MEG Energy Corp

TSX:MEG

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

Thank you, Operator, and good morning, everyone, and welcome to this conference call, where we will address the report for the second quarter of the financial year 2024 and '25. Our financial year starts 1st of July and ends on 30th of June. So Q2 means that the period October 1 to December 31.

My name is Paul Fischbein, and I'm the CEO of RevolutionRace. And with me for today's conference call, I have the company's CFO, Jesper Alm.

For those of you who are not familiar with the RevolutionRace, I will start this presentation by giving you a brief introduction. RevolutionRace is an international outdoor brand offering a wide range of outdoor products, mainly clothing, but also other products such as shoes, bags and other products. Everything started with pants, and that category is still the largest product category. We operate with a digital D2C business model, and that means that we skip the middlemen and sell our products directly to our consumers. We do this mainly via our own website, RevolutionRace, or through marketplaces such as Amazon.

RevolutionRace was founded in 2013 and launched in 2014, and we have been listed on NASDAQ Stockholm since 2021. Our headquarter is located in Sweden, and we have today approximately 130 employees. And with our digital D2C model, we can secure our competitive offering and at the same time, maintain industry-leading margins, but also the model makes it possible for us to act fast and for example, react to changes in the industry, which is important these days when the market is uncertain.

RevolutionRace has now become an international brand. And this picture, I think, illustrates very well our international presence. We have customers today in around 40 countries, and we have 18 localized web shops. In fact, we actually opened the possibility for customers in Australia, South Africa and also New Zealand to buy our products, and we are now pleased to report that our first orders from all these 3 new countries have been received. We are currently fulfilling orders at our 2 main logistics hubs with partners in Germany and in Sweden, and we also have a smaller location in the U.S. We have all our employees working out of Sweden, and we design all our products in-house and then work together with more than 25 important suppliers for the production in Asia.

Okay. So now let's take a look at the performance and sales development for the second quarter of our fiscal year. And we are very pleased to present continued growth and strong results. And in fact, both sales and EBIT hit record levels and all-time highs during the last quarter. Sales during the quarter were particularly strong in November and net sales for the entire quarter amounting to SEK 684 million compared to SEK 630 million a year ago. And the sales growth was then 12% in SEK and 11% in local currencies. So we continue to increase our market share, and we are satisfied with this development, especially as the market continues to be challenging.

In the second quarter, we delivered growth across all 3 regions. The DACH region performed well, growing by 15%, and we saw sales in Austria and Switzerland continue to show solid growth. And now Austria, now being our third largest individual market in the company overall for the quarter.

Looking specifically at Germany, reports show that the overall consumption declined during October and November, while we continue to demonstrate solid growth over the same period, which I think is a sign of strength. The growth in the Nordic region amounted to 9% and sales growth in Sweden reached 15%, but the region was negatively impacted by continued weak sales in Finland.

Sales in the Rest of the World region continue to grow. And the most important note here is that we continue to see good growth in the U.K., which is the biggest market in that region. So all in all, a good quarter in many markets despite that the market remains challenging. Based on the growth we are reporting and the data points we are also monitoring externally, we believe that we are outperforming the market overall and continue to increase our market shares.

And if we continue to look closer at the other highlights during the second quarter, looking at the numbers, it is our best quarter ever, and we have successfully maintained strong and industry-leading both gross margin and operating margins. Sales hit our all-time high, and our EBIT is also a new quarterly record. The gross margin for the second quarter was 70.3%, and the adjusted EBIT for the quarter amounted to SEK 162 million, resulting in an adjusted EBIT margin of 23.6%, which is industry-leading. Our financial position continues to be strong with a net cash position of SEK 270 million at the end of Q2, and this is despite that we have been distributing a dividend of SEK 132 million during the quarter and also repurchased shares worth SEK 59 million under the repurchase mandate approved by the AGM and initiated by the Board in November 2024. And also in accordance with the AGM decision, we have canceled 3.3 million previously repurchased shares, representing 2.9% of the total shares.

Lastly, also in the balance sheet, we have an inventory position to facilitate our sales volumes. Due to logistical disturbances in the world, we have produced some products earlier compared to previous years in order to secure that we always have relevant products in stock. This, I think, gives us a competitive advantage and also impacts the inventory level somewhat. But all in all, we are satisfied with the inventory position.

Our customer relationships and their active engagement in providing product reviews are crucial to our success. I say this often and used to repeat it, but I cannot emphasize enough the importance of our community. We have an asset-light balance sheet, but our most important asset is our satisfied customers and that we have now more than 2 million followers on our social media channels and the number of unique product reviews now exceeds 700,000 with an average rating of 4.6 out of 5.

