There have been positive financial reports across the board in the first three months of 2021. The bike boom seems to be continuing its momentum from the end of 2020 and, despite widespread reports of product shortages, brands are reporting year-on year growth with some even posting record quarters.
This is somewhat misleading though as the first quarter of 2020 that these results are comparing to was a turbulent one as the world reacted to the rapid spread of COVID-19 with factory shutdowns and the strictest lockdown periods of the pandemic.
Still, the bike industry continues to flourish, however there are scattered warnings of further product shortages and price increases in the future. Here's a run down of Q1 financial results. Shimano Bike Sales up 76%Shimano recorded a Q1 net sales increase of 76% year on year from the same period in 2020. Its sales totaled 103,757 million yen, and operating income increased 169.3% to 27,730 million yen.
Despite the second wave of lockdowns around the world, global demand for bicycles remained high, including in Europe and North America. Shimano warns of shortages in every country, but it still described its order taking in the quarter as "brisk". While in 2020 Shimano spoke about its Deore groupset leading its growth, this time it seems that EP8 and Shimano Steps Sport were the stars of the show as the market for transportation and e-bikes grew.
More info,
here.
A Record Quarter for Fox Factory as Sales Nearly Double Year on Year in Bike SegmentFox Factory posted its best-ever quarter revenue with its bike segment recording 85.5% year on year growth.
This is Fox's third consecutive quarter of record sales as sales for the whole company increased 52.5% to $281.1 million, compared to $184.4 million for the same period in 2020. The increase in Specialty Sports Group products (the bike department) was driven by increased demand in both the original equipment and aftermarket channels.
Mike Dennison, Fox’s Chief Executive Officer, said, "Our team continues to execute at the highest level, despite the meaningful supply chain challenges which exist across our business. Our performance in the first quarter displays the tenacity and adaptability of the superb team we are building at Fox. I remain optimistic about our prospects in 2021 and beyond as we expect to continue to deliver impressive growth in a dynamic business environment."
More info,
here.
Dorel Sports Records Eighth Consecutive Growth Quarter and Announces Price RisesDorel recorded its eighth quarter of consecutive growth and a first-quarter revenue increase of 43.6% from US$188.2 million last year to US$270.3 million in its Sports division.
Dorel said that the demand for bicycles "continued unabated" and highlighted that the appetite for Cannondale models in particular was unprecedented. The group's margins were pressured by increases in ocean and domestic freight, rising costs of raw materials and bicycle components and the impact of a weakening USD versus the Chinese Yuan but its operating profit for the quarter grew to US$21.8 million, compared with an operating loss of US$0.6 million last year.
Dorel expects the increased cost of doing business to continue and confirmed it will have to increase prices for the rest of the year. Martin Schwartz, CEO, said: "Continuing cost increases in all segments for freight and commodities, as well as ocean container availability, will continue to create significant pressures. We will have to offset this with price increases through the rest of this year.
More info,
here.
GoPro's Pivot to Online Brings Q1 SuccessIn April last year, GoPro pivoted to becoming a primarily direct sales brand and it's those online sales that have helped it record a 71% increase in revenue year on year. The company's total revenue grew to $204 million with a massive 224% increase in sales coming directly from GoPro.com accounting for $82 million of that.
GoPro also hit 1 million subscribers in the quarter for its $49.99 per annum service that offers cloud storage, discounts and a camera replacement service. This is a growth of 180% year on year and GoPro notes that it "represents approximately $50 million of high margin annual recurring revenue."
The report does note that inventory is currently low for the brand but it feels, "well-positioned to capitalize when the world regains its footing with the rollout of vaccines and improved consumer activity levels."
Nicholas Woodman, Founder and CEO, said, "We’ve evolved from a hardware unit-sales-centric business to a successful direct-to-consumer subscription-centric business with a significant opportunity to grow margin and profitability with continued subscriber growth. The value-creation implications of this shift are meaningful, and we’re energized by the opportunity as well as our outlook."
More info,
here.
Bicycle Helmets not Snow Helmets Boosted Mips' Q1 SalesIn the months of January to March, Mips' sales are traditionally dominated by snow helmets but that was not the case this year. Instead, most of the brand's sales came from the increased demand for bicycle helmets around the world and helped the brand to a net sales increase of 48% year on year to 83 million SEK.
