Globe International Limited, the Australian company that is home to the Globe, Salty Crew, FXD and Impala Skate brands, among others. reported a decline in sales and profitability for its half-year period ended December 31 as the downturn in the hardgoods market and general macro-economic conditions continued to have an impact on performance. Still, cash flows from operations were said to be significantly higher than the prior corresponding half-year.
The company reported net sales for the half-year were A$120.5 million, down 16 percent from the prior-year comparable period. The decline in net sales in the first half-year was due to the reduction in sales of hardgoods across the business, including skateboards, rollerskates and skate accessories. Regionally, Globe Europe was most significantly impacted by the downturn in the hardgoods market as it is the most hardgoods-reliant division, resulting in a 30.7 percent constant-currency reduction in net sales in the half-year. A reorganization of this business unit is said to be underway to drive sales and margin growth and operational improvements. While similarly impacted by the decline in hardgoods, net sales in North America and Australasia fell by half this amount, as both regions have more diversity in brand and category offerings.
North America segment revenues were down 9.1 percent to A$50.0 million in the half-year period, compared to A$55.0 million in the prior-year comp period. Australasia segment revenues fell 14.9 percent to A$56.4 million in H1 from A$66.3 million in the prior-year first half. Europe segment revenues were down more than 30 percent to A$14.0 million, compared to A$21.5 million in the prior-year period.
Globe said inflationary pressures also had an impact on both consumer demand and profit margins, while heightened freight costs and a strong U.S. Dollar also impacted gross profit margins. In the midst of these negative macro factors which had an inevitable impact on profitability in the short-term, the company said it continued to invest in its existing core brands, seeing either stability or growth in non-hardgoods brands, including key brands Salty Crew and FXD. In addition, the company acquired a 50 percent stake in emerging female fashion swimwear brand, It’s Now Cool, which provides an exciting opportunity for growth in a new category for the business. So, despite the poor performance for the half-year, the business has a positive outlook.
EBIT were A$0.9 million, representing 0.7 percent of net sales. This was significantly lower than the 12.7 percent return on sales that was achieved in prior-year comp period. A net loss after tax of A$0.2 million was reported, compared to a net profit after tax of A$12.5 million in the prior-year period.
The EBIT reported for the half-year was said to be “significantly impacted by the decline in sales and gross profit margins.” The company said there were a range of factors that drove down gross profit margins, including the clearance of excess inventory, continued high freight and logistics costs and the strength of the U.S. Dollar.
Profitability is expected to improve in the second half of the financial year.
Cash-flows generated from operations were A$4.7 million, which represented a A$17.4 million improvement on the A$12.7 million of cash used in operations in the prior-year comp period.
Looking ahead to the second half of this financial year, the company expects to see “a softening in the decline in net sales, as it cycles past the hardgoods peak which occurred in the back end of the 2021 calendar year.”
“With total hardgoods sales now significantly reduced, there is little scope for any further major hardgoods reductions and growth is anticipated in some other key brands,” the company stated in its report. “In addition, in the first six weeks of the year there has been an improvement in gross profit margins due to some normalization of the short-term and macro factors that have been driving margins down. This trend is expected to continue and, as such, the consolidated entity is forecasting improved profitability in the second half of this financial year, with the company to be profitable for the full 2023 financial year.”
Globe expects to see gross profit margins improve on the back of lower clearance sales, and a change in macro trends, with freight and logistics costs returning to pre-COVID levels, and some weakening in the U.S. Dollar over recent weeks. In addition to these factors, further steps are being taken internally with a focus on improving profit margins into fiscal year 2024 and beyond.
In addition to these macro changes, the business has undertaken a detailed strategic review over the last 6 months and has identified a number of opportunities to refine its operations, brand and category mix to simplify the business. As the consolidated entity looks to the 2024 financial year and beyond, it expects these changes to enhance its ability to grow the business from its stable of global brands, all of which have potential for future growth. In addition, profitability will continue to improve with higher gross profit margins and lower costs.
