Surfwear retailer Billabong has joined The Reject Shop in downgrading interim and full year sales and earnings forecasts as the retailing slowdown bites deeper.
While The Reject Shop directly blamed the Reserve Bank rate rise at the star of last month for its downgrade, Billabong yesterday cited weak sales in Australia due to cool weather, a shift in timing of orders from US customers and the continuing strength of the Aussie dollar, especially against the euro.
Billabong told the ASX it now expects first-half net profit to decline between 8% and 13% from a year ago, while for the full-year its profit will be flat.
But that is only an estimate because the company said the recent volatility in the value of the Aussie dollar was making more accurate forecasting difficult.
The news sent Billabong’s shares tumbling as much as 94c or 10.5%, to the day’s low of $7.95.
That was well above the 52 week low of $7.31 hit in August when the company first cut its outlook.
The shares recovered to end at $8.10, down 79c or 8.9%.
Billabong said the new full year earnings guidance reflects an expected EBIT result in constant currency terms of approximately 10% below the 2009-10 year, higher interest costs and a significantly lower effective tax rate.
"It should be noted that this guidance reflects the inclusion of significant one-off acquisition transaction and restructuring costs of approximately $11.0 million post tax.
"However, offsetting these costs are expected one-off tax benefits of approximately $12.5 million."
And the company said the appreciation of the Australian dollar against the US currency and against the Euro compared to the prior year is expected to "adversely impact" net profit.
The company said if the monthly average for the Australian dollar against the US unit remained at 98 USc and 74 euro cents from December 2010 until June 2011, reported net profit for the 2010-11 financial year would be down 10% on the previous year.
For the December half, Billabong said the new guidance "reflects an expected EBIT result in constant currency terms of approximately 25% below prior year, higher interest costs and a significantly lower effective tax rate.
"It should be noted that this guidance reflects the inclusion of significant one-off acquisition transaction and restructuring costs of approximately $9.0 million post tax. However, offsetting these costs are expected one-off tax benefits of approximately $9.5 million."
The big influence has been the poor trading conditions and cool wet spring and early summer on the East Coast of Australia.
Billabong said yesterday, "The impact of unseasonally cool, wet weather on the east coast of Australia leading to lower than expected sales in company owned retail and weaker than expected wholesale repeat business in the lead up to the important Christmas trading season; and weaker than expected consumer spending patterns at retail in Australia, particularly in the significant Queensland market".
In the important US market, the company said there had been a "shift in seasonal orders from major US customers resulting in later delivery of some product and, therefore, pushing expected sales into the second half of the financial year; and partially offsetting this has been continued strong comp store sales in company-owned retail in the month of November and the first two weeks of December, both of which are up in the order of 10%.
Other factors included the ”slower than expected introduction of Billabong family brand product in newly-acquired retail due to slower sell through of existing inventory as a result of softer trading conditions".
"And, to a lesser extent, the impact of shortfalls in wholesale repeat business in Europe in the lead-up to Christmas and softer than previously anticipated growth in the wholesale business in Japan."
"Given the recent volatility and unpredictability of Australian dollar exchange rates, it is very difficult to assess the ultimate impact on half and full year results in reported terms," Billabong warned in yesterday’s statement.
