Globe’s Results for the Year; Good, but What’s Going on in North America?

I’m kind of late writing about this, but Quiksilver inconveniently filed for bankruptcy right before I went on vacation and I was focused there. The headline is that Globe improved its performance. However, there isn’t much to analyze. Basically they tell us, “We did good and think we can do better.”

Hope so. Anyway, here’s a brief presentation and discussion of the numbers. Just to remind you, Globe is Australian and all the numbers are in Australian dollars.

Revenue rose 32.7% from $104 to $138 million for the years ended June 30 2014 and 2015. Revenue from all their brands rose. Globe was up 24% and Dwindle 34%. 4Front was up 36%. That’s their licensing and distribution business for Australia and New Zealand. The brands they manage are Stussy, Obey, Vision Streetwear, and Komono. Hardcore, “…the largest distributor of leading brand skateboard products, both owned and third party international brands, in Australia and New Zealand,” rose 39%. Its brands include Girl, Lakai, Thrasher, Chocolate, Flip and others you would recognize.

Finally FXD, which sells “carefully designed and styled work wear,” was up more than 100%. This brand, I recall, is pretty new and I imagine that growth is from a small base.

How did they accomplish this growth? “Past diversification strategies and brand investments driving growth.” Well, that certainly explains it. You can see why this might be a short article.

Revenue in the Australasia segment rose 32.6% from $37.7 to $50 million. Sales in Australia rose 30.5% from $34.9 to $45.5 million. Clearly, most of the segment’s growth was in Australia, which represented 91% of segment revenue.

All the divisions reported growth in the segment. “Improvement in performance [was] due to strategic diversification of brands, categories and new distribution channels.” Moan. Come on guys. Give me something at least a little specific to work with here so I can explain your good results to people.

North American revenue was up 26.3% from $39.2 to $49.5 million, with U.S. revenues up 16.4% from $20.8 to $24.2 million. Hmmm. Wait a minute. Those segment numbers are from note three, paragraph b of their filed report. But the slides they provided as part of their presentation says North American net sales grew by 14% as does the discussion of the results in the financial filing. I don’t know- 26.3% seems better than 14%.

Somebody at Globe help me out. Is the 14% constant currency maybe? Or have I lost the ability to read or work my calculator? Anyway, I’m giving you the numbers as reported in that footnote. The increases I calculated from the financial report is the same for the other two segments as what’s reported in the presentation, so I’m thoroughly confused.

European revenues rose 41.5% from $26.6 to $37.6 million.

The Australasia segment EBITDA rose from $3.34 to $5.65 million. The North American loss worsened from $1.03 to $1.67 million. Losses aren’t supposed to rise when revenues goes up 26.3%. Or even 14%. Wonder what’s going on there. Europe’s EBITDA was up from $3.60 to $6.97 million. That’s quite an increase.

Let’s move a little further down the income statement. Globe’s income statement doesn’t show a gross profit line. But in a note they do show something called “Cost of sales.” I’m going to use that (perhaps not correctly) as what we’d call cost of goods sold to calculate a gross margin. When I do that, I get 46.1% in 2015 compared to 46.4% in 2014.

Net income in 2014 was a loss of $12.3 million. In 2015, Globe reported a profit of $3.72 million. There are a couple of items you need to be aware of in evaluating these comparative results.

Last year, there was a $17.1 million charge for impairment of assets. In 2015, there was no such charge. Due, I think, at least partly to that charge there was tax benefit in 2014 of $3.3 million where 2015 shows a tax expense of 1.7 million. That’s a $5 million difference.

If we look at the pretax numbers and take out the impairment charge, you’ll see that Globe would have earned $1.45 million last year compared to $5.42 this year on a pretax basis.

The balance sheet is pretty solid with no borrowings or long term debt. Equity grew consistent with the net income. The current ratio is solid.

As I’ve already complained, we’re not getting a lot of specifics. Basically, after some tough years, Globe is running its business better. As they put it, “This revenue and profitability improvement was a consequence of the recent investments and diversification into new markets and brands and as such, growth came from multiple brands, product categories and geographic regions.”

As usual, I’m pretty sure there was no magic bullet. Just hard work, some difficult lessons, and management discipline. North America still seems to have some issues with the loss increasing even with a solid sales increase.