Earnings Transcript for THULE.ST - Q2 Fiscal Year 2024

Operator: Good morning, everyone, and welcome to the Thule Group Interim Report Q2. [Operator Instructions] I am now going to hand over to your host, Mattias Ankarberg, CEO to begin. Mattias, please go ahead.

Mattias Ankarberg: Thank you very much, and welcome everybody to this Q2 call. I'm as previously joined by our CFO, Toby Lawton and we'll get going straight away. Overall second quarter was a quarter with a good financial result, despite us making big investments for future growth. We saw some sales growth in the quarter, strong profitability and importantly have now launched lot of products, but also two new product categories this first half year. So covering some of the highlights and speaking to the presentation material available. Financials first. Sales is up 2%, FX adjusted versus previous year and fairly the same across the geographies. We’ll talk about the product categories in more detail in a minute. We continue to see a tough market out there in general and in particular, in some specific areas. And we also continue to see good growth from new Thule products and from bike related products. We have a gross margin, which increased to an all-time high in the quarter 44.2%, which we are of course pleased to see, and that helps us to deliver an EBIT margin, which is in-line with last year despite us making investments and therefore higher costs in SG&A to drive product launches and new product categories. Strong cash flow, again also in Q2 and helped by EBIT, of course but also continued inventory reduction and on-track to meet our target of reducing it by SEK200 million by year-end. Quite a few highlights in this quarter. Car seats has been initiative long in the making, now launched in the first European markets. We've got another recognition for our design team, which we're really proud about. We have a minor acquisition that happened actually at the -- in early July so after Q2. And we've also put a new refinancing package in place during Q2 and we will come back to all of these points. But before we do that on the next page, we'll take a bit of a bigger picture view. Of course this is a quarterly update. But as you know, we at Thule take a long-term view of driving the business and it is therefore nice to reflect on the long-term development at least once in a while. Long term, we have driven profitable growth for many years, and it is nice to see now that after sort of the COVID ups and downs that this year, we are back to profitable organic growth again. On the last 12-month basis, we have a net sales of SEK9.4 billion and EBIT of SEK1.6 billion and an EBIT margin of 16.6%. With that long-term perspective commented on, we can turn to keeping the finger on the pulse on the quarterly performance, and on Page 4 as you know, we are a very product-driven company, so I'll speak to the development per product category, and we have four main product categories, starting with Sports & Cargo Carriers. In the quarter it increased very modestly with 1% sales. We do see continued growth from bike-related products, premium bike-related products, specifically. And since almost a year now bike retail inventory of Thule products have been at a healthy level in Europe and getting there in North America. In the quarter, we do meet some strong numbers from some good product launches, particularly Thule Epos that was launched in Q2 last year. But overall, there is still a good growth in bike-related products for us in Q2. We've also launched a new generation or an updated version of the world's most sold rooftop box, Thule Motion, Thule Motion 3, which has been really well received by the market, so very pleased about that. We do see a continued tough market overall in this segment, and with the cautious consumers and retailers and particularly in North America, where we outside bike-related products, see a decline in the business in the quarter. Packs, Bags & Luggage stood out in the quarter, as the fastest growing product area with 5% plus, FX adjusted for us. And even faster is the Thule branded products which grow strongly again in Q2, actually even more than in Q1, due to the fact that we now have more product launches in the market this year. So we've updated the best-selling luggage collection we have Thule Subterra. We've updated the duffle bag collection, Thule Chasm really drives good growth for us. In general, we see growth in bike-related and also travel-related bags products. But this is also as previously partly offset by us continuing to exit some legacy product categories, non-Thule branded products in this area. On the next page, two more product categories. We see good growth also in Juvenile & Pet, and again it is the new Thule products that drive the growth. We've had a very successful introduction of our upgraded best-selling stroller, our all-terrain stroller, Thule Urban Glide 3, which has continued to deliver strong growth for us throughout the quarter I should say, very positive. We have as you probably know, the first full quarter with a dog transportation product, that dog crate Thule Allax, which, of course helps. And then -- which I think is a sign of the market characteristics at the moment. We have seen a bit slower sales of multisport and bike trailers as retailers have been cautious with managing inventory ahead of the launch of the next-generation product which was introduced to the market just at the very end of June. So that, I think is an interesting sign of how retailers are cautious unless there is news in the market. Car seats also of course, helps. Although volumes are very small in the first quarter, first products were introduced in the first [market] (ph) end of May, and I will come back to that. RV products has been in decline for several quarters, and the RV industry continues to go through a challenging period. Net sales increased less in Q2, only 1% negative, which of course, is nice to see. It is really a mixed picture in the quarter where we do see a decline now in sales to OE customers or manufacturers, vehicle outfitters, but nice to see this partly being offset by a return to growth in the sales to the aftermarket channel or the dealers in the quarter. Then I would like to cover some of the highlights a bit more specifically, and we can start with car seats on Page 6. And car seats, it is a much awaited launch with several years in the making, and now we are live. We launched in three countries, German-speaking countries in Europe, Germany, Austria and Switzerland at the end of May with three products, a base an infant seat and a toddler seat. And we are really proud of the products, innovative products, safety in focus easy to use, Thule design language and really putting safety in front -- left, front and center, so to speak, with our approach also being making sure that it should be easy for the consumer or the user to make sure the product is installed correctly and safe to use. We have got good reception from the industry and from our premium retail partners. We have got good placement with key retailers, premium retailers in these countries. We've had a positive reception from media, and we have got no less than six product design awards from iF DESIGN and Red Dot even before launching the products in the market. So it's a nice start for us. And now the long-term work to build market positions in this category has started. We will continue to roll out these products to more European markets throughout the half year two of this year, two countries in Q3, but most countries commence sales in Q4. And then we, of course, have more products in the making, both for the European markets and also for North America. I also wanted to highlight the -- another recognition for our design team. We were named the Red Dot Design Team of the Year in 2024. You may remember that the last quarter -- the previous quarterly update in Q1, we were proud to see more product design awards than ever before, 23 design awards from a combination of iF DESIGN and Red Dot with both being awarded for upgraded versions of our bestsellers, some new innovations and products in our new categories. And now we also during Q2, got the award Red Dot Design Team of the Year, or best of the best as it is sometimes called, and it's really nice to see, really proud of the team. We can't apply for this award. It is really something which is awarded through an independent jury. And nice to see the Thule design team being mentioned in the same sort of category as Sony or Apple or Philips, as some of the earlier winners. So proud of the team. One more highlight from me before handing over to Toby for some financials. We have done a small or a minor acquisition in the beginning of July, thereby entering the category for water sport and cargo bike trailers, a German company called Reacha. It is a small business, but it's an interesting niche category of water sport and cargo bike trailers, which is emerging and fast growing in Europe and basically any sort of infancy in North America. Often, we find that -- we are a very product-oriented company and want to have the best products in the categories where we operate. And we often find that in these new categories, the best products are often done by real enthusiasts. And in this case, it's the inventor with a passion to surf and needed to find a solution to transport his surf boards to the French Atlantic Coast when he was surfing, and invented this product and has developed it over time. And it's really a high-quality bike trailers for this kind of products and holds a strong market position in this little niche in Europe. So we will integrate this business fully into Thule operations. It will be a Thule product. It will be Thule branded, and it will be distributed and manufactured throughout sort of Thule channels. And it is small, but quickly provides a starting point for us to continue to grow in this niche. Good fit with our existing portfolio. And with that, I will hand over to Toby to cover some financials in more detail.

