Very welcome to this quarter three update. First of all, I have to say it's great to do an update for the most exciting quarter I've ever had in the 13 years I've been in the Thule Group. It's been a truly exciting quarter in terms of all the big things we've done for launching products that will be a significant part of our future in the Thule Group. If we go to the first slide in the presentation, slide two, we can summarize that the quarter in terms of the sales in the quarter was solid. We had a growth of 3.8%, excluding currency effects, and 12.7% as a reported growth. Once again, in the quarter, driven by a strong performance in the region Europe and Rest of World, which grew close to 8%, while region Americas declined with 4%.
I'm going to come back to the regions' performance a little bit more later on. We will talk more about that. If you look at the quarter, as I said, the most exciting since I joined the company, and we've had quite a few exciting quarters, so that, of course, means a lot. For us, this was a quarter where we came into stores with our fantastic Thule Sleek city stroller, and we rolled it into numerous countries and numerous stores. Of course, there will be more countries and stores opening as we continue into Q4 and into next year.
The reception has been excellent, and we have therefore also decided, as we were getting good feedback during the spring, that we had the opportunity in a number of stores, and actually most of the cases, to actually truly take space in these juvenile stores by creating shop-in-shops or very clear display areas. We therefore have, according to our plans, which we were hoping and now have been given the chance to do, have been spending quite a lot of money and will continue to do that in Q4 and getting into next year's in truly capturing that space with displays, point-of-sale material, and merchandising materials. So that has partly driven our cost in the quarter, as expected. On top of that, we've, of course, continued, as we have already previously communicated, a very heavy development push.
That means that on a rolling 12-month basis, we are now at that plus 6% level that we communicated that we would be. With two fantastically important launches in terms of trade launches to retail in the fairs that was done in the period. We're talking about our classical category of Sport & Cargo Carriers, where we are the undisputed global market leader, but where we still raised the bar significantly with the launch of a completely new roof rack generation and two new box models shown at the fairs. I'm going to share a little bit more about these products than we normally do at these quarterly calls because they are so important in the future growth of the company. I'm going to come back to those.
In total, that meant that we spent roughly SEK 25 million more than we spent in Q3 2017 connected to these launches, according to our plans. That meant that the underlying EBIT was a slightly lower margin than the same period last year. We still delivered, however, an underlying EBIT of SEK 267 million versus SEK 258 million last year. Overall, also, we can say that the cash flow was solid. We have, as you would expect when you are launching a lot of products in a quarter and some of them rolling out late in the quarter and early Q4, we chose to ensure that we could deliver and have been running with a slightly higher inventory with these new launches than we intend to do over the longer period to ensure that we would capture the upside as we roll new products into the market.
With that, if we turn to the next slide, we can look at the performance in the quarter and the performance year-to-date. I've mentioned numerous times in these calls and in various meetings with investors that we will never run this company on a quarterly basis, that our company is and has been around for 76 years. One of the strengths is that we run the company for what is best for the company. That means that if you look at it, our performance year-to-date is really the interesting aspect. Year-to-date, we have grown sales with 5.6%, in constant currency, and we've grown our EBIT in a strong way as well, despite our push on product development and launch costs for the future. Year-to-date, we have an EBIT margin of 20.6%, which on a rolling 12-month basis means it's 18.4%.
As we have always communicated, the fourth quarter is our lowest quarter in terms of revenue, and our fourth quarter is also our lowest EBIT margin quarter, once again, because we do not try to save money just because it's a lower sales quarter. It's in fact often a relatively high-cost quarter preparing for launches for the coming year. Our average margin in that quarter in the last few years is what we're expecting also to have in 2018. If we turn to the next slide, we will look a little bit at these three key launches that we have done in period. First, we start with the product that actually was rolled into stores as we had in Q3, the Thule Sleek city stroller. We have previously communicated that entering into the stroller segment will take several models, and it will take a number of years.
We have had a very positive journey with our Thule Urban Glide 2 all-terrain stroller, which we did an updated version on as of January this year that has kept on doing really well. That stroller has partly been sold in juvenile stores, but actually partly been sold in more sport and outdoor and other types of stores as well, but it has partly opened the door into juvenile channels. What we are now doing, however, with the Thule Sleek four-wheel city stroller, we are truly hitting straight into the juvenile channels sweet spot. Especially for this model and the type of use, we're talking mostly central and Northern Europe and North America in terms of where this type of strollers is a big seller.
The Thule Sleek is a fantastic stroller for one kid, but what is making it uniquely good in the market is that on a very small footprint, it can also then be expanded into a great sibling seat stroller, as shown in the image on the slide. It does that in a very comfortable and easy-to-drive-around way. We introduced the stroller at last year's fairs. We have rolled it out in store now in Q3, midway through the quarter. We are very positive in the reception that retail has given us.
