Globe International (GLB.AX)
Mis-understood, mis-priced fast-growing retailer
Globe International is a “fashion and skating conglomerate” for lack of a better term. They manage many fashion and skating brands throughout Australia and the world through their own ownership and licensing agreements.
I believe Globe has the opportunity to be a great investment for any diligent investor due to the messy history from covid, founder operated with high inside ownership, a long track record of success in building brands, and a misunderstood company due to the fact they don’t layout business segments.
Globe being a retailer is obviously facing some troubles at the moment mirrored in the share price and financials however going forward I see a real opportunity for long term success.
Brands
Proprietary Brands
FXD- Function by design
By far the most interesting brand they own, and my main interest in the business. Founded in 2012 FXD is where streetwear meets workwear, the first real innovation in tradie clothing with a subtle trendy twist. Most workwear brands just go for practicality, and while FXD isn’t wildly different their products are a more causal fit/ look compared to traditional workwear. FXD is building out a strong USP and brand with strong traction in the market. Globe doesn’t layout segments but FXD is definitely the largest segment and growing at a fast pace here and overseas by all accounts, once I came across the brand I started to notice it everywhere, and noticed how workwear retailers were marketing FXD the hardest at there stores, a great sign
Globe- Skating hardware and clothing
Salty Crew- casual Surfer clothing
Impala Skate- Trendy roller skating brand for females
Now it’s cool- Female swimwear brand
Milkbar Bikes- Retro bikes
Dot Boards- Electric skateboards
X/DMG - ethical workwear apparel
Third-party brands ( licensed)
Stussy
Xlarge
X-Girl
M/SF/T
Szade
Obey
Raen
Chimi
Pro-tec
Hardcore
History
Understanding history is very important for Globe (table in millions)
The 75% increase in sales in 2021 was mostly driven by Impala Skate and skating hardware which were covid beneficiaries. For whatever reason in CY 2020/21 Impala became a worldwide phenomenon and one of those covid trends that blew up, and subsequently company profit and the share price. Globe’s operating leverage then kicked in and along with the e-commerce platforms that benefited from covid lockdowns resulted in profit and margins exploding.
Skating hardware is obviously very cyclical and the trends seen through covid have fallen off.
Downturn
Globes brands are obviously very discretionary and have felt the full effect of tightening consumers and the fall off of covid trends. Globe is facing the same issues as many retailers at the moment with revenue and profit down and high inventories. As of their most recent half-year report revenue is down 16% ($143m to $120m) with profit falling from $12.4m (8.6%) to a loss of $193k (-0.01%), through the expected supply chain, inflation and consumer discretionary issues. However, revenue is still up 53.8% from H1 FY2020 (pre covid levels). Management highlighted that they have been expanding supply chains and manufacturing to adjust for a higher sales base going forward, hence the higher cost base.
Management
Globe was founded by the Hill Brothers, Stephen, Matthew and Peter in the 90s as a way for them to make money to skate. Since 2004 Matt has maintained the position of CEO and currently owns 8.43% of Globe while brothers Stephen and Peter maintain a position on the board and own 30.56% and 29.99% respectively, and considering Stephen has a Globe tattoo I think it’s fair to say the brothers are committed. Note: Solomon Lew also owns 6%. Founder-run and high inside ownership is always a good start. It’s very hard to find any presentations or management commentary/ interviews which is quite annoying for research, but a good sign I think that management doesn’t get caught up in the noise and is focussed on the term trajectory of the business. From the few interviews and management commentary, management seems to be very motivated, and discipline with a long-term vision.
Why it interests me
Globe and the Hill brothers have a long track record of building brands and doing it well. It’s a very hard skill to master but after 30 years of experience, they have a proven track record in building various brands. FXD by all accounts is growing strong in Australia and is starting to gain some real traction in the US, however, the covid trends have masked the underlying growth in the business. while it is annoying that they don’t outline segments, this creates a great opportunity for anyone diligent to put in the work, and go a bit deeper. Covid gave an abnormal sales and profit boost but also allowed for them to expand their e-commerce solutions, which offers much higher margins. Going forward now that their e-commerce platforms are more developed there is a good chance margins will be higher than the long-term average. From 2017-2022 Globe has grown sales at a CAGR of 9.38% in AUS, 22% in the US and 13% in Europe. If FXD can maintain its traction in all markets there is some real upside potential going forward once the dust settles from the covid trends and tightening consumers. I look at Globe as mainly FXD with various little brands that the team as Globe has done a great job at building out, (4 brands with 200k+ IG followers), and are positioned well for growth going forward
You can see from the table above what Globe is currently trading ($87m market cap) at from its historic profit levels (eg currently trading at 17.3 x 2017 profit). On a backward basis looks very cheap. But again it is hard to tell the effect skating hardware had on sales, and where sales will normalise going forward, I suspect that it will still be a lot higher than pre covid levels
What to Watch
Falling Knife- Not breaking out segment does create opportunities but also risks, it’s hard to have any confidence in the numbers and get a gauge of how far sales will fall. It’s something I will be monitoring closely, along with the general retail market.
FXD- The largest brand and largest growth opportunity, I really like FXD’s value prop, it has created a real niche within the workwear industry, general monitoring of websites, social media and workwear retailers will give you an insight into the business and its traction.
Management commentary - while they can be vague, they are upfront with shareholders. they highlighted the expected downturn in this year’s results a while back, and it seems Mr. Market didn’t believe them till it happened.
FY Results - Interested to see how the full-year numbers come out, especially management commentary, inventory management, and the underlying traction of the brands
I don’t think Globe is a buy right now given the uncertainty around sales and margins, probably waiting for some more bullish management commentary and some positive trading updates. However I am keen to get in at some point in the next 18 months, and I think shares are great value at their current price of $2 but the uncertainty is keeping me out
Further resources:
CEO interview 2019: