Good morning, everybody, happy to talk about our third quarter of 2019. As the first slide headline says, it was a very good quarter in all markets except our biggest market, the U.S. Of course, the call will both deal with what's going on in all the other countries outside the U.S., but of course, also why we didn't perform as we would have liked in the U.S. If you look at net sales, we had a net sales of SEK 1,682 million, which meant a 7.7% growth, and excluding the currency effects, a 3.9% currency growth. There, the region Europe and rest of world grew with 6.7%, excluding currency, while we saw a decline of 2% in region Americas. Fully contributing the negative effect was the U.S. market. If you look at our million and an underlying EBIT margin of 16.3%.
For you who also read the report, we have also announced the fact that we have initiated a product recall of type 2 motorized awnings in our RV product category. EBIT effect, as we have made a SEK 25 million provision for that product recall, is that our EBIT is SEK 249 million in the quarter. From a net income perspective, we are at SEK 181 million. Good, solid cash flow in the quarter, the cash flow from the operating activities was SEK 571 million as compared to the SEK 499 million for the same period last year. If we turn to the next page and look a little bit what this quarter versus the year-to-date performance has been, you can see that on a year-to-date performance, we are growing in our sales of 9.4%, 4.6% excluding the currency effects. We are still doing a solid growth.
Our growth of EBIT year-to-date is 6.8%. Year-to-date, we are at a 20.2% underlying EBIT margin versus the 20.6% the same time last year. If we jump into the regions, we start with region Americas. We can clearly say that it was a tough quarter in the U.S. market, which is our biggest market. Net sales was SEK 494 million. It was a 2% decline, excluding the currency effects. Year-to-date, we have a 0.1% growth excluding currency effect. If we look at it, there are some good things in the region. There are some tougher things in the region.
To highlight in regards to the acquisition we did in December last year of the Tepui branded rooftop tents, where the focus of that market is in the U.S., it is very nice to say that that is tracking according to our plan. Sales from Tepui was in this quarter SEK 14 million, and year-to-date, we have sold for SEK 61 million, which means if you would compare to what Tepui as a standalone was doing in that same time period, a 24% growth versus previous year. We have already announced that as of 1st of January 2020, we are rebranding these products to Thule, so they will be Thule Tepui rooftop tents with the Thule as the brand. We are also bringing them into a global scenario. It's very nice to see the strong performance of that acquisition continue.
We've also mentioned for a 18-month period, the choice we made to phase ourselves out some low margin OE programs in the U.S. market specifically. The impact negatively in this quarter was of SEK 10 million, Year-to-date, we've had a decline of SEK 39 million. We are finally coming to an end of this phase-out. If we look at it in the fourth quarter, we are expecting a decline of a slightly bigger decline than we had in Q3, which then, of course, will impact that quarter more proportionately as that is a smaller sales out quarter. It also means that we are finally coming to an end of something that over a long period of time has been a drag on the U.S. sales performance. If we look at then that U.S. market, taking in these things into consideration, the U.S. market specifically declined 6% in the quarter.
I think all of you that are following consumer goods companies, and especially seldom purchase consumer goods companies in the U.S. market, know that the communication in regards to tariffs has been erratic over the year and unclear at times. To remind everybody a little bit on what has happened, we had a tariff communicated September last year, late September last year, and that tariff was then announced to be a two-step affair with first tariffs implemented at the very end of September 2018 of 10%. The additional 15% were initially planned to be implemented in January. That did not materialize. It was then later on postponed and announced in late May for a true introduction in July. In the third quarter, the additional 15% tariff.
After that fact, there is additional tariffs on some of the products that initially were not included in tariffs on these Chinese-produced goods. On the total scale, we have more local U.S. production than our competitors have in these niches where we do. It's not that we had a competitive disadvantage. If anything, the opposite is true. What absolutely has happened, clearly, in the period is with the confusion and the concerns in the marketplace, it's clear that several retailers have both worked on their inventory levels further. There has been, clearly, some impact also on consumer confidence, especially related to the bike category, where sales numbers, as officially reported in the U.S. market, are very disappointing on sales of bikes. The reality is this, bikes are to a great majority in the U.S., made in China.
If you look at a tariff impact in the third quarter as of July of 25% on a relatively expensive bike, that has meant that a lot of U.S. consumers, I think partly tactically, and this is my hypothesis together with our U.S. sales team, are maybe hoping and holding on and waiting for some end-of-season discounts or some changes potentially to tariffs before they commit to buy new bikes. There is a tough bike market definitely in the U.S. There is a general retail concern. What is also the case is that every time when you have an outsized performance that is not promising to quickly change into the better, you as an organization have to challenge if you have done everything in your power and with the right ways in this organizational setup that you have.
