WELCOME TO EARTHWEAR CLOTHIERS Company History and Operations
EarthWear Clothiers was founded in Europolis, by Tor Engan and Calvin Rogers in 1993, to make high-quality clothing for outdoor sports, such as hiking, skiing, fly-fishing, and whitewater kayaking. Over the years, the company's product lines have grown to include casual clothing, accessories, shoes, and soft luggage. EarthWear offers its products through three retailing options: catalogues, retail outlets, and its website. EarthWear went public on the Euro Stock Exchange (ESE) in 2002 and is listed on the NASDAQ (USA) from 2007. The company has been audited by Willis & Adams International since 1993. The company strives to provide excellent, high-quality products at reasonable prices.
EarthWear has a commitment to excellence in customer service and an unconditional
guarantee. The company is also conscious of its environmental responsibilities.
All company facilities are insulated, recycle and conserve power. The company
continuously monitors the environmental impact of its products. The company believes
that many of its customers share this concern for the environment. The company offers its products principally through regular mailings of its monthly
catalogues. EarthWear has seven outlet stores in the USA, six in Germany and France,
five in the UK, two in Denmark, Sweden and Japan. The company also offers its
products over the Internet. During 2009, the Company expanded its global presence
by launching sites in Belgium, Finland, Hungary, Ireland, Italy, Norway, Poland,
Singapore, Slovenia and Spain. Currently, revenue from catalogue sales, retail outlets
and the website are 74 per cent, 5 per cent and 21 per cent respectively. Management
expects that Internet sales will grow significantly in the future, perhaps replacing
catalogues as the major source of sales. Company Growth Strategy EarthWear’s
growth strategy has three elements. First, the company
attempts to increase sales by expanding its customer base and
by increasing sales to existing customers through improved
product offerings. Second, the company seeks to generate
additional sales by targeted mailings of special issues of its
catalogues and by offering its products through its website.
Third, the company is pursuing additional opportunities to
expand its merchandising skills internationally. Catalogs And Sales Operations During
2013 the company mailed 12 issues of its regular monthly
catalogue with an average of 75 pages per issue. Worldwide,
the company mailed approximately 160 million full-price
catalogues. EarthWear views each catalogue issue as a unique
opportunity to communicate with its customers. Products are
described in visual and editorial detail, and the company uses
such techniques as background stories and distinctive covers
to stimulate the readers’ interest. Each issue of the regular catalogue offers certain basic product
lines for men and women. The regular catalogue also offers
seasonal merchandise. In addition, EarthWear mails two
end-of-season clearance catalogues. The company mails
its catalogues to prospective customers who are identified
based on lists of magazine subscribers and lists of households
meeting certain demographic criteria. In addition, the company
identifies prospective new customers through its national
advertising campaign. In 2001 the company introduced its first business specialty
catalogue, which offered its products to groups and companies
for corporate incentive programmes. EarthWear’s embroidery
capabilities allow for the design and monogram of unique logos
or emblems for groups and companies. In 2013 the company
mailed five issues of its corporate sales catalogues.
The international business segment includes operations in
seven countries, and various Internet sites. Catalogues
mailed in those countries are written in the local languages
and denominated in local currencies. EarthWear has launched
local websites in each of these countries in their respective
languages and currencies. Customer Database A principal factor in the
company’s success has been the development of its own list
of active customers. At the end of 2013 the company’s mailing
list consisted of about 21.1 million persons, approximately
7 million of whom were viewed as customers because they had
made at least one purchase from the company within the last
24 months. The company routinely updates and refines the database
before mailing catalogues to monitor customer interest as
reflected in criteria such as the regency, frequency, amount
and product type of purchases. EarthWear believes that its customer database has desirable
demographic characteristics and is well suited to the products
offered in the company’s catalogues. A survey conducted by
the company in seven countries during 2012 indicated that
approximately 50 per cent of its customers were in the 35–54
age group and had median incomes of €62,000. The company advertises to build its reputation and to
attract new customers. In 2013 this advertising campaign
appeared in about 70 international and national magazines
and publications, as well as on
nine national television networks.
EarthWear also advertises on a
number of Internet search engines
and websites. Product Development EarthWear concentrates on clothing
and other products that are aimed
at customers interested in outdoor
activities. The company products are
styled and quality crafted to meet the
changing tastes of the company’s
customers rather than to mimic the
changing fads of the fashion world.