Toby Lawton: Thank you, Mattias and good morning everybody, and we can turn to Slide 9 on the income statement. And here you see the income statement is by quarter for both 2023 and also the first half of 2024 and focus here on the quarterly development, which is the recent news. And we had sales in the second quarter of SEK3.1 billion which was a growth, as Mattias has said, of 2% versus last year. You can see then the gross margin here was strong and it is an all-time high at 44.4% in the second quarter. That's close to 1% up versus Q2 last year. And the driving factors here are favorable product mix and lower material costs driving the improvement in gross margin. When it comes to the EBIT margin, it's more or less flat. It's 23.6% for quarter two this year, and it was 23.5% in quarter two last year. And this is of course, helped by the higher gross margin, but the selling and administration expenses include investments to support the new product launches which means we end up with a flat EBIT margin for the quarter. Absolute profit then is SEK732 million of operating income versus SEK711 million last year. So profit EBIT is up as well. When it comes to the net interest expense and effective tax rate, I'd say they are both stable. You can bear in mind that last year, there was a one-off positive in the net interest expense related to foreign exchange. But otherwise, it is very stable in terms of net interest expense and effective tax rate, which is slightly better this year than last year, all-in-all, resulting in net income for the quarter of SEK559 million or net income for the first half year of SEK858 million. With that, I can click on to the next slide, Slide 10. And here you see a bar chart showing the sales by quarter. And first of all I think you can see from this chart that we are of course, a seasonal business, and the second quarter is the largest quarter, so you should bear that in mind that our business is strongest in the second quarter. You can then see from sales growth -- I think you can then see also from this graph which shows the development since 2019 and it is important to bear in mind that 2019 was the last year before the pandemic and we had some large swings during the pandemic and just after the pandemic, so we keep track of that on this slide. But when it comes to sales growth for the second quarter as we've mentioned, sales growth was 2% versus 2023, and we had 8% sales growth in the first quarter. But when you look versus the pre-pandemic before these swings Q2 was actually slightly better versus 2019 than Q1 and is also more in-line with the peak pre-pandemic years. So I think it is important to just bear that in mind when looking at the sales development. If we look specifically at the second quarter, what was driving the growth in the second quarter is bike related and new products driving the growth. And then on the other hand, it is RV, where we have a decline, but it's less of a decline than we had in the first quarter. All right. With that, I can click on to Slide 11 and finally, one slide on the cash flow. And we continue to have strong cash flow generation in Thule, and that is driving a deleveraging of the balance sheet. So it's very good to see. And we delivered, in the first half year SEK819 million on the bottom right here of both cash flow from operations, but after deducting the investments. So good cash flow generation. Then this is driven also by a good performance on working capital, and we had a good reduction in working capital in the second quarter which is really driven by a reduction in inventories. And we have an inventory reduction target for the year of SEK200 million. And we are -- as I say here, we are on track for that target. We are actually overshooting that target in the second quarter. But you should bear in mind that inventories do normally go up in the fourth quarter due to seasonality. When it comes to the net debt, we are now at a net debt of SEK1.753 billion versus SEK2 billion at the end of last year. There is some SEK250 million lower net debt, and that's driven -- we've got the positive cash flow, which more than funds the dividend payment, which was also made in the second quarter here. So that leads to a deleveraging, and our net debt to EBITDA has now come down to 1.0 times EBITDA when measured on a last 12 months basis. And then a final point here to mention that we've refinanced during this quarter, and that refinancing has basically extended the maturity of our funding. And the refinancing consists of an RCF, a Revolving Credit Facility, of EUR320 million and a term loan -- bilateral term loan of EUR80 million. And these new funding basically extends our maturity, but also has diversified our maturity profile. So we have a maturity spread between three, four and five years. And we're very pleased to see that our banks have given us good support and really want to continue to support Thule's growth journey. So happy to see that. And with that, I will hand back to Mattias.