We continue to expand and refine our range of outdoor products. Sales of our Alpine Collection launched last winter and something that we expanded for the current season performed very well, and we see growth over 3x compared to the second quarter last year. And now we are selling Alpine during this season for approximately SEK 100 million. Our winter jackets, such as the new model Scenic and Rhyme introduced in September, received excellent ratings from our customers and we are nearly sold out of these products during the quarter. And as we look ahead to the spring, we are excited about the launch of new products, including a highly exciting introduction of a new footwear program.

And with that, I would like to hand over to the company's CFO, Jesper Alm, who will now present and walk through the financial performance during the quarter. So with that, Jesper, please go ahead.

Thank you, Paul, and good morning, everyone. I'll talk you through our financial performance during the second quarter. Gross profit amounted to SEK 481 million, which represents a growth of 12% compared to the SEK 431 million a year ago. And it equals a slightly improved gross margin amounting to 70.3% versus 70.2% a year ago.

Moving on to operational expenses. We see an increase in personnel expenses in absolute terms compared to the same quarter last year. The increase in number of full-time equivalents is up to 134, and that's primarily attributable to the product and production side of the organization, which is in line with the company's strategy to invest more in product development. Personnel costs as a share of net sales was 4.7%, which is in line with Q2 last year.

Other external expenses increased to SEK 290 million compared to SEK 252 million a year ago, and which as a share of net sales of 42% is in line with the level last year. The cost increase in absolute terms is explained by these costs to a large extent being variable in relation to sales. EBIT for the quarter amounted to a record high SEK 158 million compared to SEK 143 million a year ago. And adjusted EBIT amounted to SEK 162 million compared to SEK 146 million that we showed a year ago. This translates to an EBIT margin of 22.9% and an adjusted EBIT of SEK 23.6 million compared to the SEK 23.8 million last year. And the adjusted EBIT margin over the last 12 months amounts to 20.6%.

The balance sheet remains stable with changes in line with seasonality. Net working capital increased to SEK 118 million compared to SEK 84 million a year ago. And changes in net working capital is primarily driven by an increase in trade payables and higher inventory levels. To address uncertainties around the global logistics disruptions, we have brought forward purchases of important products to compensate for increased time at sea. This ensures high availability of key products and has resulted in a higher inventory level in support of future sales volumes. The inventory amounts to SEK 592 million, of which SEK 403 million was goods in warehouse, which compares to SEK 322 million a year ago. And goods in transit, being at sea, has increased from SEK 94 million last year to SEK 161 million this quarter.

Cash flow from operating activities came in at SEK 327 million in Q2. Our financial position is strong, and we had a cash position of SEK 280 million at quarter end or a net cash position of SEK 270 million when adjusting for lease liabilities. We still have an undrawn credit facility of SEK 600 million available, which expires in 2028. So in conclusion, RevolutionRace has a strong financial position.

RevolutionRace aims to distribute 40% to 60% of profit for the year in accordance with the dividend policy. And based on the resolution passed at the AGM in November '24, a dividend of SEK 1.20 per share was distributed to shareholders during November, corresponding to a total of SEK 132 million. This represents a dividend growth of 40% and a payout ratio of 43%.

In addition, we repurchased shares during the previous financial year and during the first and second quarter of 2024, '25 financial year for a total amount of SEK 225 million, and we currently hold around 1.6 million shares of 109.6 million shares outstanding. In accordance with the AGM decision, we have also canceled 3.3 million previously repurchased shares, and that represented 2.9% of total shares.

So I think that sums up my part, and I'll hand back over to you, Paul.

Thank you, Jesper. So to sum up, we are, of course, happy to report record numbers. Market conditions remain challenging, but we start to observe signs of an improved consumer climate in some markets such as Sweden. And as a result, we have also seen stronger performance in Sweden. And as that market stabilizes, we are well positioned with a strong financial position, satisfied customers and a competitive offering that continues to deliver high-quality products at competitive prices. So we see strong potential to continue our growth journey, and we also note that sales during the first weeks of January shows some growth compared to the same weeks last year.

And that concludes our comments on the results. And before we finish, I would like to thank -- take the opportunity to really thank the whole team at RevolutionRace, but also our customers, shareholders and partners, and I look forward to continue to grow and create value for the future with all of you. And with that, we are now happy to answer questions. So Operator, do we have any questions?

