Billabong International saw the underlying sales of its continuing business decline slightly in all of its regional markets for the six months until the end of December but the end result was still much improved due to divestments and significant one-off charges last year.
Billabong embarked on a turnaround strategy in 2013 as it was preparing a change of ownership, leading to the approval of an offer by Centerbridge Partners and Oaktree Capital. It divested the Canadian retail operation West 49 in February 2014, while two multi-brand online stores, Surf Stitch and Swell, were spun off in September. All three have been reported as discontinued business.
The entire group's sales dipped by 0.5 percent to 522.1 million Australian dollars (€371m-$403m) for continuing operations, meaning a decline of 1.1 percent in constant currencies. When including discontinued business, sales contracted by 19.4 percent to AS$ 537.5 million (€382m-$415m) for the half year, which is the first in Billabong's fiscal year.
The group's sales in Europe slipped by 0.5 percent to AS$ 87.9 million (€62m-$68m) for continuing business, which was a decline of 0.8 percent in constant currencies. Comparable store sales dipped by 0.4 percent in Europe, where the store count was reduced by just one store to 111.
The group said the Billabong brand's European sales have stabilized, marking the start of a turnaround. Billabong pulled out of unprofitable markets, downsized its European operation and improved inventory management.
Element delivered strong double-digit growth in its European wholesale turnover and continued to invest with the opening of a new format store in London's Covent Garden toward the end of the year.
Billabong Europe's gross margin moved up by 6.5 percentage points to 55.9 percent, adjusted for the divestment of Surf Stitch Europe, and the group returned to an operating profit in the region. Excluding discontinued business and significant one-off items, Ebitda in Europe reached AS$ 4.6 million (€3.3m-$3.5m), compared with a loss of AS$ 0.5 million for the same six months in 2013. As reported, Ebitda reached AS$ 26.7 million (€19.0m-$20.6m), against an operating loss of AS$7.8 million for the same half year in 2013.
Jean-Louis Rodrigues, the group's European general manager, said in an interview with Boardsport Source that Billabong has narrowed its range and distribution. The number of products was reduced by 15 percent last year, after a decrease of 17 percent in 2013. Billabong has sharpened its focus on core customers, which has already led to annual sales increases of 10 to 15 percent for the Billabong brand's wetsuits in Europe for the last five years. As previously reported, the European team has also been adjusted, with new managers in charge of sales as well as merchandising and design.
Rodrigues told Boardsport Source that Billabong is strongest in the U.K. and Germany, where it has partnered with big accounts such as Surfdome and Titus. Orders are on the rise for the brand's winter sports range, which accounts for about 14 percent of the group's European business. Rodrigues estimated that it had the potential to take a share of 20 to 25 percent in Billabong's European sales.
Billabong International's turnover with continuing business in Asia-Pacific slid by 1.5 percent to AS$ 237.2 million (€168m-$183m) down by 1.0 percent in constant currencies. Neil Fiske, the group's chief executive, said that the lead up to the seasonal trading period has been weak in Australia, so that retail sales in Asia-Pacific declined by 4.5 percent on a comparable store basis.
Despite the impact of the falling Australian dollar on the cost of goods sold, retail margins improved. The gross margin adjusted for divestments amplified by 0.7 percentage points to 58.4 percent. Ebitda still declined by 4.3 percent to AS$31.5 million (€22.4m-$24.3m) in Asia-Pacific, based on continuing operations and without significant one-off charges. A bright spot for the region was the double-digit rise in both sales and Ebitda for the Tigerlily brand.
As for sales in the Americas, they inched up by 0.9 percent to AS$ 196.9 million (€140m-$152m) for the continuing business, which amounts to a fall of 1.3 percent in constant currencies. This was chiefly due to the divestment of West 49, which signified a shift from retail to wholesale turnover in Canada and led to a reduction of AS$ 6.1 million (€4.3-$4.7m) in the retailer's wholesale contribution. The number of stores shrank from 173 to 68 and comparable store sales declined by 3.5 percent for the continuing business.
This small sales decline in the Americas disguises a comparable sales increase of 9.7 percent for Billabong and 5.7 percent for RVCA in the U.S. wholesale market. Element sales were sharply down for the six months but pre-orders for the second half are on the rise.
The brand's business in the Americas is starting to benefit from the implementation of a global brand structure, which makes it easier to apply some of the same tactics as in Europe. The company has downsized the cost structure of its business in Brazil. Fernando Machado was appointed in December as country manager for Brazil, as part of the restructuring measures started in July under the leadership of Felipe Motta, head of the Billabong group in Latin America.
The group's gross profit margin in the Americas shrank by 4.8 percentage points to 49.5 percent but it was down by just 0.5 percentage points to 48.8 percent adjusted for divestments. Ebitda more than halved, down to AS$ 5.0 million (€3.6m-€3.9m) from AS$11.0 million for the same half-year in 2013.
Billabong International ended the six months with Ebitda of AS$ 42.8 million (€30m-$33m), which was down by 4.9 percent compared with the same period in 2013, excluding discontinued business and significant items.
The turnover was affected by the sale of West 49, but this favorably impacted the company's profits. In the full year before its sale, the retail operation lost AS$10.3 million (€7.3m-$7.9m), most of that in the June half. Excluding the wholesale contribution from West 49 in both years, Ebitda for the remainder of the group was up AS$3.9 million (€2.8m-$3.0m). Costs were reduced by AS$3.2 million (€2.3m-$2.5m) for the six months as part of the turnaround efforts.
Net profit landed at A$25.7 million (€18.3m-$19.8m) including the discontinued business as well as significant items. This compares with a loss of AS$126.3 million for the same period last year, which did not include gains on divestments but did have significant borrowing costs and income tax payments.