Mattias Ankarberg: Thank you, Toby. I'll round up with just two pages on the bit forward-looking. We are on Page 12. We are -- this year in the most intense product launch year in Thule history, as I'm sure you're aware, and we've done a lot. But the good news is that there is more to come. We've already launched several upgraded versions of existing bestselling products and also several new innovations. And more importantly, for the future we've also now entered two new product categories

Operator: Thank you very much. [Operator Instructions] We've got our first question from Fredrik Ivarsson from ABG. Please go ahead.

Fredrik Ivarsson: Thank you, hi Mattias and Toby. I have three questions. I'll take them one by one. First one on the gross margin. I don't think you mentioned better absorption as a sort of key driver for the margin expansion, which is something you've been talking about before. So can you comment on that and also how to think about absorption as we look forward a bit?

Toby Lawton: Yes, I could take that directly, Fredrik. Toby here. But absorption is also positive. We mentioned the two that are really driving the positive effect this quarter is lower material cost and the better product mix. So those are the two biggest effects. But absorption is also you can say, improving as basically production levels improve going forward.

Fredrik Ivarsson: Okay. Clear. And second question, also on the gross margin, lower raw mats, obviously, support. I guess that is mainly on the back of the lower aluminum coming down obviously from the extreme levels we saw in 2022. So do you see that this is becoming a sort of headwind in the coming quarters since aluminum now is up 10%, 15% versus last year? Or is that not relevant?

Toby Lawton: I think -- so basically, it is -- the reduction is you are right, aluminum is a significant part of it. It's not just aluminum, but it's a significant part. And it's -- the reduction has flattened out, and we do see aluminum going up a bit, but it is much less dramatic increase as we -- prices as we've seen in the past. So it is -- but you're right that we do see that effect flattening out or even slightly increasing when it comes to aluminum.

Fredrik Ivarsson: Okay. Thanks. And last question from me on the product development cost. We've been talking about those for a while. And for the full year, I guess you guided for same level as last year, which was a bit above SEK600 million. And also that it is going to be tilted towards the first half of the year with, I guess, Q2 being biggest given all the launches you made. So can you give a ballpark number on how much of these costs you took either, I guess in Q1 -- or sorry, Q2 or H1? Or just any color on those -- on the sort of phasing of those costs would be helpful.

Mattias Ankarberg: What I can say, Fredrik we don't give those numbers quarterly as you say. We give selling expenses, which include product development. But we do expect product development to be flat this year versus last year. So that guidance, we still stands. That's what we expect. And then it's worth mentioning, selling expenses includes also sales and marketing costs. And there are also investments in sales and marketing costs for the product launches, and that you've seen in the first half year in Q1 and Q2 as well. We expect -- and I could just add to that. We expect that impact to be a bit less in the second half, but it will also be -- is a higher sales and marketing cost this year versus last year because of supporting the product launches. So we'll still be a bit higher in the second half, but less so than in the first half.

Fredrik Ivarsson: Okay, fair enough. I will jump back into the queue. Thanks Toby.

