Thule Group surpassed all its financial targets in the second quarter although  continuing declines at its U.S.-based Case Logic business more than offset growth of its core sports and outdoor businesses in the Americas.

The Swedish company reported sales increased 20.0 percent to SEK1.70 billion, an increase of 6.4 percent in currency-neutral (c-n) terms. Company targets call for currency-neutral sales growth of 5 percent.

On a currency-neutral basis, sales grew 10.4 percent in Europe and Rest of the  World compared with the second quarter ended June 30, 2014, but declined  2.6 percent in the Americas due to weakness in Latin America, a weaker trend in camera bags and a decision to exit lower margin products. Case Logic revenues have declined for several quarters as smartphones eat into its sales of cases and sleeves for cameras and home electronics.

At Thule's Outdoor&Bags segment, which includes Case Logic and generated 92 percent of sales during the quarter, sales grew 18.2 percent (5.6 percent c-n) and EBIT grew 15.7 percent (8.5 percent c-n) to SEK 52 million ($6 mm).   
In the Americas, Sport&Cargo Carriers and Other Outdoor&Bags sales were  strong, thanks in part to sell-in of Active with Kid child carriers and Thule backpacks in North America. Thule launched both lines last year following a restructuring aimed at bolstering its sales of recreational products.  The plan included divesting a truck trailer business in Europe and an initial public offering of Thule's stock by the private equity firm that is the company's controlling shareholder.

Challenges in the camera market
Those gains, however, were  more than offset by a 15-to-20 percent decline in sales of Bags for Electronic Devices, which Thule attributed to weakening consumer demand in Latin America, a broad decline in camera bag sales and its decision to drop some products to improve Case Logic's margins on lower priced computer and tablet sleeves and cases.
 
“We don't think that the trend will change rapidly for the digital cameras,” said Thule Group CEO Magnus Welander. “The two big cameras manufacturers we track came out in May and June with relatively negative views of how the larger digital systems cameras should be selling. So what we have to do to be able to compensate that is, of course, get gains in the GoPro action camera market, which is still rapidly growing.”

Welander said breaking into that market has proven a bigger challenge than expected, but declined to elaborate.
In Europe, Outdoor&Bags sales increased 16.1  percent (10.4 percent c-n) as new products and more engaged retailers compounded a broader rebound in consumer spending. While sales grew across the product line, including computer backpacks and tablet cases, Thule said sales of bike carriers, which account for about 20 percent of its annual sales, were particularly strong.

Thule Group's gross margin declined 210 basis points to 39.7 percent, reflecting a negative 120 basis point impact from currency effects.  Underlying EBIT (earnings before income taxes) margin, declined 50 basis points (+50 basis points c-n)  to 20.7 percent, still way north of the Thule's target of 15 percent. Net income soared 78.9 percent to  SEK 254 million ($30 mm).

Price increases coming
Welander expects to reverse some of the currency impacts by passing through price increases on its fall product launches. As the undisputed leader, Thule is usually the first company to raise prices in the Sport&Cargo Carrier segment. Welander said he expects competitors to quickly follow suit.

“In Bags for Electronic Devices, which is more fragmented we are starting to see price increase as we speak and they are really timed around the back-to-school season when you are introducing new products anyway,” he said.

To ensure Thule delivers on its profit target for the year, Thule Group will trim about 50 positions in the United States, Belgium and Hong Kong that are no longer needed due to  efficiency gains generated by recently completed distribution and  IT projects. The staff reductions will cost about SEK 10 million, but result in annual savings of about SEK 20 million.  Those savings, price increases and sales of higher margin products Case Logic will launch for the back-to-school season are expected to improve profitability in the back half of the year. Thule ended the quarter with 2,358 employees worldwide