What we have decided to do is that we together with the U.S. management, are going through a detailed review on our commercial organizational setup for the U.S. market specifically, and will be announcing some changes to that setup during the fourth quarter. To give you an indicative thing, because that easily sounds like we're doing major restructurings, that is not what we're doing, because we have a lean and well-working overall organization. At the same time, as some flows of who we sell to and where we sell and to whom we sell, we work with, as often is the case in the U.S., a combination of own salespeople to major national accounts, combined with independent sales rep groups for specific smaller shops around the U.S. market. As flows and growth rates change between these type of accounts, there is opportunities to reorganize and reshape the organization.
At the same time, we also are in the final phases of an implementation of one global ERP system, where we, by quarter one next year, will be ready with that implementation. That, of course, also enables some synergistic efficiency gains in how we operate as a company globally. That will impact the U.S. setup. What we're talking about to give you a sense of scale, this is a rough number, but it's a sense of scale of a one-off cost hitting in the fourth quarter around SEK 50 million. We then assumed annualized savings when fully implemented of around SEK 20 million. The focus is not, as you can hear on those numbers, the financial as much as the operational efficiencies of a slimmer, better operating setup in the commercial structure that we are after. That's for the U.S.
If you look for the rest of the markets in the region Americas, Canada kept on performing really well. Brazil, which is the third market where we are integrated forward to sell direct retail, continues to perform well, which is very nice. As many of you will have remembered in the rest of the Latin American markets and Central American markets where we operate with distributor setups, have been quite erratic performance during the first two quarters of this year. It was therefore very nice to note that we had a growth in the rest of Latin American markets also in Q3. I personally still believe that the Latin American markets will continue to be volatile, but it's nice still to see that we had a strong Q3. Overall, outside of the U.S., a strong performance.
If we go to Region Europe and rest of world, there we can clearly say that our performance was very solid in the ending part of the season in Q3 as well. We had a sales of SEK 1,188,000,000 , which was a 6.7% excluding currency effect growth. Year to date, we therefore had a 6.4% growth excluding currency effects. What is nice to note here, clearly was that this really applies to all major markets and in general to all markets actually. Especially here, once again, noting to previous quarterly calls where we have communicated a weak start in the Nordics region and in the Russia region in the part of the year, it was nice to note, as we had expected, that Nordics returned to positive performance, and it was also good that Russia did the same.
We saw a good development in both those two regions as well. We have also commented previously in the roof racks, I remind everybody, that we are doing a very big generational shift, that we have commercially decided to make life easier for all our retail customers around the world, being the undisputed market leader globally on roof racks, which is a very complex category to serve all the different car types and car roof types and car models. We did that launch or decided to do that launch in three phases. We're just about to go into phase 2 in this region, and the region Americas will follow soon.
As the keen observer of the Thule Group will remember, we have announced that the phase out of the old systems for phase one was slower and with bigger inventory take holdings in some of those distributor markets than we had expected. Which therefore dented our sales in the first half of the year. That's why it is nice to see the confirmation that that hypothesis that we said that that would be mostly a slower and slightly larger pipeline depletion of old. It was nice to note that we started growth again in the third quarter of roof racks. Finally, the category that we also have discussed a lot in the past calls, where we will probably be accused of cry wolf syndrome, is that we have been quite cautious for a number of quarters in a row on the RV market.
As you may remember, that we commented that the second quarter started well for RV product after a strong first quarter, but then ended abruptly at the very end of the second quarter with clearly a lot less production from the RV manufacturers. We were a little bit positively surprised how strong the RV market continued in Q3 after the rapid decline in Q2. It is not nearly as bad as we had expected. In fact, it was pretty good. That means that some of the manufacturers started in Q3 to get some of the capacity limitations they have had on the new Euro 6d chassis and engines, the new Euro-confirmed engines set up. They must have been getting slightly more than we were expecting.
If you look at reports from the various companies in the sector and commentary, there is probably still some concern, definitely in Q4, on that all of them will not be getting all of the quantities that they may have even consumer orders for those vehicles. I don't think it will be a very strong Q4, but still surprisingly holding on well in Q3. If you look at the remaining two categories, the newer categories that we are having a long-term ambition to win, it's nice to note that Active with Kids continues to perform well, and that we now saw a very good growth in packed bags or luggage. We are a very small player in a huge market in luggage.
When you're a very small player, you have to realize that it takes time to do things, but you have to have wins all the time. It's very good to note that in the key Asian market, which is today, of course, a very small region for sales of Thule Group, but where in the global sense for luggage, it is a very key region. It is nice to note that we're getting a lot of good listings, both at airport stores, department stores, and luggage specialists. It is from a very low base, we shouldn't stare ourselves blind on % of growth, but it is good to see that we have a good traction with those bags. We are, of course, continually broadening our assortment. In the third quarter, we launched our third collection, which is called Thule Crossover 2.
