Surf and skate wear group Billabong says it became a fashion victim last year after failing to keep up with the Instagram generation’s rapidly changing tastes, and expects another tough year ahead.
The company on Wednesday reported that comparable sales in Australia and the Asia Pacific fell 5 per cent last financial year, with revenue down 8 per cent and earnings tumbling 28.3 per cent.
Chief executive Neil Fiske said the tough retail market had forced it to discount heavily to move stock, hurting profit margins. Meanwhile a misstep in its Billabong brand women’s swimwear – selling print-heavy designs after tastes had shifted to solid, natural colours and different cuts – hurt sales.
“I think we played it too safe, frankly,” Mr Fiske said.
He said the company quickly brought trendier US stock to Australia in response, which sold well.
Billabong’s fashion fail was an important lesson in how social media was accelerating how quickly trends move across markets, Mr Fiske said.
“She’s probably on the Australian Instagram for Billabong and the US one too,” he said.
“I’ve been in stores were they’re looking on the US sites and saying ‘why aren’t these styles here in Australia’?”
Building a social media following for the company’s brands – which include RVCA, Element, Von Sipper, and Kustom – was essential to remaining relevant, and had boosted the number of the company’s followers online by 42 per cent to 37 million last year, Mr Fiske said.
Improved performance in offshore markets helped offset the soft local result, with earnings in the Americas – Billabong’s largest market – up 47 per cent and comparable sales up 8 per cent.
Earnings in Europe jumped 8.9 per cent, thanks to profit margins and 27 per cent online sales growth. Billabong blamed the Brexit vote for a 2.5 per cent fall in same-store sales in the UK, while the rest of Europe added 0.4 per cent.
Mr Fiske said the improvement outside of Australia validated the company’s turnaround approach and showed how it could address its financial performance locally.
The company fell to a $77 million net loss for 2017 after writing down the value of several of its secondary brands, including Kustom, Honolua, Xcel and RVCA by $94 million.
Billabong said it had to write down the value of it brands to address the disparity between its share price and the carrying value of the group’s net assets, rather than because of valuation issues with any particular brand.
Excluding the writedowns and the impact of selling the Tigerlily brand, Billabong said its total earnings before interest, tax, depreciation and amortisation improved slightly by 0.3 per cent to $51.1 million. That was short of Billabong’s own forecast given in February of between $52 million and $57 million.
Mr Fiske said he expected the market to remain challenging in the year ahead, but that there were opportunities to grow earnings by improving margins, focusing on its direct-to-customer channels and “omni channel” offering in particular, and cutting costs. He forecast earnings in 2018 to be higher than in 2017.
Billabong shares were up 1.3 per cent at 76?? by 12.30pm. The stock has lost 41 per cent over the past six months.
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