Zumiez’s Annual Report and Their Approach to the Omni Channel

Zumiez ended its fiscal year on January 31st with 603 stores; 550 in the U.S., 35 in Canada and 18 in Europe. How many stores do they expect to ultimately have? In the past, they’ve opined that 600 to 700 might be about the limit in the U.S. Obviously, they’ve got some head room in Canada (Maybe 70 stores total?) and a lot more in Europe. I imagine that limits of growth in North America had something to do with their acquisition of Blue Tomato.

But the Omni Channel changes things. One of their risk factors in the 10K is “Our growth strategy depends on our ability to open new stores each year, which could strain our resources and cause the performance of our existing stores to suffer. That’s true, I guess, but is kind of a normal business risk.

I haven’t read every word in Zumiez’s (or anybody else’s) list of lawyer induced cautionary risk factors. But I don’t think I’ve seen anything about the omni channel in them. Seems to me the risk factor above has to go away, or maybe changed to say something like:

“The omni channel changes things in ways we’re still trying to figure out. It’s not just about opening stores; it’s what shape and size of stores to locate where to make sure that they integrate with everything online with particular attention to how our mobile customers want to shop. If we don’t do this right, we’re screwed.”

Okay, lawyers might put it differently, but I think you see the point. This is something every retailer is thinking about (I hope) and I want to talk about how Zumiez views it.

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Vail Figures Out How to Generate Summer Revenue During the Winter

It figures. Over the weekend I finished up a long article for SAM (Ski Area Management) on winter resorts generating summer revenue. I think it included some interesting approaches to the issue, but apparently I missed one.

Today Vail Resorts announced that it’s acquiring Perisher Ski Resort in New South Wales, Australia. Here’s the link to the resort web site. It’s fall there, so the web cams show no snow. Hmmm. Looks a little like some West coast resorts right now.

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Changes at Quiksilver

I’m assuming you’ve all seen the Quiksilver press release. Andy Mooney “…is no longer with the company.” President Pierre Agnes, the President has been promoted to CEO. Bob McKnight has returned as Chairman of the Board and APAC region president Greg Healy is now President of Quik. Former CFO Richard Shields has resigned, but will be around as a consultant to help new CFO Thomas Chambolle, who was formerly Quik’s EMEA region CFO, transition to his new job.

Out with the new, in with the old I guess.

We can, and no doubt will, all have a wonderful timing speculating how this all came down and what’s next. But people, let’s focus! I want to ask the same old question I’ve been asking about Quiksilver for years now, way before we’d ever heard of Andy Mooney.

Where are the sales increases going to come from?

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Quiksilver’s Quarter: Right for its Brands, Hard for a Public Company?

At the risk of sounding like a broken record….oh, damn, do I need to explain that outdated cultural reference? You see, back in the day when there was something called a record…never mind.

Anyway, I’ve said this a lot. It can be hard to do the right thing for the brand and still meet the expectations for growth of a public company. But what it now sounds like is that Quiksilver management has figured out that if they don’t do right by their brands, they won’t have to worry about the public company issue.

Here’s how CEO Andy Mooney put it in the conference call:

“We listen to the issues that were important to a longtime course our partners and based on their feedback made several changes to better support their business. First we’re holding back and [not] opening additional owned and operated retail stores in the areas that could negatively affect their businesses. Second we’re substantially altering the form and substantially reducing the frequency of promotions in our branded Web sites. Going forward, we will conduct limited promotions solely in past season merchandise and entirely exclude technical products like wetsuits from any price promotion in our direct-to-consumer channels.”

“With the restructuring of the company essentially completes, I am looking forward to now spending time with core surfer skates specialty accounts around the globe and we continue to allocate the lion share of our company’s marketing resources to the specialty channel. In Q1 for example, we increased media spending by 40% in core surfers’ stake media as well as trade marketing in various forms.”

This is the first time I’ve heard Andy put this “thing of importance” as directly as he just did, and it’s about time. I think (and so do a lot of other people, if my conversations are any indication), that Quik has missed some opportunities in this area over the last year or so, and I’m really happy to apparently see them acknowledge and move to correct it.

Regular readers will know I expect this to not only improve brand equity but to help with gross margin and maybe eventually allow some reduction in advertising and promotion expenses, or at least make what they do more effective.

With that good news as background, let’s review the financial results for the quarter ended January 31. Before we jump into the explanations and adjustments, let’s look at the reported numbers.

Revenues were down 13.4% from $395 to $341 million. The gross profit margin fell from 50.8% to 49.7%. Below are revenues and gross margin broken down by segment.

