Billabong International informed shareholders at its annual meeting last month that it was studying the divestment of its smaller brands to focus on Billabong, RVCA and Element. This was described as a continuation of the strategy set in motion by the group three years ago, which included cost reductions and a more focused approach, among others. Billabong has already sold its interest in West 49, its joint venture with Surfstitch, and its stake in an equipment brand, Sector 9. Ian Pollard, the group's chairman, told shareholders that it was looking into the potential sale of smaller brands including Tigerlily, Von Zipper and Xcel, to pay down debt and continue to simplify its portfolio.
The group claimed that the stronger focus on the three larger brands has already enabled it to gain market shares. Billabong has widened its number one market share lead in both men's and women's surf apparel in both the U.S. and Australia, Fiske claimed. The global social media following of the three big brands has increased by 20 percent or more for each of the last three years.
The cost base has been reduced, and there are more savings to come. Billabong has upgraded its targeted annual reduction in cost of goods to A$ 25 million (€17.5m-$18.7m), chiefly through sourcing changes. The company wants to take more advantage of its size, to narrow its supplier base and to diversify beyond China. After some IT-related delays, adjustments in distribution and logistics are expected to save about A$ 10 million (€7.00m-$7.46m) per year on a run rate basis by the fiscal year 2018, and probably more the next year due to further structural changes in European logistics. The two initiatives combined are meant to deliver benefits of A$ 35 million (€24.5m-$26.1m) at maturity in the fiscal year 2019. The sourcing benefits should contribute meaningfully in the second half of 2017 but a substantial majority of the A$ 35 million are expected to emerge in 2018 and 2019.
Another significant outcome of the strategic changes is that the Billabong group has regained control of its websites, which is enabling it to rapidly increase its online sales. The group is taking advantage of this uptick and the growth of its social media following to launch the first stage of its omni-channel platform in early 2017, with further stages to be implemented in the next 12 to 18 months. Fiske explained that the global platform allows it to directly target all its followers.
During the annual meeting, Billabong said that its European retail sales were slow, in part due to unfavorable weather, in the first four months of its fiscal half-year, from July through October. The group predicts that its Ebitda will decline substantially for the full first half but should be up slightly for the financial year, which will end in June 2017.
The forecast was issued by Neil Fiske, chief executive of the Australian board sports group, at its annual shareholders' meeting. He said that trading had been weak in the first four months in parts of Asia-Pacific and in Europe. October was particularly weak across the surf retail market in Australia. The weather situation meant that the company had fewer re-orders. However, sales picked up substantially as the weather normalized in November. The group also reported positive comparable store sales in stationary U.S. stores, although one of the largest accounts for the RVCA brand has just emerged from bankruptcy and is well down on previous trading levels.
Assuming reasonably stable trading and currency conditions, the group expects full-year Ebitda before significant items to be in the range of 60 to 65 million Australian dollars (€41-45m-$44-48m), assuming no divestments. The Billabong group's European business has returned to profitability, and Fiske said that its Ebitda margins are approaching double digits before corporate allocations. Billabong pointed to improvements in the U.S. market and the impact of cost savings.
The group has already reported Ebitda of A$ 57.5 million (€40.2m-$42.9m) for the year to the end of June 2016. That was a drop of A$ 8.2 million (€5.74m-$6.12m) from the previous fiscal year and the group ended the year with a net loss of A$ 23.7 million (€16.6m-$17.7m), despite a 4.6 percent increase in sales to A$ 1.1 billion (€690m-$740m).