New Wave Group Says Higher Marketing Costs Trimmed Q1 Earnings

Though sales increased 3.1 percent to SEK439 million ($50 mm), gross margins slipped resulting in earnings before income taxes, depreciation and amortization (EBITDA) of SEK18.9 million ($2 mm), down 25.3 percent from SEK25.3 million in the first quarter of 2013. The Swedish company said higher sales and marketing costs eroded EBITDA.

 

New Wave CEO Torsten Jansson said the company resumed hiring during the quarter, adding 36 people, with the majority of hires coming in sales.

 

“It takes between 6-12 months before they are productive, Torsten said. “We will continue with recruiting in the coming quarters.

 

New Wave has acquired sporting goods brands in Europe and North America with the aim of becoming a leading supplier in both markets, where it sells primarily through retailers. It currently owns licensing rights for Speedo in Swedish, Norwegian and Danish markets, as well as 12 of its own brands, including; the outdoor performance apparel brand Craft; the performance socks and hats brand Seger; and the golf brands Cutter & Buck, Annika, Kate Lord, Ahead, and Paris Glove.

 

Torsten called out the performance of athletes using the company’s products during the Winter Olympics in Sochi as one of the highlights of the quarter.

 

“The success of Craft and Auclair’s athletes was almost difficult to understand, including successes by the Swedish cross-country team, the Dutch skating team and several Canadian teams,” he said.

 

New Wave reported that total sales, including results at its Corporate Promo and Gifts & Home Furnishings segments, reached SEK909 million ($103mm) in the quarter, up 4 percent, or 3 percent currency-neutral. Sales to the United States reached SEK221 million ($25mm), down from SEK223 million in the first quarter of 2013.

 

Newly acquired businesses, which include North American rights to Craft, contributed SEK9 million ($1m) in sales and SEK 0.1 million in profit after tax.

 

Gross margins slipped 270 basis points to 45.2 percent. The company swung to an operating loss of SEK-5.9 from an operating profit of SEK16.1 million in the first quarter of 2013. Profit after tax amounted to SEK-11.3, or SEK-0.17, compared with a profit of SEK100,000, or SEK0.00 per share in the year earlier quarter. 

 

Cash flow from operating activities amounted to SEK 88.8 million ($10mm), down from SEK106.1 million. Net debt decreased by 16.6 percentage points to SEK1,188 million ($134mm), or 56.8 percent of equity compared with 73.4 percent a year earlier.

 

“2014 began somewhat better than what we had expected in both sales and earnings,” said Jansson. “Four percent growth despite continuing shortages is quite OK, but we should remember that we also had a positive calendar effect this year because of the later Easter.”

 

Torsten said the company had anticipated weaker earnings, but that costs were slightly lower than expected.

 

The company is building inventory and launching of new products and collections, but anticipates that it will continue to have some stock shortages in the second quarter.

 

“All in all, this means that we repeat what we said earlier, namely that the second quarter will be a weak quarter and from the third quarter onwards we will have good growth with an aim of growing by at least 10 percent,” he continued.

 

 

New Wave, which is listed on NASDAQ OMX Nordic Exchange in Stockholm, designs, acquires and develops brands in the sports, gifts and home furnishings sectors for sale through the corporate promotions and retail channels. New Wave Group AB through its US subsidiary owns several businesses in North America including Cutter & Buck, Ahead, Inc. and Paris Glove.