As I mentioned, we have even above our own expectations, been getting the opportunity to truly define our space with the number of leading juvenile retailers around the world, where we have been able to brand shop-in-shops and display some own concepts to truly stand out versus the many, many other brands that will be in a juvenile store. Very early sellout signals because, as I said, we are only in mid of the quarter in stores, but the early sellout signals are very positive and are promising well for the full 2019 season. That means that if you look at our portfolio of strollers at the moment, we have a pure jogging stroller, the Thule Glide, which is a very niche product.
We have the all-terrain three-wheel stroller, the Thule Urban Glide 2, which has been growing very nicely now, and with especially our new black-on-black edition has gone very well in juvenile. As of this quarter, a premium four-wheel city stroller with a capability of expansions to follow your family's life. We will, as we've communicated at the big fairs this year, continue to launch additional models to be that big player we intend to be in stroller category in the premium segment, and you will see more new models hitting the market in 2020 and 2021. Definitely a very key and exciting growth category for us at a premium price point and with good margins. If we go to the next slide, we go back to more the history and heritage of the Thule Group, the Sport & Cargo Carriers, and especially the roof rack category.
We are definitely in the roof rack category, the number one in every sense of the game, the number one in sense of volumes, the number one in sense of price point, and the number one in the sense of technology. We don't only sell roof racks under the Thule brand. We also are the premium car manufacturer's big supplier of new concepts in terms of roof racks. You can very simplistically say we are definitely best in class. When you're best in class, to decide to replace what is already the best in the market is a quite aggressive decision. A few years ago, we felt that we could take roof racks to the next level. Roof racks is not a product which we will launch a new model or a concept every two, three years, which we do in bike carriers and in other categories.
It's a platform technology which is quite costly to develop. I'm going to come back to that. It's also something where the user doesn't get excited by default on just looking at it. It just needs to work in an excellent way. As I said, we already had the best, yet we have been running the most expensive development project ever. That project will, by the way, continue because this is such a large and complex category of roof racks due to the number and models and types of roofs that there are on the cars around the world, that in actual term, our next generation roof rack will be launched in three phases.
The first phase was in quarter three when we introduced it at the fairs, the whole concept. In next quarter, this quarter we're in now, Q4, the first two models of the new generation are starting to be sold in stores. There are further models for different types of car roofs hitting in 2019. Finally, all the models will have been updated by 2020. The reason we're doing it this way is because we want to make sure that our retail partners have the time to adopt and in a smart and smooth way, make sure they can phase in and phase out products in a smooth way. The fantastic new Thule Edge and Thule Evo roof rack generation has a number of huge benefits for their consumers.
They also have a huge benefit for the retailer because we will be serving a very vast majority of all the cars in the world, in a much easier way with fewer SKUs for the retailers. For the consumer, what we're offering is a much faster and easier installation of the roof rack on your car roof, a much easier installation and attachment of various equipment to your roof rack, an increased load capacity, and also a nicer look and feel. It is truly setting a completely new standard what roof racks does. I think also, if you look at what we've been doing, as I said, it's the single most expensive development project ever in the history of this company.
Some big chunk of that cost has been taken 2018. There will be a big chunk of the cost in 2019 and some in the beginning of 2020 as well. We have completely changed the structure in our Swedish site where we make all the roof racks for the world. We have installed a highly optimized assembly setup, which has been a very smooth and operational start, and we feel very good on all the signals we're getting from the market having shown this roof rack generation. Now, a roof rack is not a thing a consumer will run out and buy just because there's a new product. You don't expect to see a huge pickup in terms of every consumer now running out to buy a roof rack. The reason why we're doing this launch is just to set us further apart.
We were already the best in the market. Now we are significantly better than any competitor. What this will do, it will help us over time to drive volume growth in the roof rack category. In the quarter, we did see, as we expected, some declining of sales in some of those models that are now replacing Q4 of the roof rack generation, due to the fact that we have informed our big retail partners and distributors around the world since late spring that this was coming, although only officially letting it be launched at the big Automechanika fair, which is a biannual fair for automotive accessories taking place this September in Frankfurt, in Germany. A slight little pipeline depletion, and that will be something that will continue with both then pipeline fill for some models and pipeline depletion for some models during 2019.
This is more a launch setting the standard for why we will be growing with the roof racks in the coming 10 years. If we go to the next page, we talk about the next very important category that made me very excited in this quarter, and that's the roof box portfolio. You might be aware that we launched and might remember that we launched in 2017 what we called Thule Motion XT, which was then the roof box that really set a new standard in terms of both physical appearance and look, matching the design language of modern cars, as well as a number of feature improvements for the consumer. What we also did was, of course, when we did that, we always want to offer an offer to the consumer at several price points.
With a classical good, better, best mentality, you would place the Thule Motion XT in the better assortment. A high price point for every competitor in the market and medium price points for us. We then at the fair at Automechanika, showed the two additional models completing our new modernized roof box portfolio. We showed the good level and the best level. The good level, which is the box in the image that you have on the slide, is called Thule Force XT. The Thule Force XT is, for us, at a good level versus competition, it is at the high level. For us, it's the lowest price, but if you look at the market, it's at the mid-price level for boxes generally in the market.