Operator: Thank you. We've got a question from Daniel Schmidt from Danske Bank. Daniel your line is now is open. Please go ahead.

Daniel Schmidt: Thank you. Good morning Toby and Mattias. A couple of questions from me then. Starting off with sort of sales. How did sales develop during the quarter? Because it was my impression when you reported Q1 that you were off to a similar start to Q2, as you reported in Q1, i.e., a good April. Has it sort of tailed off in May and June in terms of growth? And maybe you have put more difficult comparisons because you also had the April's launch and so on.

Mattias Ankarberg: Hi, Daniel, Mattias here. No, I think you are on to an important point when it comes to your last point of the statement that the comparables are really different quarter-by-quarter, but also within the quarter. And I think last year, even the CEO comments said something about weak start to the quarter, but the better end or something like that. So on a comparable basis versus just last year, there are clearly different patterns, as bike retail recovered and as we launched particularly Thule Epos, to your point, which had a great start already at the end of Q2. From a sort of more big picture or long-term perspective, as Toby said quite a few years ago now, pre-pandemic 2019 is five years out, but you can see that we were sort of stable between Q1 and Q2 or even a little bit better sales trend in Q2 versus Q1. And I think that's the reflection we have on a sort of more bigger picture.

Daniel Schmidt: Yes. No, but, of course, I understand that we can't see all the months, of course. But if you look at the April's launch last year, which you highlighted quite a lot had a terrific start last year, and you mentioned it now as well. And you stacked that up against what you have in the pipeline now in terms of dog crates and car seats, and -- how is that going to look in sort of Q3 maybe? Is that something you can comment on? Is this sort of the 2%, is that a good reflection of sort of the comp base going into the second half of this year?

Mattias Ankarberg: Well, a couple of qualitative comments around that. First of all, I think I also said in this quarterly report, but I think even more so in the last one when commenting on the launches for this very intense -- launch-intensive year that in the short term, of course, introducing new bestsellers or new versions of existing bestsellers, so upgraded version of categories we were already strong, of course, that has a big commercial impact from sort of day one. And building in new categories is the work that takes time. So I think that's an important thing to keep in mind. And then I think if you want to think more about sort of development specifically by quarters, I think my advice would be think a little bit about the momentum in the market and what we have got going on, but maybe also reference the historical numbers, to Toby's point, where you can get sort of another basis for growth. So we try to -- we want to grow. We want to grow faster than we are growing, for sure, but we also want long-term growth. And it may seem like a cliche, but we are not overly focused on sort of monthly or quarterly development. Of course, we want to grow fast all the time, but the most important thing is we're developing in the right direction and getting where we want to be.

Daniel Schmidt: You seem to be happy. I understand that it takes time to build new categories, but you do seem to be happy with Allax and car seats. And car seats are still the early -- very early days. It's only in three markets so far. But I think you mentioned two more markets in Q3. And how many more markets are you planning for Q4?

Mattias Ankarberg: Rest of EU, so quite a few.

Daniel Schmidt: Okay, okay. Good. And just maybe also coming back to top-line on RV and you mentioned -- or I think you are a bit surprised that it hasn't fallen more and you have sort of growth again in the aftermarket. And OE on the other hand declining, and you seem to be a bit more hesitant on the OE side, which I think is quite understandable given what we see in terms of the manufacturers in Europe. And there is, I think, announced downtime, extensive downtime from one of the bigger ones in August, which I guess is going to have an impact on your OE performance. But do you feel that it could be compensated by what you see on the aftermarket that they are neutralizing each other for the time being?

Mattias Ankarberg: Yes, you get the nuances very well there, Daniel, I think. And we had -- we're positive to see that RV is not declining as much as maybe we had feared during H1, to put it like that. And it's also, if we're keeping on the positive, it is nice to see that the aftermarket business is coming back now in Q2, which -- that's a business that's, of course closer to the consumer. And in general, we maintain the view that consumer interest is still good in this category, in attendance at fairs, et cetera, but it's been slow due to high prices and high financing costs. But -- so that's nice to see. But on the other hand, OE has kept up production for quite some time. And now we do see, to your argument, also production stops being announced. And we are expecting to see stabilized or positive aftermarket for H2, and the question mark is OE. And if production stops are prolonged or more players do that, then of course, that would probably be a negative in RV total for another quarter or two. But hopefully, the sign of a recovered aftermarket means that by at least year-end or so, we are back to an RV business, which is more in balance and back to flatter growth. So it's hard to comment on how this OE production stop game will play out and particularly short term over months and quarters. But that is the sort of factor that will decide the RV industry pace for the coming quarter or two.

Daniel Schmidt: And then just maybe jumping to the gross margin, which you already commented on. I think you have stated fairly clearly in Q4 and Q1 and maybe also in Q2 that you took tooling costs related to production of new products. Is that sort of behind us now as we go into the second half of this year?