It's a soft luggage collection with various types of both rolling bags as well as smaller bags. What it also meant was our first soft bag luggage collection with what is called spinner wheels, so four wheels, which is a key category. In quarter four, we will be broadening that solution with spinner wheels, four wheels, also to our best performing luggage collection, Thule Subterra. Later on in Q4 now, there is coming also spinner solutions into the successful Thule Subterra collection. That means that we're starting to really truly be able to offer two full soft goods collections with spinners, two wheels, smaller bags, and larger check-in bags, as well as the Thule Revolve hard case collection.
Finally, by that, we're starting to be a real player, not an army of one or one and a half, but really starts to have a broader assortment in luggage. We move on to some of the financials, I leave the word to Lennart, who will walk you through that.
Thank you very much, Magnus. On slide six, where we have the Thule income statement, you can see that those margins declined in the first quarter, FX adjusted versus prior year with 1.2 percentage points. Decrease in the margins driven by the negative effect we talked about from the Chinese tariffs, reduced purchases, equivalent to approximately 0.2 percentage points. Primarily, driver was the underperformance hit in our assembly units due to lower production volumes. We did see, and it's good to note that we did have small favorable purchase price variances on commodities as we have estimated should come beginning in the second half of the year. Looking at our SG&A expenses, they are higher than prior year in absolute numbers.
If we exclude negative currency effect and the fact that we acquired Tepui last year, the organic increase in the quarter was 11 million SEK, and that is due to the product development, Thule commercial initiatives. As you can see, we are still very lean on the administrative expense line. The line item selling expenses worth mentioning is that in here you see the hit of the 25 million SEK of product recall provision that we have mentioned. Financial net, minus 12 million SEK. That's flat versus prior year. This year we have the IFRS 16 accounting rule change, which brought on this financial net with 3 million extra SEK in the expenses. We were actually like for like, we would have been 3 million SEK less.
Mentioning then the IFRS 16 impact, as we have also several times mentioned, there is almost no effect on our income statement. Matter of fact, in this quarter it's zero because the EBIT helped us out with SEK 3 million, we then have the financial expenses on SEK 3 million. Effective tax rate quarter, 23.7%. Year to date, we are at 23.3%. If we now look at the next slide, which is the operating working capital and operational cash flow, we see that operating working capital, we ended the quarter with SEK 1.446 billion, which is 20.7% of sales. As we said in the Q2 report, we expected inventory, because that is the main driver for this, to be reduced in Q3, and we did decrease it between Q2 and Q3 with SEK 144 million.
We now look at the currency-adjusted increase of inventory of SEK 70 million which remains, half of that is SEK 35 million is because of the acquisition of Tepui which we didn't have last year and the tariff impact on Chinese purchases. That means that we had a very good operational cash flow in the quarter, we reached SEK 600 million versus SEK 515 million prior year to date we are at close to SEK 1 billion accumulated versus SEK 800 million last year. Improvements due to increased earnings, improved working capital and less capital expenditure spent this year. Thank you.
Thank you, Lennart. If we then look at our performance versus the financial targets, we are constant currency net sales excluding the Thule acquisition at 3.5% versus our target of about 5%. Considering that the fourth quarter is by far the smallest sales quarter, it is clearly the case that we will not be able to reach the 5%. We believe that quarter four will be in line with roughly what we did in quarter three in terms of sales growth. If you look at underlying EBIT margin, we are at a rolling 12-month basis at 17.7 and year to date it's 20.2, so therefore it's worth noting and reminding that the fourth quarter is not only our lowest sales quarter, it is also clearly the one with by far lowest EBIT margin.
If you look at that's also where we believe from an EBIT margin point of view will be in line with what we did EBIT margin-wise in 2018 in the fourth quarter. If you look at the leverage, we are at a net debt EBITDA at 1.4 times and we've of course done the dividend of the SEK 7 per share this year, which was 86% of net income.
if we now look forward to the coming months, the commercial focus for the coming months, it is as always for ourselves to make sure that we support our retailers to get the true sell-out traction of those new I mentioned already the broadened luggage portfolio with the Thule Crossover 2, Thule Soft-Sided luggage collection that started coming into stores already in Q3 in some markets and it continued to roll in and hopefully then roll out of the stores as well in Q4. We have now in Q4 the launch of our new premium rooftop box, the Thule Vector, so that is a positive to bring into the fourth quarter. we are in the European region doing the phase two of our new roof rack generation.
If you look at it from a point of view more of midterm on what we have shown, because quarter three is still the biggest quarter for us, showing to retailers what will come in the 2020 season. We had a number of both fairs and open houses. We're showing a lot of new product, and the image on the slide shows the new Thule Spring compact three-wheeled city stroller, which becomes then our third stroller in the stroller category, which we showed at the world-leading Kind + Jugend Fair, and is currently showing in the U.S. at the U.S. leading ABC Kids Expo. That stroller has garnered a lot of positive attention, so it will be a key addition to our stroller portfolio. We also are launching some new, as always, bike carriers, et cetera.
here, I think worth noting is the U.S.-targeted Thule Helium hitch-mounted bike rack, which I think will be a key addition in a challenged and tough bike carrier market. We are also launching a number of updated and refreshed backpacks and luggage in the next year. if you look at it, continuing a very long-term focus of bringing great product to market also now as we speak, looking for the coming months. From a more purely operational focus, we have already mentioned the U.S. restructuring program. I remind that it is not a huge endeavor.
