Billabong Books First Annual Profit in Four Years

Billabong International Ltd. reported a net profit of Australian $4.2 million ($3.0 mm) in its fiscal year ended June 30, rebounding from a loss of AUS$233.7 million in the same period a year ago.

Excluding significant items and discontinued businesses, EBITDA for the period was AUS$65.7 million ($46.9 mm), up 8.8 percent on the year-over-year basis. The surf giant returned to full-year EBITDA growth for the first time since 2008 with the first full-year profit since 2011.

Global revenue reached AUS$1.05 billion ($729.7 mm), up 2.6 percent. Including discontinued businesses, sales were down 12.6 percent to $1.06 billion ($756.8 mm). Discontinued operations include Surfstitch, Swell, West 49 and DaKine, which were all sold.

Highlights of the period included a second half turnaround in the Americas region and a continuing profit turnaround in Europe. Among brands, Billabong’s wholesale revenues in the U.S. rebounded in the second half, RVCA saw strength across regions for the year, and Element continued to find growth in Europe.

Overall retail was mixed as Billabong continues to refine its store base in advance of its omnichannel rollout, through exiting underperforming stores, consolidating multi-brand banners and investing in new and refurbished mono-brand stores.

“Two years into our turnaround Billabong is back to full-year profit and back to doing what it does best – building great global brands,” said Billabong CEO Neil Fiske. “Growth has returned in the key United States market and Europe is again profitable. Challenges remain but this result confirms our confidence in the resilience of our brands and provides the conviction to see through the complex changes we’re undertaking globally to deliver sustained, long-term profitable growth.”

In the Americas region, sales from continuing operations grew 8.1 percent on a reported basis in the year to AUS$451.8 million ($322.6 mm) while easing 0.5 percent on a currency-neutral basis.

EBITDA in the Americas region from continuing operations was AUS$27.2 million ($19.4 mm) for the year, up 7.9 percent on a reported basis but down 9.6 percent on a currency-neutral basis. Second half EBITDA from continuing operations jumped 17.5 percent on a currency-neutral basis, fueled by second-half revenue growth from Billabong and RVCA in the key U.S. wholesale market.

Overall retail sales were down slightly in the Americas region on the back of store closures, with a 3.7 percent decline in brick and mortar comparable sales offset by a 35 percent growth in e-commerce revenue on a currency-neutral basis. Comps were up 2.3 percent in the U.S. Store level profitability across the region was ahead 300 basis points.

On a conference call, Fiske said continued weakness in Canada and South America impacted the overall Americas results. The Americas region was also impacted by transition of West 49 in the first half and port delays.

In the Europe region, sales from continuing operations were down 3.2 percent on a reported basis to AUS$177.7 million ($126.9 mm) and off 1.7 percent on a currency-neutral basis. EBITDA from continuing operations in Europe reached AUS$5.6 million ($4.0 mm) against a loss of AUS$1.1 million.

Billabong said Europe continues to benefit from restructuring efforts after a five-year stretch of earnings declines. A focus on better quality channels and sales lifted gross margins by 650 basis points for the year. While wholesale sales declined due to planned contraction, the region achieved retail sales growth of 2.9 percent on a comp store basis. Store level profitability improved 160 basis points. E-commerce sales reached AUS$2.5 million ($1.8 mm) in its first year. The results were achieved despite operational challenges with the Paris distribution facility.

In the Asia Pacific (APAC) region, sales from continuing operations dipped 0.3 percent to AUS$418.9 million ($299.1 mm) and were off 0.4 percent on a currency-neutral basis.

EBITDA from continuing operations was down 11.8 percent to AUS$29.4 million ($21 mm) and off 12.2 percent on a currency-neutral basis. Retail comp store sales for the year were down 3.2 percent across Asia Pacific, which drove down EBITDA for the region. Despite the impact of a stronger U.S. dollar on input prices, overall gross margin was maintained.

Billabong said the APAC region represents the company’s largest retail footprint and will be the first market to adopt the new omni-channel platform. In advance of the roll out, the store fleet is being rationalized with the closure of 20 underperforming stores and consolidation of multi-brand stores in Australia under the Surf Dive ‘n’ Ski banner. At the same time, the company opened 17 stores – 12 Billabong, four Tigerlily and one multi-brand which have positively contributed to the overall retail performance for the region.

Across its major brands, Billabong's wholesales revenues globally were up 0.8 percent on a currency-neutral basis as the 13 percent gain in the U.S was offset by a planned contraction in Europe. APAC wholesale sales were up 1 percent. Billabong's wholesale EBITDA improved AUS$7.3 million ($5.2 mm) with wholesale margin ahead 220 basis points.

RVCA's wholesale sales grew 12.6 percent for the year, led by gains of 12 percent in the U.S., 28 percent in APAC, and 9 percent in Europe. U.S. wholesale sales were ahead 15.3 percent in the second half.  Wholesale EBITDA for RVCA improved AUS$300,000 ($214,200) with wholesale margin ahead 90 basis points.

Element saw a 9.7 percent decline in wholesale sales. A 5 percent gain in Europe, Element's biggest region, was offset by declines in the Americas and APAC region. Billabong said Element’s forward order book indicates the brand is regaining traction in the U.S. Wholesale EBITDA for Element improved AUS$2 million ($1.4 mm) with margins increased 510 basis points.

The company’s other brands include Von Zipper, Honolua Surf Company, Kustom, Palmers Surf, Xcel, Sector 9 and Tigerlily.

Billabong also said it’s making progress on its four major projects: omni-channel, concept to customer, sourcing & supply chain and logistics & distribution.
 
“These projects are aligned with our seven-part turnaround strategy and are interlinked in ensuring that we quickly get the right product to the right markets in tune with what our customers want,” said Fiske. “They are not only about driving a better brand experience for our followers but also providing operational savings that can be invested in marketing and growing those brands.”

Fiske added, “To date we have identified AUS$30 million in potential annual profit improvement from our global sourcing and logistics initiatives. We will begin to see benefits in FY16, however the lead times in the business mean the benefits will take several years to be fully realized.”

Since the end of its fiscal year on June 30, Billabong said it continues to see growth in forward order books around the globe in Billabong, RVCA and Element. Its retail performance has “been more mixed.” In North America, the early part of back to school saw a slow start for the sector as a whole. Europe, on the other hand, has been above expectations. The trend in Asia Pacific has been improving since year-end with sales levels broadly in line with the prior year.