Ecco reported a 4 percent increase in pre-tax earnings to €183 million for 2015 on 7.4 percent higher net revenues of €1,256 million, implying a drop in the profit margin to a still strong level of 14.6 percent from the 2014 level of 15.1 percent. Net earnings rose marginally to €114.5 million.
It was the sixth consecutive annual increase in profits. Cost reductions and operational efficiencies in production and the supply chain helped offset rising leather and manufacturing costs. The company's annual report mentions reduced freight, duty and energy costs, coupled with “smarter product engineering.”
Excluding leather sold to external customers, whose sales rose to €115 million, net sales of shoes and accessories grew by 7 percent last year to an indicated level of €1,141 million, with increases of 18 percent at Ecco's own physical stores, 56 percent through e-commerce and 2 percent at wholesale.
The strongest sales growth occurred outside Europe, which for the first time accounted for less than half of the total turnover, corresponding to a corporate aim to obtain a well-balanced global market penetration.
With sales of shoes and accessories worth €533 million, down from €571 million in the previous year, Europe accounted for 47 percent of sales, compared with 54 percent in 2014. The share of the Asia-Pacific region increased from 27 to 31 percent. North America's share went up from 19 to 22 percent, due in part to the strength of the dollar.
Sales of shoes and accessories grew by 23 percent to €353 million in Asia-Pacific, driven by a 39 percent jump in Japan and by strong improvements in China and Australia. Because of its rapid expansion in the region, Ecco has decided to create two management hubs there, one for Greater China and the other for the rest of Asia-Pacific.
Sales rose by 22 percent to €245 million in North America, with growth of 4 percent in local currencies. Ecco U.S. spearheaded the introduction of cross-channel service options for consumers, with positive results. The U.S. market developed positively for the company for the full year, with double-digit growth in the women's segment, and the Canadian market recovered.
The decline in Europe was due essentially to the market crisis in Russia and Ukraine, where Ecco has a leading position in the premium segment. Excluding sales in these two countries, Ecco grew by 3 percent in spite of a difficult market situation in the autumn and winter months.
The problem was particularly acute during the last quarter of the year in Northern and Central Europe and in the U.S. Ecco reacted by upgrading distribution processes and raising the stock replenishment business to the benefit of its wholesale partners. While its wholesale business remained stable, Ecco's own and joint venture stores raised their sales by 65 percent in the Europe, Middle East and Africa (EMEA) region.
One of the factors for the company's overall sales growth, according to its annual report, was the introduction of a new and more agile product development system, which generated strong customer response to new products. Ecco focused in particular on the development of new models of women's shoes and sports-inspired lifestyle footwear. It launched the Intrinsic range to bridge the gap between the casual and sport categories, using knitted uppers and direct injection technology. It also launched successfully a new version of its Soft shoe, accompanied by a new best-selling Soft Pebble women's handbag and daypack.
The focus will shift to formal and work shoes in 2016. A dedicated business unit for children's shoes was created last August. Kristin Käpplinger, a 13-year veteran of the group, has been appointed vice president in charge of Ecco's new Kids Business Unit. Jean-Drik Wittrock, a former key accounts manager of Ricosta, will work with her to cover the German-speaking countries. Other focus markets will be Scandinavia, Russia and North America. .
More than 90 percent of Ecco's shoes are now made with direct injection, following major investments, particularly in Indonesia and Portugal. All the shoe production activities of the company are run from a new supply chain management department in Singapore, overseeing the entire order flow process for Ecco's factories in Asia and Europe.
Last year investments were put into Ecco's factories in Indonesia, China and Thailand. The company spent €18 million to increase automation with the use of robots and in other ways. A sourcing office was established in India in mid-2015.
As previously reported, Ecco and Fagus, the big German maker of lasts, decided last May to form a joint venture next to Ecco's shoe factory in Portugal, which was inaugurated a few days ago. Ecco says that this should allow the company to secure in-house competences, while allowing the partners to maintain high quality, speed and precision in the last manufacturing process.
Directly and through retail partners, Ecco opened 175 new single-brand stores around the world last year, resulting in a total door count of 1,309 units after the closure of 79 under-performing stores. The new stores included prime locations on London's Oxford Street and Vienna's Kärtnerstrasse as well as in Tokyo's Omotesando district and near to San Francisco. There were also 172 new shop-in-shops, building up to a total of 2,018. The company launched many new transactional websites.
The Danish group raised its investments by 18 percent last year to €52 million. Free cash flow rose to €137 million. The company ended the year with a positive cash position of €108.2 million and a solid 61.1 percent equity/debt ratio.