RCG Corp., which franchises 136 The Athlete's Foot stores in Australia and New Zealand, reported net profits before taxes grew 27.5% to A$7.61 million ($6 mm) in its fiscal year ended June 30, compared to A$5.97 million ($5 mm) a year ago. Thanks to strength at TAF, sales advanced 15.2% to A$166.7 million ($125 mm). Like-for-like sales grew 10.9% in the year, and were ahead 17% in the second half.
RCG also said it has been awarded the Australian rights to distribute the Merrell brand under an agreement with Wolverine World Wide. The agreement is effective January 1, 2010. Finally, RCG acquired Shoe Superstore, a three-unit chain of branded, comfort and lifestyle footwear stores and also has negotiated a new 249 year royalty-free license for The Athlete's Foot.
Revenues at The Athlete’s Foot were up 15.1% to A$166.7 million ($125 mm) from A$144.8 million ($130 mm) in the prior year. Comp store sales were up 10.9% on the back of a 17% increase in comp store sales in the second half of the year. Segment revenue that flowed to RCG from TAF declined 8.8% for the year to A$20.4 million ($15 mm) from A$22.3 million ($20 mm) in the prior year.
TAF EBITDA was up 15,2% to A$8.3 million ($6.2 mm) and net profit after taxes was up 18.5% to A$5.7 million ($4.3 mm).
The new financial year has started positively with comp sales up 6.5% for the first seven weeks. TAF continues to benefit from the expansion of niche categories such as kids, comfort and work but also growth in traditional ones such as running, walking and cross training.
The rollout of TAF'S new large format stores continues, with four stores now having been converted. Sales from the converted stores are generating comps in excess of 30%, according the company. At least ten larger formats will be in place by Holiday 2009.
TAF is expected to open six to eight new stores for fiscal 2010 and expects to convert at least 10 existing stores to the new larger format during the year. TAF is forecasting double-digit sales growth for the year, with comp store sales expected to be up 5% to 7% for the year.
There looks to be more upside ahead for the company with The Athletes Foot due to new 249-year licenses for TAF in Australia and New Zealand. Under the new licenses, RCG will no longer have to pay ongoing license fees to the U.S. licensor of the TAF and The Athletes Foot brands, NexCen, but instead paid an up-front fee of $6.2 million in U.S. dollars to secure the licenses. RCG expects the new deal will increase TAF’s EBIT in the new fiscal year by approximately A$1.2 million and approximately A$1.3 million in fiscal 2011. The new deal also lifts certain operating restrictions contained in the old agreements.
Regarding the Merrell licensing deal, RCG anticipates that the Merrell business will produce in excess of A$12 million in its first year of operation and to deliver an EBIT contribution in excess of 20%. Given the January start and development costs, RCG is not expecting the business to contribute to earnings until FY11. With the deal, RCG will be setting up a wholesale division that will operate independently of its retail division that will grow the business at stores already carrying Merrell as well as prospective customers.
RCG sees the Merrell business as highly complementary to the growth strategy associated with the increased product range in the new large format TAF stores and the Shoe Superstore business. RCG also intends to rollout a number of Merrell flagship stores over the next three to four years.
