Leatt Corporation Q3´24 Results.
Analysis date: December 29, 2022.
Price return since analysis date: -54% (+3% after results).
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At the current date, I own Leatt shares, representing around 2.50% of my portfolio.
Company Overview
Leatt is a South African based company that designs, develops, markets and distributes protective equipment and apparel for motor sports and leisure activities, including riders of motorcycles and cycles mainly.
The company was founded by Christopher Leatt, a South African neurosurgeon, who was witnesses the death of Mr. Alan Selby, fellow rider, and friends of him. Then he starts working on a solution to reduce neck injuries.
To know more: Leatt Corporation.
Q3´24 Results.
Revenue +1.08%
Body armor sales were up $270,000, helmet sales were up $140,000 and neck brace sales were up $40,000.
Revenues increased after a lot of quarters falling.
CEO says:
“Although we continue to monitor the impact of potential economic headwinds and there are still areas of inflated inventory, the start of our pivot to growth is the important and encouraging point as participation remains strong and ordering patterns continue to improve. We believe that these are trends that will continue through the coming quarters”.
Gross margin flat around 42.60%
Gross margin is flat despite inventory is digesting and weakness in footwear and apparel.
CEO says:
“But I think the biggest factor is that many of our competitors and some of our strongest competitors and some of the strongest brands in motorcycle boots and shoes have huge amount -- has huge amounts of inventory on hand that they needed to move, and they were not afraid to drop the pricing significantly on that inventory.”
“I'm really proud of the team for balancing out sellout of some of the older inventory and converting that into cash at lower margins and balancing that out with selling new inventory at higher margins”.
EBIT margin -0.81% (5.15%)
Mainly due to marketing expenses and salaries.
In respect of the marketing strategy, CEO says:
“On the marketing level, it's also around our ADV line. So ADV is obviously an important area for us. It's a huge addressable market, and we've had to spend funds building Leatt as an ADV brand in that area. And we did not want to take away anything from MTB and MOTO because we feel that [ rightfully ] investing in the Leatt brand on the motorcycle side and the mountain biking side will definitely pay off in the future”.
In respect of the salaries CEO says:
“So I mean the primary salary increases are really on sales and marketing staff. So in the U.S., we changed our model. We've now got a full employee workforce. So they are, of course, salaried and there's also some costs that come with that in terms of travel costs and that type of thing”.
Cash +9.89%.
Asked for cash use plans, CEO says:
“I mean we're expecting to return hopefully to a position of sustainable growth, and with that will come an investment in working capital in the U.S. and in South Africa and with factory ordering as things start to intensify again. So some of the cash that we currently have on hand will go into -- back into working capital, which is, of course, a great use of our cash”.
“We are intensifying our spending on marketing, and you can see that in the results. Marketing costs are up. And also in talent, I mean, we're bringing on great people. We're bringing on some really good and strong salespeople. So sales and marketing are certainly an area for us where you can expect some increase in spending and particularly on the marketing side”.
In respect of dealers in the U.S. market, CEO says:
“So we've definitely started to see some increase in MTB sales in the U.S. Sales have increased quite nicely actually. And we've started on the dealer penetration uptick, you could say. You'll start to see some of that paying off a bit more strongly over the next few quarters as the new staff and the new sales reps that we brought on start to gain some traction, and looking forward to it”.
The company maintain a net cash position around $12 mm.
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