Quik 1-31-14 10q #1 3-15









As you know, Quik licensed certain “peripheral” product categories in the Americas. There’s a chart on page 30 of the 10Q (here’s the link to the 10Q) that adjusts revenue for licensed product revenues as well as currency fluctuations.  Licensed revenue during the quarter was $11 million compared to $1 million in last year’s quarter. Currency adjustments had a particularly significant impact in EMEA (Europe) because of the strengthening of the dollar against the Euro. It reduced reported revenue from that segment by $20 million.

In the Americas, “Net revenues on a constant currency continuing category basis decreased by $13 million, or 8%, due to a reduction in apparel category net revenues of $13 million in the Americas wholesale channel. Americas wholesale apparel net revenues decreased across all three core brands, but more significantly in the DC and Roxy brands.”

Ignoring currency impacts (which I’m reluctant to do if you’re a dollar investor) EMEA revenues fell just $3 million. “Net revenue on a constant currency continuing category basis decreased by $3 million, or 2%, primarily due to a reduction in apparel net revenues of $11 million in the wholesale channel. EMEA wholesale apparel net revenues decreased across all three core brands, but more significantly in the Quiksilver and Roxy brands.” Russia was down 29% as reported, but up 13% on a constant currency basis. Nothing like collapsing oil prices and economic sanctions to do a currency in.

The Quiksilver brand revenue was $141 million. It fell $23 million or 14% as reported. Ignoring the impact of currency and licensed products, it was down $6 million, or 4%. Roxy revenue was $100 million. It was down $18 million or 15%. Ignoring currency and licensing, it fell $7 million, or 7%. DC was down $14 million or 14% as reported to $89 million. Ignoring the usual, it was down $3 million or 3%.

Reported wholesale revenues fell from $211 to $192 million. Retail was constant at $119 million. Ecommerce revenues rose from $22 to $27 million.

The overall decline in gross margin “…was primarily due to unfavorable foreign currency exchange rate impacts (approximately 130 basis points), increased discounting in the Americas and EMEA wholesale channels (approximately 70 basis points), and increased air freight and other distribution costs associated with the U.S. West Coast port dispute (approximately 20 basis points), partially offset by net revenue growth from our higher margin direct-to-consumer channels (approximately 110 basis points).”

Here’s how it changed by region as reported.

Quik 1-31-14 10q #2 3-15





Consistent with the revenue decline, SG&A fell from $204 to $171 million. As a percentage of revenue it was down from 51.6% of revenue to 50%. Remember that foreign expenses decline when the home currency appreciates. That impact was a positive $13 million for Quik during the quarter. Also, “Restructuring and special charges reflect a gain of $1 million versus a $6 million expense in the prior year period.”

Operating income improved from a loss of $4.03 million to a loss of $1.32 million. Below is operating income by region for the two periods. 2015 is on the left.

Quik 1-31-15 10q #3 3-15





The next line troubles me. Interest expense was $18.4 million, an improvement from the $19.4 million in last year’s quarter, but still a sizable amount. What happens to Quik and other companies when interest rates finally rise? It depends on each company’s debt structure.

Due to all that interest, the loss before taxes was $20.4 million, compared to $26.3 million in last year’s quarter. Tax benefits gets us to a loss from continuing operations of $18.3 million compared to a loss of $21.9 million in last year’s quarter.

As you are aware, Quik has sold a number of businesses over the last year or so. In last year’s quarter those sales generated income of $37.6 million. The number in this year’s quarter was down to $6.7 million.

Lacking that big pop from discontinued operations, net income fell from a positive $15.7 million last year to a loss of $11.6 million in this year’s quarter.

The balance sheet has weakened from a year ago. Equity is down from $380 million to $26.6 million as a result of operating losses and non-cash asset and goodwill write downs. Total liabilities have declined only 5.2% from $1.221 to $1.157 billion with total debt making up $803 million, down from $828 million a year ago.

I’m encouraged by Quik’s apparent decision to refocus on brand building and support of specialty retailers and what I take to be their acknowledgement that it requires some caution is distribution and discounting. But the issue then becomes where does revenue growth come from? I’ve been asking that question since they completed the Rhone financing.   As we’ve seen with other brands, getting your distribution and brand position right can cost you some sales in the short term.

In the 10-Q Quik notes they anticipate “Year-over-year net revenue comparisons continuing to be unfavorable due primarily to the impact of licensing and currency exchange rates. Within this trend, we expect the rate of year-over-year net revenue erosion to decrease in the North America and EMEA wholesale channels. Also, we expect continued net revenue growth in our emerging markets and our e-commerce channel.”

I hope at least part of that is due to their decision to support the specialty channel and that we see a positive impact on their income statement pretty quickly. At some point, a weak balance sheet doesn’t allow you to continue reporting losses.

Skullcandy’s Quarter and Year: Good Results, Same Strategic Issues and Opportunities

You recall that Skullcandy found itself in turnaround mode when it sold too much poor quality product in low priced distribution that wasn’t consistent with its preferred branding and market positioning. I suppose that happened when the newly public company tried to meet Wall Street growth expectations.

