Billabong International upgraded its guidance due to the benefits of a falling Australian dollar. At the company’s annual general meeting in Australia, Billabong CEO Derek ONeill said that Billabong now was forecasting earnings per share growth of 12% to 16% in fiscal 2009, despite falling sales.
“There has been a dramatic fall in the value of the (Australian dollar), in particular against the USD and the Euro, ONeill said. “After so many years of watching the company’s reported profits eroded by an appreciating AUD, there is now the prospect of strong reported gains from a depreciating AUD.
Despite an easing of sales as the global financial crisis bit, ONeill said, the falling dollar led to higher income in Australian dollars.
“Based on the company’s most recent full year forecasts, the previously indicated easing in sales would have led to a revision of the prior guidance to a range of 4% to 8% earnings per share growth, ONeill said. “However, given the significant depreciation of the AUD against various currencies to date, in particular the USD and the Euro, guidance for the 2008/09 financial year is being upgraded to 12% to 16% earnings per share growth.
In August, Billabong forecast 8% to 12% improvement in its earnings per share in the current year on the back of forward orders.
This new guidance assumes an annual average exchange rate of 80 US cents and 55 euro cents for the Aussie dollar.
He elaborated in a statement of the address on Billabongbiz.com, “If the annual average exchange rates vary from the assumed rates, every 1 cent movement in the AUD versus the USD is estimated to result in approximately 0.6% profit translation impact on net profit after tax. Similarly, the result of each 1 cent movement in the AUD/Euro exchange rate is estimated to have 5 approximately 0.6% profit translation impact on net profit after tax. In making currency assumptions it is important to note that there are some product deliveries, primarily in May and June 2009, for which the company is yet to hedge the purchases and that could slightly negate some of the currency translation benefits.”
Regarding sales trends, ONeill that in the eight weeks since the company released its 2007-08 annual results and forward guidance, sales are slightly below our previous expectations.
More specifically, in the latter part of September and the first two weeks of October, “consumers retreated from traditional spending patterns to digest the new economic landscape. However, at this stage, the company still anticipates it will be delivering double-digit sales growth-particularly given that from 1 October 2008 the Group includes sales from DaKine, which is currently outperforming the companys internal expectations.”
He adds, “So, let me be clear. Billabong International is growing sales, but not quite at the rate the company initially expected. Current conditions are leading to some apprehension from retailers in the placement of initial orders. That said, forward order books in the US and Europe remain good, although there is some weakness in Australia. Theres also evidence of some retailers being apprehensive in initial ordering and placing a greater emphasis on repeat orders.”