The U.S. is Tough on Another Company: Globe’s Half Yearly Results

Globe published its results for the six months ended December 31st on February 21st and I missed it.  Better late than never I guess.

Happily for Globe, its largest market in Australasia was strong because revenues in Europe and North American (NA) were down pretty dramatically.  Total revenues fell 10.6% from $79.1 in the six months last year to $70.7 million Australian dollars in this year’s six months. (all dollar numbers are Australian).  Australasia revenue, representing 58.4% of total revenue, rose 15.5% from $35.7 to $41.3 million.

North American revenue fell 28.5% from $24.8 to $17.8 million.  Europe revenue was down 37.1% from $18.6 to $11.7 million.   The reduction in in revenue, they tell us, “…came largely from a decline in skateboard hardgoods in the North American and European businesses…The bulk of the decline occurred in the first quarter…with the rate of decline slowing significantly in Q2.”

I guess I’d ask if they were still declining, even at a slower rate.

“During the period, the North American division continued a process of restructure which has resulted in improved margins, lower cost base and an adjustment to brand mix in that division.”  No specifics are provided.  Note that the December 31 results do not include any impact from Globe’s investment in Salty Crew, which was effective January 1, 2017.

“In contrast the Australian business continued to be the stand-out performer…This growth came largely from the region’s streetwear and workwear divisions.”  One might conclude that the skateboard hardgoods business wasn’t all that great in Australia either.

I can’t figure out what the gross margin was or how it changed from the information given.  Employee benefit expense was down $70,000 to $10.6 million.  There was an 11% decline in selling, distribution and administrative expenses from $20.8 to $18.5 million.

Pretax income fell 25.4% from $3.77 to $2.81 million.  The tax liability declined by $551,000 and net income dropped 14% from 2.90 to $2.50 million.

By geographic segment, EBIT (earnings before interest and taxes) rose 21.5% in Australasia from $5.27 to $6.40 million.  In NA, the loss declined 32.3% from $2.39 to a loss of $1.62 million.  Europe saw its EBIT fall by 64.7% from $3.64 to $0.60 million.  Total EBIT fell 24.3% from $3.89 to $2.95 million.

The balance sheet from December 31, 2015 compared to this period is worthy of a little discussion.  Cash has grown from $7.3 to $13.7 million.  Cash flow from operating activities was a negative $6.9 million in last year’s six months.  This year, it was a positive $6.7 million.  Quite a turnaround.  I like cash.

Receivables are down 8.8% from $19.3 to $17.6 million, in line with the revenue decline.  Here’s my favorite; inventories are down 36.3% to $19.2 million compared to $30.2 million a year ago.  One wonders if they weren’t higher than they should have been a year ago.

They have no long-term debt.  Interest bearing liabilities declined from $5.28 to $4.59 million.  They reduced their trade and other payables from $24.1 to $18.6 million.  Equity rose from $32.9 to $34.9 million.

We only get information on Australian public companies every six months, and in this case, we didn’t get much.  The whole filing is only 17 pages long.  Despite that, I’ve got three conclusions.  First, they join a long list of companies struggling in the U.S.  Second, it feels like they did a great job managing their balance sheet as revenues declined though, as I said, I’m thinking inventory getting up to $30 million a year ago might have been a mistake.

Most importantly, they tell us that skate hardgoods were “largely” responsible for the revenue decline in NA and Europe.  But that the growth in Australia came “largely” from streetwear and workwear.  So not from skate hardgoods.  Maybe skate hard goods will stabilize or even turn around and take off.  But I’m wondering if the streetwear and workwear brands they are selling in Australia can be expanded to sell in Europe and NA.

That might come to be important for Globe.