Sales growth has dropped significantly for Billabong International since the company’s annual meeting in October, prompting it to slash its guidance for the current fiscal year’s earnings per share. Previously the Australian surfwear company forecast EPS growth of 12 percent to 16 percent in earnings per share; that projection has been lowered to 6-10 percent.
The deterioration of the sales picture accelerated in November in both the wholesale and retail segments. While orders are faring well, some retailers have requested delayed shipments and repeat business slowed down in November. Others in the industry have initiated major discounts to move inventory, but Billabong has maintained regular prices. It has done this at the expense of sales, but says it is necessary to maintain brand equity.
Sales are still strong in South America, Japan and Asia, but growth is slowing in Europe and there is not much movement in Australia. The steep depreciation of the rand versus the American dollar is pressuring margins in South Africa, and results are being hurt as well by the weakening of the Canadian dollar against the U.S. dollar and the British pound versus the euro.
Going by the new guidance, Billabong is expecting sales growth for the full year of 25 percent or more, and growth of around 20 percent for earnings before amortization and depreciation (EBITDA). The discrepancy between EBITDA growth and EPS growth is related to higher depreciation and amortization as well as higher interest costs.
For the first six months that will end Dec. 31, the company expects negative EPS growth, but says the second half of the fiscal year will be much better, reflecting a stronger selling season in the Northern Hemisphere, a full six months’ contribution from DaKine, a realignment of overheads to restore EBITDA margins and a better exchange rate for the Australian dollar against the U.S. dollar.
Meanwhile Billabong has bought Two Seasons, an independent British chain of board sports stores, for an undisclosed sum. Two Seasons’ management and stores should remain more or less unchanged, carrying a mix of leading international action sports apparel and equipment brands, but the Two Seasons business will be merged with the retail operation of Billabong in the U.K.
The Roberts family, which founded Two Seasons back in 1983, made it clear a few months ago that it was seeking outside investment to speed up the growth of the chain, which generated sales of over £10 million (€11.5m-$14.8m) in 2007 with 12 stores. Two stores were added this year, so that the new Billabong U.K. retail unit will comprise 11 Two Seasons stores, nine Billabong mono-brand stores and two stores under the Beachworks banner. At least one of these stores is to be converted into a Billabong store later this month.
Stuart Roberts, former managing director of Two Seasons, has become Billabong U.K.’s retail country manager. Adrian Flowers, commercial director at Two Seasons, has become commercial manager of the new unit, while Alun Roberts, Stuart’s brother, is the company’s operations manager.
Two Seasons stores have surfaces varying from 140 to 370 square meters, selling apparel by brands such as Animal, Roxy, Rip Curl and Billabong, as well as footwear and equipment. The company’s management sees potential for about 30 Two Seasons stores in the country in the medium term.
