Billabong International Ltd. fell by a record in Sydney trading after the Australian surf-wear maker said first-half profit may fall as much as 26 percent, dragged down by a review of its capital structure. “The sales growth trend has deteriorated
significantly in this critical retail period,” Billabong said. As the group explained in a note on Monday, based on preliminary sales data to 11 December and assuming a continuation of current trends, it is now anticipated that sales revenue for the six months to 31 December will be approximately 5% higher than the pcp in constant currency terms (down approximately 3% adjusting for the impact of acquisitions).
reasons for the sales slowdown vary by region, but the data received reflects the European sovereign debt issues and the ensuing fears of global recession which are impacting consumer confidence and spending patterns significantly,” they advanced.
The gloomy forecast comes less than two months after Billabong predicted a “strong” rise in earnings. The stock slumped 44 percent to A$2.03 at the close of trade, the largest drop since it was listed in 2000. The decline cut Billabong’s market value to A$518 million ($514 million), compared with A$1.5 billion as of the June 30 fiscal year end.
At a current price of $2.15 per share, Billabong has a market cap of $540 million and an enterprise value — market cap plus net debt —of just over one billion. Following company’s report, sales hindered in the company’s three key markets amid a cool start to the Australian summer, a drop in European demand and a decline in December sales in North America amid concern an economic recovery may weaken.
“This is what happens when you guide to profit growth and come out with a completely different result,” said to Business Week Peter Esho, Sydney-based chief market analyst at City Index, a London-based provider of trading services in bond, stock and commodities markets. “It really diminishes trust with the market to have such a turnaround in performance.”
Goldman Sachs Group Inc. has been hired to review all alternatives for Billabong’s balance sheet, with an equity sale “not the preferred path,” according to a filing. The review comes “in light of the existing operating environment and the risk for further deterioration,” Billabong said in the filing.
The review may consider asset sales, cuts to dividends and an equity raising, Craig Woolford, an analyst at Citigroup Inc., wrote in a note to clients today. The forecast is 30 percent less than Citigroup’s profit estimates, Woolford wrote.
Earnings before interest, tax, depreciation and amortization will fall to between A$70 million and A$75 million in the six months ending December from A$94.6 million a year earlier, the Gold Coast, Australia-based company said. Sales in the five months ended Nov. 30 rose 12 percent, compared with the 25 percent pace posted for the three months ended Sept. 30.