ROTH CAPITAL PARTNERS: Hosting 27th Growth Stock Conference March 8-11 in Dana Point, Calif.
Details on Industry Insight.
GOLD COAST, 16 March 2011: Billabong International Limited today announced a likely negative impact to its net profit after tax (NPAT) for the 2010-11 financial year due to the series of natural disasters in Japan, commencing with the earthquake of Friday, 11 March 2011.
While Billabong’s offices and warehouse in Japan appear to have suffered no direct physical damage from the earthquake and subsequent tsunami, a number of company owned retail stores and the wider wholesale account base have been, or are likely to be, affected.
Billabong has 44 company owned stores in Japan and these account for approximately 60% of the Company’s sales revenue in the country. Following the major earthquake and subsequent tsunami, a total of 19 of these stores were initially closed due to damage, loss of power or standard earthquake and tsunami evacuation procedures.
As of today, 18 company owned stores remain closed. It is understood that two of these stores were badly damaged by the tsunami, three suffered major unspecified damage and a further 13 remain closed due to power disruptions, access issues or until landlords complete damage assessments.
Significant sales revenue and profit is also generated from approximately 500 wholesale accounts in Japan. It remains extremely difficult to determine the exact impact on trading within the wholesale account network, but preliminary discussions indicate that many accounts are currently closed. Billabong expects to work closely with its wholesale partner accounts to help them through this difficult period.
In the 2009-10 financial year, Japan contributed approximately 4% of the Group’s global sales revenue and approximately 3% of Group EBITDA. Approximately two-thirds of the Company’s overall annual profit in Japan is generated in the four months from March to June and the Company is now assuming that there will be a significant shortfall in sales that were previously expected in this period.
Some insurance is in place in Japan and while there is an expectation that some monies will be recovered, this is highly unlikely to occur in the current financial year.
The natural disasters in Japan follow an earthquake in Christchurch, New Zealand, on 22 February 2011. Billabong has six company owned stores in Christchurch, three of which remain closed due to significant damage.
In isolation, and given that insurance was in place, albeit acknowledging the amount likely to be recovered from insurance remains uncertain, the Christchurch earthquake was not expected to have a material impact on the Group’s overall business.
However, when coupled with the latest natural disasters in Japan, there is potential for the combined impact to reach levels that would materially impact Group profitability.
While it is extremely difficult to forecast the ultimate financial cost of such natural disasters and their likely effect on both wholesale customers and consumer sentiment, particularly within tourism destinations throughout the Pacific rim, the direct cost will likely result in the Group’s NPAT for the 2010-11 financial year being lower than the forecast previously provided to the market on 18 February 2011.
At this time, the Company forecast NPAT to be flat in constant currency terms compared to the prior year. The Company now anticipates NPAT is likely to be 2% to 6% lower in constant currency terms compared to the prior year.
Billabong is pleased to advise that there were no significant physical injuries to any Billabong employees as a result of the natural disasters in Japan and New Zealand.
The Board of Billabong, on behalf of its employees globally, take this opportunity to express their sympathies to the people of Japan and New Zealand, in particular the families of those who have lost their lives.
Further information will be available later this morning on a pre-recorded call on www.billabongbiz.com.