At the same time, the company
seeks to maintain customer interest
by developing new products,
improving existing core products,
and reinforcing its value positioning. The company continues to incorporate innovations in fabric,
construction, and detail that add value and excitement and
differentiate EarthWear from the competition. In order to
ensure that products are manufactured to the company’s
quality standards at reasonable prices, product managers,
designers and quality assurance specialists develop the
company’s own products. EarthWear deals directly with its suppliers and seeks to avoid
intermediaries. All goods are produced by independent
manufacturers except for most of its soft luggage, which is
assembled at the company’s facilities. During 2013 the company
purchased merchandise from approximately 300 domestic
and foreign manufacturers. In 2013, one manufacturer and one
intermediary accounted for about 14 and 29 per cent of the
company’s received merchandise, respectively. In 2013 about 80
per cent of the company’s merchandise was imported, mainly
from Asia, (Bangladesh, China, India, Indonesia and Malaysia).
The company will continue to take advantage of worldwide
sourcing without sacrificing customer service or quality standards. Order Entry, Fulfillment and Delivery EarthWear has toll-free telephone numbers that customers can call 24 hours a day, seven days a week to place orders
or to request a catalogue. Approximately 90 per cent of catalogue orders are placed by telephone. Telephone calls are
answered by the company’s well-trained sales representatives, who utilize online computer terminals to enter customer
orders and to retrieve information about product characteristics and availability. The company’s main international
telephone centre is located in Mumbai, India. Other telephone centres are located in Boise, USA; London, England;
Tokyo, Japan; and Mannheim, Germany. The company’s order entry and fulfilment system permits shipment of in-stock orders on the following day, but orders
requiring monogramming or inseaming typically require one or two extra days. The company’s sales representatives
enter orders into an online order entry and inventory control system. Customers using the company’s Internet site see
colour photos of the products, their availability and prices. When ordering a product over the Internet, the customer
completes a computer screen that requests information on product code, size, colour and so on. When the customer
finishes shopping for products, he or she enters delivery and credit card information into a computer-based form. Orders are generally shipped by United Parcel Service (UPS) or comparable services at various tiered rates that
depend on the total monetary value of each customer’s order. Other expedited delivery services are available at
additional charge. Merchandise Liquidation Liquidations (sales of
overstock and end-of-season merchandise at reduced prices)
were approximately 12 per cent, 11 per cent and 8 per cent of net
sales in 2013, 2012 and 2011, respectively. Most liquidation sales
were made through catalogues and other print media. The balance
was sold principally through the company’s outlet retail stores. Competition The company’s principal competitors
are retail stores, including specialty shops, department stores
and other catalogue companies. The company may also face
increased competition from other retailers as the number of
television shopping channels and the variety of merchandise
offered over the Internet increase. The apparel retail business in
general is intensely competitive. EarthWear competes principally
on the basis of merchandise value (quality and price), its
established customer list, and customer service, including fast
order fulfilment and its unqualified guarantee. Trademarks The company uses the trademarks of
‘EarthWear’ and ‘EWC’ on products and catalogues. Seasonality Of Business The company’s
business is highly seasonal. Historically, a disproportionate
amount of the company’s net sales and most of its profits
have been realized during the fourth quarter. If the company’s
sales were materially different from seasonal norms during the
fourth quarter, the company’s annual operating results could be
materially affected. Accordingly, results for the individual quarters
do not necessarily indicate results to be expected for the entire
year. In 2013, 37 per cent of the company’s total revenue came
in the fourth quarter. Employees The company believes that its skilled and
dedicated workforce is one of its key resources. The majority of
employees are covered by collective bargaining agreements, and
the company considers its employee relations to be excellent. As
a result of the highly seasonal nature of the company’s business,
the size of the company’s workforce varies, ranging from
approximately 3,500 to 5,300 individuals in 2013. During the peak
winter season of 2013 approximately 2,700 of the company’s
5,300 employees were temporary employees. Executive Officers of the Company Tor Engan, 65, is chairman of the board and former chief
executive officer. Mr Engan was one of the two original founders
of EarthWear. He stepped down as chief executive officer in
December 2006. Calvin J. Rogers, 57, is president and chief executive officer of
the company. Mr Rogers was one of the two original founders of
the company. He assumed his present position in December 2006. Stefan Anderson, 56, is executive vice president and chief
operating officer. Mr Anderson joined the company as chief
operating officer in June 2001. He was promoted to vice
president in October 2004. Mr Anderson was previously
employed by Eddie Bauer in various capacities. Linda S. McDaniel, 45, is senior vice president of sales.
