MOSS ADAMS CAPITAL: Apparel and foowear market monitor highlights notable deals, stock prices and results.
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- The company says six month Net Profit After Tax in constant currency will be 8% to 13% lower than the prior year. Previously, Billabong had forecast NPAT to be slightly lower in the first half of its fiscal year vs. the same period last year.
GOLD COAST, 15 December, 2010: Billabong International Limited today announces a revision to its market guidance based on a review of actual trading results through to the end of November and preliminary sales data for the first two weeks of December.
The Company’s previous guidance, issued at its Annual General Meeting in October 2010, indicated net profit after tax (NPAT) for the first half year ending 31 December 2010 would be slightly lower than the prior year in constant currency terms. The Company now anticipates that first-half NPAT will be 8% to 13% lower than the prior year in constant currency terms.
This first half year earnings guidance reflects an expected EBIT result in constant currency terms of approximately 25% below prior year, higher interest costs and a significantly lower effective tax rate. It should be noted that this guidance reflects the inclusion of significant one-off acquisition transaction and restructuring costs of approximately $9.0 million post tax. However, offsetting these costs are expected one-off tax benefits of approximately $9.5 million.
This revised first half year guidance principally reflects:
Australia: The impact of unseasonally cool, wet weather on the east coast of Australia leading to lower than expected sales in company owned retail and weaker than expected wholesale repeat business in the lead up to the important Christmas trading season; and
- Weaker than expected consumer spending patterns at retail in Australia, particularly in the significant Queensland market.
US: A shift in seasonal orders from major US customers resulting in later
delivery of some product and, therefore, pushing expected sales into the second half of the financial year; and
- Partially offsetting this has been continued strong comp store sales in company owned retail in the month of November and the first two weeks of December, both of which are up in the order of 10%.
Australia and Canada: Slower than expected introduction of Billabong family brand product in
newly-acquired retail due to slower sell through of existing inventory as a result of softer trading conditions.
- And, to a lesser extent, the impact of: Shortfalls in wholesale repeat business in Europe in the lead-up to Christmas; and
-Softer than previously anticipated growth in the wholesale business in Japan.
Turning to the full year outlook, based on the revised first half year expectations and full year forecast, the Company is revising its previously stated constant currency guidance of 2% to 8% NPAT growth. It now anticipates constant currency NPAT to be flat for the 2010-11 financial year, in the absence of any further unforeseen, exceptional circumstances impacting the global boardsports market.
This full year earnings guidance reflects an expected EBIT result in constant currency terms of approximately 10% below prior year, higher interest costs and a significantly lower effective tax rate. It should be noted that this guidance reflects the inclusion of significant one-off acquisition transaction and restructuring costs of approximately $11.0 million post tax. However, offsetting these costs are expected one-off tax benefits of approximately $12.5 million.
In reported terms the rapid and significant appreciation of the Australian dollar against the US dollar in particular, but also against the Euro compared to the prior year, is currently expected to adversely impact reported NPAT results.
Given the recent volatility and unpredictability of Australian dollar exchange rates, it is very difficult to assess the ultimate impact on half and full year results in reported terms. However, as an example, taking the year to date November actual results and assuming monthly average exchange rates for the A$/US$ of 98 cents and A$/Euro of 74 cents for the period from December 2010 through to June 2011, both rates approximately representing average rates for month to date December, reported NPAT for the 2010-11 financial year would be approximately 10% down compared to the prior year.
To assist stakeholders assess the impact of any movements in key monthly average exchange rates for the period from December 2010 through to June 2011, the following sensitivity analysis is provided:
- a one cent movement in the monthly average A$/US$ exchange rate is expected to have a 0.4% impact on the full year NPAT result; and
- a one cent movement in the monthly average A$/Euro exchange rate is expected to have a 0.4% impact on the full year NPAT result.