Globe’s Results for the Year

I’m kind of late getting this done. The June 30 fiscal year results were released at the end of August. But we only see Australian company results twice a year, so it still seems worthwhile. Happily for me, there’s not that much information in the report so it shouldn’t take long. The “Review of Operations” for the whole year is four short paragraphs- less than half a page. I guess not much happened.  You can see Globe’s whole report here.  It’s the fourth item down on the page. 

To summarize, Globe’s revenues fell 6.1% from $88.5 million to $83.1 million in the pcp (prior calendar period- the previous full year in this case. And all numbers are in Australian dollars). Earnings before interest, tax, depreciation and amortization (EBITDA) were down 41.3% from $2.93 million to $1.72 million. Net income fell 94% from $1.089 million to $62,000. However, those numbers include $1.0 million from settlement of a lawsuit. Without that, Globe’s EBITDA would have been $72,000 and it would have had a bottom line loss.
 
Australasia revenues were $25 million, up 4.3% from $24 million in the pcp. In North America, revenues of $41.8 million declined 15.2% from $49.3 million in the pcp. The press release refers to North American revenues being down “…in single digit percentage terms…” but I keep coming up with 15.2%. Maybe that’s a constant currency number, though it’s not clear.
 
Revenue from Europe rose 7.7% from $15 million to $16.2 million. In Australia (as opposed to the Australasia segment) we see revenues up 6.4% from $21.2 million to $22.5 million. With revenues up $1.0 million for the whole segment, we can see that all the growth in that segment came in Australia itself.
 
Revenues in the United States fell 17.1% from $31.6 million to $26.2 million. In other foreign countries (which I assume means everywhere but the U.S. and Australia) revenues were down 3.5% from $35.5 million to $34.3 million.
 
The sales decline was blamed mostly on the strength of the Australian dollars. We’re told they were basically flat in constant currency.
 
Globe doesn’t provide the gross profit number we’re use to see in the U.S. But there is a cost of sales figure, which I imagine is a reasonable proxy. If we use it to calculate a gross merchandise margin, we see it’s basically unchanged, falling just 0.1% over the year from 45.4% to 45.3%. But the press release says, “Reduced gross margins, which are largely responsible for this decline in profitability, resulted from a combination of sales mix, competitive market pressures and an increase in cost of goods.”
 
They don’t tell us exactly what the gross margin decline was, but it’s pretty clear that what we in the U.S. call ‘cost of goods sold” isn’t the same as “cost of sales” in Australia. Wish I spoke better Australian accounting. Yet you would think an “increase in the cost of goods” would show up in the “cost of sales” as a percentage of merchandise sales. I’ve got some Australian readers. Can one of you tell me the definition of “cost of sales” in Australia?
 
There’s no long term debt on the balance sheet, and the usual ratios are fine. Cash is at $10.2 million down from $12.3 million in the pcp. I would note a 2.2% increase in total receivables to $12.5 million. However, trade receivables rose 11.1% from $8.4 million to $9.4 million. Receivables were down in the Australasia segment even with the revenue increase. But in North America, where revenues fell 15.2%, receivables rose 37% from $2.8 million to $3.85 million. Yikes. That seems to imply something not specifically too good.
 
There was a 14.8% increase in inventory to $14.5 million. They note that there some footwear shipments that arrived in the first quarter of the current year that had been expected to arrive before June 30. Don’t know how big those shipments were, but obviously they would have pushed the year end up inventory up even further.
 
In general, you’d prefer to see receivables and inventory decline when sales decline. It would be interesting to see how much of the inventory growth was in units as opposed to being caused by the higher cost of goods they refer to.
 
The last balance sheet thing I’d mention, under “Other Financial Assets” is an amount of $1.35 million called “Investments in other entities (available for sale).” No big deal, but I wonder what it is because that’s what I do.
 
Well, there was a bit more information in the report than I thought on first read. But we don’t get any sense at all about what they might be planning to do to reverse some of the trends they highlight in the press release. And the sales decline in North America coupled with the increase in receivables is troubling. I guess, unfortunately, it will be six months before we find out how things have evolved. Make that four and a half months, as I’ll try to be more diligent in writing about it. 

 

 

4 replies
  1. Dan
    Dan says:

    Cell phone bills are eating away at families disposable income. Kids seem to place more importance on a phone, than on branded action sports associated clothes, especially since kids kinda of figured out you can get the same unbranded basics from Target, HMV, Wallmart etc.

    If you notice who’s Surfing, at least in Upper LA and Northern California, it’s mostly older participants. I don’t see the kids taking up the sport like they use to.

    This WSJ article is very illustrative of the future of disposable income. http://finance.yahoo.com/news/cellphones-eating-family-budget-123700103.html

    Makes you wonder about where the whole industry is going. In technology, companies like Black Berry, can be obsoleted in a few years. Could this be the case in action sports associated apparel.

    • jeff
      jeff says:

      Hi Sully,
      Great article and it makes a valid point. A smart phone is a fairly distinctive product with easily recognizable value. A checked shirt, is, well, a checked shirt. There are lots of them, and they are more or less the same whether you buy them at the corner specialty shop, JC Penney, Macy’s, Zumiez, or Costco. I’m sure I left a few out. Smart phones are not commodities (yet- all consumer electronics have eventually become commodities). The Apple store is a pretty unique shopping experience. JC Penney is not. There are functional distinctions and advantages with a smart phone. There are not with checked shirts. A smart phone holds its perceived and actual value no matter where you buy it. A checked shirt? Not so much.

      Thanks for the comment.

      J.

  2. Rob Valerio
    Rob Valerio says:

    I was just wondering whether Jeff still covered Globe, as I hadn’t seen any commentary on their numbers. I looked at their numbers earlier, if only to remind myself how happy it is to be on the outside of action sports looking in.

    I think Matt Hill did a great result to come up even in this tough environment. Thank god they didn’t go on a retail chain buying spree before the recession like the competitors.

    I’m most amazed that their Europe numbers weren’t significantly weaker, like the competitors are experiencing. That will probably be in the next year numbers, though since Globe is not as strong in Europe in percentage terms it will be less of a percentage of total sales fall than Billabong, etc.

    My thoughts on the increased inventory and even profit result is that Australian companies seem to have an advantage in when they recognize revenue.

    Since most fiscal years are June 30, they get the option of invoicing the biggest shipments of clothes and shoes (fall in northern hemisphere) either right before June 30 or just after. It seems there might be a pre-book knowledge of softer orders for the next fiscal year, and they’ve held back to put more revenues in the future results.

    We’ll have to wait and see.

    I’ve noticed that Globe is not as high-beta as other companies in this space, in that their results aren’t dramatically high or low on a year over year basis, but slow to rise or decline due to the diversity of brands and not being the top brand in most geographical markets.

    In tough times, this is a good strategic position.

    • jeff
      jeff says:

      Hi Rob,
      I’m not quite sure if it’s a good strategic position or not. I mean, it might be, but there’s really no discussion of their plans and positioning. With Billabong, I could at least write “Bad Results, Good Plan” because they gave us enough information to make a judgment. But Globe, as you know, is fairly closely held, though it’s public, and isn’t followed in the market the way Billabong, for example, is. So they just don’t have a need to explain much. And of course Globe has a solid balance sheet- always a good thing. But as you say, Europe may go south this year (like it is for most) and the problems in the U.S. appear significant (I don’t know of any accounting differences that would account for that). So we’ll see. But not, unfortunately, as quickly as we would with a U.S. company that had to report every quarter.

      Thanks for the comment.

      J.

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