Billabong: Restructuring News and Sale of West 49

I got four pieces of information for you. If you’d prefer, you can read Billabong’s announcement which came out Monday their time. It’s the first item under “Recent News.” 

The most interesting, which they leave for last, is the pending sale of West 49 to YM Inc., “a leading fashion retailer with a number of highly successful stores including Stitches, Urban Planet, Sirens, Siblings, Suzy Shier and Bluenotes.” They are buying 92 stores for a total of between $9 and $11 million Canadian dollars. Billabong will keep six Billabong and two Element stores in Canada.
 
I recommend you take a few minutes and look over YM’s web site. They say what I think are a number of insightful things about operating and their target market. 
 
YM and Billabong also signed “…an initial two year supply agreement” under which Billabong brands will continue to be sold in West 49 stores. We don’t get any specifics about which brands or how much. At the end of the day, I assume that YM, like any retailer, will choose to carry the brands that sell best at good margins.
 
You will remember that Billabong bought West 49 in the summer of 2010 for $83 million Canadian dollars. At the time, West 49 had 140 store fronts. I can’t tell what the West 49 assets are presently carried at on Billabong’s balance sheet, so I don’t know what the accounting impact of this deal on the income statement will be. But its cash positive and, most importantly, it gets Billabong out from under the lease obligations of those 92 stores. West 49 will now be strictly a wholesale customer, so some margin and revenue goes away, but so do all the operating expenses.
 
We also learn that US$300 million of the previously announced US$360 million 6 year senior secured term loan was received and used pay off the US$294 million term loan and associated interest and fees previously received from Altamont. That gets Altamont out of the picture. 
 
Third, we learn that the seven person board of directors will consist of independent directors Sally Pitkin, Ian Pollard and Howard Mowlem. “The other directors are founder and substantial shareholder Gordon Merchant, Jason Mozingo (nominated by Centerbridge), Matt Wilson (nominated by Oaktree), and CEO Neil Fiske.” The two directors who had represented Altamont are out of there.
 
Finally, we’re told that “Billabong continues to work with GE Capital to provide an asset-based multi-currency revolving credit facility of up to US$100 million. This has been reduced from up to US$140 million in part due to the sale of West 49.”
 
That it’s being reduced because the sale of West 49 reduces their needs make sense. But that’s only “part” of the reason it’s being reduced and we don’t know what the other reason or reasons might be. I’m kind of interested to see that it isn’t done yet and would love to ask why.
 
Billabong’s restructuring and refinancing continues. I’m happy to see it moving forward, but I’m still waiting to understand the results of the customer and brand positioning analysis that started under former CEO Launa Inman. They can restructure and cut expenses till the cows come home, but customers still have to like the brands.

 

 

4 replies
  1. Chuck
    Chuck says:

    I have been accused of being bad at math, but my guestimate is there is around $150,000 of inventory in each West 49 store, most all of it Billabong. That makes the inventory sitting on the floor worth over $11 million?

    • jeff
      jeff says:

      Hi Chuck,
      Good point. At $150,000 a store, that would be $13.8 million. I guess that’s what happens when you sell a chain that’s losing money.

      J.

  2. Bruce
    Bruce says:

    I would assume that West 49 has payables due on a significant part of that inventory. If the payables are transferred along with the rest of the business, it’s conceivable that the selling price is at least as much as the net value of inventory.

    • jeff
      jeff says:

      Hi Bruce,
      That makes sense to me, but we get no information on the working capital accounts. Maybe when the deal closes if it’s big enough to require some further disclosure by Billabong.

      Thanks for the comment,
      J.

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