Thanks to Their Australasia Segment, Globe Has a Solid Six Months

Globe reported growth in revenue and income for the six months ended December 31 though, as usual, they don’t give us much information on how they did it.  I’ll tell you what I can glean from the public documents.  All numbers in Australian dollars of course.

Revenues rose 11.2% from the same period the previous year (pcp-prior calendar period) from $70.2 to $78.1 million.  “This growth was driven by the Australasian and North American segments which grew by 12% and 8% respectively, in local currency terms. The growth was mainly driven by the workwear division in Australia, while apparel was the key driver for growth in North America. In Europe, sales were lower by 6%, predominantly driven by softness in the board sports sector.”

Australasia revenue rose 11.65% from $38.3 in the pcp to $42.8 million.  North American revenue was up 17.2% from $20.1 to $23.6 million.  European revenue fell very slightly from $11.8 to $11.7 million.  Those are the “as reported” numbers.

Globe’s owned brands are Globe, Salty Crew, FXD, Swindle, Enjoy, Blind, Almost, Darkstar, Tensor, Madness, Dusters and Impala Rollerskates.  Wait- roller skates?!  There’s a market I don’t know much about.  “Launched in Melbourne, Australia in late-2017, Impala Rollerskates is driven by a team of girls with a passion for rollerskating, skateboarding and surfing. With a throwback to the 70s era of skating down the boardwalk or pulling out dance moves at the roller disco, Impala is bringing back the yesteryears of skate.”

Make that, “A market I know nothing about.”  I remember a few years ago I noticed Globe had started a new work wear apparel brand and were a bit ahead of their time.  Perhaps this will turn out to be the same.

You can go here to review descriptions of each of these brands if you aren’t familiar with them.

The third party brands that they sell but don’t own are Stussy, Obey, M/SF/T, Xlarge, Andale, Acembly, Pro-Tec and Hardcore, and here’s the link to the page describing each of those brands.  Hardcore is a distributor of over 30 brands.

So, Globe’s got 19 brands, plus the more than 30 distributed by Hardcore that in total generated revenue of $78.1 million (Australian) in six months.  Calling Hardcore one brand, that’s $4.11 million per brand.

But some brand revenues are larger and some smaller and, in a skate industry tradition that goes back decades, brands come and go.  Globe loves the industry, but I suspect they don’t fall in love with brands.  Certainly the brands are not operated as silos- manufacturing, logistics, etc. are consolidated.

Go back to their web site and look at the brand product descriptions.  You’ve got footwear, apparel, skate hardgoods and accessories common to many brands.  Roller skates, surfboards, back packs and helmets and pads the ones associated with just one brand and they are distributors only of the last three so don’t necessarily have to be concerned with production.  We can assume, I’m sure, that production for a number of brands is done at no more than a few factories.

A common theme these days is the need to be flexible, fast reacting, and to be prepared to have brands come and go.  Globe’s financial results suggest that’s how they operate.

EBITDA earnings rose 23.2% from $4.09 to $5.04 million, and net income was up 25.1% to $4.26 million from $3.41 million in the pcp.  “This growth in profitability was driven by the increase in sales, which was partially off-set by lower gross margins and higher costs. The lower gross margins are predominantly a result of changing business mix, as well as foreign exchange impacts. The increase in costs is mostly directed towards emerging and growth brands, to drive the growth in those brands over the coming years.”

Australasia’s EBITDA rose from $6.72 to $7.48 million.  North America reported an EBITDA loss of $470,000.  The EBITDA loss in the pcp was $262,000.  Europe’s EBITDA profit fell from $581,000 to $484,000.

Australasia was responsible for all of Globe’s bottom line improvement.  I’d particularly note the decline in profitability in North America in spite of the 17.2% increase in revenue.

The balance sheet remains strong.  The big change is in inventory, which grew 63.0% from $17.56 to $28.62 million.  Here’s how they describe the increase.

“Working capital balances remain healthy with receivables consistent with the same time last year, and aged inventory reducing as compared to the prior year. However, overall current inventory has increased as changes in brand mix are leading to a change in working capital requirements for the business. As a result of inventory build, cash used in operations for the period was $4.5 million compared to cash of $5.2 million being generated in the prior corresponding period. The most significant factor contributing to this change is the growth in the work-wear division which requires higher levels of stock service inventory as well as bringing a change in the payables profile which is more working capital intensive.”

Notice the impact on their cash flow from operations as it went from a positive $5.2 million in the pcp to a negative $4.5 million.  And Globe has “…aged inventory reducing…” while inventory was still up 63%?  That’s a lot of work wear, which they indicate is the most significant factor in the increase.  Depending on how the “…changes in brand mix…” are managed, the change could lead to some additional aged inventory.  As usual, Globe is exactly as forthcoming as they have to be about what’s happening, but no more.

The current ratio is pretty much constant at a solid 2.44 times.  There’s no long-term debt and long-term liabilities are insignificant.  Equity rose 6% from $41.0 to $43.5 million.

I can’t tell if the changes in brand mix are an intentional strategy or represent the decline of one or more brands.  Probably some of both.  We know skate hard goods aren’t performing well, but have idea what part of Globe’s business that represents.  But the point is that Globe has a balance sheet that allows it to react, whatever the cause, without any forced change in strategy.  Everybody should hope to be in that position.  It’s what the competitive environment requires.