Billabong execs on business trends

Billabong CEO Derek O’Neill and CFO Craig White hosted a conference call with analysts yesterday to discuss why the company lowered its six month and full year earnings guidance.

Previously, Billabong had forecast Net Profit After Tax for its first half to be slightly lower than the previous year. Now, the company expects NPAT to decline between 8% to 13% in constant currency.

For the full year, which ends June 2011, Billabong had forecast NPAT to grow 2% to 8%. Now, the company expects NPAT in constant currency to be flat.

Click here to read the company's official press release.

Here are some highlights from the transcript:

Bigger retail impact

Now that revenue from company-owned retail makes up a much larger portion of total revenue, results during key retail months such as December have a bigger impact.

In key markets of Australia, North America and Europe, revenue from company-owned retail previously totalled about $30 million (AUD) in December. Now, that figure has more than tripled, which means even small swings have a bigger impact, Derek said.

In Australia, the company had forecast better results than materialized in the past four weeks in its own stores. Weak consumer sentiment in Australia combined with unseasonably cool weather, particularly in Queensland, led to weaker than expected results.

The company had also forecast more in-season orders in its wholesale business in Australia since more retailers are placing fewer prebook orders.

Since retail in Australia and Canada has been slower than expected and less units are moving, that has meant less opportunity to fill in inventory with company-owned brands at newly acquired retailers. The company had planned on getting a little extra margin lift from newly acquired retail by adding in more goods from company-owned brands sooner.

West 49 had a positive September, a negative October, a slightly weak November and a slightly weak start to December. Since the acquisition, Billabong has reduced the promotional activity at West 49, which has led to less units moving.

See page 2 for U.S. and European results, plus a forecast for the next 6 months