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Billabong execs on fall orders, store closures and market share

By Tiffany Montgomery
May 27, 2009 8:19 AM

Billabong corporate executives in Australia provided some interesting details about Billabong's U.S. business in a conference call with analysts last week. The call mainly focused on Billabong's lowered sales and earnings guidance and the reasons behind it.

CEO Derek O'Neill and CFO Craig White touched on the decline in forward orders for back-to-school, a potential loss in market share from not discounting, Billabong-owned store closures, and how its recently acquired companies are performing.

Back-to-school orders

Derek O'Neill gave a few telling facts about forward orders. Usually, by May 10, most retailers have placed their orders for the back-to-school season, the biggest season for Billabong's U.S. business. This year at that date, about 25 percent of the U.S. account base had not yet placed an order.

"This is unprecedented for us," O'Neill said.

Billabong believes it will get orders from many of these retailers, but that the orders will be less than last year and later in the season. That will push some orders into Billabong's next fiscal year, which starts July 1.

In addition, Billabong has about 10 percent fewer accounts compared to the same period last year due to either retailers that are too risky to ship to or retailers that have closed.

Here are some other details from the call by topic.

Market share

An analyst asked if Billabong has lost market share because it did not participate in price promotions.

Derek O'Neill: "I think that we'd have to say that yeah, we probably have lost a little bit of market share. The fact is, it's been a pretty good time for some of those retailers, frankly, when everyone is offering it up on a plate it can be pretty attractive.

"I think that we don't think we've lost any brand equity and I'm not sure that frankly giving your product away is going to help you in the end. I think we've held our ground. That type of deep discounting can't continue forever. As I said earlier, we've seen some manufacturers really sort of pulling back from it.

"But look, you know, we probably did lose some shelf space for a while there. You know, we're going to work hard to get it back. The fact is that it was - I can't blame the retailers too much when they get attractive deals, frankly, but we just really didn't want to go there. You know, we could have maybe stepped it down a little bit, we probably wouldn't be showing any different revenue numbers now, we would have sold a lot more units, but the margin would be pretty bad."

Store closures

An analyst asked if Billabong was considering closing underperforming stores in the U.S.

Derek O'Neill: "In this fiscal year in the USA, you know by the end of June we will have closed, I think it's seven stores. You know, we're taking a close look at stores across the board and if there are non-performing stores that we can get out of, you know, we're not emotional about it, we will.

"We've got currently in our thoughts of possibly being able to get out of another five in the US - I'd like to think before Christmas. So we are looking at some of those areas.

"You know, we've been concentrating on the retail we've had. I must say landlords are starting to become very enthusiastic again about offering very good deals that currently we've held back on with regards to new openings. But certainly that environment's changed and there could be the opportunity to go into some attractive locations at much lower prices than we've paid before."


An analyst asked how recently acquired companies are performing.

Derek O'Neill: "DaKine's holding up, you know, really well. Sector 9 has been going along good. It's a little tough right now. You know, Sector 9, you know, in that sort of $150 scope area, it's probably a little tough.

"But you know, it's not going too bad. I think that Quiet Flight has probably had its challenges with regards to some of the tourism. Over in Florida area, U.S. tourism's been off, you know, quite a bit, particularly since about October and November. The recent influenza stuff hasn't helped it either. And it has a lot of stores around some of the big theme parks and things like that. And a lot of our business has been off. So you know, I think a little mixed. But all in all, quite okay."



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