Globe’s Half Year; The Plan Seems to be Coming Together

Back in 2002, Globe bought Kubic Marketing, the holding company for World Industries and Dwindle. It turned out that their timing couldn’t have been worse in terms of the skateboarding industry cycle. Just about the time they dug their way out of that glitch, the Great Recession hit and had the same kind of impact on Globe it had on other industry companies.

But for the six months ended December 31, 2014, Globe reported sales that rose 28.4% from $51.4 in the prior calendar period (pcp) to $66 million Australian dollars (all figures in Australian dollars). Net income was up from $818,000 to $1.58 million. They even reinstituted a dividend of three cents a share. That speaks well of cash flow.

Those results occurred while they increased SG&A and employee benefit expense by $6.7 million. Most of the increase was in SG&A.

The Globe brand, we learn in an investors’ presentation, rose 27% worldwide. Dwindle Distribution was up 16%, 4Front Distribution 22% and Hardcore Distribution 26%. They also started a new work wear brand called FXD.

Globe owns or distributes 25 brands. I suggest you go to their investor website here and download the investor presentation dated February 27^th, 2015 to see which brands are sold by which distribution company. If you’ve been around the skate business even a little, you’ll recognize most of them.

Note that not all brands are sold worldwide.

North American sales rose 12% from $18.4 to $21.3 million. But earnings before interest and taxes (EBIT) in North America declined from a loss of $360,000 to a loss of $1.832 million. Neither the financial report nor the investor’s presentation explains what exactly happened in North America. They do say in the presentation that, “Segment result impacted by lower scale, margin pressures and introduction of new brands.”

I guess I know that “margin pressures” means gross margins were lower. “Introduction of new brands” might mean they spend a bunch of money on getting new brands started- specifically Fallen and Zero. No clue what “Segment results impacted by lower scale” means, especially as sales were overall up 12%. Maybe there’s a transcript that goes with the presentation, but it’s not on the web site.

They note that Dwindle hard goods and Globe apparel were up, but don’t say how much. I’m wondering how much growth there was in North America if we take out Fallen and Zero.

I’m also wondering how much sales grew in constant currency. Even at December 31, the Australian dollar was weaker against the U.S. dollar than in the pcp. In the presentation, they warn us that they “…expect the strengthening US dollar to have an impact on margins in Australia and Europe.”

Things were better in Europe. Net sales grew by 59% from $11.9 to $18.6 million. EBIT rose from $1.1 to $3.5 million.

In Australasia, sales rose by 23% to $26.3 million from $21.4 million in the pcp. EBIT was up 17.8% from $2.78 to $3.28 million.

The segment EBITs do not include certain corporate expenses and unallocated, unrealized foreign exchange losses that totaled $2.5 million in the most recent six months and $1.66 million in the pcp.

The balance sheet improved as equity grew by around one-third to $40.6 million. Current ratio at 1.88 was down a bit from 2.03 a year ago, but that’s fine. Receivables, inventory and payables have risen significantly, but it seems in line with the revenue growth.

The presentation notes that they have no borrowings, which is technically correct. But they are using a non-recourse receivables financing facility in North America in the amount of $2.5 million, up from $1.8 million in the pcp. Since it’s nonrecourse, it’s not debt but there is a cost to using it.

While Globe still has some work to do in North America, the overall result shows good progress. I just wish there was some more information on specific brand performance.