While providing some more details about its new “transformation strategy,” Billabong International reported a big net loss of 275.6 million Australian dollars (€227.6m-285.9m) for the financial year ended June 30, compared with a net profit of A$119.1 million the year before, on 7.9 percent lower global revenues of A$1.55 billion (€1,279.6m-$1,608.0m). However, excluding significant and exceptional items, the group made an adjusted net profit of A$33.5 million (€27.7m-$34.8m) for the year, compared with an adjusted profit of A$130.5 million in the prior year. In constant currencies, global sales went down by only 5.0 percent.
The gross margin fell to 47.7 percent for the year from 53.8 percent the year before, but it would have reached 53.2 percent without the exceptional charges. On an adjusted basis, operating profits before amortization (Ebitda) declined by 40.9 percent to A$120.6 million (€99.6m-$125.1m), as previously predicted. On a pro forma basis, excluding exceptional items and Billabong's share in Nixon, which has declined to 48.5 percent, the group had Ebitda of A$84.0 million (€69.3m-$87.2m). The continued appreciation of the Australian dollar reduced Ebitda by A$5.0 million and net profits by A$3.3 million.
Results showed the biggest deterioration in Europe, where the company reported a negative Ebitda margin of 4.4 percent on 17.6 percent sales of A$278.1 million (€229.6m-$288.6m), compared with a positive margin of 16.1 percent in the prior year. On a comparable basis, the Ebitda margin would have declined in Europe to 8.7 percent from 15.9 percent. In local currencies, sales dropped by 12.6 percent.
Very soft market conditions were reported by the company in Spain, Italy, Greece and Portugal. The account base continued to contract, and poor winter pre-bookings led to lower shipments in June. On the other hand, technical products sold well in Europe, and Element continued to outperform the rest of the group due to the ongoing growth of the skate market. European retailers are supporting the new DaKine outerwear line. While they are expected to book less for spring 2013, Billabong should enjoy a higher in-season business in the coming autumn season.
In the Americas, Billabong's revenues fell by 11.1 percent to A$750.3 million (€619.5m-$778.4m) and the Ebitda turned into negative territory with a loss of 5.2 percent of sales, compared with a positive margin of 9.5 percent in the previous year. On a comparable basis, the Ebitda margin would have declined to 8.7 percent from 8.0 percent. In U.S. dollars, sales were down by 8.1 percent.
Sales increased by 4.1 percent to A$522.3 million (€431.3m-$541.9m) in the Australasia region, but while Asia showed modest growth, sales remained subdued in Australia, New Zealand and South Africa. The negative Ebitda margin of 4.3 percent would have been positive at 6.5 percent excluding exceptional charges. It compared with a positive margin of 11.0 percent the year before.
The group reached a higher Ebitda margin of 18.7 percent at the wholesale level than at the retail level. The company pointed out that its direct-to-consumer operations, which represented 46 percent of total group revenues, suffered a very marginal deterioration in the Ebitda margin to 9.0 percent excluding global overhead costs last year. They accounted for 42 percent of total revenues in North America, 25 percent in Europe and 71 percent in Australia. On a same-store basis, the company's own stores recorded a sales increase of 1.4 percent in the U.S. and declines of 10.4 percent in Canada, 1.9 percent in Europe and 3.7 percent in Australia.
At the end of the period, the group had 634 stores in operation, compared with 677 last December, including 160 outlets and shop-in-shops. Of those, 69 full-line stores and 53 shop-in-shops were located in Europe, 225 in the Americas and 287 in Australasia. Global online sales went up by 50 percent last year, accounting for more than 4 percent of total revenues. For the Surfstitch website, which is now operational also in Europe, sales jumped by more than 90 percent in Australia. After three years, they have reached a global annualized level of A$50 million (€41.2m-$51.9m).
As previously indicated, significant and exceptional items, including the closure of 58 stores, caused extra costs of A$336.1 million (€277.5m-$348.7m) net of a gain of A$201.4 million (€166.3m-$209.0m) on the partial sale of Billabong's stake in Nixon earlier this year. On the other hand, the management reported a 39.7 percent reduction of working capital to 19.7 percent of sales, an increase of 224.2 percent in net cash flow to A$78.9 million (€65.2m-$81.9m) and a reduction in net debt to A$160.9 million (€132.9m-$167.0m), thanks in part to a recent equity increase.
The planned shutdown of a further 82 nonperforming stores in the current financial year is expected to yield incremental annualized Ebitda of A$8 million (€6.6m-$8.3m). Additional cost reduction initiatives undertaken in the past year should result in further cost savings of A$30 million (€24.8m-$31.1m) this year.
Assuming no further deterioration in the market, Billabong expects to improve pro forma Ebitda to between A$100 million (€82.6m-$103.4m) and A$110 million (€90.9m-$114.1m) in the year ending in June 2013.