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

Congratulations on a strong report. I think I'll start off on looking at the gross margin here, which has been, of course, much stronger than we in the market anticipated and quite stable in this market. Would you say that you are experiencing less markdowns now in the market compared to a year ago? Or how should we view it?

Emanuel, I think as you mentioned, we have managed to maintain a stable gross margin despite that the market has been challenging. We have seen -- it's hard to say exactly how the market has performed in terms of markdowns compared to a year ago. But we -- I think when it comes to price reductions, we have had roughly the same -- we have seen roughly the same levels at our end compared to a year ago. We think that I often get the question why -- if we have increased prices. And I think that it is important for us to stay very committed to our position in the market with good quality products at competitive price levels. So we have also during the period, we have successfully launched new products. And of course, all these new products, we have been extremely prudent or we haven't seen any markdowns on new product launches. So that has also contributed to a stable gross margin in a competitive and challenging market.

Perfect. And is it possible maybe to give us some more color on the different months in this quarter? You are mentioning November as particularly strong. So maybe if you can maybe see or give us some color on how that developed into December?

Yes. I mean I think we actually gave a comment on October, when we announced the latest quarter results saying that the growth in October was slightly above the growth that we reported in our first quarter. I think that was 5%, so slightly above that. November was definitely an important market in terms of sales. And I think that for sure, November is by far definitely the most important month during the quarter and for the full year. So without specifying too much, November is significantly higher than December nowadays. Looking back a couple of years, I definitely see a shift from December sales happening in November instead.

Perfect. And looking into next quarter then, I mean, if you're seeing slight growth now, should we expect maybe continued or maybe some more pressure on markdowns from your end into the next quarter in order to drive higher growth?

No, I think that is not the plan. We don't plan to grow by increasing markdowns. I don't think that that's the way to do it. But looking at the current quarter or the first weeks, at least of that quarter in November, we do see that the market is challenging. As you know, we have more than half of our sales being generated from Germany. We, of course, read the newspapers and see reports that Germany looks very challenging. And we are, of course, extremely humble about that. So -- but what we have seen so far during the last couple of weeks in January is that compared to the same weeks last year, we have seen some growth this year, which is, of course, promising.

Perfect. And the last 2 -- couple of questions from my side here. Did you say that the Alpine Collection has sold for a total of SEK 100 million? Or will it be around that number post Q3 or so?

It's more an estimate of how much we will sell during this full Alpine season. I mean we are now at the end of January. We still have February and maybe some sales in March. But we have, of course, have had a fantastic development of our Alpine -- sales of our Alpine Collection so far. So it is an estimate, but I'm pretty confident that we will be very close to SEK 100 million this year, which is at least 3x higher than last year. So this is extremely promising and also give us confidence as a widening of the assortment and entering new product categories and develop many of our product categories is an important growth pillar for the company. And this is, I think, a sign that our customers are satisfied with what we deliver, and it's a way of capitalizing on that database of satisfied customers and continue to develop the assortment of outdoor products that you can now use for outdoor activities. So I think this is very promising.

Yes, it's indeed a very impressive development. And how does the Alpine Collection compare in size to the footwear collection at the moment in terms of turnover?

So they are actually pretty close if we do -- if we hit those SEK 100 million, as I mentioned. But bear in mind that the Alpine Collection is only sold during a limited period during the year and the footwear is for the full year. So no, I think that the Alpine Collection or the ski collection has shown a very promising start. And hopefully, yes, we look forward to next upcoming years, and we will continue to develop that collection with new products and new colors and new functionalities. So yes, very excited about that.

Very fun to hear. And lastly from my side here, you're opening up in 3 new regions. Is that also a sign that the development in South Korea and Japan has at least been decent, okay? Or how should we view it, you think?

I don't think we should over-interpret the opening of these new English-speaking countries. It is very easy. The investments are pretty low for us to open up in new countries. We do use our dot-com site, the American site and open up the possibility for customers to buy from us. So what we have done, we have secured that we can ship to those customers so the customers can return and that payment can be done. But otherwise, it's like the customers are buying from the U.S. website. We have already received orders from these countries, and we get it almost on a daily basis. But you should not over-interpret it. We have -- as you know, we have 18 localized web shops. Those are the countries that we focus more on and then we open up the possibility for customers in -- up to 40 countries in total. And I think this is only an additional step of that. But it's not that we are focusing on Australia and New Zealand for the moment. But opening up is at least the first small step in that direction.

The next question comes from Benjamin Wahlstedt from ABGSC.

Well done. A few questions from me as well. I was wondering, first, following on your point, Paul, on taking market share, if you have a feeling for what the outdoor market growth in the quarter is? Any rough estimate?

