E-Commerce B2C a Delticom highlight in a “challenging” 2012

The traditionally upbeat tone of Delticom’s financial reporting was slightly muted upon release of the company’s 2012 preliminary full-year figures on 23 January. The German-based online tyre retailer described 2012 as a “challenging year” and the market environment as “difficult.” Full-year revenues amounted to 456.4 million euros, a 4.9 per cent decrease on 2011.

“Due to the difficult market conditions, sales in the more cyclical business segments decreased significantly,” shared Delticom. Wholesale revenues for 2012 collapsed by 38.6 per cent to 15.0 million euros and B2B revenues in the E-Commerce division also “came under significant pressure.” Due to stable B2C sales, the E-Commerce division only experienced a 3.1 per cent decline in full-year sales to 441.4 millions euros. The E-Commerce division accounted for 96.7 per cent of group revenues in 2012, up from 94.9 per cent in the previous year.

Gross margin: The cost of goods sold decreased in the reporting period by 2.7 per cent to 338.9-million euros. Due to the sluggish demand for summer and winter tyres in Europe, the full-year gross margin came down from 27.4 per cent to 25.7 per cent.

Other operating income: Other operating profit decreased 54.9 per cent to 3.8 million euros. This was mainly due to lower exchange rate gains. FX losses have to be accounted for as a line item in the other operating expenses. For the period under review, the balance of FX income and losses totalled 2.2 million euros or 0.5 per cent of revenues. Altogether, gross profit shrunk in the reporting period by 13.4 per cent year-on-year to 121.2 million euros.

Earnings performance: For 2012, Delticom was able to achieve an EBIT of 32.5 million euros; this 38.6 per cent drop was primarily due to a lower gross margin, higher fixed costs and negative FX effects. The EBIT margin was 7.1 per cent (2011: 11.0 per cent).

Financial income for the reporting period amounted to 45,000 euros (2011: 128,000). On the back of higher funding needs for inventories financial expenses increased to 182,000 euros (2011: 127,000), leading to a financial result of -137,000 euros (2011: 0).

The expenditure for income taxes was 10.3 million euros (previous year: 16.9 million). The tax rate was 31.8 per cent (2011: 32.0 per cent). Consolidated net income for 2012 decreased from 36.0 million euros to 22.1 million euros. This corresponds to earnings per share (EPS) of 1.86 euros (undiluted, 2011: 3.04 euros).

Fourth quarter performance

Disappointing winter tyre sales in 2012 left their mark on final quarter performance; wholesale revenues and B2B sales in the company’s E-Commerce division experienced double-digit decline. Yet Delticom refers to Q4 as a “successful quarter despite poor market conditions. Total quarterly revenues amounted to 175.9million euros, a drop of 3.5 per cent, and Delticom reports it again managed to grow its B2C E-Commerce business, an area that accounts for more than 80 per cent of all E-Commerce sales. “The company was therefore able to at least partially insulate itself from the overall weak market conditions,” Delticom commented. E-Commerce revenues continue to form the largest part of total revenue, and amounted to 172.7 million euros (down 2.1 per cent year-on-year) in the final quarter.

In order to increase volume, Delticom says it “had to offer more attractive prices for its customers.” Consequently, the company’s Q4 gross margin (trade margin excluding other operating expenses) of 25.0 per cent came in significantly lower than in the prior-year period (Q4-11: 28.8 per cent). This was compounded by a planned increase in fixed costs, resulting in a Q4 EBIT margin of 8.5 per cent (Q4-11: 13.6 per cent).

Outlook

Consensus among economists sees the economic headwinds in the Eurozone persisting in 2013. Increasing unemployment figures as well as the uncertainty stemming from the European debt crises should continue to burden European consumer sentiment.

Tyre industry experts disagree as to whether the European replacement tyre dealers will be able to show growth in the coming months, and if they can, to which extent. Delticom says that at this point in time it “does not have enough visibility to supply a reliable quantitative guidance for the sales and earnings development for the full year 2013.”

Independent of those short-term developments, the company reports that while the share of tyre market sales accounted for by online sales continues to be comparatively low, increasing numbers of motorists are turning to the internet in search of lower-priced alternatives. Delticom believes it will be able to capitalise on this trend.

Delticom’s full report for the 2012 fiscal year will be published on 21 March 2013.