Delticom announces “exceptionally strong” 2010 results

On March 23, Delticom reported another “extremely successful year.” The online tyre retailer says its fiscal revenues increased 34.8 per cent year-on-year in 2010 to 419.6 million euros, while EBIT rose 60.1 per cent to 47.1 million euros. Furthermore, the company’s 11.2 per cent EBIT margin reveals further growth in profitability. Whole year revenues for Delticom’s E-Commerce division increased 36.2 per cent year-on-year to 403.7 million euros, while Wholesale division revenues grew 7.6 per cent to 15.9 million euros. Other operating income increased 33.3 per cent in 2010 in line with revenues to 5.8 million euros.

The prime reason Delticom gives for this positive business development is the “unusually favourable winter weather” experienced in the closing quarter of the year. This surge in demand was intensified by new regulations in Germany that made the use of winter tyres mandatory. At the same time, the Germany-based European retailer says tyre supply “fell substantially short of demand” as tyre manufacturers “had ramped up their production only relatively late in the aftermath of the recession.” This scarcity drove winter tyre prices up sharply across Europe, and this was seen in Delticom’s closing quarter revenues, which grow 48.2 per cent year-on-year to 162.6 million euros.

As a result, the EBIT margin in the fourth quarter of 2010 reached 15.0 per cent, up form 13.4 per cent a year earlier. “We expect that the built-in advantages of our business model could very well fall in line with favourable weather and supportive regulations in the future as well,” Delticom commented, adding: “It is clear, though, that those factors will not necessarily always build-up in our favour as in 2010.”

Delticom reports that the cost of sales increased in the reporting period by 33.2 per cent to 300.7 million euros. “In an environment of rising purchasing prices, Delticom was to a good extent able to cushion the hikes by early purchasing. Thanks to the increased volume Delticom also benefited from economies of scale in the procurement function. In addition and according to schedule, Delticom generated a greater share of revenues with own inventories, compared to the previous years. This helped to meet the demand even at peak times, at good margins.” Thus, gross profit advanced rose 38.9 per cent year-on-year to 124.7 million euros and the gross profit margin (gross profit in relation to total income) progressed from 28.5 per cent to 29.3 per cent.

Outlook for 2011

“Results such as those posted in 2010 have naturally raised expectations for the current year,” Delticom comments. “It would be imprudent to expect the combination of positive factors which were key in driving our 2010 performance to occur again this year. German regulations requiring drivers to fit winter tyres will play a less important role in 2011. That the next winter will experience as much snowfall as last winter remains to be seen. At the same time, shortages of replacement tyres cannot be ruled out. Many tyre manufacturers have already raised their prices as a result. It is expected that the European tyre trade will see a year-over-year decline in the second half of 2011.

“At this point, experts are simply unable to assess the potential impact which the destruction in Japan could have on the tyre supply chain,” the retailer continues. “While Delticom does not operate any business in Japan, it is nevertheless possible that the difficulties there could also have indirect consequences on the European tyre trade.”

Delticom notes that, independent of such short-term developments, the share of online sales in the tyre market continues to be comparatively low. Yet ever more drivers are turning to the Internet in search of lower-priced alternatives. Despite 2010 results that Delticom calls “exceptionally strong,” the company plans for sales volumes to increase by approximately 10 per cent for the current year – this is, it says, “an ambitious, but achievable goal.”