Mips was originally forecasting that stock issues would return to normal by the halfway point of this year, however it has now revised those predictions, saying, "with less than a quarter to go, we see that this will not be the case and that stock levels will continue to be challenged at least for the rest of the season."
Max Strandwitz, President and CEO, said: "The first quarter, which is normally our smallest quarter, became the fourth largest quarter ever in terms of sales... Growth was primarily driven by the Sport helmet category, which continued to show good demand for bicycle helmets. It is important to note that we have soft comparative numbers, as most factories did not produce at full capacity during the first quarter last year."
More info,
here.
Leatt Records 71% Increase in RevenueLeatt has recorded a 71% increase in revenue year on year from $7.5 million in the first quarter of 2020 to $12.9 million in 2021.
This breaks down into a 48% increase in neck brace revenues, 79% increase in body armor revenues, 109% increase in helmet sales and 47% increase in revenues from the sale of other products, parts and accessories.
More info,
here.
195 Comments
www.thestreet.com/phildavis/stocks-options/here-are-the-companies-hiking-prices-in-response-to-soaring-inflation
But repeatedly calling this the "new normal" is a great way to attract investment, and that's why their public discourse seems often to be seemingly quite naive about the whole thing
For example a 16 hr/day plant could move to 24 hr running temporarily, rates could be pushed on existing equipment, or planned maintenance deferred temporarily whilst the current demand is ongoing.
There are options that potentially allow them to increase production to meet demand, but also scale it back when demand drops, depending on what their starting point was.
In otherwords, everyone wringing their hands about sustained inflation are increasing the likelihood of that sustained inflation.
www.economicshelp.org/macroeconomics/inflation/causes-inflation
Imagine having a credit card with an 8 trillion $ limit (assuming they stop here). The fed does
The theory of a supply side throttle is reasonable, and I’m sure covid related complications to running a factory are contributing to the current shortages. But the data is screaming that demand has exploded, and it’s just silly to say demand isn’t driving the situation. They’re very clearly making more stuff than they ever have, we’re just buying even more.
@sikeitsryan :
1) we should be so lucky that a principle driver of this inflation be monetary policy, because those can be changed quickly.
2) There is no labor market shortage. There is a pandemic which has people transiently hesitant to return to work for fear that the working conditions will not be safe.
3) Reg fed aid programs,
- would inflation be lower if it weren't in place? Maybe.
- Would the economy be in a tailspin? Probably.
- Would millions suffer hunger and eviction? Certainly.
So the federal aid programs' merits speak for themselves if you can prioritize their effects and their likelihoods.
again, the biggest risk of sustained inflation is the expectation of sustained inflation, e.g you two.
The material supply issues are only hitting now. It's exactly what this article is about. Companies are actually out of product, unable to obtain raw materials. The factorys that build the frames don't have enough tubing. That was not a problem for 2020 sales.
Companies are raising prices because they won't have as much to sell through the year and probably next.
Cant say much more than that as tied by work and NDA's.
I work in R&D and supply chain for a mass manufacturer in the medical sector!.
But do you really think that melding minds is really the answer to greater intelligence?
Think for your self's, but also need to imitate a robot to blend in!
Companies purchase against forecast and BP and if forecast goes up, therefore BP and the lead time is now 70weeks from receipt of order....
Then add companies increasing production with new sites and potential yield issues due to product variance even if a PQ passes and it's a world of pain.
Apple for example are now making their own PCB's in house now and buying cloth to ensure quality and lead times. This has a knock on effect to the rest of the industry.
You are assuming that all production lines run at high capacity rates to need increases in capacity, also no mixed model lines.
What about when you have to do engineering builds, investigations, DV builds, IOQ, PQ, process improvements etc. Etc. There is capacity on lines to accommodate all of these things.
I bet there are issues with backlog and capacity due to lead times but the 'keeping the lights on' activities still have to happen.
Just a guess there of course.
I can see this as a factor, but I also think that Covid was more like a catalyst. Cycling was growing in popularity before Covid and it was just the trigger for people to devote more time to it.
So I would argue that the current surge is just a step in a steady increase that was already there. Sure it will dip back again slightly, but it will still be higher than pre-covid and still be on an upward trajectory.
So any company that was already running at close to full capacity would be wise to plan for at least a modest rise in capacity. Newer, better machines are almost always a sound investment for example.
