Thule, Inc.’s Q2 Sales Fall on Continued Cycling Inventory Imbalances

Thule, Inc.’s Q2 Sales Fall on Continued Cycling Inventory Imbalances

Thule, Inc. reported another challenging quarter as sales fell 15 percent in the Swedish company’s second quarter. The decline was attributed to weak bike-related product sales as retailers focused on reducing inventory levels. 

The car racks and bike accessories manufacturer indicated inventories had returned to normal inventory levels in some regions. Consolidated sales on a reported basis were down 8.6 percent to Swedish Krona (SEK) 3,029 million ($295 mm).

“Sales at the start of the quarter was weak,” offered company President and CEO Magnus Welander in his quarterly statement. “The main reason being, as with the previous three quarters, lower sales of bike-related products to our retailers, who continued to lower their inventory levels. This can be compared with the year-earlier period when the same retailers were in the middle of an aggressive phase of inventory build-up.”

In the Europe and Rest of World (RoW) regions, net sales totaled SEK 2,247 million, down 6.8 percent on a reported basis and down 13.9 percent currency-adjusted.

“The decline in sales mainly resulted from lower sales of bike-related products at the beginning of the quarter,” shared Welander about the Europe and RoW performance. “This is compared with the year-earlier period that had exceptionally strong sales. We also experienced a generally cautious retail chain, including for the Group’s other sports and outdoor products. France was the weakest market, with cautious major retail chains and a generally larger share of sales in the mid-price segment, where inventory levels remain high.” He said the U.K. and Poland reported positive trends.

Net sales in the Americas amounted to SEK 782 million in the quarter, down 13.3 percent on a reported basis and 18.2 percent after currency adjustment compared with the second quarter of 2022.

“Also here we noted a decline in sales of bike-related products compared with the strong year-earlier quarter,” Welander detailed. “Just as with Europe, we experienced a cautious retail chain in terms of other sports and outdoor products in the major markets of the U.S. and Canada. However, we noted a continued positive trend in the smaller Latin America markets in the quarter. The decision was taken to phase out some older low-margin segments in packs, bags and luggage. This had a negative impact on the quarter in the region. The primary focus will be on duffel bags, luggage and backpacks for daily use moving forward.”

Gross margins improved to 43.6 percent of net sales, up from 42.2 percent in the year-ago period. After the currency adjustment, the margin improved 1.7 percentage points. Gross income was positively impacted by price increases implemented in summer 2022, favorable margins for new product launches, a positive channel mix, and lower freight costs compared with the second quarter of 2022. However, gross income was negatively impacted by lower sales and an underutilized production capacity, a disadvantageous product mix and high costs in general for materials.

Operating income declined 13.0 percent to SEK 711 million from SEK 817 million in Q2 last year. Operating margin was 23.5 percent of net sales in the second quarter compared to 24.7 percent in the year-ago period. Adjusted for exchange rate fluctuations, the operating margin decreased 1.3 percentage points. Net income totaled SEK 539 million in Q2, down 14.0 percent from SEK 626 million in Q2 last year.

Welander said the company achieved an EBIT margin of 23.5 percent for the quarter thanks to the record-high gross margin.

“This was achieved despite a considerably underutilized production capacity, a disadvantageous product mix, continued generally high costs for materials and continued ambitious investments for future growth,” he said. “The price increases implemented in summer 2022, lower freight costs, a positive channel mix and healthy margins for new product launches had a positive impact.”

Cash flow was said to be SEK 718 million in the quarter, which was reportedly achieved in part thanks to the quarter’s reduction of the Group’s own inventory by SEK 308 million, which was in line with the company’s assumptions.

For the first half, sales on a reported basis declined 17.2 percent to SEK 255 million from SEK 348 million in H1 last year. Adjusted for exchange rate fluctuations, net sales for the Group decreased 22.9 percent. 

Operating income declined 27.6 percent to SEK 1.09 million from SEK 1.5 million a year ago. Net income was SEK 813 million in the quarter against SEK 1.15 million in Q2 last year, down 29.5 percent year-over-year.

“As previously announced, we are in the most ambitious launch period of new products in the history of the Group,” Welander said. “In the next 18 months, several new important products, both in existing and in entirely new categories, will be visible in stores across the globe. The heavy launch phase has led to us investing 7.1 percent of sales in product development in the past 12 months. The world’s best tow bar mounted bike carrier, Thule Epos, the innovative cargo box Thule Arcos that is mounted on the back of the car’s tow bar and the roof platform Thule Caprock were some of the products launched in-store to consumers during the quarter. We also introduced a number of very exciting products to retailers that have release dates next year. We presented an entirely new generation of the world’s leading premium bike trailer, Thule Chariot, and our first bike trailer for dogs at the Eurobike bike fair. We have also displayed the collision-proof dog crate Thule Allax, which will arrive in stores as early as autumn 2023.”

Welander was also saying goodbye in his 35th quarterly report on the stock market as CEO and president for Thule Group. As previously announced, he is passing the reins as CEO to current Board member Mattias Ankarberg on August 9.

“I, therefore, would like to take this opportunity to thank all of the great colleagues I have had the benefit of working with during my 17 years at the company,” Welander concluded. “Together, we have created a fantastic company! Today, Thule is a globally established lifestyle brand with a considerable focus on sustainability, efficient factories, many test-winning products and a deeply rooted winning culture. Market trends in the product categories where we are market leaders are positive in the long term. This, combined with growth plans in the new categories that we are entering into, makes the future look very bright. I am convinced that Mattias, with your assistance, will continue to develop Thule into an even more successful company. I will remain an active supporter, albeit now it will only be from the stands.”

Photo courtesy Thule