After booking profits, Billabong swings back to loss in H1

Billabong International for its half-year to December 31, 2015 said that total group sales were up 7.6 percent and down 0.8 percent on a constant currency basis. The Group's big three brands grew in wholesale equivalent revenue (including sales to own retail) with Billabong up 2.6 percent, Element up 9.1 percent and RVCA up 20.6 percent on a constant currency basis.

“This is a brand led turnaround and our big three brands, where we placed our focus, grew globally,” said Billabong CEO Neil Fiske, adding, “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.”

Half year result highlights

Including significant items and discontinued businesses, net profit before tax was 2.1 million Australian dollars (1.5 million dollars). After an income tax expense of 3.7 million Australian dollars (2.6 million dollars), net loss after tax was 1.6 million Australian dollars (1.1 million dollars) compared to a net profit after tax of 25.7 million Australian dollars (18.5 million dollars) for the previous corresponding period.

For continuing businesses, EBITDA excluding significant items was 37.2 million Australian dollars (26.8 million dollars) compared to 42.8 million Australian dollars (30.9 million dollars) for the previous year. The overall result, Billabong said, was impacted by the Americas where EBITDA declined by 6.9 million Australian dollars (4.9 million dollars) for the period. Gross margins were down due to pressures from excess inventory which followed the West Coast US port strike early in calendar 2015. Collectively the rest of the world EBITDA was ahead of the previous year despite increased cost of goods from a relatively higher USD.

Regional overview of the first half results

In the Americas, EBITDA before global allocations was 4.1 million Australian dollars (2.9 million dollars) for the period, down 6.9 million Australian dollars (4.9 million dollars) on the previous year, or 9.2 million Australian dollars (6.6 million dollars) on a constant currency basis. The company said, approximately half of the reduction was attributable to a decline in comparable gross margins of 2.3 percent for the period due to pressures from excess inventory. In North America external wholesale revenue was down 1.6 percent 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. Brick and mortar retail revenue was down 13.6 percent. The closure of the Times Square store represented the majority of the decline. Comp stores sales declined 5.1percent, reflecting weakness in the broader sector and tourist related retail. Total comparable direct to consumer revenues increased 1.8 percent.

In Europe the turnaround continued to accelerate with EBITDA up 3.1 million Australian dollars (2.2 million dollars) to 10.4 million Australian dollars (7.5 million dollars) before global allocations. Overall sales for Europe were up 4 percent on constant currency with a strong performance in retail with comparable store sales up 6 percent on constant currency basis. The region saw its ecommerce sales rise from less than 1 percent to 3.4 percent of total revenues after the repatriation of its websites.

EBITDA for the Asia Pacific region was down 2.6 million Australian dollars (1.8 million dollars) and revenue for the region was up 1.2 percent on constant currency with comparable store sales down 1 percent, 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 percent for the period.

EBITDA outlook remains strong

EBITDA for January and February 2016 combined is expected to be ahead of the previous comparable period. The company said that the result for the remaining four months of the financial year will be particularly influenced by the large trading month of June 2016 in North America. Overall, the company expects the second half to benefit from the implementation of its key initiatives and a less pronounced bias of the Group’s earnings to the first half than the last financial year.