Yes. We actually did receive. We saw that the -- at least in Sweden, it's our second biggest market, accounting for roughly 10% of our business, in Sweden [ Svenskt ] the Swedish trade association reported Sport Index early this week. And they break out the performance of the outdoor clothing market reporting a decline of 14%, during Q4. And we are growing 15%, during the same period. So at least that indicates that we are in our second biggest market is definitely increasing market share. I think that's at least a good number to benchmark. We have access when -- we base the assumption that we increase market shares on the report that we have access to and the Sport Index in Sweden is one example. We have access to data from Google, for example, looking at different kind of searches, payment providers, we can see how our peer group is performing and how we are performing in relation to that. And I think it's safe to say that we do see the same signs, maybe not that we are growing 30% market share across the line, but definitely double digits in many of the important markets. We are pretty close in our reporting -- in the reporting cycle, we do expect some reports also from many of the industry colleagues in the upcoming weeks, which will, of course, also deliver additional information on market performance.

Yes, absolutely. I was also wondering if you could give us any indication at all on the relative size of the months in Q3 and potentially if there are any significant differences in comps to be aware of?

Well, March is definitely the biggest month in our Q3. Relatively, the other months, it's like maybe it's less than 50% of the total quarter, but it's a very important month. January is normally a bit slow after the peak season. February is like a middle month and then the most important month is March without giving exact numbers.

Perfect. And then finally from me, Rest of World underperformed the other 2 geographical segments. Any additional flavor on what sort of markets might be faring a bit less good? You mentioned U.K. as a winning country, but what's on the other side of the spectrum, please?

I think most of the countries are growing, especially the one that we are focusing on. And we have -- of course, it is promising to see that U.K. is continuing to show very good promising development. It is growing much faster than the total growth for the -- in the region, but also for the company in total. So that is, of course, promising. We have good momentum there, and it is the biggest country now in that region, and it's also a market that we hope very much can sort of take off. Our Q2 is a bit slightly more geared towards existing customers. There is a lot -- it's very campaign active. We do send out offerings via e-mails, for example, to customers in the existing database. So it's -- you can see slightly that we do sell more to existing customers versus new customers. And that is, of course, also impacting the split slightly between the regions. We did hope for slightly more sales in the Rest of World region, but all in all, especially with U.K. standing up positive, we are satisfied with the development.

The next question comes from Victor Hansen from Carnegie.

First off, congratulations on a good report. I think it's good to see sales growth bouncing back. And my first question here, a follow-up on Germany from the first speaker. So I'm wondering what explains the high growth here in Germany. So we know that the consumer is very weak in Germany. Some say that we're not even at the trough yet consumer-wise. So is there possibly any trading down effects benefiting you? Or what else could explain the strong momentum in Germany that helps you?

Yes. I think it's extremely hard to be -- to give an exact answer. But I mean we have seen over the last couple of years when the market has been weak that we have managed to -- I tried to repeat that during many calls now, but we've managed to continue to increase market shares. And I think that our core offering is very strong also in a challenging market. We do -- we sell products sometimes over -- under EUR 100, which is a good price point, good products at competitive price levels. I think that is something that attracts also in challenging times attracts some consumers. We have seen that in markets like Sweden, even though the market has been challenging, we have seen negative growth. We have been pretty certain that we have continued over -- during that period that we have increased market shares. And I think that this Q2 really shows that, that is a fact in Sweden. So we are humble about the situation in Germany for sure. We understand that consumer confidence is decreasing. But I think that also in -- I think that we have a proposition that could be really appealing during both good times and bad times. So I think the answer goes really back to our strong customer offering and the high degree of customer satisfaction that we managed to maintain.

And another and final question for me. On the outlook, Paul, you mentioned here, "some growth." I was hoping you could expand a bit on that. So compared to the Q2 printer of 11% organically, how does it compare? I know that January is a relatively small month, but still. Just speaking for myself, I interpreted that slightly lower than the 11% just give you some context.

Well, what we do see is that the market remains challenging. That is for sure. We've seen new comments from industry and experts during the first weeks of January also. So it looks like that the consumer retail in general remains challenging. And we are, of course, humble about that. What we have seen so far is that we have seen some growth during the first weeks now of the quarter in January compared to the same period last week. And due to the sort of market situation, we have chosen to use that sort of phrasing, and I don't think that you should interpret it more than, that it is higher than the same period last year simply.

The next question comes from Johan Fred from SEB.

