Billabong described trading conditions during its 2010/2011 fiscal year as “very difficult” as it dealt with a volatile global market, natural disasters in Japan and New Zealand, weak consumer spending in Australia, foreign currency changes and rising costs.
The company had already warned that the year would be a transitional year as it worked to digest and integrate its recent acquisitions, namely its major retail buys.
However, the company said it believes it now has the right mix of wholesale and retail and that it has a clear path for its goods to reach market. Executives also believe by fundamentally realigning its business model, there is a lot of upside in the future for the company.
Here is a summary of Billabong’s results released today for its year ended June 30. A major bright spot was the improvement in the U.S., including at company-owned retail stores.
Billabong’s stock fell 26% in trading Friday to $3.82, a new 52-week low.
2010/2011 Financial Results
All figures are in Australian dollars.
Total revenue: up 23.8% to $1.68 billion in constant currency, i.e., excluding the impacts of foreign exchange rates. Up 13.6% in reported Australian dollars.
Net Profit After Tax: down 6.9% to $119.1 million in constant currency. Down 18.4% in reported currency.
(The appreciation of the AUD vs. the USD and the Euro impacted reported sales by $123 million and NPAT by $18 million, Billabong said.)
Gross Margin: down to 53.8% vs. 54.4% last year
EBITDA: $191.9 million, down 16.2% in constant currency. Down 24.3% in reported currency.
EBITDA margins: down to 11.4% vs. 17.1% last year
Globally, while conditions in the U.S. improved, Europe softened in the final two months of the year, and the economic situation in Australia worsened.
In addition, the increased costs of goods, the volatility of markets and erratic consumer spending also impacted business.
“Overall, a very difficult year,” the company said in its presentation.
Integrating new retail
Billabong had previously said that 2010/2011 would be a transitional year as it digested its retail acquisitions and began to move its own brands into newly owned stores.
During the year, the company said it went through “a fundamental realignment of the business between wholesale and retail.”
Direct to consumer now accounts for 38% of Billabong’s global revenue, up from 24% the previous year. It currently has 639 stores in its stable, up from 380 last year.
Billabong now believes it has the right mix between wholesale, online and bricks and mortar, it said in filings today.
The company’s growing retail might also allowed it to negotiate improved terms with major third party brands it carries in stores.
Billabong has also been working hard to integrate its retail operations, and has standardized IT and Sales Intelligence systems, beefed up retail management, added design teams specifically tasked to get product to market quickly in its stores, and invested in its online platforms.
Billabong is approaching $50 million in online sales, accounting for 3% of total company revenue, and expects to generate $200 million in online sales by the end of 2015.
See Page 2 for West 49 details, regional results
Americas
This was a bright spot in Billabong’s results, with sales growing 32.5% to $843.7 million in constant currency.
Operational EBITDA rose 12% to $112.7 million.
The U.S. now accounts for 33% of total company sales.
Company-owned retail showed great improvement, with same store sales rising 8.8%. Retail EBITDA margins rose 600 basis points, with improvement from Honolua, Beachworks and Quiet Flight. Retail outperformed wholesale this year.
Nixon, Sector 9, Von Zipper and Xcel reported strong years as did RVCA, which was profitable in its first year with Billabong.
Billabong and Element sales declined in this territory, largely due to a decline in business with PacSun. In the specialty channel, the brands performed well, the company said.
Billabong and Von Zipper showed gains in Canada.
In North America wholesale, forward orders are flat. In the U.S. forward orders are up in the single digits as retailers return to placing orders in advance.
West 49
Regarding West 49, the company closed the Off The Wall stores, restructured senior management and appointed some new leaders.
Sales were soft at West 49 stores in Canada, which delayed moving company owned brands into stores. Billabong brands accounted for 21% of the sales mix at West 49 at year end, up from 14%.
Eventually, Billabong wants to grow that number to the mid-40% in two to three years, CEO Derek O’Neill said during the conference call with analysts.
This back-to-school season at West 49 is the first with the new product direction.
Europe
Sales increased 11.5% to $337.6 million in constant currency.
Operational EBITDA fell 5.4% to $67.2 million
Element, DaKine, Nixon and Xcel reported strong sales in Europe.
DaKine, Sector 9, and Plan B were integrated into the European structure, and RVCA was introduced.
Sales were up double digits in France, Germany, Belgium and Switzerland. Sales were down double digits in Spain and the UK.
Snow outerwear and surf hardware were strong categories.
The company plans to add a direct online platform for continental Europe by late 2011.
In wholesale, winter orders are up in the low single digits and summer orders thus far are slightly lower.
See Page 3 for Australasia results, guidance
Australasia
Revenue rose 19.5% to $501.9 million in constant currency
Operational EBITDA fell 26.3% to $74.5 million
Business was strong in Asia, but tough in Australia, with sales excluding new retail declining.
Repeat business was weak in Australia, but conditions improved in May and June. However, the environment turned very promotional.
The company worked to integrate all of its new retail onto a single platform and is integrating several retail warehouses into one.
Soft sales at retail also slowed down adding more Billabong brands to the mix in newly acquired stores in Australia.
Same store sales did turn positive in July.
For the wholesale business, forward orders are up in the low single digits for the high summer season.
Guidance
The company did not provide earnings per share guidance for the coming year because of the volatile global economy. Previously, it said it expected to return to 10% EPS growth this year in constant currency, however that was prefaced on a global economic recovery occurring.