What both me and you are saying is correct, just depends on the set of assumptions you take
if john goes to local bike shop, pre-orders a Stumpy, puts down a $400 deposit for a $4k bike, and local shop places the order with Specialized even though it won't be delivered until 2022, does that $3k in sales get booked by Specialized as revenue for the quarter?
But that situation doesn't apply to GoPro and MIPS. Consumers rarely buy such products in advance. They're still killing it.
@freestyIAM: I agree, the demand is most likely transient, and it's possible prices will drop back down at some point. And temporary increases in demand for certain goods are indeed a likely cause of inflation independent from monetary factors. I suspect the two are both contributing.
But that's not what your post said, and I was responding to your post.
@Jheitt142: That's a reasonable explanation... for Q2 2020. But shortages were here 9 months ago, so any product that was "sold" in Q1 of 2021 was most likely made recently. And they're still reporting 70% sales increase compared to the year before! There's no way factories are producing less than pre-covid while supporting those numbers.
Of course factories are out of materials! Demand for every type of durable goods (boats, cars, bikes, camping equipment... you name it) has sky rocketed. Those all compete for the same resources. A shortage is proof that manufacturers cannot keep up with demand, but it does not tell us whether that's due to reduced production or increased consumption. In this case we have abundant evidence that demand has increased.
-Covid did cause a spike to biking as people were looking for some type of recreation during Covid
-Buying a bike is a "luxury" item. Many people still had their jobs and were given stimulus money so a natural response was to buy a bike to fill that recreation desire. If you really lost your job/significant income, one wouldn't go out and buy an expensive bike over other financial necessities.
-Like most things, many will find they are not using the bike post Covid as they thought. These will either sit in one's garage or some will decide to sell them. The selling of slightly used bikes will be a factor against new full priced sales (bikes are not cheap).
-The bubble of free stimulus money will no longer be around.
-After this heyday, the bike industry will again/continue trying to find "slight improvements" to try to drive new sales. Arguably, those that bought these expensive bikes during Covid will not see the value in spending their own money (without extra stimulus money) for the lastest upgrade because the bike they bought already surpasses their need/capability/local trails in most situations. Even avid bikers are less convinced nowadays they "must" upgrade.
-Consumers will start to see that a "modern" bike has achieved most of it's advancements negating the need for upgrades. Just as with home computers in the past, most started to find that upgrading/replacing one's computer frequently was not gaining them anything of significance (maybe gamers being the exception).
In 5 years, I'll have to go back and review this comment to see if this is how things panned out.
1. Yes
2. The cause of the labor market shortage doesn't matter, if companies need to raise wages, they'll most likely raise prices regardless of why
3. I'm not arguing the merits of the programs, I'm just telling you that's why we're getting inflation. The fed is choosing to let inflation go higher with the idea that it can be brought back down when there is less pressure on the economy.
Its not an "expectation" of sustained inflation, its literally the people in charge of monetary policy telling us they're going cause sustained inflation in the medium term.
So certainly there is short term inflation but nothing in the market fundamentals indicated to me that we are headed for sustained inflation. The biggest risk is not in the market fundamentals but the psychology/sociology of the market actors. If everyone becomes convinced we a headed for sustained inflation, then its a self fulfilling prophecy.
Correct, unearned revenue(taking cash in advance of delivering the product or service) is a liability on the balance sheet. Unearned revenue is relieved(debited) once a set of conditions have been met for recognizing revenue, this is when the actual sale is booked in accounting terms and reported on financial statements. At least that's the Generally Accepted Accounting Principle way here in 'merica.
I wasn't guessing, it's a big part of my job!
Shimano: +72% Gross PROFIT YOY
Fox: +73% gross profit YOY
Dorel: +38% gross profit YOY
MIPS: +51% gross profit YOY
Leatt: +72% gross Profit YOY
We will see if things level but the whole "all costs are going up" trope doesnt hold much water when they are making record profits even with the increases.
On a serious note, the numbers don't lie and we're being collective fleeced. These companies can definitely absorb the covid costs but they expect us to pay for it while giving us less for more.
Some companies have been very.. how you say... creative about how they’re maintaining their margins. I saw a recent example of a roll of paper towel that previously had 140 sheets, now has only 120 for the same price. No obvious price increase but the consumer is getting less for the same cost.
