Umbro Swings to H1 Profit, But Operating Income Slides on Licensed Decline…

Umbro plc did not have a major event in the first half of the fiscal year to enable the company to anniversary strong licensed apparel sales attributed to the Euro 2004 Championships last year, but the company didn’t have to pay out a £26.8 million in dividends this year either, which helped them to a profit for the first half of 2005.

Operating profit before exceptional items decreased 25.0% to £12.3 million ($23 mm), compared to £16.4 million ($30 mm) in H1 last year.

The company reported that total wholesale equivalent sales for the first half, which is the Group’s buy/sell sales plus the wholesale value of licensees’ sales, declined 10.1% to £175.4 million ($329 mm) from £195.1 million ($356 mm) in H1 2004. Group sales were £64.7 million ($121 mm), in line with expectations, compared to £94.1 million ($172 mm) achieved in H1 2004.

Licensed apparel sales declined 44.2% to £40.3 million, compared to £72.1 million in the year-ago period, due primarily to a decrease in sales of England products. Still, Umbro did say that full year sales of England replica kits are expected to be in line with 2004. The non-renewal of the Celtic contract also accounted for 5.2% of the decrease in licensed apparel. Management said the recently awarded Rangers contract will provide strong brand exposure, but will not match the direct sales of Celtic due to structure of the sponsorship deal.

Branded apparel sales jumped 30.5% to £47.3 million from £77.5 million in H1 last year. Total apparel sales declined 39.0% to £7.0 million ($89 mm) from £77.5 million ($141 mm) last year. Footwear sales grew 12.6% to £4.7 million from £4.2 million, while equipment and other sales declined 13.1% to £1.6 million from £1.9 million.

Umbro said one of the Group’s objectives is to increase sales of non-licensed products, pointing to a 13% increase in sales in those categories in the first half. Management said that expansion in the U.S. has been a “significant contributor” towards this growth. Umbro said it continues to develop new channels of distribution to maximize the opportunities that are arising from the convergence of sportswear and leisurewear and that progress is being made in enhancing the perception of the brand through design collaborations.

Umbro operates through a network of 47 licensees in over 90 countries and generated 69.4% of global total wholesale equivalent sales from these sources. The growth in TWE licensee sales was 9.2% in H1, driven by branded product sales which accounted for 92.2% of licensee sales. TWE Sales in Continental Europe were up by 3.4% compared to last year. Tough conditions in France and Spain have been offset by growth in other countries. Growth in Asia-Pacific was 14.0%, with China producing excellent results and growth of 70.1%.

In the Americas, overall growth of 38.5% has been achieved, with sales in the U.S. doubling, thanks primarily to increased footwear sales to Foot Locker Inc.

In January, Umbro announced that it had reached an agreement with Chelsea Football Club regarding the early termination of the sponsorship contract, and the taxable compensation of £24.5m, though receivable in 2006, has been recognized in these accounts.

Gross margins on wholesale sales have improved by 420 basis points to 55.7% in the period, with 160 basis points was attributable to exchange rate benefits and the balance of 260 basis points was from a combination of improved sourcing and product mix.

Umbro posted net income of £26.3 million ($49 mm) in the first half, compared to a net loss of £18.5 million ($34 mm) in the year-ago period.