It is more of a targeted for the flexibility and the new setup we have from a customer point of view, and combining that with the go-live of one common global ERP system, enabling some synergistic savings with one-off cost estimated around SEK 50 million, and then annualized savings around SEK 20 million after that. If you look at it is clear also that we have a continued push for big product development efforts, both for those products that are hitting in 2020, but also for those that will come in the years after 2020. We continue to do lots of effort there. We can therefore be happy to say that we are doing a big effort and a big growth effort in our Hillerstorp product development facility, where we all will be expanding over 2020 and 2021 as well to handle all of those growth initiatives and projects.
In our factories and our nine assembly plants around the world, we have communicated over the last two years a number of major initiatives where we have focused on more efficient assembly setups. Of course, we are aiming to start really capturing some of those efficiency savings that those type of investments should be giving as long as we see that volume growth that we are targeting. With that, I lead you to the operator to open the floor for questions.
Thank you very much. Ladies and gentlemen, if you'd like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two, and when preparing to ask your question, please ensure your phone is unmuted locally. Our first question comes from Daniel Schmidt of Danske Bank. Daniel, please go ahead.
Yes, good morning, Magnus and Lennart. A couple of questions from me, starting with the cost side and selling expenses in the quarter were up by 19%, and I assume that that's been pushed by product development spending kept elevated. Given what you said on the last final slide in terms of product launches in the coming quarters and years, should we expect selling expenses to stay elevated also for the coming quarters, i.e., product development spending? Is that going to be above 6%? How should we pencil in that in the coming quarters into 2020? Start with that one.
Yeah. if we started with, I think the most important thing as Lennart did mention, and I want to point it out, selling expenses in the quarter specifically, that is where we have the provision of SEK 25 million for the product recall. of course, if you then take away the SEK 25 million, you do an FX adjustment, which is the key because that happens. In addition, we have now the SG&A or selling expenses of the acquired Tepui organization, which is roughly SEK 5 million-ish. Actually, the true organic, so to speak, FX-adjusted SG&A increase in the quarter was only SEK 11 million. that is just to clarify a little bit of what the reality was for Q3. If you look on your more long-term, midterm question in terms of are we starting to spend more than 6% on product development?
No, is the answer. We feel very good that we are going to make sure, as we've seen already with growth in the newer categories, we will continue to do big product development efforts over luggage and strollers. like what happens always when that proportionally starts growing, your percentage proportion becomes more normalized. At the moment, we have clearly a overspend proportionally by running several parallel stroller projects and luggage projects versus relatively small revenue. Luckily, those revenues are constantly growing. On top of that, we have, of course, a continuous spend in the other categories, but also their revenues are growing. no, it will not go above six. It will slowly but surely decrease rather than increase.
this has, of course, changed over time, and a lot of things have maybe been altered since you had the CMD a couple of years ago, and you've been very clear that it's going to stay elevated for this year. when you say decrease, is that looking a couple of quarters ahead? Are we basically in the second half of 2020 then? how do you look at it?
Yeah. Since we don't run the company, which we've repeated a few times on a quarterly basis, it means, of course, there is no rapid change to this because it is a phasing in of various projects. You're right, slowly but surely, you will see it. It won't happen in Q4 because, by default, Q4 also being such a small revenue quarter. It's more when you come into the bigger revenue quarters in Q2 and Q3 next year. At the same time as we will continue to, in a like for like sense, in pure money, spend more money, I am sure. With growth, therefore, you will start to see the percentage slowly declining, as you say, versus the second half of the year.
Okay, good. Second question on Active with Kids. You mentioned it on the call, and you said that you did well. You stated in Q2 and Q1 that you were lagging slightly behind schedule or plan when it came to Europe in Q2 and the U.S. in Q1. Are you feeling that you're catching up on your budget when it comes to Active with Kids and strollers and the Thule Sleek?
Yeah. If you look at it, I think very simplistically, we had a clear mention of something, which was the child bike seats in one specific market, which has dented a little bit our performance there. If you look at it in the region Americas, we did have a very weak quarter one in Active with Kids, where we didn't see with some of the existing stroller models, the Urban Glide 2, et cetera, with some of our competitors being extremely aggressive price pitches. We didn't see the performance we would like. That has already turned. In Europe, the performance is slightly better, but it was actually quite good already. While in the U.S., it was a bad start of the year, and it has been better since. Yeah, slowly but surely we're getting towards where we want to be.
