Learning to say “no” might be the key to a turnaround for glove maker Ironclad Performance Wear Corp.: no more excessive spending, no more cool but low-return marketing campaigns, no more unprofitable product lines and no more participation in unproductive trade shows.
Indeed, the big “yes” at Ironclad is coming in response to its international distributors’ pleas for sales of its products to new overseas markets.
Years of austerity under Chief Executive Scott Jarus, along with an improving economy, are enabling the El Segundo company to finally start plotting an expansion.
“Now we think we reached the point where we have the maturity and the ability to expand internationally to grow our market,” said Jarus, who took over at the manufacturer of premium task-specific work gloves in 2008.
The past four-and-a-half years at Ironclad have been about financial discipline and cost control, much of which grew out of what Jarus said was a misguided entrance into the public markets in 2006.
“I believe it was a mistake to begin with,” Jarus said. “The reason the company went public was to raise money. Well, there are other ways to raise money without going public.”
His main concern was the cost of being a public company.
Ironclad posted a net loss of $4.4 million on revenue of $9.6 million in 2006, the year of its IPO. For a company generating that kind of revenue, the price of entering the public markets is significant: The cost of going public alone can range from $500,000 to $1 million, and the subsequent legal and accounting fees cost Ironclad as much as $300,000 annually. And Ironclad’s stock trades on the Over-the Counter market, which has lower costs.
Operating as a public company, however, was just one aspect of Ironclad’s overspending before 2008. According to Jarus, the company sponsored motorcycle racing teams, sold products at break-even and sent representatives to as many as 10 trade shows a year – all of which were big-ticket items that bought little in the way of returns.
“It didn’t have good financial fundamentals and financial management. They were focused on the hockey stick of revenue growth,” he said of the sharp turns in its financials, “without a regard for the bottom line.”
Jarus gave the company some basic financial discipline, cutting positions, outsourcing logistics and increasing the number overseas manufacturers with which it contracted to force pricing competition among its suppliers.
He also cut efforts established under founder and former Chief Executive Eduard Jaeger to expand into apparel lines and even energy drinks, choosing instead to focus on its core business of making gloves.
Born of opportunity
Jaeger got the idea of building a better work glove when he was visiting a job site in the late 1990s. He was surprised that workers had all kinds of tools for various tasks, but only one kind of glove for hand protection. He founded Ironclad in 1998, making task-specific gloves for industrial workers, such as gloves that help protect hands from mechanical vibrations or hot and cold conditions. He took the company public in May 2006 to raise capital.
But the spending and diversification took their toll. Jarus joined the company in 2008 and became chief executive in 2009, with Jaeger retaining his board seat and becoming head of business development. After years of losses, the company posted its first profit in 2010.
For the year ended Dec. 30, Ironclad reported net income of $3.1 million (4 cents a share), a 180 percent increase from the previous year. Its 2012 revenue of $26.2 million was 22 percent higher than the prior year.
Its shares, lightly traded on the Over-the-Counter market, have a 52-week range of 16 cents to 30 cents a share, closing Aug. 21 at 19 cents. The company has a market cap of $14.3 million, and reported assets of $14.5 million in its quarterly report for the period ended June 30.
The combination of an improved financial situation and low share price has attracted at least one major outside investor.
Ronald Chez, a private investor from Chicago, bought Ironclad’s shares two years ago and now holds 7.1 million shares, a 9.3 percent stake in the company.
“You can’t find many companies that are profitable, have a real balance sheet and are able to get financing when they are selling at 20 cents a share – unusual,” Chez said.
Repositioned
The leaner company employs 29, who handle administrative, research and development, sales and marketing and accounting from its home base. Manufacturing is done in China, Hong Kong, Cambodia, the Dominican Republic and Indonesia.
The company’s research and development and sales teams visit their customers regularly, make detailed notes about their work and safety needs, and come up with new designs that can improve users’ hand safety and working efficiency.
They hand-make samples and bring them to users for suggestions. The process usually takes three or four rounds of revisions before a final product is ready for sale. Then, the company sends its designers with detailed guidelines to its contractors to make sure the factory produces the gloves it wants.
The company is now ready to invest additional money and people to take that process to new markets in an effort to expand its reach.
Entering unfamiliar territory could be costly and risky, but Jarus said with a good penetration in their existing markets and a solid brand, the next logical way to expand business is in new places.
The market is certainly large enough to allow some expansion.
According to Sanjiv Bhaskar, vice president of research at San Antonio’s Frost & Sullivan, the global market in 2012 for nondisposable gloves was $6.5 billion and the U.S. market was $1.65 billion. The U.S. mechanical glove market, which is the market Ironclad competes in most directly, was $850 million.
Ironclad has long been selling in Australia and New Zealand, which account for 15 percent of sales. Jarus said as the company was considering expansion, a few of its international distributors approached it about moving into Western Europe and the Middle East.
Among the 90 styles Ironclad has now, the latest is its King of Oil and Gas, or KONG glove, which it expects will find a ready market in the Middle East.
