Earnings Transcript for THULE.ST - Q3 Fiscal Year 2024

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. During today’s call there will be a Q&A session. [Operator Instructions] I will now turn the call over to Mattias Ankarberg, CEO and President to begin. Please go ahead.

Mattias Ankarberg: 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 will 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 SEK413 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 SEK1 billion in the quarter. A couple of highlights for the quarter, and the first one is actually after the quarter finished. Yesterday, the semi-annual 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 six new countries for trading with -- on thule.com, with two more opened in the third quarter. On the next slide, Page three, we'll summarize the long-term development for Thule Group. And 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 two years with the sales decline after the pandemic peak, we are now – we are 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 SEK9.4 billion for the group, SEK1.6 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 two new products in the quarter, one 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 will cover the last two 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 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 three markets

Toby Lawton: Thank you, Mattias. Good morning, everybody and we can turn to the income statement, Slide 8. And I will start-off showing you here the revenue in quarter three, we had a revenue of SEK2.344 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 SEK59 million in -- so far this year. Taxes, SEK339 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 SEK1.159 billion, so well over SEK1 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 two is actually our biggest quarter. So quarter three, 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 three, 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 SEK955 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 SEK200 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 SEK183 million so far this year, which means when you sum those up free cash flow from the operations is SEK1.741 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 three 2024 has been further reduced and is now down to 0.5 times, -- that is 0.5 times the last 12 months EBITDA. So with that, I will hand back to Mattias.

Mattias Ankarberg: 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 three 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 six 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 two 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 three 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 three-bike-carrier to a four-bike-carrier and also has a larger wheel base that accommodates larger bikes and also larger e-bikes. As you may be aware we are 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 four, 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 two new product categories where we have started to take market share, six 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: Thank you, Mattias. We will now start today’s Q&A session. [Operator Instructions] Our first question today comes from Daniel Schmidt from Danske Bank. Your line is now open, please go ahead.

Daniel Schmidt: Yes, good morning, Mattias and Toby how are you? 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 is 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 UK 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: Hi 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 are 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: 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: Yes. So this is the big one. If there is 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 is 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 UK, how good of the buzz it is building. So it is very, very good. Now of course, there is 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 is -- we have to remind all of our sales, this is the first product we launched and we won already. So it is a really good positive vibe for us that -- this win.

Daniel Schmidt: 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 SEK700 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 is 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: 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 is driven by good work in terms of optimizing inventory levels and also working through older inventory to reduce the aging of inventory. So it is definitely a clearly positive effect from the hard work put in. I think you could also say it's a tougher market than we are 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 is 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: 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: Yes. So then I can start and then Toby can add. I think you are 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: 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 are also talking about also a downtime during quarter four and around the year-end break, Christmas break as well. So some -- yes, it is clear that their volumes are going to be a bit lower in Q4 as well.

Daniel Schmidt: 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: 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.

Daniel Schmidt: Okay, thank you.

Operator: We will now take our next question from Gustav Hageus from SEB. Your line is open, please go ahead.

Gustav Hageus: I guess, that's me, Gustav Hageus, with SEB. Thanks for taking my question. 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 are 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. Thanks.

Toby Lawton: Hi, Gustav, maybe I can start on the gross margin point. You're right on a rolling 12-month basis. We are 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 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 are 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 is -- yes, absolutely, it's back up to where it was during the pandemic. And then maybe I'll hand over to Mattias.

Mattias Ankarberg: Absolutely. Yes, on SG&A to your point, Gustav, it is higher than in previous periods. And there are I guess, one or two 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 two years around there, as we are now in three 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 six 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 is 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 Hageus: Thanks. 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: 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 is 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 is 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 is the directions how we're thinking about this. And we are really focused on getting to that SEK20 billion 2030 and 20% EBIT margin. And the key to do that is to have good sustainable sales growth in many areas.

Gustav Hageus: 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: 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 is 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 Hageus: And the underabsorption effect --.

Toby Lawton: 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 Hageus: And in the quarter, the under-absorption effect, was that material given that you reduced inventory in the production?

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

Mattias Ankarberg: In-line with the year.

Gustav Hageus: Okay, thank you.

Operator: Our next question comes from Adela Dashian from Jefferies. Your line is now open, please proceed with your question.

Adela Dashian: Thank you and good morning. 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: Good morning. 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.

Adela Dashian: Make sense. Thanks a lot.

Operator: [Operator Instructions] Our next question comes from Mats Liss from Kepler Cheuvreux. Your line is now open. Please go ahead.

Mats Liss: Yeah, hi. Thank you for taking my question. 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: Yes. The -- very specific now, but let's see, on the car seat SG&A-related costs in Q4, there is 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 six countries. We're adding over 20 countries in Q4. So there, we will, for sure, see increased costs in Q4.

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

Mats Liss: Sure. And then I guess, the awards are sort of impressive and so on, and it seems that you are 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 US market as well? Or is it something that you -- is not affecting that decision?

Mattias Ankarberg: Well, we are moving forward with developing products, and they are well underway for the US 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 US 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: 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: 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: Okay. Thank you. And finally, just about -- the upcoming election in the US put some focus on potential tariffs to European produced products entering the US 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: Yes, absolutely. We will be affected by tariffs, but we do have I think, a quite fortunate situation that we have two sites, two factories in the US locally. So we have 1 factory in the Chicago area that does rooftop boxes, among other things. And we have one 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 two manufacturing sites in the US and quite established network of local and regional suppliers as well.

Mats Liss: Okay, great. Thank you very much.

Mattias Ankarberg : Thank you.

Operator: Our next question comes from Benjamin Wahlstedt from ABG. Your line is now open, please go ahead.

Benjamin Wahlstedt: 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: Benjamin, we do -- we have decided this year to give quarterly sales growth numbers per product category, but we are not going in more detail than that. So I guess, the only comment we'd make is that it is 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 is both.

Benjamin Wahlstedt: All right, thank you.

Operator: Our next question comes from Carl Deijenberg from Carnegie. Your line is now open, please proceed.

Carl Deijenberg: Thank you very much. Good morning guys. So just one question from me. I think it would be helpful if you could share a little bit what you are seeing in the market development here. I guess, quite impressive to see that you are growing organically, both in Europe, rest of the world, but also I guess, predominantly in Region Americas given that there is 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 are seeing in the US. 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: I think the trends are very much the same. Thank you Carl, for the question. It is very much the same as the previous quarters. It is a tough market in the US. It is 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 is 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: Yes, yes, yes. And the discussions around promotions, I mean, 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: Yes. No, we managed quite well. And I think one key sort of distinguishing factor about the US market is that the promotions are set in windows, and then there is a recommended retail price. So it is 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 US, 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 zero line for Region Americas in Q3 2024.

Carl Deijenberg: Okay, thank you very much.

Operator: We have time for one final question. A follow-up from Daniel Schmidt from Danske Bank. Your line is now open, please go ahead.

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

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

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

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

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

Mattias Ankarberg: Maybe we will give a number, but let us 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.

Daniel Schmidt: Okay, thank you.

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: 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.