New business info and advice from QCS GRAPHICS, PROCOPIO, SHACC and FSG LAWYERS.
Details on Industry Insight.
Billabong said in its half-year earnings press release and conference call that it is focusing even more on the specialty market and walking away from some business with large mall based chains, including PacSun, as PacSun makes "aggressive mark up demands and pricing policies in particular categories."
Billabong expects sales to PacSun to be down more than 30 percent for the year and contribute less than 10 percent of North American sales. The company mentioned Pacific Sunwear's mark up demands in its earnings press release then executives elaborated on the call.
"...If we look in not all, but some of the bigger retailers in the mall sector, we've got some quite substantial declines as they all seem to be reducing the amount of inventory on the floor; and some want margin demands or pricing demands that frankly we just don't want to go there," Billabong CEO Derek O'Neill said on the call.
Other information from the call, which covered results for the six months ended Dec. 31:
Total sales: up 22.2 percent to $808.6 Australian dollars. Sales rose 11.3 percent in constant currency. Excluding acquisitions, group sales rose double-digits.
EBITDA margins: 18.2 percent vs. 22.2 percent the same period last year. The decline was attributable to lower margins in the U.S.
Net profit after tax: down 7.1 percent to $82.4 million (AUD), including a $2.3 million impairment charge for retail in the U.K. and U.S. Excluding the charge, profit fell 4.8 percent to $84.4 million.
Wholesale: Europe and Australia had strong results, U.S. was below plan. EBITDA wholesale margins were 20 percent.
Retail: Billabong now owns 306 stores, accounting for 23 percent of total revenues. Retail underperformed in the U.S. during the period as overhead increased while sales slowed. The company said its decision to not discount heavily also hurt sales. The company is managing inventory, reviewing leases and cutting overhead to reduce costs. Billabong expects retail comps to be negative through June in the high single-digit, low double-digit range. Retail EBITDA margins were 14 percent.
Billabong brand: Sales were flat on a global basis.
Sales: up 33.9 percent to $385.1 million (AUD), or 16.3 percent in constant currency. The increases are from the new acquisitions and gains from the stronger US dollar vs. the AUD. In the U.S., sales declined in the mid-single digits.
EBITDA: down 15.1 percent to $40.8 million (AUD). In constant currency, it was down 29.4 percent.
EBITDA margins: 10.6 percent, down from 16.7 percent.
Retail: Same-store sales declined 18 percent during the period. In the second half, the company will have a 12 percent reduction in personnel costs in its US retail division. In the Americas, Billabong operates 97 stores. The retail division was profitable, just not as profitable as the company would have liked, Americas President Paul Naudé said.
Wholesale: Sales to the core channel "outperformed" mall-based chains. Billabong did not discount product for core stores, though it did work with some stores to delay shipments if necessary. In the U.S., the specialty forward order book is slightly positive. Paul said he expects to see a dry up of inventory by summer as a lot of manufacturers don't have the capital to fund inventory on a "maybe."
Accounts receivables philosophy: Here's what Paul said in response to a question about how Billabong is handling payments from retailers, which he said are holding up well given the environment: "I've been pleasantly surprised at the lack of inactivity and bad debts on our receivables. I will say this. We have the dubious reputation of being the hardest in the industry to deal with and that is simply because we are the most disciplined.
"We are seeing some of our competition really give extended dates in which to be quite honest suits us fine because it is going to free up some capital for customers to pay us first because we will hold our line and continue to do so. Our credit management team is in constant communication with customers."
Climate: Billabong expects the soft climate to continue for the year and its expense management in retail and the broader business will save $7 million (US) in the Americas in the second half. In addition to taking costs of retail, the company is job sharing some positions and reviewing advertising, marketing, travel and entertainment expenses.
The company released a few details about the financial performance of other brands.
Dakine: "Strong performance."
Element: "Strong global sales growth."
Nixon: "Strong double-digit sales growth."
Xcel: "Very strong sales growth."
Honolua: Grew sales despite tough market in Hawaii
Sector 9: Performed ahead of initial expectations
Von Zipper: "Small increase in global sales."