Surfwear retailer Billabong has reported an 18.4 per cent drop in annual profit to $119.1 million, and retracted earlier guidance on growth in earnings per share (EPS), citing an uncertain economic environment.
The figures, for the year ended June 30, also revealed a 24.3 per cent dip in earnings before interest, tax, depreciation and amortisation (EBITDA) for the brand, despite a global sales increase of 13.6 per cent to $1.68 billion.
Sales for Billabong in the Australasian region alone were also up, by 17.9 per cent, reflecting the first-time inclusion of sales from recently acquired Australian retail businesses such as Surf Dive 'n' Ski, Jetty Surf and Rush Surf (acquired 2010).
However, operational EBITDA for the region was down 27.1 per cent and margins declined to 14.9 per cent, down from 24.0 per cent in the previous corresponding period.
In a statement released today , the company pinned the negative results on the strong Australian dollar, an “extremely weak consumer environment in Australia and New Zealand and the impact of the earthquake and tsunami in Japan”, and said the sales figures also reflected the impact of acquisitions and restructuring costs.
The group has also backtracked on previous expectations for growth in earnings per share in the current year, with Billabong chief executive officer Derek O'Neil refusing to confirm guidance released a year ago of more than 10 per cent growth in earnings per share in 2011/12 because of deterioration in global trading conditions.
“Twelve months ago, the group communicated the likely benefits from its evolving business strategy. At the time, the group indicated that it was anticipating earnings per share (EPS) growth rates in excess of 10 per cent in constant currency terms to return from 2011-12,” he said.
“The guidance was predicted upon a global recovery gradually taking hold, [but] with the exception of the USA and some Asian territories, global trading conditions have generally deteriorated significantly. This has been exacerbated by the recent economic uncertainties and volatility in currencies, especially AUD/USD. Until there is more visibility on these matters, and more particularly their effect on consumer spending patterns and hence the quantum of underlying growth in EBITDA, the group will not offer EPS guidance.”
O'Neil also labelled this year as “transitional” and attributed the decline in EBITDA margins to the structural shift from wholesale to retail, which now accounts for approximately 56 per cent of all Australian revenue.
“The initiatives adopted during the 2010-2011 financial year highlight the groups drive to evolve and adapt its business to deliver longer-term benefits, and have resulted in a fundamental realignment of the business between wholesale and retail,” he said.
“The group now believes it has a more appropriate mix between the wholesale business, online retailing and bricks-and-mortar retailing.”
O'Neil also confirmed that the group is in the midst of integrating multiple retail platforms into a single system to further streamline the business, with a roll-out that began in May 2011 and is earmarked for completion in October this year.
Billabong is also keen to boost its online presence, with plans in place to launch four brand-specific online sites in Australia during the first half of 2011-12.
The company, which acquired an equity interest in online surfwear retailer Surfstitch in 2009, reported that sales in the online sector have doubled and are “profitable”, with the figure approaching $50 million despite representing only three per cent of group sales. O'Neil also said he expects online to be a major growth driver in 2011-12, with planning for online sales of approximately $200 million by the end of calendar year 2015.
Overseas expansion is also on the cards, according to O'Neil, with plans for launch in South American in 2012-13 and the launch of a new online platform for the European side of the business in the first half of 2011-12.
For more on Billabong and how its investment in the Surfstitch online business is fuelling expansion, pick up a copy of the upcoming Ragtrader print edition, August 26.