It offers a number of improvements versus its predecessor, and also especially in terms of a design language, it fits with the overall design language of the complete roof box portfolio. That box, the Thule Force XT, was a show and ship box, which meant that we showed it at the fair in September, and it's already in stores now when we are in October. The other box model, the best box model we actually showed also at the fair, knowing that it's only going to be available for consumers as of Q3 next year. The reason for that is simply that the world's biggest automotive fair only takes place every second year, and you can get a lot of attention from media, retail partners, and others by showing things at that fair.
Knowing that it will only hit in Q3, it was still the right time to show it to our trade partners. Both these roof box models garnered a lot of attention and a lot of interest. The new Thule Vector will be at a significant price premium versus the box it replaced, and therefore, we will truly come with a very strong, good, better, best offer fully implemented by Q3 next year, where we already have seen with the Thule Motion XT launched last year, a fantastic performance in 2018, and where we are convinced that the addition of the Thule Force XT, especially for 2019, which is a spring, summer peak period for this type of roof box, will be a very key driver for our 2019 growth.
I especially often say to Swedish investors and Swedish analysts that a lot of Swedes tend to believe that a roof box is a ski box. In general, it is not, and especially the Thule Force XT is not. The Thule Force XT is very much a smaller box used by people with smaller cars for a vacation in the summer where they don't get space enough for their bags and things. It will be mostly a driver for growth in our 2019 spring/summer season. After this extremely exciting period of launches, still, let's have a look at what went on in the two regions in the quarter. If we turn the slides to slide seven and look at region Americas. Yes, we can say, we've said it a few times, trends are not rapidly changing, and the U.S. market is still challenging out there.
I think you all know about various bankruptcies, et cetera, shaking still the category. What is most important to highlight from our perspective is still what are the things that held back and made us actually decline in the quarter? In real terms, you can highlight two things. One is what we've already communicated since long time, that we are phasing out the low-margin OE programs. In this quarter, that was roughly $1.5 million or SEK 10 million simply, which was not as big in this quarter as some other quarters, but it did impact. Secondly, unfortunately, some of our best growth markets in Latin America had a seriously tough quarter.
We did very well in Brazil, as we have been doing for a while. Argentina, Colombia, and Mexico all had very dramatic declines of their currencies, and that meant that those markets that are served with distributors, we saw a very, very big pullback on order placing from those distributors, partly as we would believe that it is, of course, a little bit the effect of consumers in those markets. It's also a lot of effect of those distributors working on their inventory holdings and a little bit speculatively hoping that their currencies will come back. We hope therefore and believe that they will turn upwards again. That did hurt significantly in the quarter with another SEK 10 million-SEK 15 million. Overall, from the rest of the business, it was a very strong performance in the Active with Kids juvenile.
Despite that, we do not have the Thule Sleek in store in U.S. until at the later end, because shipment times from Europe meant that we first focused on the European market, then only a number of weeks later on did the stroller hit U.S. stores. You really can see the rollout happening in the U.S. as of Q4. Still a very strong performance with the existing strollers and the existing products in the Active with Kids category. We also kept on doing well in what we call the smaller everyday bags and luggage. We do see in region Americas, we have a much bigger exposure to some of those legacy bags, and they continue to decline significantly in the period. If we go to the next slide, we talk about a very strong European market in region in Europe and the Rest of World.
As I said, a 7.8% growth in constant currency is a very strong performance in a very strong year overall. The main drivers in the third quarter was continued very strong bike carrier sales, good momentum in roof boxes, thanks to the Thule Motion XT, and a little bit of a pipeline depletion effect with some of the overseas distributors as they were awaiting the October launch of the new roof rack system, and therefore did not place as many orders as last year on the existing models of roof racks. In the Active with Kids category, we had a very fast pace of growth continuing. We continued to do really well in our multi-sport bike trailers. We have been doing well and kept on doing really well with the Thule Urban Glide 2 stroller.
We also started, as I said, in August, rolling out the Thule Sleek in store and therefore feel very good about this category going forward. If we then take RV products, you have surely been listening in to other companies talking about the market. We feel the market has been actually quite good. It's not been as exuberantly booming as in 2017 and the beginning of the year, but it was a solid market. I think most people in the industry speculate it was a growth around 5% in the market of RVs. As we have been successful in the past, also in this quarter, we beat the market clearly with our performance taking market share. There has been a lot of speculation. We have also communicated about our expectations that there is an adjustment happening in the pipeline.
I think that is partly happening, but it's not a dramatic situation. I think we just have to be realistic that there is an adjustment needed in a little bit that pipeline for the coming quarters. Overall, markets are actually positive and consumers keep on buying RVs. We feel good about the category, and we feel very good about our ability to beat the category. If you look at packs, bags, and luggage, there is also in Europe and Rest of World, although not to the same extent, a mixed situation where we are doing well in the smaller everyday bags, sport and tech packs and luggage, but where we do have some decline in some tablet folios and some camera bags also here. Overall, a stronger performance than region Americas, due to the fact that we have much less exposure then to the declining categories.
