March 2025 Update
XPEL, TerraVest, Watches of Switzerland, Jet2, Macfarlane
Don’t forget to read our recent articles on XPEL’s Dealer Conference and a company with a market cap of $380mm for $300mm in cash, $2.8bn in NOLs, and a clear catalyst.
We will be publishing a Special Report on XPEL in late March. Make sure you become a paid member to receive a copy.
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I will be in Omaha on May 1-4 for Berkshire Hathaway’s annual meeting and may organize a meetup for free and paid subscribers to Hidden Gems Investing. Give this article a like (heart) if you would be interested in attending so that I can gage whether there is interest.
I would recommend going to Omaha for anyone interested in value investing.
While seeing Warren Buffett speak in person is one attraction, the main benefit in my view is that no other event comes close to bringing so many like-minded investors together in one place.
There are meals, events, and drinks beginning from 7am and lasting well into the night in the days before and after the annual meeting, making it one years worth of networking condensed into 48 hours.
While some of these events are invite-only, many are open to anyone and free.
My friend Tilman Versch has written the best guide to attending I have come across. It tells you everything you need to know, from how to get tickets to what events to attend. If you are interested you should read the guide here.
His Good Investing network also hosts events throughout the week.
See you in Omaha!
XPEL
XPEL reported disappointing Q4 results and Q1 guidance. I’ll keep this update relatively short as the Special Report is being published at the end of this month and will go into detail on many of these trends. Overall, I believe that the company is being hit by cyclical factors affecting most auto businesses and investing across the board in areas that will take time to contribute materially to growth.
Revenues = $107.5mm, +1.9% and slightly above guidance.
Growth was +10.5% ex China. China was -44.3% and XPEL is restructuring their business with the distributor there to smooth out the sell-in / sell-through dynamic. Revenues should be $8-9mm per quarter going forwards and slightly lower in Q1 because of Chinese New Year, implying significant growth on 2024.
Dealership services grew 9% in the US which was lower than they anticipated. The CEO talked quite a bit about dealerships on the earnings call, which coupled with the sessions at the installer conference suggests this is a big focus. I believe growing the dealership channel is key to XPEL growing beyond enthusiasts and into the mainstream.
PPF was -7.7%, largely due to China. Window Film was +32.9% and Installation revenues +16.1% or +8.0% organic
Gross profits = $43.7mm, +6.8%. Gross margins = 40.6%.
EBIT = $12.3mm, -13.2%. EBIT margins = 11.4% or 12.4% ex FX.
Sales and marketing grew 24.6% to 10.7% of revenues, accounting for all of the margin decline ex FX. This includes 3rd party and agent fees bringing them relationships.
SG&A was also higher in international markets, where XPEL note they have a good record of that generating good incremental returns. The company’s investments into Canada, France, and Australia in particular have been huge successes.
The company has reduced the workforce to save $2mm annually, largely at a corporate level where they reduced headcount by 10%. The CEO says he will justify investments in SG&A to grow in the field, but at the corporate level they need to be more careful and there should be more savings to come.
Outlook:
Q1 guidance is for revenues of $97-99mm, or +7.7% to +10%. This is disappointing given China was -78% in Q1 last year. They previously talked about China being $7mm in Q1 '25 vs $1.5mm in Q1 '24. If I assume that still holds true it implies the ex China business will grow only 2%-4%, a steep drop from the ~10% run-rate.
I think two key factors are playing out here.
First, XPEL’s core business in the US aftermarket is now relatively mature. PPF is widely known among enthusiasts and to continue growing at double-digit rates the company needs to broaden out to mainstream car buyers.
Management are doing the right things and seeing success in this area by growing into new car dealerships and via OEM partnerships. The company is also adding new products like windshield and marine film and investing into developing markets like China.
Many of these initiatives are showing initial success and while they will not all succeed I believe the company will get some of these right and revert back to double-digit growth.
However, this will take some time and in the interim the company’s core business is struggling with a cyclical downturn in the auto market. Management alluded to this on the earnings call, stating that the environment is more uncertain than normal and affecting auto suppliers, and highlighted tariffs, interest rates, inflation, and a strong US dollar.
Stay tuned for the Special Report at the end of this month which will go into depth on these and other topics.
Watches of Switzerland (WOSG.L)