Just following up there on Victor's question on the current trading. I'm looking at your -- or the report -- last year's report, then you stated that sales growth in January was in line with the prior quarter, when you reported sales growth of 20%. And in your statement today, you said that sales during the first few weeks of January showed some growth compared to the same weeks last year. How should we interpret this? I know you've tried to clarify this, Paul. But if you don't mind, how should we interpret the statement? And yes, how are sales tracking compared to your Q2, the recently announced numbers? That is my first question.

Yes. So we choose not to guide. We have chosen historically and also in this report just to sort of report what we have seen so far. So last year, we did see growth. If I recall correctly, that was in line with the growth in the previous quarter. That was clear. So we choose to report it. And this year, in January, we do see some growth compared to the same weeks a year ago. And I think that is as close as we sort of report that we can give on current trading. And hopefully, that helps sort of to interpret it. But I think it's up to you guys to interpret it even more if you want to. But last year, we could be more clear because it was very much in line -- and this year, it is -- yes, we do see some growth compared to the same period last year. And that is what we report simply.

And yes, I think we are satisfied with that answer. So a follow-up then on the Alpine Collection. You said that the season or sales throughout the season will amount to roughly SEK 100 million. And you, as I interpret it, stated that this is a growth of 300%. Is that correct? From the same period from the prior period?

Roughly, yes, slightly over maybe, but roughly.

Yes. Fair enough. And the final question on Rest of the World. Sales have slowed sequentially for the last 5 quarters or so. How are the different geographies in the segment developing? And what seems to be the issues here? Why are sales slowing from a fairly low base as well?

Yes. I think, first of all, I mean, in total, it also boils down a little bit that we have a financial target that we want to balance our growth in total with also delivering a healthy EBIT margin on a total level. And in the Rest of the World countries, we have much lower market share compared to mature markets such as Germany and Sweden; so resulting in that we need to invest more in recruiting new customers in those markets. And we did choose to do that in U.K., and we have seen very promising growth in the U.K. and it is the most important markets. And Q2 is more geared. I think I mentioned this earlier, is more -- we can see more sales from -- compared to other quarters generated from existing customers. And since we are offering campaigns to people, for example, do subscribe to our newsletters and other kinds of channels. So I think that is also one explanation that we do see higher sales from existing customers. And those are, of course, being generated from bigger markets. And I think it is important also to balance growth and growth initiatives will continue to deliver a healthy EBIT margin on a total level.

Very clear. And any comments on how the U.S. is performing? You said that U.K. was performing well, but what about the other markets in the segment?

Yes. We have other markets, especially Europe. I think in the Rest of the World region, the other countries that we are sort of excited about is in Europe, Netherlands and Poland continues to show good growth, not the same growth as U.K. And those, I would say, are the countries outside the Nordics and the DACH countries that we are focused on for the moment. U.S. continues to sort of grow, but we take it a bit slow. It's not -- we don't put in any heavy investments, and it is important for us to always secure that we do operate on at least breakeven level in all new markets. And that, of course, puts some sort of limitations on how much we can invest in growth. But we choose to sort of operate on that level. And I think this served us well historically to be disciplined on continuing to deliver healthy margins during our journey.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments or written questions.

Thank you, Operator. And before we wrap up, let's see if there are any other questions online that we haven't answered yet. And maybe I'll ask Jesper here to read the question, and then I will try to answer them.

Yes. Thank you. We've received a couple of questions, 2 questions from [ Philip Vqvist ] and one is relating to Rest of the World that has already been answered. And the second question is, as digital marketing costs rise rapidly and customer acquisitions become more expensive, how will that affect the margins in the future?

Yes. So first of all, we have a financial target that we want to aim for a growth of 20% and at the same time, maintain an EBIT margin of 20% on an annual basis. And so that is, of course, a target that we, yes, we aim for. So when we look at digital marketing cost, I think it has been pretty stable compared to a year ago. We can see slightly that in our segment, costs at -- we have 2 big channels, of course, Meta and Google. And we can see a slight, slight, slight increase, but that's very small in -- when it comes to Meta. But when it comes to Google, it's a slight decrease. So all in all, digital marketing costs are more or less in line with what we saw last year in the same period. But please have in mind also that these are numbers that are sort of related to our product segments. And so that's important to note also.

Good. And that sums up the questions received by -- online.

Okay. So with that last comment then, I would like to thank you all for joining us today and for your interest in RevolutionRace and our journey. And may I also remind you that our report for the third quarter in our fiscal year will be announced on May 6. So with that, thank you, and goodbye.