Billabong International Limited said sales in the Americas were down 6.2% in the six months ended Dec. 31 in constant currency terms, to Australian $317.5 million (U.S. $282.9 million). Reported sales were 17.6%
lower, reflecting the negative currency impact when results were translated
into Australian dollars.
Overall, Billabong’s net earnings slid 15.4%. Net profit after tax (NPAT) slid 7.6% in constant currency terms to Australian $69.7 million (U.S. $62 million). Earnings were down 9.5% in constant currency terms when excluding the prior year’s asset impairment charge.
Group sales of A$721.0 million (U.S. $641.2 million) were 2.8% lower in constant currency terms or down 10.8% in reported terms compared to the prior corresponding period. On a regional level in constant currency terms, sales increased 2.6% in Europe, while sales in Australasia decreased 1.4% and sales in the Americas were 6.2% lower compared to the prior corresponding period.
Gross margins strengthened to 55.5% (from 53.8% in the prior corresponding period).
Earnings before interest, tax, depreciation and amortisation (EBITDA) of A$123.5 million (U.S. $109.8 million) was 9.5% lower in constant currency terms or 16.2% lower in reported terms compared to the prior corresponding period. EBITDA margins decreased to 17.1% (from 18.2% in the prior corresponding period), reflecting the difficult trading environment and changing regional mix, combined with significant foreign exchange movements.
Basic earnings per share (EPS) of A27.9 cents was 26.8% lower compared to the prior corresponding period, reflecting the lower reported NPAT result and an increase in the number of shares on issue principally arising from a capital raising announced in May 2009.
Directors declared an interim dividend of 18 cents per share, partially franked to 50%.
Billabong International Limited chief executive officer Derek ONeill said the result was in line with the companys guidance.
“The company continues to perform to expectation in a difficult global retail environment,” said ONeill. “The Group experienced strong growth in many European territories, including Germany and Central European countries, while Australia had solid sales growth of approximately 4%
compared to the prior corresponding period.
“In North America there were some signs of improvement in the companys own retail operations, but business remained relatively challenging at the wholesale account level.”
ONeill said the overall Group result was significantly adversely impacted by foreign exchange movements. In particular, a strengthening Australian dollar against the US dollar and the Euro compared to the prior corresponding period adversely impacted the translation of
reported results.
Cash flow from operating activities was very strong, increasing by more than 100% over the prior corresponding period, principally reflecting higher net cash receipts and a lower interest expense.
ONeill said the company remained cautious in its trading expectations for the full financial year given the ongoing instability in the global economic environment.
The company is reaffirming its previously advised full-year guidance of 5% NPAT growth compared to the prior corresponding period in constant currency terms and excluding the prior corresponding periods impairment charge, or 10% constant currency growth when including the prior corresponding periods impairment charge.
segment EBITDA margins have been unusually affected by an increase
in global overhead costs (which include corporate overhead, international advertising
and promotion costs, central sourcing costs and foreign exchange movements) and
the allocation of these costs to each segment. The increase in global overhead
costs compared to the prior corresponding period is almost entirely attributable
to foreign exchange movements. Weaker EBITDA margins in Australasia and Europe
in part reflect an increased allocation of global overhead costs compared to
the prior corresponding period, given these segments represent a larger
proportion of the Groups sales relative to the prior corresponding period and
the fact that global overhead costs in the prior corresponding period benefited
from the inclusion of a significant foreign exchange gain.
Americas:
In constant currency terms, sales of $317.5 million were
6.2% lower than the prior corresponding period, while reported sales were 17.6%
lower, reflecting the negative currency impact when results were translated
into Australian dollars. Sales were affected by the weak consumer environment
in North America, but direct comparisons to the prior year are somewhat
misleading. The latest result includes a full six months of trading from DaKine
versus three months in the prior year. The prior corresponding period also
included three months of trading in the period that preceded the global
financial crisis.
EBITDA of $33.7 million was 4.0% lower in constant currency
terms compared to the prior corresponding period, while reported EBITDA was
17.4% lower, again reflecting the negative currency impact. EBITDA margins
remained steady at 10.6%, primarily reflecting the abovementioned impact of the
allocation of global overhead costs, continued weak trading conditions, albeit
with improved gross margins, combined with the impact of strategies adopted by
management to reduce overheads.
Excluding the global overhead allocation and segment foreign
exchange gains and losses, EBITDA margins lifted to 13.4% (from 13.0% in the
prior corresponding
period). This margin improvement, albeit small, was a
significant achievement given the lower sales and harsh trading environment.
While some margin pressures associated with promotional activities remain in
North America, overhead cost has been removed from the Groups North American
operations and this is expected to lead to improved EBITDA margins in the
second half.
Trading in the regions major market of the US remained
patchy for the majority of the period, with improving sales trends in the
Companys own retail operations generally not reflected across the wider
wholesale account base. Some retailers remained extremely cautious in their
buying patterns and many, particularly large accounts, kept minimal floor
inventory and placed terms and pricing ahead of product appeal. In some
instances this appeared to temper the in-store excitement and impede product
sell-through, further diminishing their ability to chase the Groups better-selling
styles. Tight credit conditions also impacted the capacity of smaller retailers
to maintain investment into their businesses and this impacted the Groups ability
to ship them product. Among larger accounts, sales to Pacific Sunwear were down
in the range of 50% for the half-year period and it is anticipated the
retailers percentage contribution to the Groups overall North American sales
will decline to the single-digit level across the full financial year.
Overall sales increased 3.3% compared to the prior
corresponding period in the Companys own retail operations in North America,
reflecting slight growth in store numbers and, in part, indicating that
consumers were prepared to shop in stores with a good range of new-season
product. The Groups comparable store sales, which had been down by as much as
20% in July 2009, showed consistent improvement to finish down approximately
10% for the whole six-month period. The Group recorded positive comparable
store sales in the US for the month of October, while the months of November
and December were slightly negative. Two underperforming stores were closed in
the half-year, with the overall number of Company-owned doors in the US
totalling 94 at half-year end (from 92 doors at 30 June 2009).
The Groups South American business continued to show good
growth, with further penetration into Brazil. In constant currency terms, sales
lifted in excess of 10% and EBITDA grew
more than 20% at improved margins compared to the prior corresponding period.
Across the full financial year, the Group anticipates no
significant improvement on the weak trading conditions in the US. Lower
operating costs associated with overhead reduction during the past year should
help the Group grow margins when the consumer market begins to recover. Trading
conditions through January 2010 remained challenging, but forward orders to key
specialty accounts were generally in line with expectations in the early phase
of the summer indent season.
Europe:
Sales of $164.0 million were up 2.6% in constant currency
terms compared to the prior corresponding period as the Groups brands
continued to perform strongly in a number of key territories, while reported
sales were 7.8% lower reflecting the negative currency impact when results were
translated into Australian dollars. EBITDA of