Toby Lawton: Yes, I can comment. Basically, yes. Yes, it is.

Daniel Schmidt: And were they present in Q2?

Toby Lawton: We have tooling costs in Q2, yes, absolutely.

Mattias Ankarberg: We had tooling costs for several types of new product introductions, I would just like to add. So -- which we do treat as part of development costs and as part of SG&A, and we've done, so yes.

Daniel Schmidt: And I think you highlighted, of course that raw materials have been a tailwind and also a favorable mix. And then there was a question on under absorption or absorption of fixed costs, but you are -- you -- that was a reference to sequential development, right? Because you're still down SEK800 million in inventory compared to Q2 last year. So the production rate must have been lower this quarter compared to the same quarter last year, but higher than in Q1. Is that the right sort of observation?

Toby Lawton: We've absolutely -- we've reduced inventory this quarter, so that means we've basically sold more inventory than we've produced. I think that is quite -- that would have been the same in the second quarter last year as well, I think. So I'm not sure if that answers your question, Daniel, but -- so there is kind of seasonal --.

Daniel Schmidt: I got the impression that sort of absorption of fixed cost would have been positive, as a positive.

Toby Lawton: Yes, yes. As we reduce inventory, we are selling out the products where we -- which we produced during a weak period with worse absorption of fixed costs. So we do expect to see a positive effects continuing from a better absorption of fixed costs in production. Absolutely, that's an effect we see and we expect to continue for a little bit longer.

Daniel Schmidt: Yes. Okay, okay. Thank you. And maybe just a last question on sort of the new credit agreement. Is that a more expensive financing agreement in terms of the size of it?

Toby Lawton: No, it's – it is slightly different tenor, so -- but basically very competitive pricing and not -- no material increase. I think we refinanced also at a very competitive time last time, so we're happy to see we can match that cost basically. That was 2018, we set the prices on most of the previous financing. But we don't expect to see an increase in financing costs.

Daniel Schmidt: No. And the total size is about the same.

Toby Lawton: It's about -- it's slightly bigger, but slightly.

Daniel Schmidt : Yeah, yeah. Okay. Thank you.

Operator: Thank you. And another question from Gustav Hageus from SEB. Gustav, your line is now open. Please go ahead.

Gustav Hageus: Just to maybe get some more input there. With the costs from external warehousing coming down in the quarter, was it positive for margins? And then production, to Daniel's point, inventory came down, right? And you're -- you say that you're ahead of your own ambitions in terms of inventory reductions for the year in the first half, meaning, I guess, that you would produce a little bit more in H2, which should be good then for absorption effect. But can you weigh those points against each other and give us some indications on sort of the delta going into H2 and 2025 from that aspect?

Toby Lawton: Yes, yes. So I think, on external warehousing, Gustav, so as we bring the inventory down, it's -- we obviously don't need the same space for warehousing. So that drives an improvement in external warehousing, which is good to see a good side effect, if you like, from bringing inventory down. So that effect. But absolutely, as we go into H2, we expect to see production is going to be bit bigger. It's going to be higher production levels than we had during H2 last year. And we, therefore, as we -- as I said before, we do expect to see positive effect in absorption of production overheads. So that's -- then there is a seasonal effect in here, which I'm just a bit cautious of how I'm answering because inventory comes down in Q2 also because we have – it is also a high sales quarter. So you need to just separate those two effects, if that makes sense.

Gustav Hageus: Yes. Okay. And then -- sorry skipping to a different subject. You are right in the report about promotional activity in the market being high. Could you elaborate a bit on to what extent Thule participates in those promotions? And second to that, if -- following some quite high price increases from your end during the pandemic, would you say that the price gap now between your products and sort of good and better products from other producers have widened? Or is that similar to what it was two years ago?

Mattias Ankarberg: Yes. Good questions, Gustav. I think there is really been a promotional market in Q2. And I think we've talked about it little bit before as well. And Thule does generally mean -- it's our retail partners mainly that decide on the promotional activities, and not us. But typically, we don't see Thule products being promotionally activated to a high degree, particularly not the new products or the more recent products, the premium products. And we also see the premium segment doing better in general. Now of course some of our products are activated and particularly in some of the markets where there is a bit more clearly defined guidelines around promotions. So for example, in the US market where you have promotional windows that everybody participate in, more or less. I would say, maybe phrase it like this, that the promotional activity is high. I think Amazon is a good sign of that with more and more Prime Days and Prime Days extending to beyond Amazon and what's going on just as we speak in the marketplace. I would say that premium stands out still as better and still less promotional intense. And we perform better at the sort of premium price points, but we do also operate in sort of mid-price or low price for us. The mid-price in the market, and that is an area where we performed less strong, clearly, in Q2 than we do on the premium end of things.