Overall, I'm very happy with what Europe and Rest of World did in quarter and extremely happy where we are for the year to date. With that, over to you, Lennart, to go through some of the other financials.
Thank you, Magnus. Looking at slide nine, the income statement. If we first look at the gross margins, in a specific quarter, we were down with 1.9 percentage point versus prior year. That includes an unfavorable currency effect of 0.9 percentage point. Decrease in gross margins in constant currency of one point, driven by a slightly negative product mix, continued negative raw material prices, and startup costs in the supply chain for the product launches Magnus just mentioned. Year-to-date, however, we are flat versus prior year in constant currency. As mentioned again, and you see it feeling very clear here, our selling expenses are higher than prior year due to the continued product development push and launch costs.
Financial net was minus SEK 12 million in the quarter versus prior year, minus SEK 14 million, and this is the effect of the new, more flexible financing we put in place in June this year. Effective tax rate year-to-date, 25% versus prior year, 24.4%. If we now look at slide 10, which is the operating working capital and operational cash flow. This quarter, we ended with approximately SEK 1.2 billion in operating working capital, which is 18.4% of last 12 months of sales. That was 16.7% prior year. Increase in absolute number by close to SEK 200 million, where if we adjust for currencies, the increase is SEK 133 million. The net of increase in inventory and accounts payable stands for SEK 111 million of those, 133.
Increase in inventory is a conscious choice due to the recent product launches at a startup of an early ramp-up of pre-production for the early 2019 sales season start. Activities we are convinced are the right things to do since our inventory isn't over nature becoming obsolete, and that we can have a much more cost-efficient build-out. It's also enabled us to finalize the actually ongoing big layout changes and expansions we are doing in some of our key assembly sites that Magnus will talk about a little later in the presentation. That means for our operational cash flow, we have generated SEK 787 million the first nine months versus SEK 837 million last year. Small decrease, but all related to the change in working capital I just mentioned.
Thank you, Lennart. We then turn to the next slide, we summarize our status versus the long-term financial targets we presented, where we are saying that we want to have an organic growth in constant currency of at least 5%, and we are trending at 5.6%. We have a midterm target of reaching an underlying EBIT margin of 20%. If we're looking at a rolling 12 months, we are now at 18.4%, so I feel very good on our journey towards reaching the 20% target. As I said, year-to-date, we are at 20.6%. We all know that our fourth quarter is a lower EBIT margin quarter and will be so also this year in line with previous years. If you look at net debt/EBITDA, we can see we're now 1.3 times there. We are actually outside in the right end of being outside our leverage target.
You know that we had an ordinary dividend of 6 SEK per share, meaning an 87% dividend in this year. If we look at that means we feel very good about how we're delivering to our financial targets. Then in closing before the question sessions, a little bit of a summary what is it we're focusing on for the coming months. We can turn the slide. If we look from a sales and marketing aspect, of course, if you're launching such a wide-ranging product like a roof rack with so many models, so many SKUs, and you're setting completely new standards in the industry, in making sure that the phase 1 of this introduction works out well is crucial.
We are very happy with how the Hillerstorp plant has efficiently got going with the assembly in our highly optimized assembly lines of these new models. We're very happy with having chosen to have a higher inventory than normal so we can enable a quick rollout around the world, and we feel very good about the market perception of this next generation roof rack. The second part is, of course, with our Thule Force XT roof box, which is for us at the good level, but as I said, a mid-price in the market.
Of course, we do want to start taking market share already in quarter four, but the real volumes of that new model is more a box that will be used in the spring-summer season in 2019. The third step is clearly to make sure that after what we've seen in the last year and a half, a continuous growth in what we call the smaller everyday bags, which means that the laptop backpack that you have for university or maybe for work, and your small bags that you go back and forth to the gym, all those type of products, has a pretty big impact in the fourth quarter in terms of selling it into the season of gift-giving. We're of course wanting to be successful in that.
At the same time, we of course know that we have some big challenges in some of the legacy categories in that period as well. If we look at the last step with now Thule Sleek rolling into stores all over the world, it is of course key that it's being sold out as well with the same pace, and although early signals are good, we will not rest on our laurels. There is a lot of work being done from a sales and marketing perspective to generate more PR and consumer buzz around that Thule Sleek stroller. What we have going against us in the coming months, and we highlight that in the quarterly report a bit, is that as we, for the first time now, highlighted how much we have left of that communicated decline of those contracts we have decided to phase ourselves out from.
We have SEK 60 million still to be phased out, and majority of that is actually happening in the fourth quarter and especially the first quarter next year, meaning that as we go in finally in the second quarter of 2019, you will not need to hear me talking about those contracts anymore. That is of course a headwind we're facing. It's obvious for everybody doing business in the U.S., and U.S. is a very big market for us, that there is a lot of discussion what's going on with the U.S. tariffs. Also there in our report, we have highlighted what we expect the effect to be. We have one category that is exempt, and it's actually the stroller category, was one of the few exceptions to the new U.S. tariffs. Otherwise, in various extents, our categories are impacted.
