Billabong half-year results a mixed bag of good and bad
Surfersvillage Global Surf News, 26 February, 2016 - Billabong International Limited today announces its half-year financial results to 31 December 2015. All figures quoted are in Australian dollars unless otherwise stated.
“This is a brand led turnaround and our big three brands, where we placed our focus, grew globally,” said Billabong CEO Neil Fiske. “Europe continues to gain momentum and the Asia Pacific region has delivered a solid performance given currency pressures.”
“The result has been impacted by conditions in the Americas, as highlighted in our November update, including sector weakness in retail and short-term margin pressures associated with clearing excess inventory. As we get inventories back in line, we believe margins will recover,” said Mr Fiske.
“The essence of our seven part strategy is building strong global brands operating on global platforms. This year we have begun the implementation of four major platform initiatives that will sustain our growth and improve profitability over the long run. The transformation of Billabong into a brand led, global company is well underway.”
Regional overview (all figures are “as reported” unless specified otherwise): In the Americas, EBITDA before global allocations was $4.1 million for the period, down $6.9 million on the pcp, or $9.2 million on a constant currency basis.
Approximately half of the reduction was attributable to a decline in comparable gross margins of 2.3% for the period due to pressures from excess inventory. Part of this excess followed the port strike on the West Coast of the US, which reduced selling time on the floor during the region’s Spring and Summer seasons. Additionally with the supply chain disruption a year ago, Fall and Holiday inventory was bought ahead of visibility to changing market conditions.
The Group expects inventory levels to be largely back to target levels by the fiscal year end. In North America external wholesale revenue was down 1.6% on a comparable basis, with an increase in the specialty channel offset by softness in the big action sports retailers.
Wholesale revenues in the US were up for Element and RVCA and, following strong growth last year, flat for Billabong. Sector 9, which specialises in the long board skate sector, declined substantially and was $2.5 million below the pcp in EBITDA. Brick and Mortar retail revenue was down 13.6%. The closure of the Times Square store represented the majority of the decline.
Comp stores sales declined 5.1%, reflecting weakness in the broader sector and tourist related retail. Total comparable direct to consumer revenues increased 1.8%.
In Europe the turnaround continued to accelerate with EBITDA up $3.1 million to $10.4 million before global allocations. Overall sales for Europe were up 4.0% cc with a strong performance in retail with comparable store sales up 6.0% cc. The region saw its ecommerce sales rise from less than 1.0% to 3.4% of total revenues after the repatriation of its websites.
Gross margins in Europe were down 3.5% on a comparable basis compared to the pcp with the currency impact on cost of goods being the significant contributor to this reduction. EBITDA for the Asia Pacific region was down $2.6 million before global allocations compared to the pcp as the region absorbed the impact of a sharp adverse movement in currency.
Revenue for the region was up 1.2% cc with comparable store sales down 1.0%, largely due to tougher retail conditions in Japan. There was a slight increase in comparable store sales in Australia. Margins in the Asia Pacific region were again impacted by the significant movement in exchange rates which drove a decline in comparable gross margins of 2.2% for the period.
The impact of the exchange rate is estimated to have been an increase in cost of goods of $7 million compared to the pcp. Big Three Brand performance: The Group highlighted the growth of its big three brands, which have been the focus of the turnaround. Looking at total brand sales, in wholesale equivalent revenue (including sales to own retail), Billabong grew 2.6% globally in constant currency, Element 9.1% and RVCA 20.6%.
All three brands showed growth in the three major regions. Brand Billabong remains the number one brand in the core US speciality channel and has gained market share over the last twelve months, according to independent industry analysis. The brand is also number one in the speciality channel in Australia. These market share positions reflect the important relationships the Company maintains with its key wholesale accounts.
Read the full report here