Gustav Hageus: And with that as a reference, how do you feel about -- because you also report very strong gross margins, obviously now in Q2. How do you think about gross margins versus growth in terms of maybe being a little bit more generous to your retail partners on price with new products and so forth going forward? How do you resonate between the two?

Mattias Ankarberg: Well. We want to be -- if you think about the -- we want to think about it from sort of product portfolio perspective and we think about our products and the market in terms of let's call it, good, better, best. And we play particularly in the best area and a little bit in the better area. And then our focus is to continue to drive both the best and the better area, and varies by category where we are strong and where we want to develop. But when we have the best products in the market that are in the most premium or in the best sort of segment, we think that, that should also warrant the premium price. Premium product, premium price, and that's our stance on that. And there are a couple of areas where we could fill some holes in the product portfolio in the better segment, and that could help us by introducing more products at more mid-priced price points over time. But we are not trading down or actively reducing price or discounting our strong premium products. We see that that's where we perform as the best. And that's the way we think is the Thule way going forward in terms of both brand positioning and product development.

Gustav Hageus: Okay, thanks. Thanks for taking those questions. Appreciated.

Mattias Ankarberg : Thanks Gustav.

Operator: Thank you. [Operator Instructions] We've got another question from Mats Liss from Kepler Cheuvreux. Mats your line is now open. Please go ahead.

Mats Liss: Yeah, hi thank you. Thank you for taking my question. Just a couple of quick ones. First, you mentioned that promotion activities there. Could you sort of indicate sort of what segments you're more affected by those? And also are these promotional activities more related to high inventories that will continue to be built down, maybe not by you, but competitors?

Mattias Ankarberg: Yes. So I'm happy to comment on that. And then as a reminder, it's really a retail calendar and retail activity to drive the promotions, not -- and we are -- where we have some share of D2C. But generally, it's a retailers’ game and not our game as a product or a consumer goods company, just to comment on that. But we do see quite heavy promotional activities in some areas, particularly in North America, but also to some extent in Europe and in some product categories within Europe. And yeah a couple of examples, I think after the Memorial Day promotional period in North America which is a pretty big one in May, which I think in the auto industry a lot of retailers were not so happy about the outcome, I think the talk is promotional fatigue with consumers. We have clear examples where inventory is filling up with some of our retail partners and even buying departments at retailers placing orders for Thule products, but their logistics team is not taking it in because the warehouse is full. So clearly, there are some areas where there is too much inventory, to answer your question, in the market in general, where retailers want to get out of. So clearly, that's the case still.

Mats Liss: Okay. And what product categories are more affected? Or is it sort of evenly spread over the categories, so to speak?

Mattias Ankarberg: I would say it's a general phenomenon and I think geographically, maybe more different than categories. But if you look at some of the bigger categories we have, -- we see that clearly in Sport & Cargo in North America. We see clearly within Juvenile products and channels, both in Europe and in North America, a little bit less in travel-related products as that segment is now coming back to a healthier growth. We see also within RV, a bit I wouldn't say promotional, but maybe a bit back to or a bit steeper discounting from RV dealers to consumers to stimulate demand in Europe. So it takes different forms and aspects, but I think clearly, that is the one of the tools that the retailers -- or the dealers have to drive demand and clear out inventory during these times.

Mats Liss: Okay. Great. And just a final one, maybe I mentioned this. About bike-related products, what part of sales have you seen in the quarter? And could you shed some light on that?

Mattias Ankarberg: We don't give quarterly figures -- or actually, we don't give figures on bike-related sales per se. But we have stated that it's a big exposure for Thule, and that bike as an activity is the biggest exposure of any activity that we have as a company.

Mats Liss: Okay, great. Thank you.

Operator: Thank you. And we've got another question from Daniel Schmidt from Danske Bank. Daniel your line is now open. Please go ahead.

Daniel Schmidt: Thank you. Hi, again. Mattias and Toby. Just a follow-up on RV and mix. And you also mentioned mix as a favorable factor when it comes to the gross margin in the quarter. And you also said that aftermarket was up and OE down. Is there a big difference in profitability? I assume it is. Or could you give us any -- sort of shed some light on profitability in each segment?

Mattias Ankarberg: Yes, there is some difference in profitability of course. And we should remember that RV as a whole is 15% to 20% thereabouts, depending on the quarter of Thule. So shift within that matter, but other shifts also matter. I think regarding the product mix, two more points, Daniel. I think bike related being back to growth is good for us, good for margins in general. And then, look we had a lot of product launches this year, more to come. But we are focusing and introducing premium products, right that are sort of top end generally, which also supports gross margin.

Daniel Schmidt: Okay. So it's more there where you see the mix impact rather than the RV side. But I guess, the RV side is also slightly in favor.

Mattias Ankarberg: Correct.

Daniel Schmidt: Yes. But just on that topic then, you've made a lot of investments. You've taken a lot of tooling costs, as we talked about. But you also made investments in automation in Poland and Sweden and so on. Do you see the benefits of those investments coming through in the gross margin that you delivered today? Or is that more for later? Or is that gradually coming through?

