deijenberg, analyst]

So just one question from me. I think it would be helpful if you could share a little bit what you're seeing in the market development here. I guess, quite impressive to see that you're growing organically, both in Europe, rest of the world, but also, I guess, predominantly in Region Americas given that there's been quite some discussion around promotions and maybe consumer sentiment having been a little bit weak since the summer.

So just wanted to ask there if you can allude a little bit what you're seeing in the U.S. Is this promotion pressure easing a little bit here in when we go into Q4? Or has there been any, let's say, material difference there throughout the quarter?

[Mattias Ankarberg, executive]

I think the trends are very much the same. Thank you, Carl, for the question. It's very much the same as the previous quarters. It's a tough market in the U.S. It's been quite cautious on the consumer side. We don't see consumer sentiment picking up, really. There was a hope, I guess, during spring, but that's sort of turned down. And now it's sort of flat on the retail side, quite promotional, cautious on inventory and orders, last couple of promotional periods.

I don't think any major retailer has been really happy about sort of the effect to drive volume through discounts either. So it's quite stable at -- it may be improving slightly, but that would be an optimistic view, I think, of the North American market. So quite stable at a cautious level as we've seen before.

[Carl Deijenberg, analyst]

Yes, yes, yes. And the discussions around promotions, is that having any material effect on, let's say, your operational performance? Or can you still keep your selling prices fairly much in line with what your planning and anticipation has been going into this period?

[Mattias Ankarberg, executive]

Yes. No, we managed quite well. And I think one key sort of distinguishing factor about the U.S. market is that the promotions are set in windows, and then there is a recommended retail price. So it's quite structured in that way, and we see that.

We haven't seen any negative impact per se of sort of discounting or any price impact of us. It's just that the consumer demand is low, if you like. What we do see though still is that -- which continues to play to our favor is that newness works.

New products sell well to that premium consumer also in the U.S., also in a tough market. And I think that's the important message. And that's why we may be able to get above that 0 line for Region Americas in Q3 2024.

[Operator]

We have time for one final question. A follow-up from Daniel Schmidt from Danske Bank.

[Daniel Schmidt, analyst]

Yes. Daniel here again. Hope you can hear me, Mattias. Just a follow-up maybe on the SG&A discussion that we just recently had when it comes to marketing spend and all that. But if you look at production development costs, which you have guided for it to be sort of flattish in '24 versus '23, do you see it panning out that way? Or where are we?

[Mattias Ankarberg, executive]

Yes. No, I think in '24, Toby, you can add. But the '24 versus '23, that's where we will land as guided.

[Daniel Schmidt, analyst]

It's not going to be higher simply rather sort of in line or lower.

[Mattias Ankarberg, executive]

Yes. We think it's in line -- '24 would be in line with 2023, just as we've been saying all year.

[Daniel Schmidt, analyst]

Yes, yes. And you don't want to come to '25, now. Or could you give any sort of indication for '25?

[Mattias Ankarberg, executive]

Well, I think let's get back to that in Q4. But I think the main message, I think, from us is that, obviously, there's been some pushes that creates initial costs in car seats, both in development and in launching. And the beautiful thing is that we can decide what investments to make in growth for the future.

But we clearly see this year that newness is driving growth, and we will continue to focus on growth and focus on launches. So it's not so much about the input as the output, but it is about continuing to keep the foot on the gas pedal and more specific launch calendars and discussions on cost levels. Let's wait with that until Q4.

[Toby Lawton, executive]

Okay. Sorry, kind of just to state the obvious in a way, but as we drive growth, we drive the leverage of those costs as well on development and SG&A. So it's the right thing to do to improve the margins through leverage of those costs as well.

[Daniel Schmidt, analyst]

Yes. Sure. And maybe a tiny question that we used to talk about a lot before. You mentioned legacy products continuing to decline. How much of sales is that now?

[Toby Lawton, executive]

In Packs, Bags & Luggage, no, it continues to decline. And our Packs, Bags & Luggage is -- the majority is Thule branded business. So it's, if you like, the effect from the kind of steady decline in legacy product is getting smaller over time.

[Daniel Schmidt, analyst]

But you don't want to give the number because -- yes.

[Mattias Ankarberg, executive]

Maybe we will give a number, but let's do it in a structured way maybe, Daniel, if we thought of something. But the majority is Thule, so that's coming from its point.

[Operator]

That concludes the Q&A session on today's call. I'll now hand back over to Mattias for some closing remarks.

[Mattias Ankarberg, executive]

Thank you very much, everybody, for joining this quarter's call. Thank you, operator, and look forward to talking to all of you again in a quarter's time.

[Operator]

Thank you all for your participation on today's call. That concludes today's call. You may now disconnect your lines.