I noted in the quarterly report that we do not believe that we have a negative competitive effect. In fact, it's the other way around, to be honest. We believe we have some slight competitive advantages on a tariff reality that we manufacture more in Europe and in the U.S. itself than most of our competitors do in our categories. We might have even a slight competitive advantage with the situation now taking place. However, overall, we all know that tariffs are tricky and normally shape the market a bit. The tariff introduction of 10% in September and the additional 15% in 1st of January, in total then 25%, we have communicated very clearly to our retail partners that we will pass on those cost increases that that means for us. There will be two price increase steps actually in 2019 for the U.S. market.
One, which is a traditional normal price increase that we always do due to cost of things going on in the world generally, and one specifically allocated to the tariff impact. We estimate that the tariff components of that price increase next year will be equivalent of SEK 50 million in the U.S. market. It's around that number. It of course depends on volume, so we sell, but that's roughly if you look at the equivalent sales we're expecting in 2018. That means by default, there will be a revenue increase in the U.S. of those SEK 50 million next year. We don't know the impact this will have on potential interest from consumers. Of course, that would be too early to speculate. From a competitive point of view, as I said, we don't see any negative. If anything, we see some slight positive advantages for us.
Generally, most of our categories, we do not think it will have a significant negative impact. However, in some of the categories, especially the bike segment, which is a big segment for us, a lot of our selling of new bike carriers is associated with sales of new bikes. Bike is a relatively expensive product, and most bikes are made in China that are sold in the U.S., which therefore means there is a significant impact on those. There might be therefore, at the very beginning of the year, I think a little bit of settling in before we know what goes on. I think in general, with the good underlying trends, that it won't have a long-term effect on the U.S. market. That was for sales and marketing.
If we look at operations, Lennart mentioned that we have been doing some significant projects in our sites. I think it's a sweet spot for this company that we never talk about this, because when a CEO and a CFO don't talk about what you're doing in the plants, it means it runs very smoothly. We have had a very busy year in reshaping our production plants and doing extensions of our distribution centers, and we are finalizing all of these projects either on time or ahead of time. We feel extremely good when it looks of what that will mean for the efficiency of our businesses going forward. It is of course clear, like if you take a work of changing the entire flow in our German roof box plant while production is ongoing. You will have a slightly higher inventory to ensure you can do that well.
When you build a new expansion of your Eastern European distribution center, you're building a brand-new small fabrication site next to your assembly site in the U.S., you are, for a period of time, spending quite a lot of money, both from a CapEx perspective, but also from a production overhead cost, slightly more, not fully getting the efficiencies until the sites are up. We feel very good about how that is going on in making our sites be the right for the future. We are also, in our Polish plant, ramping up production as we speak of the Thule Revolve hard case luggage, which is being rolled out in the market in Q1 2019. Let's be honest, raw materials are volatile. You can see things happening.
We are, as you would expect, hedging aluminum, et cetera, but we do need to stay on top of what's going on in the raw material development. We have assumed relatively high raw material cost developments in our price increases ahead of 2019. We feel good about our assumptions there. Finally, but not least in this company, we will continue a very aggressive push in product development, both in our existing categories, the traditional ones, the heritage ones. As I said, the Thule new roof rack generation is still quite an expensive development project in 2019 for the second phase. We are finalizing the Thule Vector roof box in the premium segment. We're, of course, on top of that, doing a number of new bike carriers, water sport carriers, and ski carriers as well.
On top of that, we are also pushing very hard for a number of additional luggage collections, the next generation model of strollers. We will continue to spend to drive the long-term future growth. With that, we open for questions.
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 prepared to ask your question, please ensure your phone is unmuted locally. Our first question comes from Daniel Schmidt from Danske Bank. Daniel, please go ahead.
Yes, hello. Good morning, Magnus, Lennart. A couple of questions from me. Can we just start with what you just finished off with in terms of product development spending and launch costs and so on. You write that in this quarter was SEK 25 million higher than in Q3 last year, and it does sound like that's going to stay quite elevated for some time when you talk about the roof racks and roof boxes and the Sleek and so on. Are you saying that the product development spending of 6% to sales is going to stay that way also in 2019 and not come down, or how should we interpret that?
I think that is probably in the right direction of assumption. It won't come down as much as maybe we thought. We have added some projects, and we also have to be clear to say that if you look at some of the tooling expense spend, which we do have on our product development spend, we do not put that on the balance sheet. If you would've talked to any other companies recently, you will know that both plastic injection tooling and aluminum extrusion tooling have seen some pretty hefty price increases in the market price. Yes, I would say slightly higher than we previously thought. Still slightly lower than we currently are in 2018, but maybe not as a rapid drop as we would have expected.
Does that in any way sort of push your ambition in terms of reaching those 20% on a medium-term level, given that this is going to be a little bit prolonged, and it does sound like the sales effect are going to be tilted towards second half of 2019. Would that mean that the sort of EBIT margin expansion is going to be a bit more back-end loaded than in this medium-term target?