Mattias Ankarberg: Well, you could say yes and no to be really transparent. Of course it helps us underlying. This is more efficient, and it also helps consistent quality levels, we should remind ourselves. But then again, are we running everything at full speed at the moment? No, we're not. So we do think it's good to see all-time high gross margin. We like that one of the big drivers is product mix, which is something we will continue to drive. And then yes, raw mats can sort of swing a little up and down. But with over time, a market recovering and us growing and therefore, getting better utilization of our factories, we of course, hope that, together with investments made to your point, should also be beneficial. So long-term, we are yes, seeing the positive effects of those investments. But right now, with the limited volume, still less so.

Daniel Schmidt: Yes. Makes sense. Maybe just a last question on the car seats, and you were very explicit when it comes to the European launch basically in entire Europe, as we get to the end of this year. US is a different story. Could you just update us there?

Mattias Ankarberg: Yes, yes. And we -- quick reminder for those of you who may not have all the context. There has been a new regulatory framework introduced in the US regarding car seats. We've been waiting for that, and we now know what the playing field looks like so to speak. As a newcomer into the category, we've also, as mentioned before, said we don't want to be -- we want to see a little bit how the big players take this into product portfolio specs. We have a fairly good view of what that looks like. It will -- we have a development project. It is underway. It will not be for 2025, and we have not yet commented on more details than that. So we will do that when the timing is right, but it is not for next year. There were -- there will be also product -- more products coming for the European market, which is also underway, and that we will also comment on more in detail within shortly.

Daniel Schmidt: Okay. Is it your expectation or hope that the new regulatory framework in the US, will put sort of pressure on price points to move north? And is that part of what you are waiting for?

Mattias Ankarberg: Well, we like when there are higher requirements for safety in such technical complexity, I almost said, but it's not a requirement per se. But when safety standards are high, we think that's helpful in driving price points, premiumization and high focus on quality, so Thule territory. And that is a positive with the new regulations, and we see that being -- moving in that direction. So yes, in short term -- in a short answer, yes.

Daniel Schmidt: Okay. And given this new regulation, is there a grace period for the producers to adapt? Or how does it work?

Mattias Ankarberg: Yes. To be honest, I am not even sure that is fully set, yet. But at least, I don't personally have all those details, as we speak. But there is a timing – there is a time frame when these new regulatory frameworks are put into place, but I don't have the details of that right now, Daniel. We could follow up separately with some of our teams, if that's important to you.

Daniel Schmidt: Sure, thank you.

Operator: Thank you. And we've got our next question from Adela Dashian from Jefferies. Adela your line is now open. Please go ahead.

Adela Dashian: Thank a lot. Good morning. A few questions from me, and I'm sorry if you've already answered them. I joined the call a bit late. The first one on this acquisition, maybe if we could get a view on your M&A strategy. Is it going to amplify even more going forward? And are these type of acquisitions typical rationale? Or are there other areas in which you wish to not only strengthen the existing offering, but maybe also then enter into new segments? And what are the purchase -- what are the price considerations on this kind of an environment? And does the market conditions present any newer opportunities that weren't present previously? A lot of questions in one. Thanks.

Mattias Ankarberg: Thank you. I'll start and then Toby can follow up to the second part of your question. But yes, Thule's history and value creation path has really been organic growth and very product driven. And of course, that's the foundation for us also going forward. But we do see an opportunity to strengthen our product portfolio in existing and sometimes new categories, what we've done that in the past. We've entered rooftop tents that way. We've entered bike trailers that way and with several things. So Reacha, as it's called, is small, but leading in this niche of water sport and cargo bike trailers. And I think it's a good representative examples of M&As that makes sense to us. Size aside, this is very small, but that kind of good fit with where we are strong today in terms of brand, product presence, channel presence, but clearly a niche or a product family that we are not in. So it's something we can -- we hope to be able to both get some synergies, but also boost sales of over the coming period. So a good fit for us. Will we do more? Well, we are clearly looking for the right opportunities. But again, the foundation here is organic growth, and that's the main pillar of the strategy, so to speak. And then on terms, et cetera, maybe Toby, you can comment.

Toby Lawton: Yes, I could just make a brief comment really. But I don't know if you can draw any kind of big conclusions from dynamics in sort of pricing for M&A. I think we generally make, of course, a business case and look at -- we can be convinced that this is a good value creation opportunity for Thule. And that's where we base our evaluation on. I don't know if you can really say so much more than that will draw wider conclusions.

Mattias Ankarberg: As a reference, we did provide some numbers in the report, if you are curious, yes.

Toby Lawton: Yes, there's some numbers in the report. Yes, yes.

Adela Dashian: Yes. But would you say that -- would you ever also consider divesting any of the existing segments? Or do you feel fulfilled with the current product offering that you have?