She joined the company in July 2003. Ms McDaniel served
as divisional vice president, merchandising, with Patagonia
between 1998 and 2001. Ms McDaniel was the president and
chief executive officer for Mountain Goat Sports from 2001 until
2003. She has been serving as a director of the company since
November 2004. James C. (‘JC’) Watts, 45, is senior vice president and chief
financial officer. Mr Watts joined the company in May 2005,
assuming his current position. He was previously employed by
Artic Department Stores. Mary Ellen Tornesello, 47, is senior vice president of operations.
Ms Tornesello joined the company in 2000 as operations
manager. She served as vice president of operations from 2001
until 2003, at which time she assumed her present position. Market information
The shares of the company are listed and traded on the Euro Stock Exchange
(ESE) and on NASDAQ. The high and low prices of the company’s common shares for 2013 were €52.50 and
€21.75 per share. The closing price of the company’s shares on 31 December 2013 was €40.25 per share.
Shareholders As of 31 December 2013, the number of shareholders of record of common stock of the
company was 2,120.
Independent Auditors The company has been audited by Willis & Adams International since
establishment in 1993.
Financial Reporting Framework EarthWear prepares consolidated financial statements reports
in accordance with the International Financial Reporting Standards (IFRSs) issued by the International
Accounting Standards Board (IASB).
Consolidated Statements of Comprehensive Income
(5084.0K)
Consolidated Statements of Financial Position
(549.0K)
Consolidated Statements of Changes in Equity
(563.0K)
Consolidated Statements of Cash Flow
(550.0K)
Five-Year Consolidated Financial Summary
(1085.0K)
Footnotes
(1539.0K)
Management’s Discussion and Analysis: Results of Operations for 2013 Compared to 2012 Total Revenue Increased by 3.2 Per Cent
Total revenue for the year just ended was €950.5
million, compared with €857.9 million in the prior year,
an increase of 3.2 per cent. Seasonally strong sales
resulted in a higher level of back orders during the
fourth quarter and a first-time fulfilment rate of 85 per
cent for the year as a whole, slightly below the prior
year’s rate. Overall merchandise sales growth was
primarily attributable to changes in circulation, which
included adding back our end-of-year catalogue and
our January full-price catalogue, shifting the timing
of our autumn/winter mailings, increased page
circulation and improved merchandise selection and
creative presentations. Profit for The Year Decreased
Profit for the
year 2013 was €22.5 million, down 27.8 per cent from
the €31.2 million earned in 2012. Diluted earnings per
share for the year just ended were €1.14, compared
with €1.56 per share for the prior year. The diluted
weighted average number of common shares
outstanding was 19.8 million for 2013 and 20.1 million
for 2012. Gross Profit Margin
Gross profit for the year
just ended was €404 million, or 42.5 per cent of total
revenue, compared with €385 million, or 44.9 per
cent of total revenue, for the prior year. Liquidations
were about 11 per cent of net merchandise sales in
2013, compared with 12 per cent in the prior year.
In 2013, the cost of inventory purchases was down
2.0 per cent, compared with deflation of 2.7 per cent
in 2012. This reduction was a result of improved
sourcing. Selling, General and Administrative Expenses
Selling, general and administrative (SG&A)
expenses increased 9.2 per cent to €364 million in
2013, compared with €334 million in the prior year.
As a percentage of sales, SG&A was 38.3 per cent
in 2013 and 39.1 per cent in the prior year. The
absolute increase in the SG&A ratio was the result
of higher sales, higher catalogue costs associated
with increased page circulation, as well as higher
information services expenses as we continue to invest
in the Internet and upgrade systems capabilities. The
cost of producing and mailing catalogues represented
about 39 per cent and 38 per cent of total SG&A in
2013 and 2012, respectively. Credit Lines and Capital Expenditures
Interest expense on lines of credit was down in
2013 due to lower average borrowing levels. Interest
expense decreased to €1.0 million in 2013, compared
to €1.2 million in 2012. We spent €29 million in cash
on capital expenditures, which included €20 million
for computer hardware and software. In addition, the
company acquired a new aeroplane by exchanging
two of its own aircraft in 2013. Also, we purchased
about €18 million in treasury shares. No long-term
debt was outstanding at year-end 2013. Depreciation
and amortization expense was €15.2
million, up 13.1 per cent from the prior
year, mainly due to computer software.
Rental expense was €10.4 million, up
3.4 per cent from 2012, primarily due
to additional computer hardware.
The Independent Auditor’s Report can be downloaded here: Independent Auditor''s Report
(21401.0K)
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