Billabong’s Announcement and the Industry Strategic Issues Underlying It.

On December 15th, Billabong revised its projected results for the six months ending December 31, 2010. Here’s what they said:

“The Company’s previous guidance….indicated net profit after tax (NPAT) for the first half year ended December 31 2010 would be slightly lower than the prior year in constant currency terms. The Company now anticipates that first half NPAT will be 8% to 13% lower than the prior year in constant currency terms.”

You can read the press release and the transcript of the conference call they held here. It’s the “trading update” and “trading update transcript.”
In Australia, they pointed to cool wet weather, lower than expected wholesale repeat business, and weaker than expected consumer retail spending. In the US it was a shift in seasonal orders pushing delivery into the second half of the year, partially offset by strong retail performance in their owned stores. In both Australia and Canada, slower sell through of existing product in newly acquired retail has meant a delay in getting their owned product into this retail. To a lesser extent, Europe and Japan were also just a little soft.
Well, every year shit happens. To all of us. It can be weather, or product delays or a soft economy somewhere (or everywhere) or a container I put on a train from the East coast because it would be faster than a ship and then a blizzard stops the train and they “lose” the railroad car (true story) or lots of other things. They will always happen.
What I would like to do is get out from under the tactical issues and the uncontrollable stuff for a minute and talk about market evolution and strategy. If it sounds like I’m saying, “I told you so,” and am being a bit insufferable well, I probably am. But I’m going to enjoy it. You can trash me on my web site if it gets too bad.
This isn’t by the way, just about Billabong, though I’m using them as an example and their announcement was motivation to write this.
As attractive as all that extra margin is to brands, successfully integrating retail with your existing owned brands isn’t easy or straightforward. How much of which brand to put where, what brands to cut, whether you require a retailer to carry your owned brands even if they aren’t selling, etc. are not trivial issues. About 40% of Billabong’s revenue is from retail now.
Oh wait- I already wrote about that like just last week. See it here.
West 49 is the biggest retail acquisition (maybe the biggest acquisition?) Billabong has made. And, as far as I know, it’s the first one they made that had some elements of a turnaround to it, requiring more management time and attention I suspect.
Oh wait- I already wrote about that when Billabong bought West 49. See it here. Look towards the bottom of the article in the section called Nuts and Bolts.
Though the short term issues Billabong is facing are certainly real, I think there’s more to it than that. At the end of the day, both retailers and brands have to expect that sales increases will be harder to come by for a while. Anybody expecting a strong economic recovery in the short term is fooling themselves. Retailers and brands are (correctly in my judgment) focusing on expense and inventory control, and generating gross margin dollars. It’s not that they don’t want to grow, but they aren’t expecting it like they use to.
Oh wait- I already wrote about that. See it here back in 2009. And here. Okay, I guess I’ve been insufferable enough.
Of course if you’re a public company, you’re kind of reluctant to tell the analysts, “We don’t think we can grow much for a while!” Just wouldn’t be well received, though I doubt I’m saying anything here the analysts aren’t thinking. They are smart people.
Look at Billabong’s announcement as representative of issues we all face.



2 replies
  1. GB
    GB says:

    Pointing out the obvious is insufferable……but when you’re a public company the tail sometimes wags the dog.

    • jeff
      jeff says:

      I enjoyed being insufferable. Might do it again soon. Yes, having to report quarterly earnings sucks and is really irrelevant to a company’s strategy and prospects.

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