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Billabong shares drop 15 percent on lower Australian dollar dents Q1FY16 results

By Angela Gonzalez-Rodriguez

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Business |ANALYSIS

Shares in Billabong have leaped after the surfwear and skateboards retailer revealed the lower Australian dollar and weakness in the North American market had dented earnings in the first four months of fiscal 2016.

In an address to shareholders at the company’s annual meeting Tuesday, Billabong chief executive Neil Fiske said earnings before interest, tax and depreciation were down about 2.5 million Australian dollars in the first four months of the year.

"From an overall trading perspective, the challenges in the Americas market and the FX (foreign exchange) pressures on product costs mean EBITDA (earnings before interest, tax, depreciation and amortisation) for the first four months is approximately 2.5 million dollars behind the prior year," Fiske explained at the annual general meeting.

Billabong expects turnaround plan to start paying off in the second half

On the upside, the company’s first executive said that they “expect the second half to benefit from the implementation of our key initiatives and that the traditional bias of our earnings to the first half will be less pronounced than last year.”

“As ever, the next six weeks are critical to the result for the half-year with a significant concentration of earnings expected in the key Christmas retail trading period — especially in Australia,” further added Fiske.

Adding some context, Fiske told shareholders that at this time last year, the Australian dollar was worth 87 US cents, but is around 71 US cents now. Although apparel markets are expected to eventually adjust to these levels, Billabong's margins will experience pressure in the short term.

It is worth recalling that much of Billabong's debt is also in US dollars, so it has become more expensive to service it. Likewise, quite a good deal of Billabong's capital expenditure and project costs are also in US dollars.

On the positive side, Billabong's US dollar earnings are more valuable in Australian dollar terms. According to the company, in the last few months, the retail sector in North America has been soft, including big action sports chains, department stores, teen retail and tourist retail.

On the wake of the news, Billabong shares were 10.5 cents, or 15 percent lower on Tuesday trading in Australia.

Billabong