No, not more back-end loaded than I was previously speculating. I don't know how everybody else was speculating. I feel very good about our margin development because still, even if we will continue to spend a lot, we are also seeing some of those products now, the strollers truly driving revenue and some of the luggage driving revenue. I feel very good about our medium-term 20% target still.
Another question on the portfolio pruning that you've been conducting now for three quarters, and you're saying it's going to go on for another two at an accelerated pace. It is quite a step up if I get it right here in terms of the pruning versus what you had on average for the first three months, correct?
Yeah, you're right. What happens is these are OE contracts, right? They are not a retail classic where you sell in a season. It is much more of you deliver large quantities into a specific partner for a specific order. Specifically in this case, there was large orders in the first quarter that we are not going to have this first quarter next year. The impact due to that is higher in quarter one than in other quarters. Also, that's an impact partly on how big the quarter is. You're right, quarter one is when the last phase-out is happening, and therefore you're seeing there were some big orders in the previous year comparative.
Yeah. All right. Would you dare to quantify any margin lift from the fact that you're exiting these contracts?
I wouldn't communicate a margin lift, but I think it's pretty obvious, since we've said it's seriously low margin, that if you dropped there, it will improve your margin in the quarter.
All right. Then just finally on RV, did you see any changes to the demand during the quarter, sort of leaving Q3?
No, we didn't. I think if you look at it, and I know you were at the big RV fair as well. If you look at the market, it was generally a positive fair. It was very good reception, more young consumers than ever, still more visitors than ever. What we have speculated in, as I think everybody else in, is that there is a slight overload in the pipeline. We didn't see anything major in our business shifting dramatically over a specific month. We had a very strong quarter still in a relatively good market.
All right. Thank you, Magnus.
Thank you.
The next question comes from Stellan Hellström from Nordea. Stellan, please go ahead.
Thank you. I'll start just to ask the increase in tariffs here. First, in Q4 then, the increase here, will that be compensated as well, or is it in Q1 that you expect to compensate through higher pricing?
It's Q1. We've communicated this a few times before that we hate to do shifts during a season since we're selling to retailers would then take it in their teeth. If you look at the impact, as you can then calculate on an annual basis with only SEK 50 million in impact, we have to be realistic. Even if it is a 10 plus a 15, it's only on what we're bringing in from China that we need to compensate, therefore the total increase isn't that high as a percentage. We have therefore chosen to, a little bit from the 24th of September, as the first 10 was implemented then, have a little bit of a small negative impact in the sense of not shaking up our retail partners, passing it all on from the 1st of January.
Very good. As you say, the price increase you need to do seems to be on an average low single digits, are there any categories here that are more severe that you will need to do significant price increases?
If you look at it, you can generally say that we are not sourcing so many finished goods from China, aside from some of the smaller bags and some of those things where we do have a pan Southeast Asian sourcing, also China. When you look at it, the impact is slightly higher in a category like packs, bags and luggage. While of course, since there is no import duty at all on strollers, there is no impact on that. By the way, the Thule Sleek is anyway made in Poland, we would almost have liked there was an impact. It would have been a competitive advantage for us. If you look at it, small impact in Sport & Cargo Carriers on some components that we're bringing in from Asia, not bringing so much full product.
All right. Just final one on the detail maybe, do you expect pre-buying ahead of these price increases?
I think everybody at the moment is speculating a little bit about potential pre-buying versus a huge challenge to bring things in physically. Because here's the difference is you need to have it physically on the ground in the U.S. before the end of the year. We know that normally the last two, three years, there's been huge struggles to just find shipping quantities late in the process ahead of New Year, because Walmarts of this world have more or less chugged up the entire system. I think brands like that, huge retailers like the Walmart that are buying a lot of cheap, crappy stuff from China in huge quantities where this tariff impact of 25% will be significantly more impactful are more likely to be the guys trying to bring huge quantities in.
Although some people would like to try, even us potentially, I don't think it will be physically possible to do very much due to how late it came and how long lead times you have, and due to the last recent years' struggles to physically get additional shipments just ahead of New Year's into U.S.
Okay. Just finally, the U.S. market for you hasn't, or the Americas market hasn't been growing very well, and you talked quite a lot about that. The core Sport & Cargo Carriers business in North America, how is that progressing at the moment? Is that also affecting by some-
It's growing
pipeline?
It's growing, but it's not really growing as much as we would like. One of the big reason is we were a little bit over-optimistic on the bike market as a whole into this year, and the bike market has declined a little bit in the U.S. You can also say that this U.S. market is actually the only market where water sport market is relatively big for us. We sell a lot of surfboard carriers, kayak carriers in the U.S. Also the paddle sport and water sport market has been slightly weaker with a slight decline. Those two markets haven't been as good as Europe. We are still showing, if you take away these OE businesses, the growth in the category.
Good. Thank you .
Yeah.
