At its annual meeting last week, Billabong International Ltd. said U.S. sales are returning to growth for its flagship brand, Billabong, and reaccelerating for RVCA.
For the Billabong brand, wholesale sales in the U.S. for the fiscal first quarter ended Sept. 30 grew 14 percent. In the fourth quarter ended June 30, wholesale sales in the U.S. were down 13 percent.
“The turnaround of Billabong in the U.S. is particularly heartening, given that its our largest brand and will grow in the U.S. market for the first time in a number of years,” Neil Fiske, CEO, told investors.
Fiske projected Q2 wholesale revenues for the Billabong brand in the region would be ahead 8 percent “with an important caveat that industry wide shipping delays due to West Coast port congestion could cut into that number before the half finishes.”
“Looking forward,” he added, “spring orders look very encouraging. Forward orders are ahead of comparable orders last year by 23 percent.
He noted that typically, such pre-book orders represent between 85 to 90 percent of a season, with the rest coming from at-once orders during the season.
Any product shortages or constraints in the supply chain can cut into the number as well, he added. So its important to understand that we look at these forward orders as leading indicators and not exact predictors of sales. But clearly we are encouraged by these results.”
RVCA, which has new leadership, is also showing some recovery. Wholesale sales in the U.S. for RVCA were flat in the first quarter ended Sept. 30 versus a 9 percent decline in the fourth quarter. Second-quarter sales are expected to be ahead 8 percent, again dependent on the West Coast port outcome.
“Spring forward orders in U.S. wholesale are up 24 percent and we feel good about summer as well,” said Fiske.
Globally, Fiske said Billabong plans to use its multi-brand fleet in APAC and Europe as a catalyst for market development to expand RVCA. Three pilot RVCA stores opened in the UK in October show its potential, with one location attracting a line of 300 fans. Added Fiske, RVCA has the potential to double or more in size over the next three to five years as it builds out in the U.S. and scales globally.
Companywide, Billabong said its performance so far this year is in line with previously provided guidance. This includes EBITDA (excluding non-recurring items) in the Americas, its largest region, still lagging the prior year, while the rest of the Group EBITDA is ahead of the prior year.
The Americas remain our biggest challenge and opportunity, added Fiske. The company expects weakness in the region to continue through the first half of the year, with the second half showing the potential for some recovery.
Trouble spots continue to be the severe contractions in Canada and Brazil, and weakness in Element, added Fiske.
In Canada, sales are down 17 percent year to date on a comp basis. The country continues to face challenges given the February-2014 sale of the West 49 action sports chain to fashion retailer YM Inc. and subsequent transition of the region to a wholesale business model.
Brazils sales are down nearly 25 percent as we resize and restructure the business for a better quality, more sustainable sales base.
As mentioned previously, Element is expected to remain weak in the U.S. for some time as we are completing a major overhaul of the team there under our new global brand leadership model.
Fiske noted that Element remains one of the largest skate apparel brands in the world and has won accolades for its skate team. Added Fiske, It has a strong and growing position in Europe which we can leverage in turning around the U.S.
In other regions for the overall company, Fiske said Europe has turned around, we expect that region to be profitable this year, and it is showing steady improvement.
Australian retail, which represents a significant part of its first half earnings, had a slow first quarter, but has picked up as the spring weather pattern turned.
Touching on some of its other brands, Tigerlily, a swimwear and apparel brand mainly sold in Australia, has grown at over 20 percent compound annual growth over the last three years, noted Fiske. Its other brands include: Von Zipper, Honolua Surf Company, Kustom, Palmers Surf, Xcel and Sector 9.
Much of Fiskes speech detailed the progress made on its turnaround plan revealed last December. This included significantly strengthening its balance sheet through a recapitalization in early 2014 after failed attempts to find a buyer for the company. Centerbridge and Oaktree are now Billabongs largest shareholders. Other parts of the plan include refocusing on expanding its biggest brands, fine-tuning merchandising strategies with fewer better styles, unifying marketing messages across regions, and achieving cost and supply chain efficiencies. A particular focus is expanding e-commerce, which represents only 2 percent of sales
Since January, it has made over 65 new senior appointments. Key managers now include Shannan North, global leader for Brand Billabong; Bill Bettencourt, global leader for RVCA; Frank Voit, global leader for Element; and Ed Leasure, leader of the Americas region.
Looking to the rest of the year, Fiske listed Billabongs priorities as:
Stabilize the Americas;
Deliver holiday, especially in Asia-Pacific region, which saw a soft Q1;
Accelerate growth in its big three brands: Billabong, Element, and RVCA;
Build its global platforms with a priority on direct-to-consumer and supply chain;
Fund needed investments with cost reduction, productivity gains, and global scale.
No doubt we face some stiff challenges that will weigh on our results over the short term, concluded Fiske. The road ahead is not easy. But we are clear in our direction. Bullish on the potential of our brands. And confident in our people to deliver on the strategy.