Mattias Ankarberg: There are no plans to divest anything.

Adela Dashian: Okay. And then a question also on the market development and the fact that the North American market or consumer is continuously weaker than the European. Do you have any idea of why that is? And then are you seeing any limelights in the coming months that could change that around with the high season being in full spring, so to say?

Mattias Ankarberg: It's a very interesting topic, I think the US consumer. And I think maybe we have chatted about it also on these conference calls, but at least with some of you in other sessions. I think on the one hand, for quite some time now, several quarters, the US economy has done fairly well. The consumer should be in a fairly good place, seems to spend tickets on travel and restaurants and Taylor Swift tickets, but less so in other categories. It's actually not a very positive picture looking just the data at the moment for the US consumer. I think one example, which is fairly telling is the consumer sentiment data. A very broad, of course, metric, but still a good metric of how the consumer feels about the economy and their own spending. And of course, it was plummeting during COVID, recovered a bit, but -- and was improving going into 2024. But starting February, March or so, it's really reverted and dropped down into even more negative territory. So there is something about the US consumer, which is not optimistic at the moment.

Adela Dashian: All right. Thanks a lot.

Operator: Thank you. And we've got a question from Fredrik Ivarsson from ABG. Fredrik, your line is now open. Please go ahead.

Fredrik Ivarsson: Thank you. Just a follow-up on Mats' question regarding the bike-related sales. Just trying to figure out the sort of ballpark figure on growth in this category. And then we see that Juvenile & Pet as a whole was up 4%, and I think the majority of that category is bike-related. And then Sports & Cargo, I guess is another category with plenty of bike products, and that category was at 1%. So it is difficult to see, I guess, double-digit growth. That seems a bit punchy. But is it fair, I guess, somewhere between, say, 5% and 10% at least? Is that a good guess?

Mattias Ankarberg: Yes, yes. I really can't answer, if you're a good guesser, Fredrik. But look we had -- even as I mentioned, bike related had even stronger growth in Q1, but so were comps. Right now, we're meeting some bike products that were introduced, and good bike products introduced last year, so it's a bit less, but still is a very good growth in bike-related for us. And then to the first half of your sort of question or comment, yes, Juvenile & Pet does include quite a lot of bike-related product with child bike seats, multiple bike trailers, et cetera. Sport & Cargo includes bike carriers, which is a big category for us. But it also includes other big categories like rooftop boxes and roof racks and other things. So it was good growth. And yes, let's hope you're good at guessing, Fredrik.

Fredrik Ivarsson: Yes. Thanks. We'll see. And then one more quick one from my side. Freight costs, I know it's usually not affecting your margins significantly, but it was so during the last couple of years when it's been very volatile. And now we see freight costs coming up quite a bit again. So is it going to be a valid factor to consider?

Toby Lawton: Yes, freight costs are going up a bit at the moment. It is particularly freight cost from Asia to Europe, which is -- we -- most of our manufacturing is made in Europe or North America. So it's a lesser impact on us than others, I would say. But it is an increasing freight cost on things we -- particularly in things we import from Asia. But I would say it's not -- like I said, it's not a dramatic or a big increase. It was -- things were much, much higher during the pandemic. So they've come down to a more normal level, but it is a cost that's increasing slightly.

Fredrik Ivarsson: Okay, thank you.

Operator: Thank you. And we've got another question from Mats Liss from Kepler Cheuvreux. Mats your line is now open. Please go ahead.

Mats Liss: Yes. Thank you. Coming back to inventory development and, I guess, you had a good trend in the second quarter. But then again, you have these car kit launches going on. And is sort of -- could you give some indication how much that impact? You need to have products ready when you do these launches, but maybe it's not of a material impact for the quarter.

Toby Lawton: Yes. Like I said, I think the product launches don't really have a material impact on inventory. We have to -- with the seasonal pattern buildup inventory for our seasonal sales in other categories, not just newly launched products. So it's that -- it's not a material effect.

Mattias Ankarberg: You can say partly also. It's not the only reason, but part of the reason why we for example, with car seats are sequencing this across quarters. The rollout is to be able to build up production and have volumes. So it takes a while to yes, get new production-lines trimmed in, get the volumes up to speed and have enough inventory to be able to meet initial demand from some markets. And it's been a positive -- I don't want to say problem, but it's been a positive factor for us that we can't address more markets at the same time in that respect. But that also means that it doesn't have a big impact on the inventory as we ship out in the beginning what we build up to meet customer demand.

Mats Liss: Okay, great. Thanks a lot.

Operator: Thank you very much. We currently have no further questions, so I will hand back to Mattias and Toby to conclude.

Mattias Ankarberg: Thank you very much, everyone, for joining the call. Wish you great summers, and we look forward to talking to you again at the Q3 call. Thank you.