On the face of it surfwear retailer Billabong turned in a weak result for the year to June, reporting a $77.1 million loss after slashing the value of goodwill and brands including Von Zipper, Kustom, Xcel and RVCA by $106 million.
But the non-cash impairment charges and other one-off costs (which had been signalled in some cases earlier in the year) disguised a small improved operating result, with underlying earnings before interest tax depreciation and amortisation (EBITDA) rising 0.3% (or 2.8% in constant currency terms) to $51.1 million.
And while that fell short of market forecasts of round $56 million – a ‘crime’ on many days this reporting season with investors sceptical and analysts and big fund managers impatient, Billabong shares jumped 8% in early trading, only to lose all of that and drop 2%, before a late recovery saw the shares close at 75.5 cents, up 0.6%.
Helping that was the forecast from the company that it expects 2018 EBITDA, excluding significant items, to top the $51.1 million reported yesterday.
CEO Neil Fiske said the results were better than first appearance for the way the rebound in sales and earnings is happening.
He said the $51.1 million was less than a million dollars below the guidance range provided in November.
“If not for the widely reported weak retail conditions in Australia we would have been well up in the range,” he said.
The second half was better than the first six months of the year with improved earnings. And the US operations started a turnaround.
He said that group EBITDA rose 50% in the June-half, the strongest performance since Billabong’s $385 million recapitalisation in 2013, underpinned by a strong performance in the Americas, which offset weak retail trading in the Asia Pacific region.
Billabong’s guidance of $52 million to $57 million was revised downwards in February to adjust for the $60 million sale of the Tigerlily brand to private equity group Crescent Capital. Billabong used the proceeds from the sale to cut debt.
The bottom line loss also included impairment charges of $11.7 million after Billabong terminated a contract with omni-channel solutions provider Netsuite after technical problems delayed the global rollout of a consolidated e-commerce platform.
Group sales fell 8.8% to $974.7 million, or by 4.7% excluding Tigerlily and Sector 9, which was sold in July last year.
However, comparable retail sales from bricks and mortar and online stores rose 0.1% for the year after falling 1.2% in the first half. Ecommerce sales were up 22%
The Americas saw 46.9% EBITDA growth to $45.7 million, while Europe rebounded from a soft first half to post full year EBITDA growth of 8.9% to $17.1 million.
“These results reflect the tangible progress we are making in implementing our turnaround strategy in all regions, particularly in the Americas and Europe,” says Fiske.
“This half represents the first time in three years that comparable gross margins have improved in every region, year-on-year.
“Looking ahead, market conditions remain challenging, particularly in Australia, but we see opportunities for sustained earnings growth.”
No dividend was declared.
