Just as it had warned four months ago, Billabong International saw its sales plummet by 9.5 percent to 508.3 million Australian dollars (€359.3m-$383.5m) for the six months to the end of last year, which form the first half of its fiscal year. However, the group is continuing to implement strategic adjustments, which are yielding strong improvements in the Americas and in its operations. Billabong remains confident that the second half will improve and that its underlying operating profit should be up for the full year.
The Australian board sports company's turnover was down by 7.6 percent in constant currencies and by 5.8 percent excluding the sale of Sector 9. The group's gross margin was flat, with an increase in the Americas making up for a decline in Asia-Pacific.
Billabong's chief executive, Neil Fiske, said in a statement that the group was encouraged by improvements in the Americas as it moves into the seasonally bigger second half. Its regional turnover for the first half was down by 12.7 percent to A$192.1 million (€135.8m-$144.9m), which was a drop of 9.5 percent in constant currencies. It was attributed to the sale of Sector 9, along with store closures and a fall in orders relating to bankruptcy proceedings for a large U.S. retail customer.
However, Billabong's comparable store sales in the Americas were up by 5.8 percent in constant currencies for the half-year to A$57.9 million (€40.9m-$43.7m), with an increase of 22.7 percent in online sales. The Australian group's gross margin in the Americas was up by 1.7 percentage points to 48.2 percent for the half-year, costs were reduced and inventory was much cleaner, down by 11.1 percent in constant currencies. Billabong's regional operating profit (Ebitda) before global allocations more than doubled for the half-year.
The group was worse-off in Europe, where sales were down by 13.4 percent to A$84.9 million (€60.0m-$64.1m), amounting to a decrease of 5.9 percent in constant currencies. Billabong referred to the late arrival of chillier weather, which impacted trading in the second fiscal quarter. Comparable retail sales were up by 1.3 percent in constant currencies but this was entirely due to online sales, as comparable sales in physical stores dipped by 2.2 percent. The regional operating profit before global allocations was down by 23.9 percent to A$6.8 million (€4.81m-$5.13m).
The market was sluggish in Asia-Pacific but the Billabong group claimed share gains in specialty surf stores. After weak retail sales in the first quarter, which affected wholesale repeat orders for the second quarter, trading improved in the last two months of the year. Comparable stores sales were down by 3.7 percent in the half-year but slightly up in December. Billabong added that the RVCA brand was on the rise again, with wholesale equivalent sales up by 14 percent in constant currencies.
With a sharp rise in the Americas but weakness in Asia-Pacific and Europe, the whole group's adjusted Ebitda was down by 21.1 percent to A$29.3 million (€20.7m-$22.1m) for the six months. Billabong ended the six months with a net loss of A$16.1 million (€11.4m-$12.1m), compared with a loss of A$1.6 million in the first half of the previous fiscal year, some of which was due to more one-off restructuring charges.
Billabong has made progress with its global sourcing adjustments and predicts that they will yield markedly increased benefits and raise product margins in the second half. The group is streamlining logistics with the closure of its Canadian warehouse, and it has established consolidation centers in the Far East to ship products directly to large customers. Billabong has made progress in reducing lead times across its brands as well.
At the same time, the Billabong group has been building up distribution and licensed retail stores in more markets. Its omni-channel strategy is to be supported by a new business unit, digital commerce and customer experiences. However, the launch of new systems for online sales and retail stores has been delayed due to implementation issues with of the software vendors.
Another strategic adjustment was finalized in the second half of the fiscal year with an agreement in February to sell Tigerlily to Crescent Capital Partner, in a transaction that should raise A$60 million (€42.4m-$45.3m). The swimwear brand, which Billabong bought for A$5.8 million (€4.10m-$4.38m) in 2007, was among the entities the group wanted to divest as part of its efforts to simplify its business.
Tigerlily sales reached about A$30 million (€21.2m-$22.7m) in 2016 and it was expected to contribute between A$7 million and A$ 8 million in Ebitda to Billabong for the current fiscal year. The proceeds from Tigerlily's sale will help to pay down debt and reduce annual interest costs by about A$7 million, helping to position the group for a refinancing of its term loan. The sale is subject to conditions and is expected to be completed before the end of the current fiscal year.
The guidance of an improved underlying operating margin is based on comparable gross margins for the second half increasing in all regions, improved costs and inventories, a turnaround in the Americas and the absence of currency-related pressure on gross margin in the second half, owing to its hedging program. The sale of Tigerlily should reduce the Ebitda from continuing operations by about A$8 million compared with the guidance of A$60 million to A$65 million (€45.9m-$49.0m).
