MOSS ADAMS CAPITAL: Apparel and foowear market monitor highlights notable deals, stock prices and results.
Details on Industry Insight.
Billabong International Limited warned the Australian market today that retail sales trends have deteriorated significantly, that it was reviewing options to reduce overhead costs throughout its businesses and that it was studying alternatives to strengthen its capital structure.
Its stock fell 44% to $2.03 in trading Monday, reaching a new 52-week low.
Billabong has been under pressure as the company works to digest its many acquisitions, most notably several large retail buys.
The company said sales trends have weakened considerably in the key regions of Europe, Australia and the U.S.
Europe is the hardest hit region, with same store sales at company owned stores declining “sharply” in November and in December after ending October slightly positive.
In addition, the wholesale side has also been challenged there by a late start to winter and the general concern about the Euro debt crisis leading to weak sell through. In response, retailers are pushing back some deliveries, which may result in lower in-season orders, the company said.
In Australia, cold weather led to sales declines in the later part of November and thus far in December.
And in North America, though October and November same store sales in the U.S. were positive at company-owned stores, same store sales turned negative in the first two weeks of December.
Conditions in Canada, where Billabong owns large chain retailer West 49, remain challenging, the company said. Billabong’s wholesale business is also tough there.
Company revenues for the six months ended Dec. 31 are now expected to be down 3% in constant currency terms and when adjusted for the impacts of acquisitions. Without adjusting for acquisitions, sales are expected to rise 5% in constant currency terms.
The promotional environment is pressuring Billabong’s margins, the company said.
Billabong now expects EBITDA growth for the six months ended Dec. 31 to be less than the prior year.
The company said EBITDA should be between $70 million and $75 million vs. $94.6 million during the same period last year.
Excluding the impact of currency fluctuations, EBITDA is expected to be $4 million higher.
Billabong had previously told the market that for the full year of 2011/2012, it would have strong EBITDA growth, but had included the caveat that positive sales trends needed to continue in the key months of December and June.
While the company declined to provide numerical guidance for the full year in this latest update, it did say that strong EBITDA growth is now not expected.
Given the shortfalls, the company is reviewing options for reducing overhead this fiscal year and next.
Billabong also said it was reviewing “all potential alternatives” to strengthen its capital structure.
Billabong reiterated in the trading update that it still believes in its strategy to enhance the direct-to-consumer model, grow the vertical margin, and expand its online businesses.