Okay, good. Finally on the recall, could you say anything more? You're stating that there has been no accidents. Has there been any backlashes in terms of the brand and the consumer perception of the brand in any way on the back of this recall? </edited_transcript
I think, first of all, a product recall is never good for anybody. That we need to state. The decision that we have taken to do a product recall is because of our very high focus on safety. There's been very few incidents, but due to the fact of how those incidents, in an absolute worst-case scenario, could mean something, hasn't meant any accidents, we have decided to take the most stringent thing you could decide to do, and that is the product recall together with then our RV manufacturer and RV dealership customers, and offering the consumers an upgrade to make sure that that risk doesn't continue. I think if you do that well as a brand and you have a fantastic historical track record, it will not damage you.
If you wouldn't do it well and didn't manage it and were called out for having snuck away from it, I think that would have potentially definitely damaged it. It's never good. Product recall is always bad. It takes time, it takes focus, it costs money. From a brand perspective, I am not worried because we have done the exact thing that anybody would expect from a super professional, high-quality company.
Thank you, Magnus.
Thank you.
Our next question comes from Gustav Sandström of SEB. Gustav, please go ahead.
Thank you. Good morning, guys. I may start with a quite simple question. Did you have volume growth in Q3 excluding Tepui?
Yes, we did.
Perfect. Did you engage in any price initiatives in Q3 in Europe related to roof racks and roof boxes? If so, does it refer only to your old models or also the new launches?
The answer is no, we did not.
Perfect. also, could you remind us now in Americas, how big of a share Case Logic and camera bags make up of your U.S. sales and what the year-on-year decline is in Q3?
Yeah. I wouldn't call it Case Logic because to simplify, what we have called legacy and OE bags, because we do sell also Case Logic newer backpacks and other things which we do not consider declining categories. If you look at it, what we call then the legacy and OE bags are those categories which simply are shrinking away. You are right, Gustav, they are by us today sold under the Case Logic brand, so in that sense. We do also sell the Case Logic brand of product in some of the growth categories. If you look at legacy and OE, we had as a total, last year we said it was roughly about 40% of the U.S. business, much smaller in the rest of the world, where we haven't historically had the historical success with those categories.
That has now declined clearly, and I think by the end of the year it will be more around 30% of the business. That means for the Thule pack bags and luggage, we're probably around less than 20% clearly of that business, the finish. </edited_transcript
Perfect. That's helpful. referring to Daniel's question on the stroller side, with Thule Sleek, are you now on par with the Glide series in terms of units sold, would you say? are you still catching up to that number?
Yeah. We don't disclose numbers or units of anything. I can say that's not the case, that we disclose. No, we're not at the same level as the Sleek or Glide series. </edited_transcript
Okay. Perfect. Lastly, on capital allocation, as you mentioned in the report, you're trending below your target range for indebtedness. How do you think about capital allocation? You mentioned some initiatives internally, which I guess also would imply some CapEx going forward. In terms of dividend versus equity, et cetera.
I understand your question as, with the low leverage rate of 1.4 we have, which is below the range we communicated, will we see some differences in our approach? We have communicated that our first and foremost focus is to clearly work with making sure we drive organic growth. There is no need to do anything dramatic there because we continue to do that. We have then said we have some opportunities with M&A. We've constantly looked at that. Of course, we have the third, which is how much do we dividend out? That is going to be communicated in conjunction with the Q4 report. It is of course clearly the case if you see our strong cash generation leverage ratio, unless we have some bigger news on some acquisitions, it looks promising for what will be proposed by the board in terms of dividend.
Excellent. Those were all my questions. Thank you, guys.
Thank you.
Our next question comes from Stellan Hellström of Nordea. Stellan, please go ahead.
Thank you. Yeah, just a question on Magnus, you mentioned that you see the same development in sales in the fourth quarter as in the third. Just looking at the comparables here, you had quite a little bit weaker sales growth in the third quarter last year and stronger in the fourth. Quite strong actually in the fourth quarter last year. That seems to indicate a sequential improvement quarter by quarter. I was wondering what do you see there? What areas do you think will do better in the fourth quarter?
You're absolutely right. To clarify, Stellan, and that is on top of then having actually a bigger proportional impact of those OE contracts that are hurting us more proportionally in quarter four than they did with the SEK 10 million decline in quarter three. You're actually right. The reason is that we do have some launches specifically in quarter four this year, which are products that we didn't have at the same time last year, and that of course, helps us. If you take, for example, the Thule Vector premium roof box line is a real strong addition that we're expecting to have and boost our performance in that category. We have then, as I mentioned, just launched our third luggage collection line, the Thule Crossover 2 into stores. We are doing some extensions to our best-selling luggage collection line, the Thule Subterra with some spinner wheels.
the reason for that is mostly associated with some of those new products that we did not have at the same time last year helping.
