Fenix Outdoor International AG reported sales climbed 9 percent in the first quarter on strength in the Americas and German regions as well as with the Fjällräven and Hanwag brands. Profits were down slightly, and Fenix Outdoor warned that results in upcoming quarters could be pressured by elevated inventories and promotions in the marketplace.

In the first quarter ended March 31, consolidated sales grew 9.0 percent to €180 million, compared to €165.2 million in the prior-year comp quarter. The strongest gains were seen by Fjällräven and Hanwag. Operating profits were down slightly due to higher operating costs.

In a note to shareholders, Martin Nordin, executive chairman of Fenix Outdoor, said all segments—Brands, Frilufts and Global Sales—contributed to growth, but the company is “still facing increases in our structural costs such as salaries and energy, even though lower than expected.”

Operating profits slid 3.4 percent to €17.1 million, or 9.5 percent of sales, from $17.7 million, or 10.7 percent, a year ago.

EBITDA improved 1.3 percent to €31.2 million from €30.8 million a year ago. Net income was down 16.5 percent to €10.6 million from €12.7 million a year ago.

Nordin said, “We entered Q1 with a reasonable outlook. There was however a question of how much we could realize given the development in the market. Another concern was how the political and economic situation was going to affect the retail business. We can now say that it went all right. The trading for Frilufts has been a bit volatile between the weeks but ended up ahead of last year. For Brands and Global sales, we were able to realize sales according to plan without any major hiccups. Due to the inventory situation, we did however face some extra logistic costs of around 800 KEUR (Kilo Euro) to enable us to deliver goods. In terms of costs, we are still fighting increases in the same way as in the last quarters. We do, however, believe that we have it under control. The gross margin is stable on a consolidated basis due to substantially lower transportation costs of goods as well as more direct-to-consumer.

“In terms of geographical development, the Nordics was not showing any growth, whereas the rest of Europe did. The Americas showed the highest growth. Our operations in Korea and Taiwan did show a slowdown due to the opening of borders in Taiwan (which meant people started to travel) and that one of our shops in Korea is still being renovated after a fire at end of last year. The Joint Venture in China had a very good quarter as China’s domestic movement restrictions were lifted.”

Brands Segment Sales Climb 13 Percent
The company’s Brands segment, which includes Fjällräven, Tierra, Primus, Hanwag, and Royal Robbins, rose 12.8 percent to €53.1 million from €47.0 million. Operating profits slipped 3.8 percent to €17.6 million from €18.3 million.

Fenix Outdoor said Fjällräven and Hanwag “showed the largest growth” in the Brands segment, but overall segment earnings were impacted by higher costs that will still be lower than budgeted.

In major markets, sales in Germany in the Brands segment rose 14.8 percent to €20.2 million from €17.6 million. Sales in the Americas gained 12.7 percent to €17.7 million from €15.7 million.

Nordin said in the shareholder letter, “Good development in all major markets, except Sweden. The largest growth is shown in the Americas and in Germany. In the Americas, the Brands segment is present through a network of brand retail shops as well as through online business. All channels showed reasonable growth. Overall, most brands showed a nice growth.”

Frilusts’ Sales Increase 5 Percent
Sales at the Frilusts segment, which includes retailers operating under the banners, Naturkompaniet AB, Partioaitta Oy, Friluftsland A/S, Trekitt, and Globetrotter Ausrüstung GmbH, reached €68.1 million against €64.6 million, a gain of 5.4 percent. The operating loss in the segment widened slightly to €8.6 million against a loss of €6.7 million a year ago. Fenix Outdoor noted that the first quarter is traditionally a weak quarter for retail.

Nordin said Frilusts saw positive same-store sales in the first quarter “for the first time in years.” Markets of Germany and Denmark increased same-store sales while other markets saw minor decrease in sales. Trekitt in the UK, which primarily derives its sales online, was “hit the hardest but they were still profitable.” Frilusts continued to deliver a positive development in brick & mortar sales while digital sales were slower but remained stable. The slightly-higher operating loss reflects a slightly lower gross margin, inflation-driven costs and higher costs for internal IT services.

Global Sales Climb 10 Percent
Global Sales, which includes distribution companies selling more than one Fenix Outdoor brand, were €58.7 million in the quarter against €53.6 million, up 9.5 percent. Operating profits were €12.3 million, up 26.8 percent against €9.7 million a year ago.

Nordin said the Global Sales segment saw “good development in most markets, expected for Nordics.” The strongest growth was shown in the U.S. and other Europe, which excludes Switzerland, Benelux and other Nordic countries.

Sales Channels
Brick & mortar performed better versus the digital channels. Nordin said, “This seems to be a market trend. Some digital competitors in our niche have also exited the market.” Digital sales were 16.8 percent of total sales in the quarter, down from 18.1 percent in the first quarter of 2022.

Q2 Outlook
Nordin said, “In terms of our expectations for Q2 it is hard to predict. We have indications that there are high inventory levels both in retail as well as in wholesale. Given the potential recession and the security situation, the coming demand is hard to predict. There is a definite risk for discounting in the market, as well as a risk of dealers, purely digital, ending up in financial distress. I do however believe North America will continue to perform well.”

Going Forward
Looking further ahead, Nordin said, “As I mentioned earlier, we are facing an inventory situation that is not satisfactory. On the retail side we are potentially facing heavy discounting which means we might have to answer in a limited way. On the brands’ side, which also has a large inventory, we are not as sensitive as most of our products have a long lifetime/are running styles. This means that non-ordinary discounting is not really an option as it potentially decreases the ability to gain full pricing. We believe that we will see a decrease in our inventory during Q3 given that we have been able to adjust purchasing, furthermore, we will be depending upon the economic development in most of our markets. The upwards cost pressure has lightened in some areas, like transport and manufacturing, but there is still pressure in IT and salaries etc. This means that I/we expect a recovery in gross margin in probably spring 2024. The general inflationary pressures in Europe and North America are however hard to predict. So, I/we believe that a full recovery will be in 2024.

“I am positive in terms of the long-term future as I believe that our business model has and will continue to show its robustness. Furthermore, I believe our investments in automated logistics, and IT will start influencing our costs in 2024.

“We can however not relax and stay sharp for further changes/developments.”

Photo courtesy Fjällräven