Thule quantified its September warning that excess inventory in Europe and North America would negatively impact its sales. Third quarter sales are expected to decline 25%.
Continued good growth with high margins
The second quarter was the largest in company history, despite dramatic challenges in the business environment throughout the spring of 2022. Through our efforts to introduce price increases and efficiency measures, we were able to successfully offset the effects of more expensive raw materials, higher freight prices and unfavorable exchange rates. We were therefore able to maintain our gross margin of 42.2% (42.2%) for the quarter.
The impact of Russia’s invasion of Ukraine, continued challenges in global supply chains and drastic price increases continue to affect operations.
During the quarter, sales increased by 3% (but decreased by 3% after adjusting for exchange rates) compared to the second quarter of the previous year.
We maintained a strong EBIT margin of 24.7% in the quarter, which is higher than what we have historically experienced in the second quarters. Compared to the exceptionally strong second quarter of 2021, we recorded a currency-adjusted decline of 2.2 percentage points. Operating expenses increased primarily due to significant investments in product development, related to both our current and new product categories, as well as higher inventory management costs.
Stability in the Europe and rest of the world region
During the second quarter, sales in the region decreased by 4.5% after adjusting for exchange rates, compared to the exceptionally strong second quarter of 2021.
Sales of bicycle-related products were down from the historically strong second quarter of last year. This applies to bike carriers in the Sport&Cargo Carriers and RV Products categories, as well as bike trailers and child bike seats in the Juvenile & Pet Products category.
The other categories performed well, with a particularly positive trend in the Packs, Bags & Luggage category.
The UK saw significantly weaker sales in the quarter. It is also the market, among our largest markets, with the weakest growth compared to before the pandemic. The Nordic markets also had a weaker quarter compared to the previous year. But compared to 2019, the performance of the Nordic countries is overall very positive.
A strong local currency drove growth in the Americas region
Currency-adjusted sales in the region during the second quarter were in line with the prior year. However, strong local currencies increased reported sales in the quarter by 15%.
Also in this region, we noted a decline in sales of bicycle-related products compared to the exceptionally strong quarter of last year. Geographically, the Canadian market was the strongest, while we noted a decline in sales in Brazil.
Improved delivery capacity
Increased demand and successful product launches have organically grown Thule to a much higher level than before the pandemic. As previously announced, we have taken several steps to meet the significantly higher demand levels with strong delivery performance.
This includes significant investments in several of our assembly plants. Both to increase the level of automation and to increase production capacity. We have also decided to increase inventory levels until we see stabilization in global supply chains. This way we can guarantee our continued ability to handle much longer delivery times. Inventory accumulation consists of high volume components and products.
Short-term challenges in uncertain markets, but positive long-term trends and exciting new product areas
Given the uncertainty that generally prevails in the near future, compared to the strong second half, it is pleasing to note that the strong underlying market trends continue. The trend for consumers to seek active living close to home remains stable and positive. Additionally, in 2023 we will embark on a growth journey in two other very attractive product areas, car seats and dog carriers.
We look forward to an exciting fall where we will introduce a record number of new products across all product categories to our retailers around the world, ahead of the broader consumer launch and the start of in-store sales in spring 2023.