Delticom Q3 results – net income down 47.5%

Delticom’s full report for the first nine months of 2013 shows net income significantly down compared with the same period of 2012 despite growing revenues.

The online retailer reports that following a weak first half of the year, the European replacement tyre market continued to lag behind expectations in the third quarter. Despite this, revenues rose 11.1 per cent year-on-year during the three months to 30 September to €96.9 million. For the first nine months of the year, revenues grew 10.2 per cent to €309.1 million. Revenues within the company’s E-Commerce division and its 137 online shops rose 11.6 per cent year-on-year to €299.8 million and represented 97.0 per cent of the company total (up from 95.8 per cent in the previous year). Wholesale division revenues declined 20.6 per cent to €9.3 million.

Expenses were up year on year. Some of these relate to the company’s acquisition of Tirendo in September 2013, such as higher legal and financial expenses and a new television commercial that features Sebastian Vettel as a Tirendo brand ambassador. The company also paid a higher tax rate compared with last year because of the due diligence and advisory costs related to the Tirendo deal and their need to be capitalised as incidental acquisition expenses.

Gross profit increased 2.8 per cent to €78.5 million in the first nine months of 2013. Gross profit in relation to total income amounted to 25.1 per cent, as opposed to 26.9 per cent a year earlier. EBIT for the reporting period shrank 44.5 per cent to €9.7 million. This equates to an EBIT margin of 3.1 per cent, down from 6.1 per cent in the first nine months of 2012. EBIT declined 80.9 per cent in the third quarter to €800,000; this represents 0.8 per cent of revenues, compared with 4.9 per cent in Q3 2012.

Consolidated net income dropped 47.5 per cent to €6.2 million in the January to September period. Third quarter net income shrank from €2.9 million in 2012 to €100,000 this year.

Commerzbank analyst Dennis Schmitt opines that the recent acquisition of Tirendo places a heavier than expected burden upon Delticom; in making this point he notes higher marketing expenses and reduced sales prices in the other business areas. Schmitt’s revised prognosis is for EBIT to decline an average of 29 per cent for 2013 to 2015. The Commerzbank analyst has bumped Delticom’s share classification from ‘add’ to ‘hold’ and reduced its target price from €47 to €36.

Outlook

Delticom believes it will exceed last year’s revenues despite the “disappointing” weather conditions experienced so far this year. The company also expects to “significantly outperform” the industry as a whole this year, regardless of broader sector developments.

“The development of the Tirendo brand will affect profits in the coming quarters,” the company wrote in a statement. “Our focus is therefore on the rapid integration of business processes in order to make the best use of existing synergies. With its shops in Hanover and Berlin, the Delticom Group is well positioned to drive future growth and strengthen its position as the market leader. For the medium term we expect revenues to grow double-digit. We are confident that Delticom will continue to grow at a rate above the market trend.”

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