The Pedal Group has just reached a major milestone for Australian bicycle businesses. It has become the first to reach $200 million in annual sales.
This business is best known by its two major components, Advance Traders and 99 Bikes. Because a major shareholder of The Pedal Group, Flight Centre Limited, is a public company it’s required to publish and talk about financial results on a regular basis.
Most of the article that follows will be based upon interviews by Australia’s leading daily financial newspaper/website the Australian Financial Review (AFR) with the key founders/shareholders Matt and Graham ‘Skroo’ Turner.
However it’s first worth reflecting from a bicycle industry perspective upon the achievement of The Pedal Group in establishing Australia’s largest specialist bicycle retail chain, which is, according to the AFR reports, trading profitably.
There have been many others who have tried to achieve this over the decades, with varying levels of success.
Ray’s Bicycle Centres, Bike Force, Universe Cycles, Goldcross Cycles, Wheels in Motion, Bicycle Superstore, Rebel Sport and Anaconda come to mind. Some of these were bike departments within big box retailers, others were franchise models and others were centrally owned. Some of these have disappeared entirely and others are still trading, but at a scale below their original ambitions or previous peak.
Meanwhile, 99 Bikes has steadily grown from its first store opening in Brisbane in 2007.
At latest count they now have 14 stores in Brisbane, 12 in Sydney, 10 in Melbourne, seven in Adelaide, three in Perth, three in Canberra, three on the Gold Coast, one on the Sunshine Coast, two in Auckland, one in Wellington and two in Christchurch, making a total of 58 stores.
They’ve also been building the bike brand portfolio, now including Apollo, BMC, Cube, KTM, Merida, Mongoose, Norco, Pedal (their house brand), Silverback, Velectrix and XDS.
99 Bikes has made growing their loyalty membership system a top priority. Their Club 99 members pay $5 for lifetime membership and typically receive 5% discount, plus other benefits. Their Club 99 Gold members pay $35 per six months’ membership and receive 10% off the club price, with some exclusions, plus other benefits.
This ads up to substantial discounts on higher priced bikes, although the discounts are tapered down for some high end sectors that are currently in short supply such as e-MTB and carbon road.
According to his interview in the AFR, Graham Turner is predicting that in three to five years time, the Pedal Group should be worth about $100 million.
The AFR also says that Graham and Matt have sold about $700,000 and $2 million respectively worth of their personal Pedal Group shares to enable staff to have bigger share holdings.
Flight Centre owns half of the Pedal Group, with other main shareholders being Graham Turner (22.5 per cent), Matt (15.85 per cent) and employees the remainder.
Revenue rose 26 per cent in the year to June 2019 to $132.4 million. Then for the 2020 financial year revenues grew by a further 51% to $199.9 million. Post tax profit rose by an even larger percentage, 364%, from $3.4 million to 12.4 million.
Despite the increase in sales, inventories fell from $27.1 million to $26.5 million meaning that stock turns increased significantly. The final figure was as at the end of the 2020 financial year, 30th June 2020, which was only three months into the big covid induced bike boom, so it would not be surprising to see both sales increased further and inventories decreased further with the 2021 financials are released.
Matt Turner told the AFR that he did not believe the sector would suffer a scenario of people having a glut of bicycles and ceasing purchases.
“I think it will come back to more normal growth,” Mr Turner said.
Still, he predicted an underlying boost of at least 10 per cent to sales from people who had now got into cycling.
“All you’ve got is more people riding bikes. More of a customer base. There’s always a reason to get a new bike or upgrade or service or accessories,” he said.
The accounts noted the directors declared a dividend of $6.4 million. Mr Turner said shareholders could reinvest their dividends, with Flight Centre reinvesting about half its allocation, he and his family reinvesting all, and about half of employees reinvesting.
It meant roughly $2 million in cash was paid out, he said.
The Latz Report has also conducted an in depth interview with Matt Turner, which can be found here.