Okay, good. I was also just wondering on the gradual launches here of the new generation of roof boxes. I take it that you think that the biggest impact of those inventory reductions happen in the first phase and won't really recur in this phase 2 and phase 3. Is that correct?
Yeah. A roof rack, not roof racks, but you're right. the logic is this-
Sorry.
Yeah. those three launch phases were built on the logic that launch phase 1 roughly represents roughly 1/2 of our revenue with those models we replaced of the traditional historical revenue in total in roof racks was that first launch phase. Those were also the most complex roof racks. these are the roof racks with a lot of special adaptations for very specific car models, where you need a lot of SKUs to cover those type of cars with all those different connections you need to. Launch phase 2 and 3 jointly then represents the rest of the halves, 1/4 each roughly of our historical sales. they are also representing that with many fewer SKUs. significant reduction in number of SKUs needed to serve those models there. If you then have fewer SKUs at a distributor, there is less risk there.
You're sitting on a lot of old ones for some specific car models. Secondly, of course, with some learning, we do learn as we go. We have been communicating very extensively now with all those distributors in regards to making sure that they have continuously made sure that they are not sitting on too many of these racks that we are now replacing in Q3. That's why you're right, our assumption is that the most significant of these negative pipeline effect was associated with the first phase that we now, when we look at a growth in Q3, seem to be out of. There will still be pipeline depletions of the old generation also for phase 2 and 3, but to a smaller effect, and that's why we believe we are, so to speak, through that part of the change.
Good. also a question on the margin decline in the third quarter here. If you can maybe elaborate a little bit on the various items here, the mix shift, the under absorption and the, what was it now?
Yeah. The third one is, there is a negative impact due to simply only having-
I see
the tariff in itself without a margin on top of the tariff. As Lennart mentioned, that was 0.2 of the -1.2.
That means there is -1 point left, and the vast majority of that is under absorption in our nine assembly plants. The logic for that then, any analytical mind like yours, Stellan, will quickly jump to the conclusion that probably that means that you saw a later than you could act on in getting rid of people in your factories. A combination of that and the fact of saying, "If we don't believe it's a long-term decline but rather a dip, are you going to fire people to hire them a few months later on?" It's a combination of those two. We are convinced that these volumes will be coming, so we're not going to take stupid short-term measures with staff structures, et cetera. Secondly, the performance was weaker in some of those volumes than we quickly could have reacted on anyway.
it is very much dominated by that under absorption. there is a little bit of product mix effect as well, but the majority is clearly under absorption.
This under absorption, that's related to that. It's nothing to do with the new facilities and the efficiency gains that you expected there not coming through as expected in any-
No, actually, you are of course right, that if you've done new facilities, that costs you money, because that's the fact. if those new facilities are very efficient, which they happen to be, so that's good, but it still costs you money. if the top line doesn't happen as much as is expected, then that is part of that. it is a under absorption, partly driven by a few years of expanding, putting robots in place, et cetera, that didn't materialize. still the majority and the big chunk of our cost is associated with things we've had for years and staff levels that we've had for years. that's where the biggest money comes from. In terms of how efficient the plants are performing, I feel very good about that.
I see the new roof rack assembly, I see the new lines that we have done in Normark. We feel very good. At the same time, if our total volumes do not come in, there will be some under absorption. As we believe the volumes will come, we haven't taken rash quick to make a specific quarter look better and then throw cost on taking in the same people some months later on. That's not how we act as a company.
Good. Just finally on the product launches that you have been announcing this autumn here. Are there any of those that you expect to be volume products going into next year?
Yeah, of course. If you look at some of those key bike carriers, et cetera, like the Thule EasyFold I mentioned, by default, since we're so big in these categories and these are coming in, we clearly will see some big volume drivers in those. Also, we clearly believe that adding a third stroller in with the Thule Spring, it is versus the other two categories, the two strollers we have in the categories, it adds another step in something where we now already have distribution. We expect that we will gain some good volumes with that stroller model. The same applies to some of the new luggage collections.
Once we now have opened a lot of doors with luggage, it is easier to quicker get up some volume growth with additional collections that move into maybe not all of these stores, but to many of those stores where we sell other luggage collections. I think across several of these categories, it is clearly product that we expect will have some significant input. We are not a company in general, I can say, where it's one product that makes a huge difference for our total revenue. We have a lot of different products that have to deliver to make up those numbers.
All right. Good. Thank you.
Thank you.
Our next question comes from Kari Rinta of Handelsbanken. Kari, please go ahead.
Yes, thank you very much. I wanted to start with the U.S. You made a reference to the bicycle sales. Do you have a sort of a fresh number that would capture what has happened since the tariffs were raised? Then, a follow-up on the sort of the changing channel landscape in the U.S. Am I correct in assuming that the U.S. is retargeting your efforts more towards the smaller independent retailers and away from large centralized chains. I would like to start with that.