The next question comes from Gustav Sandström from SEB. Gustav, please go ahead.
Thank you, operator. Good morning.
Good morning.
If I may start with the question regarding Thule Sleek. You state in the report that Thule Sleek contributed to strong growth within the category. Could you please give us some ballpark figures, what range addition you got from Thule Sleek in the quarter, please?
If you look at it, monetary amount is relatively small in the quarter. I think if you look at it, the first time when we can really talk about how many Thule Sleek strollers we'll be selling is when we have a full year. Indicatively, if you look at a Thule Urban Glide 2, we're selling around 35,000 of those on a yearly basis. Of course, that's the least we would want to do with a Thule Sleek when it's fully rolled out and up and running. We will be seeing a few thousand this year being sold, but the big year is in 2019, when you have a full season in.
All right, fair. On accounting, do you recognize the full impact from sales of Thule Sleek as you sell into the stores? Is there a pipeline inventory effect in the quarter and perhaps also in Q4 as you roll out in U.S.?
Of course. When we sell something, we're done for it. We don't have any type of consignment stock or anything. When we sell it to the retailer and it enters into the store, by default, if you didn't have anything before, there is always a pipeline fill. What we have to be realistic about is that those stores are not filled up with hundreds of strollers because we have next day delivery. In fact, in many of the stores, they will only show maybe two colors, and then they will have the opportunity to show other colors in a nice way because we have given them nice color patches, et cetera. You fill up with relatively few strollers still. The pipeline effect is relatively small, I would say, versus what the sell-out has to be to be successful.
Just to get a sense of the magnitude here, do you have a feeling of how many Urban Glide strollers that are currently in inventory amongst your retailers?
Yes, we do.
Okay.
It's not a lot.
Okay. On the European organic growth, it was just 5.8% in the quarter. You mentioned in the report it was obviously supported by strong RV markets, and I think German registrations were up 14% or so in Q3. If we were to exclude the RV from European sales, is it fair to assume the organic growth for the remaining portfolio was somewhere around 5% in the quarter?
You can actually say that's a pretty good guess. It was slightly above, but a pretty good guess.
Okay. Perfect. Those were all my questions. Thanks.
Thank you.
As a reminder, ladies and gentlemen, to ask any further questions, please press star followed by one on your telephone keypad now. We have a question from Peter Reilly from Jefferies. Peter, please go ahead.
Good morning. I was hoping you could give us some more color on the SEK 25 million annual increase in your expense. Clearly some of that's product development, some is going to trade shows, some is merchandising. I'm interested to know a bit more of the breakdown, because some of those costs are temporary and some are more permanent. Related to that, how that rolls into the fourth quarter. You said earlier this year, you were hoping to deliver a year-on-year margin improvement. You've got a flat margin yesterday. It sounds like your discretionary costs are higher than you planned because you're, I guess, more excited about some of the opportunities.
It sounds like it's going to be quite difficult to deliver a margin increase this year if you've got these costs rolling into the fourth quarter as well. Maybe you can help me with understanding those issues.
Yeah. I would say if you take those SEK 25, it's always above and beyond what we did the previous period, you can say majority of that, more than half of it, is still product development. You have in the quarter, specifically because of the decision to roll out displays and even complete shop-in-shops in some of the leading retailers, we are taking a significant part of that cost. If we talked about it, you can say that roughly 65%, two-thirds of that additional spend is product development, one-third is the display pushing it into the market aspect. If you look at that, we have, of course, targeted in Q3 in Europe, the best retailer to do this with, we were positively surprised how many gave us even the chance to build full shop-in-shops.
That was slightly more than we thought we would spend, but we thought a fantastic opportunity to occupy space in the best retailers of the world in Juvenile in Europe. We will not see the need in Europe to spend the same type of amounts now because we already have built those shop-in-shops in the BabyOne, Baby-Walz, Baby-Dump, and all of those stores. Once they're there, you're not adding more just because you start selling more strollers to those same people. If you look at it from a point of view of saying, what's going on? We will continue as we roll into more countries, and we hope to do the same in more countries, winning serious space and getting the chance to actually occupy that space.
Europe is the big market here for this type of stroller. Pretty big part of that initial display push cost actually happened in Q3. There will be some of it continuing in the U.S. and Canada, a bit in some smaller European countries in Q4. Specifically, if you look at it from a margin expectation level, I think we discussed that, and you asked me once in 2017 at the Capital Markets Day, is 2018 the year where you will do the big step-up? I said, no, it's not the year when we will do the big step-up. It's going to be more in 2019 and 2020. In our minds, we're actually tracking quite well to what we said and expected.
There might have been different perceptions from market analysts, but we are actually tracking very nicely to what we expected, and we actually also expect that we will do that well in quarter four. Quarter four is a low-margin quarter, has been it every single year I've been in the company due to the size of sales and the fact that we do not hold back our development efforts or marketing effort just because we sell a little bit less, since we don't base it on a quarterly basis. I think we'll be running roughly the same type of EBIT level. No, not a big pickup in Q4, but that wasn't expected either.
