Billabong International said sales in the Americas increased 3.2% in constant currency terms in the second half of its fiscal year ended June 30, 2010.  For the full year, sales were down 1.2% in constant currency terms to Australian $712.6 million (U.S. $628.5 million). EBITDA in the second half increased 11.6% in constant currency terms with the help of reduced promotional activity at retail, lifting the full-year EBITDA to A$92.3 million (U.S. $81.4 million), up 5.4% in constant currencies.

(Results were converted from Australian to U.S. dollars at the average exchange rate during the period.)

Strengthening EBITDA margins in the second half increased the full-year EBITDA margins to 13.0%, from 11.9% in the prior year.

In reported terms, sales declined 14.8% and reported EBITDA was down 7.6%, on improved EBITDA margins, with both reflecting the adverse translation impact of the continued strength of the Australian dollar against the US dollar. Gross margins in the Americas lifted for the year.

Derek O'Neill, chief executive officer, said in a statement, “The influential US market showed steady improvement through the year, although progress was not uniform across the country. Some retailers returned to positive same store sales growth in the latter part of the second half as the hangover from the global financial crisis slowly eased, while tight credit conditions continued to challenge some of the smaller specialty retail account base. Company-owned retail banners all showed good EBITDA margin improvement, in particular Quiet Flight, where margins almost doubled to be in the mid teens. Overall, there was a shift towards more normalized ordering patterns as the wholesale account base started to reduce its reliance on price and value-based offers in favor of well merchandised and historically proven product.”

Online sales through the acquired Swell business grew strongly and, coupled with the existing online businesses of Nixon, VonZipper and Sector 9, the Group “is well positioned to service this emerging market.”

Among brands, Nixon was a “standout performer” in the Americas, achieving solid double-digit sales growth. DaKine also “performed very well” although there was an impact from the transfer of sales to Europe following the conversion of distributor sales into directly-controlled operations. Tigerlily “continued to generate good interest in its push into the US market.” The company also licensed the Plan B skate brand midway through the second half. Specialist wetsuit manufacturer Xcel “performed well in its market niche,” while Honolua and Kustom both had good growth.

Both the Billabong and Element brands were adversely impacted by a continued deterioration in sales to mall-based account Pacific Sunwear. Overall, Group sales to Pacific Sunwear declined 40%.

“While Pacific Sunwear now only accounts for approximately 6% of the Group's North American sales, the retailer did start to demonstrate a renewed interest in working with third party heritage brands and this may prove to be a positive for the overall business,” said O'Neill.

Excluding sales to Pacific Sunwear, the Group's North American sales increased in constant currency terms. Product categories that showed strength included stretch boardshorts, tank tops, woven shirts and outerwear for men. In women's, fashion forward styles performed particularly well and continued to distinguish branded apparel from that offered by vertical price-point operators.

In general, the east coast outperformed the west coast, which experienced a slow start to summer due to unseasonably cold weather. Retailers around the Gulf states were also impacted by the protracted efforts to contain a major offshore oil spill and the resultant erosion in visitor numbers to the region.

South America continued to perform very well, with Group sales lifting 10.6% in constant currency terms on improved EBITDA margins. Brazil delivered a solid performance, Peru improved and Chile's early promise was affected by a devastating earthquake which had a significant impact on business in the territory.

Within the Group's company-owned store network, sales in North America were up 9.2% in constant currency terms.

“The stores showed a good recovery through the year, with positive same store sales returning in several months in the second half,” said O'Neill.

The Group's company-owned retail door count in the Americas remained unchanged at 111, with 11 doors closed and 11 doors opened through the year. On June 30, Billabong announced a bid for West 49, the Group's largest retail account in Canada. If successful, the acquisition will add 138 doors in the region and introduce further retail management experience into the Group, O'Neill said. The acquisition remains subject to a vote of West 49 shareholders, subsequent court approvals and customary closing conditions.

Looking ahead, Billabong anticipates that the modest improvements in trading conditions in the US in the final quarter of the 2009-10 financial year will continue into the 2010-11 financial year.

“An ongoing focus on overhead costs and a less promotional retail environment are expected to lead to continued improvement in EBITDA margins within the Group's wholesale business,” said O'Neill. “A modest lift in revenues, tight cost controls and the ongoing management of under-performing doors is also expected to lead to further improvements in retail EBITDA margins. Forward orders for the Billabong brand are up on the prior year following good performances in both the men's and girl's businesses. While street skate hardware has been soft, the Element brand has been performing well and continues to gain market share. Nixon, Sector 9 and VonZipper are performing strongly and DaKine, which experienced production and shipping delays out of China towards the end of the financial year, is indenting well.”

Billabong also noted that the recent addition of the RVCA brand is expected to make a strong contribution to the region. Added O'Neill, “The Group's own retail store performance was promising in July, with positive same store sales across multiple banners.”

Overall, Billabong International reported a net profit after tax (NPAT) of Australian $146.0 million (U.S. $128.8 million) for the financial year ended June 30, 2010. The result is up 8.1% in constant currency terms compared with the 2008-09 year.

Excluding the after tax impact of an impairment charge expense of $7.4 million in the prior year, NPAT for the year increased 3.1% in constant currency terms compared with the prior year. After adding back one-off post-tax acquisition transaction costs of A$2.7 million, which under new accounting standard requirements now have to be expensed and cannot be capitalized, constant currency NPAT growth lifts to 5.0% compared with the prior year excluding the prior year impairment charge.

In reported terms, NPAT was down 4.5% compared with the prior year when including the prior year's impairment charge or down 8.9% when excluding this impairment charge. Reported NPAT was adversely impacted by the unfavorable effect of the continued appreciation of the AUD against the Group's 16 functional currencies, in particular against the USD and the Euro, relative to the prior year.

Total Group sales of A$1.48 billion (U.S. $1.3 billion) was flat in constant currency terms and down 11.2% in reported terms compared with the prior year, again reflecting the negative impact of foreign exchange movements when translating the result into Australian dollars.

Gross margins strengthened to 54.4% from 53.2% in the prior year, reflecting a less promotional retail environment, primarily in the USA. Group earnings before interest, tax, depreciation and amortization (EBITDA) of $253.3 million was down 0.9% in constant currency terms and down 11.1% in reported terms compared with the prior year. There was significant improvement across all regions in the second half, with EBITDA lifting 9.0% in constant currency terms following a 9.5% first-half decline. EBITDA margins for the full year remained steady at 17.1%.

Profit before tax, which was down 3.9% in the first half, lifted 24.6% in the second half to finish the year up 8.9% in constant currency terms.