Yeah. If we take the first question, no, there is no official data yet for details, probably for the third quarter. That tends to come a two, three months delay. If you look at how bike sales are captured in the U.S. market in official data, there are two different ways of looking at that market. One is what is captured by the Bike Association in the U.S., which obviously only captures a part of the market because it focuses on the independents and on more expensive bikes. It doesn't fully cover the typical family bike for kids and others. That one for the first two parts of the year was already down 15% on sales, so that has been a very tough start. We, of course, talk to all the big bike brands in the U.S., and you will see differences between them, et cetera.
Indicatively, I don't think you've seen any type of more positive view, that it has been a very tough year. My expectation, more or less in line with a weak overall performance in bike, also in the third quarter with those type of numbers. I think it will be double-digit decline. Exactly how much more than that, difficult to say. We'll see. If you look at then how we are retargeting our efforts, I would actually say that if you look at the independent retail structure in the U.S., that's not where we're going to focus a lot more attention. We already have a very good attention, and as I mentioned briefly, as most major brands operate in the U.S., you focus on independents in that very large U.S. market, where California alone is bigger than any European market.
You look at that by serving it with very professional, independent sales rep structures, which you, of course, need to manage. We do have people that manage that. That is where you work with those independent retail structures. It is more between and within the major national accounts, and it's, of course, also in the U.S. specifically our continued fast growth on our own B2C online channel that is partly shifting what's going on there. It is more about which one of those major national accounts, the combination of omni-channel players, pure online players, our own B2C. Those realities are making us make some moves and allows us to make some changes to how many people we have operating with those partners. It is a classical, tricky game to try to be with the winners for the future, not the winners of the past.
In that, we see some changes that are good to do now.
All right. Good. That was a lot to digest. Shifting gears to the RV market in Europe. Seems to be that there's some OEMs that are more optimistic than others, and then some of your peers are somewhere in between. What are your thoughts beyond Q4? Assuming that the short-term capacity bottleneck ease, how should we think about 2020 in Europe?
This is probably the only time in my entire life that I have been accused for being the most pessimistic, and that I've been about the European RV industry, and I've been wrong all the time so far. You probably shouldn't trust me too much. I have been more pessimistic than many others. I have to admit that I've been wrong constantly, that it hasn't been as bad as I thought. What has been the main reason for why I have been wrong is actually the consumer purchasing has been more positive in some of the very big markets. You have to remember that it's easy to talk about a pan-European thing, and you add all the numbers together. If you then look at the biggest market by far being Germany, and Germany doing much better than the average, you might be slightly fooled.
The question is more about what will go on in Germany. If you break down the European market, you see some very bad performances in Sweden and some weak performances in the U.K. due to tax in Sweden, due to Brexit in the U.K. You see a lot of other countries where it's quite good, and then you see in Germany where it feels very good. My mistake has clearly been about the German market. I think if you look at the manufacturers, the reason why you will see differences is you probably have read the Trigano report is my guess, and some others, and they will be tainted by which country they mostly service. It's clear that Trigano doesn't service as much in the German market as they do in other markets.
They will have a softer view than somebody who serves the German market a lot, like the Thor Industries group does. If you put all of that together, and knowing, admitting that I've been clearly wrong so far, I am not super positive. I haven't dramatically changed my view, but I think Q4 will be relatively shaky, but not as bad as I thought only a quarter ago. If I look at 2020, I will probably join the people that believe it will be a low single digit year.
Great. That was very helpful. Finally, on the Revolve luggage collection. Because it's a bit of an outlier with being hard case and so forth, so what have you learned so far from entering into this category? Any sort of adjustments that you have needed to make, how successful you have been compared to your sort of Soft-Sided collections? So I guess the question is, are you happy with Revolve so far?
Yes, we're happy with the Revolve performance so far. Yes, we're constantly learning on all the collections and doing changes and adding things and taking away things and adding more collections. Yes, happy with Thule Revolve so far. There is a constant learning, which we knew when we stepped into a completely new category, both in terms of sales channels, consumer perceptions, focus areas, supplier challenges, et cetera. There's consistently some bigger learnings in a new category than anything else. What we are clearly saying is that we are on a good path. It is happening a little bit, as we've been saying. It's going much faster in some countries than we thought, and much slower in some countries than we would like. That reality is still valid, and that also applies to Thule Revolve as it has done on other collections.
overall, yes, we're happy with the start of the Thule Revolve. We're happy with the feedback on the newer collections that we're now launching, and it will be a long haul, bumpy ride, but the direction is good in that.
Good. Thank you very much.
Thank you.
As a reminder, ladies and gentlemen, that's star followed by one for any further questions. Our next question comes from Mats Liss of Kepler Cheuvreux. Mats, please go ahead.
Yeah. Hi. Thank you. Can you hear me?
Yes.
