Revenues Flat, But Strong Bottom Line Performance; Globes Half Year Results

Globe’s report for the six months ended 31 December 2017, as usual, gives us very little information.  The only 17 page report makes just one incomplete mentions of their brands and tells us exactly nothing about how any of them are doing individually.

Perhaps I’ll start by reminding you of their brands.  They own are Globe, Salty Crew (50% I think), FXD, Dwindle, Enjoi, Blind, Darkstar, Almost, Tensor, Dusters and Sample.  Their third party brands, which means they distribute them, are Stussy, Obey, M/SF/T, Xlarge, Andale, Kryptonics and Hardcore.

Total revenue, compared to the same six months the previous year, fell by 0.71% from $70.7 to $70.2 million (all numbers are in Australian dollars).    Pretax income, on the other hand, rose 24.1% from $2.81 to $3.49 million.  How’d they do that?

“This growth in profitability was due mainly to an increase in gross margins across the board. The gross margin improvement came from a combination of factors including brand mix, customer mix, sourcing improvements and foreign exchange impacts. While overall costs were largely flat compared to the same period last year, there has been a reallocation of costs towards emerging and growth brands, to drive the growth in those brands over the coming years.”

Revenues from the Australasia segment fell from $41.3 to $38.3 million.  However, the segment earnings before interest and taxes (EBIT) was up just a bit from $4.95 to $5.06 million.  In North America, revenue rose 13.4% from $17.75 to $20.13 million.  The EBIT loss improved, declining 41% from a loss of $2.15 million to a loss of $1.27 million.  In Europe, revenues were little changes, rising from $11.68 to $11.76 million.  However, EBIT fell from $284,000 to $83,000.

From a bottom line perspective, then, Australasia is carrying the load.  North America is losing money and Europe is barely above breakeven.

I don’t know what the change in gross margin was.  Of the factors they point to as responsible for the improvement, I’d be curios how much foreign exchange accounted for.  But fundamentally, they leave us with a picture of a company that’s managing its brands, distribution and customers consistent with a competitive environment where revenue growth is harder to come by.  I’d call that being in touch with reality.  Globe has tended to be that way.

Changes in the balance sheet, which is strong, are consistent with management’s description in the quote above of what led to the gross margin increase.  With revenue more or less constant, we see an 8.6% decline in inventory from $19.2 million a year ago to $17.6 million at 31 December 2017.  I also note that a current interest bearing liability of $4.59 million last year is down to zero this year while cash and cash equivalents is basically unchanged.

Based on the very limited information in the report, Globe is positioned to do well if its competitors struggle for whatever reason.