Yes, sorry I couldn't join either although not only do I not have a camera, my PC doesn't have a microphone either, so that would have been interesting. I do have a laptop that might have been a possibility, although I usually only use that when interstate. Anyway, I ended up not being available due to the time of day and cooking dinner for my wife who is a bit under the weather and needed looking after this evening.
I did earlier this week email Andrew (@Strawman) a piece I wrote about ARB a few years ago when I was a holder and a big fan of the company, and also pointed out in that email why my view has changed recently because I believe the business is facing new headwinds, most of which were discussed in the meeting tonight (I've just finished watching it - it's now 1:50am here so I'm catching up while others sleep).
For a really good bear case, I still can't go past this straw from @Magneto - https://strawman.com/reports/ARB/Magneto?view-straw=30480
And while many of those points were raised tonight, and some counter-points were made, I want to draw attention to one particular paragraph from that Bear Case straw:
Competitive intensification in the US
- Fox Factory Holdings is the most comparable publicly listed US competitor, with approximately $1.4 billion in revenue and an aggressive acquisition strategy spanning FOX shocks, Method Race Wheels, BDS Suspension and truck upfit brands. Fox Factory is better capitalised for the US market and has deep home-ground distribution advantages. The Made in USA narrative, which brands like Addictive Desert Designs use effectively for Jeep and Ford Raptor fitments, resonates with American buyers in ways that ARB's Australian heritage does not automatically replicate.
- US tariffs on steel, aluminium and automotive products, flagged explicitly as a headwind by ARB management in FY25, directly increase input costs for products manufactured in Thailand and shipped to the US. If tariffs escalate or become permanent structural policy, they impair the economics of ARB's US business model, which currently relies on Thai-manufactured product shipped to the US rather than local manufacturing.
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The thing that struck me most was: The Made in USA narrative, which brands like Addictive Desert Designs use effectively for Jeep and Ford Raptor fitments, resonates with American buyers in ways that ARB's Australian heritage does not automatically replicate.
I'm not sure that was raised directly tonight beyond general comments that ARB's success in Australia may not translate directly into similar success in the US.
However, Made in the USA is powerful there, and I have heard that Made in Canada has become a lot more powerful in Canada since Trump hit them with tariffs and said he wanted Canada to be the USA's 51st state, or 52nd if he takes Greenland first. Nothing like an external threat of that nature to inspire nationalism.
But back to the USA - the other thing that occurred to me, without using the term "Rednecks", is that there would be a percentage of that demographic that likes to pimp up their offroad vehicles that would lean even more towards "Made in the USA" than the average American.
I might be overthinking it, but I reckon we need to give them another year or two before we can make a call on how this expansion into the USA is going.
On the one hand I agree wholeheartedly that Andrew and Roger Brown are being their usual conservative selves and doing this US thing in a measured way that isn't going to burn through too much money even if it does end up being less successful than they hoped, as evidenced by the fact that their USA stores are already profitable, so are not a cash sinkhole - they are not throwing the farm at this - however I am worried that the one-stop-shop approach may not work in the USA.
And just on the comment by @mikebrisy that ARB were perhaps taking a similar approach to the US as Nick Scali have taken with the UK, which is to buy something for virtually nothing and see what they could do with it, Yes, ARB acquired the USA-based 4 Wheel Parts (4WP) retail business out of Chapter 11 bankruptcy in late 2024. I already knew that but I've checked the details and Google reliably informs me that ARB’s US associate company, Off Road Warehouse (ORW), which ARB owned 30% of at the time, acquired 4WP on October 1, 2024, from Hoonigan (formerly Wheel Pros, LLC) for approximately US$30 million. To fund the deal, ARB increased its ownership stake in ORW from 30% to 50% for A$25.0 million (US$16.7 million). At the same time ARB separately acquired from Hoonigan the Poison Spyder brand for US$1 million, subject to the same court approval that the 4WP acquisition required (as Hoonigan had filed for Chapter 11 bankruptcy).
Poison Spyder specialises in heavy-duty off-road armor and accessories primarily for Jeep vehicles, including the Wrangler (JK, JL) and Gladiator (JT). Their product line is designed for extreme trail use and rock crawling. That brand is now wholly owned by ARB and sold both here in Australia and in the USA in their 50% owned 4WP (4 Wheel Parts) and ORW (Off Road Warehouse) stores.
Source 1: https://www.listcorp.com/asx/arb/arb-corporation-limited/news/conditional-agreement-for-orw-to-acquire-us-based-4wp-assets-3081739.html
Source 2: https://www.afr.com/companies/transport/arb-jumps-after-buying-hoonigan-s-4-wheel-parts-20240909-p5k8yg
Source 3: Page 3, under the heading "USA" of: https://www.listcorp.com/asx/arb/arb-corporation-limited/news/letter-to-shareholders-3152584.html
Prior to that 4WP acquisition out of Chapter 11 bankruptcy, ARB Corporation paid US$5.0 million (approximately A$7.6 million) to acquire their initial 30% stake in ORW USA, Inc.
Source: Page 3 of the Chairman's Statement which is on Page 6 of: https://www.arb.com.au/content/dam/arb/document/investor/half-year-annual-reports/ARB-2023-HALF-YEAR-REPORT1.pdf
So in terms of the total cost of buying 50% of ORW, ARB spent A$32.6 million, with the first 30% being a lot cheaper (@ A$7.6m) than the next 20% (@ A$25m).
And then ORW paid US$30m to buy 4WP out of Chapter 11 bankruptcy. Google tells me that would have been about A$45m in October 2024, but the acquisition was made in the USA by the US company ORW which ARB owned 50% of, and owned 30% of prior to that transaction.
So not quite as cheap as what Nick Scali paid for UK furniture retailer Fabb Furniture (Anglia Home Furnishings) - being a nominal cash consideration of £2 (A$3.82), but arguably ARB got more assets for their money than NCK did.
So, yeah, they didn't pay much, but the thing to watch of course is how much money they spend in the US AFTER the initial store chain purchases, and that's where you either back ARB management to be prudent allocators of capital as they always have been, or you don't. Or you just wait and see how the US pans out for them, from the sidelines, which is my own personal choice at this stage.