Yeah. Well, first, the organic growth target there of 5%, I guess, just to get a feel of the view you have of that going into next year. I guess you have the product launches which will be quite supportive. again, market conditions might be somewhat softer next year. Who knows? what could you give me a feel about that? Could you reach the target in spite of a softer economic growth next year?
Yeah. I think we would not have put in a 5% growth target if we didn't truly believe we should be delivering it every year. Clearly we are not happy with not delivering it this year. There are some very key drags that we will not have entering into 2020. We have to remind ourselves that we have SEK 50 million drag that we will have had by the end of the year in those phase-out only businesses in U.S. That drag we will not have in 2020. On top of that, we will not have the drag that we saw with the pipeline depletion of the first phase of the roof racks.
On top of that, we have entered successfully, and as we've mentioned, what is not calculated in our organic growth rate because we just acquired the company in December, but if you look at the acquired rooftop tent business in Thule Tepui, that has been a 24% growth. Small, little piece of business, but still 24% growth year to date. With those things combined, we still believe the 5% target is definitely achievable in 2020.
Okay, great. Secondly, the changes you make in the U.S. sales organization, is that something that you could sort of, if successful, I guess, apply in the European market as well, or is this a totally different story?
Yeah. If you look at it, every organization, we constantly do staff changes, organizational setup changes as realities change, in every market. The reason why the US organizational change will be happening now is that there has been bigger shifts and higher uncertainties on the players in that market, plus the combination with a finalized ERP system implementation with a lot of advantages in data sharing and other things. There is a much more obvious to do it at one go, which is why we're announcing it. In Europe, that has been a more continuous journey along constantly doing. Now you will not see a similar program being launched anywhere else. This is very small and specific associated with the US, and the whole reason why we're mentioning it is more about professional versus most people involved, that this is one of those things happening.
Great. Thank you.
Yep
coming back to the recall now, could it be so that if those problems are traced back to the supplier, and maybe you can pass them on, or is it your own cost?
I think, as always, when you look at a product recall, that will be a long story of who's to blame for what and how is the cost. We would not have put in a provision of SEK 25 million if we didn't think that provision was roughly right. Will we know exactly how right it is and what it will be? That we will know when the product recall is closed. It's just been initiated.
it's your cost. It's not the supplier that have done some-
Considering that we have put an accrual provision in, that's the provision we think the cost potentially could be for us.
Okay. finally about, raw materials seems to be somewhat giving you some tailwind going forward, I guess. Is that right?
Yes. As Lennart mentioned, we believe, and with current trends on what's going on in the marketplace, that we should be seeing some help from our cost set up versus what we have had. That is, of course, what we are seeing as one way of hopefully performing stronger as we move into 2020 on our margins.
Okay, great. Thanks a lot.
Sure.
Our next question comes from Fredrik Moregård of Pareto Securities. Fredrik, please go ahead.
Thank you. Hello, everybody. Just a couple of questions on the luggage business mainly. Obviously, you're having success with the luggage in Asia. I was also wondering how is that progressing in the U.S., and how should we think about the growth profile of packs, bags and luggage? Meaning or assuming at least that luggage will be the fastest grower across those regions.
Yeah. If you look at it's clearly the case that luggage will be the key driver for the growth across all parts of the world, including the U.S., where we are getting good listings and are selling our luggage. That is not only in Asia. The reason why we highlight Asia more is that Asia is so tiny in the traditional categories if you look at our regional splits as we present them. It cannot be that in luggage if we truly want to be successful because the world market is roughly 1/3 of luggage sold in Asia, 1/3 in Europe, and 1/3 in the region Americas. Should we then want to become, over long-term, a player, we need to be more successful in Asia, and that's why I'm mentioning it, that is nice to see.
We are having traction in Europe, and we are having traction in the U.S. as well, and luggage will be a key driver for the entire packs, bags, and luggage across all those three regions. The difference is, as was asked before by and some others, is clearly the case that will continue to be legacy businesses that decline in the U.S. There is a more of a drag there than there is in Asia, where we didn't sell any of those. That might dent the total percentage number for packs, bags, and luggage in the U.S. There is no doubt that the luggage percentage is strong also in the U.S.
Okay, that's very helpful. also, did you manage to grow that or the packs, bags, and luggage business in the U.S. this quarter?
Yes.
Okay, perfect. Sorry, just a final one on the underabsorption. You say also that in the report that you were, or that underabsorption was higher than you had expected heading into the quarter. What took you by surprise on that?
What took us by surprise was the weak performance in the U.S. market. No doubt. We did not expect the U.S. to be a minus six in this quarter.
Okay. Thank you.
Ladies and gentlemen, as a final reminder, if you have any further questions, please press star followed by one on your telephone keypad now. We have no further questions, so I'll hand back.
Thank you very much then. Thank you for all the interesting questions. I wish you all a exciting autumn period with lots of traveling, having a lot of use of Thule luggage in airport stores and around the world. I look forward to talking to you again when we do our full year report in the beginning of 2020. Thank you.