ECCO had a record year in 2007, with revenues exceeding 5 billion Danish kroner (€670m-$1,052m) for the first time. Its sales volume went up by 14.5 percent, with 16.9 million pairs of shoes sold. An additional 0.8 million pairs were sold by ECCO’s licensed manufacturer in Japan. Operating profits were DKK 833 million (€111.6m-$175.2m), a 9.7 percent increase from 2006.
The operating margin dropped to 16.0 percent, down from 17.0 percent the year prior. The company said this decrease was because of unusually high freight costs and the "punitive" anti-dumping duties that the European Union has imposed on leather shoes made in China.
Profit before taxes for the full year 2007 was DKK 755.7 million (€101.3m-$158.9m), up from the DKK 709.5 (€95m-$149m) reported for 2006 and equal to 14.5 percent of revenues. Net profit for the year was DKK 537.6 million (€72m-$113m), an increase over DKK 489.5 million (€65.6m-$102.9m) the year before. Net revenues reached DKK 5,219.5 million (€699.4m-$1,098m), a 16.8 percent increase from the previous year. Of this, 93.0 percent came from shoes and the rest was from the sales of accessories, leather and wetblue.
Net shoe revenues were up by 17.8 percent, partly because of the increase in sales volume but also because of a 3.0 percent increase in the price per pair. This growth occurred despite a negative effect of 2 percentage points caused by the exchange rate. Revenues from accessories increased by 52.0 percent.
Among ECCO’s shoe categories, sales of men’s shoes climbed by 6.0 percent, women’s shoes were up by 7.0 percent and children’s increased by 20.0 percent. Golf shoes grew by 16.0 percent. The big winner, though, was the performance range of outdoor, walking and other sports shoes, which jumped by a full 49.0 percentage points. In this latter category, ECCO introduced yak leather, which is three times stronger than cow hide.
There was a small increase in the number of pairs of shoes produced in Slovakia, but probably the last, after January’s announcement that ECCO is restructuring that facility, trimming jobs as well as production. ECCO’s other European factories – in Denmark, Portugal and the Netherlands – saw decreases in shoe production, while those in China, Thailand and Indonesia all saw growth. In particular, ECCO’s shoe factory in Portugal produced only 609,000 pairs of shoes in 2007, down from 2.3 million pairs in 2005 and 722,000 pairs in 2006.
Citing the growing difficulty of attracting the right kind of staff for its production facility in Slovakia, ECCO announced that it will lay off 176 employees there and that it will not renew 107 short-term contracts, leading to restructuring costs estimated at DKK 7.5 million (€148.1m-$232.6m). Only 859 jobs will be retained in Slovakia for the manufacture of 2.8 million shoes per year, compared with 3.1 million pairs in 2006 and 3.7 million pairs in 2007.
The production in China is being kept just below one million pairs because of the European anti-dumping duties. On the other hand, ECCO has commissioned a state-of-the-art tannery there that should go on stream in the Fall of this year. The company’s production facilities in Thailand have been working at higher levels after the fire that broke out there in 2006. They produced last year 6 million pairs of shoes, 2.3 million pairs of uppers and 12.5 million square feet of leather. Production rates were also boosted in Indonesia, where they reached 2.9 million pairs of shoes, 6 million pairs of uppers, 15.3 million square feet of wetblue and 16.3 million square feet of leather.
The group’s turnover increased in all five regions of the world. In the Central European region, which includes the Nordic markets, Germany, Austria and Switzerland, it grew by 19.0 percent. In its Europe West region (UK, Ireland, Benelux, Italy, France and Spain) it rose by 14.7 percent. The growth rate in Eastern Europe and the Middle East was 34.0 percent. Russia is now the company’s second-largest market after the USA, and ECCO’s best-selling store is in Moscow.
In the Americas, despite the economic problems in the USA, turnover increased by 2.0 percent in kroners, but 11.0 percent in local currency. In fact, ECCO USA reported a record high sales volume. The American website, ECCOUSA.com, saw record net sales and profits. In the Asia/Pacific region, ECCO had a 41.0 percent jump in turnover.
The company had a total of 687 stores in 2007, compared with 551 in the year before. Of these, 113 were owned and operated by ECCO, 15 more than in 2006. Of its 1,119 shop-in-shops (up from 1,018 in 2006), 43 were run by the company. The new openings included more stores in London and the brand’s first two dedicated shops for children’s shoes, located in Warsaw and Riga. The success of the Polish unit has led the company to decide to roll out the new format throughout Eastern Europe.
As of Dec. 31, ECCO had 14,957 employees. The equity-debt ratio was 49.2 percent, up from 47.4 percent in 2006.
For 2008, ECCO is forecasting an operating margin about equal to last year’s. Further sales growth is expected, though not at levels as high as in 2006 or 2007. The company plans to invest heavily in stores, franchises and infrastructure. It has been working hard to update its 10-year-old SAP platform, and the new system is set to be established, tested and implemented between 2008 and 2009.
The number of new store openings is expected to grow at a faster pace in 2008. A few days ago ECCO opened its first Italian store in Bolzano, following the launch of a consumer-oriented marketing campaign in northern Italy last Fall. Ten new stores and four shop-in-shops are planned in the country.