I imagine you are all aware that Incipio reached an agreement with Skullcandy on June 23rd to make a tender offer for the company’s common stock at a price of $5.75 representing a price of approximately $177 million. That agreement allowed Skullcandy some time (until July 23rd) to see if it could find a better offer.
We’re all watching the continuing rationalization of our retail space. I suppose “rationalization” is a way too benign sounding word for a process that includes bankruptcies, store closings, job losses, margin hits, too much inventory, and struggles to increase sales and even to stay in business.
As ugly as this continues to be, there are going to be opportunities for the brands and retailers who get through it. I’m going to take some comments from Dick’s Sporting Goods most recent conference call to help us think about the upside and downside of the process. Dick’s, I suspect, will do just fine over the medium to long term because with the demise of The Sports Authority, there just aren’t that many larger, national big box competitors left (Academy has like 200 stores in 15 mostly southern states. Who else?). Dick’s ended their most recent quarter with 647 Dick’s stores. They also own Golf Galaxy and have some Field and Stream stores I guess.
I’ve generally been a supporter of Zumiez’s strategy and believe they’ve done most things right. So when I see them suffering right along with everybody else in a difficult (not nearly a strong enough word) retail environment, it really brings home to me just what we’re dealing with.
The numbers first, then the strategic issues.
The quarter and year ended March 31st weren’t great for Deckers. Mostly, you’ve probably noticed, they haven’t exactly been great for companies I’ve written about in general. What somehow got my focus as I read Deckers’ 10-K was the continued and, indeed, increasing sameness of what all the public companies are saying.
Let’s start with a review of Deckers’ strategies and goals before we move on to the financial results including a look at Sanuk’s continuing problems as part of Deckers.
Skullcandy filed a form 13D today with the Securities and Exchange Commission announcing that founder Rick Alden was going to explore a transaction to take the company private. To be clear, that doesn’t mean it will go private. Here’s the relevant section of the 13D.
VF filed its 10-Q for the quarter ended April 2nd on May 10th. The results, while in line with expectations, showed VF under the same kind of pressure other public companies are dealing with. Even their action sports segment, where most of their growth has been coming from, experienced very modest sales growth and reduced operating income.
The Amazon Effect is given a lot of blame for the lousy and, some say, deteriorating retail environment. I gather it was a topic of conversation at the recently completed Surf Industry Summit at Cabo.
Skull’s loss for the quarter ended March 31 rose 27.9% from $3.7 to $4.9 million. Sales rose just 1.4% to $46.3 million while the gross profit margin dropped from 40.9% in last year’s quarter to 37.5% in this year’s. The pretax loss rose 50% from $4.6 to $6.9 million.
The balance sheet remains as strong or stronger than it was a year ago. Cash on the balance sheet rose $12 to $14 million, as did accounts payable, as Skull stopped taking some discounts for early supplier payments. Paying early would boost the gross margin and stopping early payments would reduce it. They don’t tell us what the impact was.
So there I was sitting in the conference room of the Embassy Suites for day one of the IASC Skateboarding Summit waiting for the dreaded retailer panel to start.
You all know the panel I mean. They have one at every industry trade show and conference I’ve ever been to. Three or four retailers sit up on stage, a moderator feeds them questions they often have in advance (well, that’s what I always did) and they give cautious answers that aren’t that useful, typically aren’t a reflection of actual business conditions, and make unrealistic requests of the industry and the brands to “fix” skateboarding, or snowboarding, or whatever.
It has been an element of faith that the days of print advertising were ending and we’d all be making our advertising and promotion buys online. I still expect print to be in a long term decline, but I just read a pretty persuasive article that talks about the decline of online advertising and the reasons for it.
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