Another day, another underperforming company

Billabong profits dumped

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 27, 2012 12:26 pm AEST

Billabong International Limited (ASX: BBG) has today reported a full year loss of $276 million, including more than $336 million in one-off expenses, and despite a gain of $201 million, on the sale of half of the company's Nixon brand. Excluding the one-off items, the company's underlying profit was $33.5 million, 74% below last years' result.

Revenues have been falling due to weak consumer sentiment, record savings levels, a shift to online shopping and unseasonally cold weather during the Australian summer, while a warm winter affected sales of the group's snow related products in North America. Sales in Europe fell as the region's debt crisis rages on, and the strong Australian dollar saw $52 million lopped off its reported revenues.

The company fell on hard times after expanding into retail stores and taking on too much debt. As a result of falling revenues, the company was forced to sell half of Nixon for US$285 million and issue $225 million of new shares, to pay down its debt. Despite those moves the company still has more than $460 million of debt, and its balance sheet is far from 'safe'. We could yet see more one-off expenses.

To fix the underlying issues, Billabong has closed 58 non-performing stores and has identified a further 82 stores for closure during the next financial year. The company also plans to simplify its business, reducing brand styles and cut the number of suppliers by 35% (Billabong has around 500 suppliers).

Like Fairfax Media Holdings (ASX: FXJ), Qantas Airways Limited (ASX: QAN) and APN News and Media (ASX: APN) before it, Billabong has been forced to restructure and focus on transforming its business. All four companies have reported losses this reporting season as they've been forced to either writedown the value of their assets or incurred additional expenses in turning around their loss making operations.

For Billabong shareholders, the takeover offer from TPG private equity firm TPG Capital, which values the shares at $1.45 each, may be their best way out.

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Motley Fool writer/analyst Mike King doesn't own shares in any company mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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