I don't like getting gouged by companies, but to look at the YOY and then imply the companies are being villainous and greedy just doesn't feel like a fair or honest take.
GP is up but so is revenue. To tell whether they're really making more profit proportionally is in the margin.
Saying they're making more profit when they're making more revenue is like "no shit".
Easy example:
You make 100.000 chains a month. They cost you 8€ of labour+machine costs+materials each. You sell these chains for 15€ each, but you do not get to keep the 700.000€ you just made, because you have to pay your overheads. Management and RnD cost you another 500.000€ per month.
15€*100.000-8€*100.000-500.000€=200.000€profit
Now you double your sales and hire a manager to overlook the additional manufacturing department. The manager costs you another 100.000€ a month. The higher utilization of your machines will push the manufacturng cost of your chains down slightly.
15€*200.000-7,50€*200.000-600.000€=900.000€profit
THIS IS OF CAUSE AN OVERSIMPLIFICATION, but the gist of it still applies.
Net Income = earnings after COGS, expenses, taxes, interest etc. have been taken out.
Profit margin = net income/total sales
Fox: 360% increase in net income ($37.98mm up from $8.7mm) and +10% profit margin
MIPS: 166% increase in net income (32mm up from 12mm) and +18% profit margin
LEATT: 468% increase in net income ($2.1mm up from $362k) and +11.2% profit margin
Would we be complaining?
Probably not. We'd be enjoying increased job security, maybe a pay rise, and feeling a ton happier than we might have been at the end of a difficult year.
The bike industry is just that - an industry - it's there to make money and maximise profit.
The smaller packages are an easier sell than higher prices. I guess the same has been happening in the bike industry.
There could be different problems, specially for local shops, in the future but companies are just rising prices accordingly to the market. At least that’s what those numbers are telling.
Maybe there’s a good chance for some brands to absorb the cost increase to attract more clients or for investing in new brands with that perspective. The second is harder because this situation looks temporary (fortunately for us in lower income countries)
It’s just anecdotal of course. But I’m starting to think the boom has peaked. Anybody else experiencing this?
I doubt anything will be well stocked until winter, but the scrounging should be a lot easier come July.
There isnt a single component on a bike that cant originate and culminate in America (or at least North America). We need to stop being dependent, and reclaim our work ethic and pride. If we are going to pay higher prices, it should be for made in America / North America industry.
The idea that anything in the bike industry is made by "slave labour" is pretty ridiculous, this is the kind of crap that was propagated (with zero evidence) in the early 90's. Wasn't true then, isn't true now.
Bear in mind, I have been to Taiwan multiple times and been round a lot of these factories so I am not just pulling this out of my arse. The levels of automation are much higher than you might expect, the Die-cast lowers of a Rockshox fork having all the flash lines etc polished back by a robot arm with zero human intervention might be a good example that you could relate to.
Yes their labour costs are somewhat lower than many parts of the US but the real difference is the investment in advanced manufacturing and the economies of scale and the synergistic benefits of having lots of industry focussed on bikes.
Also ebikes have higher YoY due to start from 0 , marked being developed over last 5 years, not 50
Consumer goods are a completely different story.
Will be interesting to see where the bike industry settles in the next few years.
Also I belive next budget test will be 3-4k bikes rather 1-3 k
More telling would be a multi year trend.
"This is somewhat misleading though as the first quarter of 2020 that these results are comparing to was a turbulent one as the world reacted to the rapid spread of COVID-19 with factory shutdowns and the strictest lockdown periods of the pandemic."
I thought most lockdowns started mid/late March. But more or less confirms my suspicion. I would take these growth numbers with a grain of salt.
Bikes and components and still too expensive, covid or otherwise.
By the way comrade, why are you wasting time and money that would be better employed for the greater good with this "mountain biking" thing?
Capitalism, by its very nature, is a snake eating its own tail. In the race for ever larger ROI, companies rely on year over year growth You're advocating for industry to have its cake and eat it too, while we argue over ever smaller crumbs. For that analogy, I give you credit, it is very fitting.
edit: I called you a goof. that's as light hearted as it gets. also, you are a bit of a goof! your world view is goofy, your conclusions are goofy and your insistence on being butthurt by being called a goof, is goofy. yer a goof, ya goof!