In terms of the working capital and inventories, maybe I'm wrong, but it seems like you've decided to invest a bit more in working capital than you anticipated, maybe three, four, five months ago. In the page two of the press release, you used the phrase, "Generally, we are very pleased with the response from customers about the Thule Sleek." Maybe it's just a language thing, but the generally seems a bit softer than I expected, compared to a much more upbeat tone in the presentation you've given. Can you talk about what you're doing in inventories versus your earlier expectation, and therefore, by implication, whether you're actually pleasantly surprised or disappointed by the way the Sleek is going initially?
That's the mother tongue of English helping you there, Peter. I am not mother tongue English. My generally was actually in Swedish, very much more positive than that. We are very happy. In general means, in the Swedish way, I would say, across the board, we are happy with the reception. I feel very good about the reception of the Thule Sleek, and maybe my English choice there was not read the right in general. Very happy with the reception. It is very positive. I feel very good about having decided to have relatively high inventory levels to get that cracking. The worst thing we could do would have been to launch a fantastic stroller, get all those space in those shops, putting in all the displays, and then say, "Sorry, we cannot manufacture enough." That would have been stupid.
I am not worried at all in any form or shape that we are sitting on too much inventory, not in any form or shape on the Thule Sleek. I am 100% comfortable that all of those will be sold out, and we are continuing to manufacture a lot, by the way, because next year we will sell even more. Very calm about that. If you look at it, what is, of course, tricky is a little bit when you talk about inventory, we are not so focused about where we end inventory in a specific quarter because it moves in the weeks.
You can imagine what happened in the first week of October and second week of October when we started shipping out the Thule Force XT boxes and large orders of the new refresh generation just a few weeks after a closing of the books, since the first orders were in beginning of October. The inventory changed. Therefore, from a perspective overall on inventory, it is not that we have changed our overall view on it in a total, it is just we have to report on the 30th of September, and the first shipment date of two of the big launches was the day after.
Okay. That is much clearer. Thank you. Moving on, is there anything else you can tell us about the Revolve luggage? You said you are now already building it in your factories. It launches Q1. Do you start to get actual sales in Q1 that we will notice, or is it much more of a sort of slow phase-out because you have to deliver initial display stock, and then you see what the sellout is? I am just trying to get a feel for where we are in that process and where we are going to start noticing some net impact in your revenue line.
You'll see some net impact in Q1, absolutely. The major of the impact is actually for travel luggage in general, even if you're not launching it new in the second quarter when people tend to buy more of it. Clearly, there will be some impact already in quarter one as we roll it in. It's still the same logic as for the strollers. It's not sending in three, four bags to a retailer that will make the difference. It's when they start selling out a lot of bags from their stores. The major impact is in quarter two and three, but there will be some positive impact already in quarter one.
Lastly, on packs, bags, and luggage, you said at the start of the year that you'd be very disappointed if you weren't able to grow the category this year. Obviously, you haven't given us an update at this stage on where you are, organic growth, PBL year to date. My guess is that's now looking quite challenging to grow the business, given that's where the legacy products are, and given some of the weak trends you talked about in Latin America and U.S. retail and so forth.
Yes, you're right. You are 100% right. I feel good about that. We will see the growth categories are doing well. The declining categories have declined more than we expected when we stepped into the year, and we've taken some conscious choices above and beyond what we've done to move away from some lower margin than we actually thought a year ago. Actually, the specific, as you mentioned, the Latin America is big market for us, actually, for bags. For example, Argentina has been one of our best bags market. If we get zero orders from our Argentinian distributor in an entire quarter, it hurts us specifically in that category. Unfortunately, that is the one that is a high likelihood that I will be disappointed in.
Okay. Well, sorry to end on a low note, at least it sounds like the rest of the business is doing well. Thank you for answering my questions.
Thank you.
Our final question comes from Tommy Ilmoni from Carnegie. Tomi, please go ahead.
Yeah. Thank you. Good morning, guys.
Good morning.
My question was already answered partly. I was wondering if you could give us some highlights or comment how your growth per category has year-to-date been. I know you provide us these numbers on a full year basis. I guess if you could give some indication of the
Absolutely
growth.
If we look back at 2017, you deploy the 2018 logic, trends don't rapidly change, so to speak. Our pattern is actually relatively similar to what we had in 2017, with a slightly less buoyant RV market, but still a very good performance because we're significantly beating the market. Fantastic growth in Active with Kids category, very stable growth in the Sport & Cargo Carriers business, and a more troublesome than we wanted legacy part of our packs, bags, and luggage. Very much in line with previous year.
Okay. Thank you very much.
Yes.
We currently have no further questions. I'll hand it back to you, gentlemen.
Thank you very much for listening in to this third quarter call, the call for the most exciting quarter ever for the Thule Group since I joined it, that is 13 years ago, in terms of shaping the future. Very exciting time ahead in 2019, and looking forward to have you listen in when we summarize the year after quarter four. Thank you very much.