This big publicly trading Norwegian retailer is counting on its recent merger with a leading apparel retailing group, Voice Norge, to sustain its momentum and to generate higher returns. With a share of between 40 and 45 percent in a national sporting goods market that is estimated to have grown by 5.3 percent last year to 12.2 billion Norwegian kroner (€1.5bn-$1.8bn), Gresvig realizes that its potential for higher sales in this segment is limited, but the group is nevertheless trying to attract new members and franchisees under the Intersport, G-Sport and Super-G banners through a larger selection of private label products and special programs to find new real estate opportunities and to upgrade their stores.
The number of its retail members remained largely stable last year. Gresvig serviced at the end of last year a total of 211 G-Sport stores and 115 Intersport stores, marginally up from the year before, but their annual retail sales are expected to increase by 222 million Norwegian kroner (€27.8m-$33.9m) following the expansion or renovation of the locations and the start-up of new units based on decisions made over the last 12 months or so. Their sales correspond to about 60 percent of Gresvig’s revenues from central settlements and other services in their behalf.
While the group still has stores of its own, it doesn’t expect to add many new ones. Its so-called chain service operations in support of the affiliated independent retailers continues to represent the bulk of its business. They generated a 6.9 percent operating margin for the year, up from 6.6 percent in the previous year, on slightly higher operating revenues of 1,452.4 million NOK (€182.1m-$221.6m). Their gross margin improved from 24.9 to 26.0 percent.
The group had a total of 17 directly operated stores at the end of 2005, or only one more than at the end of 2004. While their total sales declined slightly to 335.2 million NOK (€42.0m-$51.1m) for the year, the restructuring measures carried out so far allowed Gresvig to improve their results. Their gross margins rose to 44.0 percent, compared with 43.0 percent in 2004, and they generated an operating profit of 1.1 million NOK (€0.13m-$0.17m), as opposed to a loss of 1.8 million NOK the year before. In the critical 4th quarter, retail sales increased by 19 percent to 109.3 million NOK (€13.7m-$16.7m), with a 12 percent increase on a comparable basis. Their operating profit nearly trebled to 9.4 million NOK (€1.2m-$1.4m), representing one-third of the group’s total profit, thanks in part to fewer closeouts.
Overall, the group reached a record operating profit (EBIT) of 116.3 million NOK (€14.6m-$17.7m) in 2005, up from 108.4 million NOK in the previous year, in spite of a small decline in total operating revenues to 1,620 million NOK (€203.1m-$247.7m). The gross margin improved to 32.1 percent from 30.8 percent, and the operating margin increased to 7.2 percent from 6.9 percent. Before amortization and depreciation, operating earnings (EBITDA) were up to 141.0 million (€17.7m-$21.5m) from 133.4 million NOK. Increases in depreciation and personnel costs were more than offset by improved purchasing conditions negotiated with the suppliers, more efficiency in operations and lower interest charges. Net profit increased to 86,504,000 NOK (€10.8m-$13.2m) for the year from 81,885,000 NOK in 2004.
The financial year started out badly because of little snow during the 1st quarter, but the following two quarters were positive. The latest winter season started out late, but while weather conditions and the market situation improved markedly in December, revenues were down again for the 4th quarter to 486.0 million NOK (€60.9m-$74.1m), and the operating margin fell to 41.0 million (€5.1m-$6.3m) or 8.4 percent of sales, down from 9.2 percent in the year-ago period. Operating profit before amortization and depreciation (EBITDA) declined to 52.5 million NOK (€6.5m-$8.0m) from 55.8 million NOK in the same period of the previous year.
For the chain service operations, revenues were off by 4 percent in the latest quarter to 424.6 million NOK (€53.2m-$64.8m) because of the late snow, but sales of clothing and sports shoes were up, and while the gross margin rose to 27.4 percent from 26.3 percent, the operating margin declined from 9.1 to 6.6 percent in the quarter, due in part to higher investments in product development and because some cash-stricken members delayed payment of their receivables.
The group’s equity ratio fell slightly to 43.1 percent at the end of last year, and it’s likely to drop further following the highly criticized acquisition of Voice, which was finally approved on Jan. 27 as we have previously reported. On Feb. 17 a group of 16 minority shareholders opposed the decision, questioning the purchase price of 850 million NOK (€107m-$130m) as being too high, but Gresvig’s board decided that their arguments were without foundation, and the transaction was closed on Feb. 28. The shareholders have apparently filed a motion with a Norwegian court, but Gresvig has not yet been called in to respond to the allegations.
Voice has a nationwide network of boutiques trading under four banners - VIC, Match, Boys of Europe and Voice of Europe - which will be franchised. The takeover has raised to 595 the number of stores serviced by the group all over Norway. By 2008, it should produce annual savings of 15 million NOK (€1.9m-$2.3m) in purchasing and operations. It should also generate savings of 25 million NOK (€3.1m-$3.8m) a year in the development of better styled private label apparel items for the sports and fashion channels.
Voice had a profit of 130,680,000 NOK (€16.4m-$19.9m) before amortization (EBITDA) and of 102,835,000 NOK (€12.9m-$15.7m) after depreciation (EBIT) on operating revenues of 1,034.2 million NOK (€129.6m-$157.8m) in 2005. Including Voice, Gresvig would have had last year EBITDA of 271.7 million NOK (€34.1m-$41.5m) on revenues of 2,644 million NOK (€331.4m-$403.3m), with a nice gross margin of 39.4 percent and an operating margin (EBIT) of 8.6 percent.