CEO Hoby Darling came in and put a stop to it. His five pillar strategy included, and continues to include, marketplace transform, create the innovation future, grow international to 50% of the business, expand and amplify known-for categories and partnerships, and team and operational excellence. I’ve reviewed each of those in detail in previous articles, and won’t do it again here. You can find his progress report in each one, as always, in the conference call transcript. And while I’m at it, here the link to the 10K.

Those pillars are all important and necessary. But to my mind marketplace transform was the essential first step, as the company pulled back from questionable distribution for the sake of growth and focused on working with the right retail partners in the right way. Note that this includes Walmart as well as specialty shops, and that tells us something about how the market has changed.

Because of progress in all five of those areas, financial results have improved and things look much better. But the company still has to confront the not insignificant competitive circumstances it’s faced since going public. If I were to sum it up, I’d say that I love what they are doing and have a lot of respect for the progress so far. However, it still feels like there might be some conflict between being a public company and the market position they want to have. We’ll look at the numbers, and then return to that issue.

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Globe’s Half Year; The Plan Seems to be Coming Together

Back in 2002, Globe bought Kubic Marketing, the holding company for World Industries and Dwindle. It turned out that their timing couldn’t have been worse in terms of the skateboarding industry cycle. Just about the time they dug their way out of that glitch, the Great Recession hit and had the same kind of impact on Globe it had on other industry companies.

But for the six months ended December 31, 2014, Globe reported sales that rose 28.4% from $51.4 in the prior calendar period (pcp) to $66 million Australian dollars (all figures in Australian dollars). Net income was up from $818,000 to $1.58 million. They even reinstituted a dividend of three cents a share. That speaks well of cash flow.

Those results occurred while they increased SG&A and employee benefit expense by $6.7 million. Most of the increase was in SG&A.

The Globe brand, we learn in an investors’ presentation, rose 27% worldwide. Dwindle Distribution was up 16%, 4Front Distribution 22% and Hardcore Distribution 26%. They also started a new work wear brand called FXD.

Globe owns or distributes 25 brands. I suggest you go to their investor website here and download the investor presentation dated February 27th, 2015 to see which brands are sold by which distribution company. If you’ve been around the skate business even a little, you’ll recognize most of them.

Note that not all brands are sold worldwide.

North American sales rose 12% from $18.4 to $21.3 million. But earnings before interest and taxes (EBIT) in North America declined from a loss of $360,000 to a loss of $1.832 million. Neither the financial report nor the investor’s presentation explains what exactly happened in North America. They do say in the presentation that, “Segment result impacted by lower scale, margin pressures and introduction of new brands.”

I guess I know that “margin pressures” means gross margins were lower. “Introduction of new brands” might mean they spend a bunch of money on getting new brands started- specifically Fallen and Zero. No clue what “Segment results impacted by lower scale” means, especially as sales were overall up 12%. Maybe there’s a transcript that goes with the presentation, but it’s not on the web site.

They note that Dwindle hard goods and Globe apparel were up, but don’t say how much. I’m wondering how much growth there was in North America if we take out Fallen and Zero.

I’m also wondering how much sales grew in constant currency. Even at December 31, the Australian dollar was weaker against the U.S. dollar than in the pcp. In the presentation, they warn us that they “…expect the strengthening US dollar to have an impact on margins in Australia and Europe.”

Things were better in Europe. Net sales grew by 59% from $11.9 to $18.6 million. EBIT rose from $1.1 to $3.5 million.

In Australasia, sales rose by 23% to $26.3 million from $21.4 million in the pcp. EBIT was up 17.8% from $2.78 to $3.28 million.

The segment EBITs do not include certain corporate expenses and unallocated, unrealized foreign exchange losses that totaled $2.5 million in the most recent six months and $1.66 million in the pcp.

The balance sheet improved as equity grew by around one-third to $40.6 million. Current ratio at 1.88 was down a bit from 2.03 a year ago, but that’s fine. Receivables, inventory and payables have risen significantly, but it seems in line with the revenue growth.

The presentation notes that they have no borrowings, which is technically correct. But they are using a non-recourse receivables financing facility in North America in the amount of $2.5 million, up from $1.8 million in the pcp. Since it’s nonrecourse, it’s not debt but there is a cost to using it.

While Globe still has some work to do in North America, the overall result shows good progress. I just wish there was some more information on specific brand performance.

Interview with Blue Montgomery

Some people up in Canada decided, for whatever reason, to start an action sports industry news magazine called The BoardPress.  Their sanity in trying to do this can be questioned, but they sent me a copy of their first print magazine, which came out some months ago. Probably hoping I’d write something about them. It seems to have worked.

They featured an interview with Blue Montgomery, one of Capita’s founders that I highly recommend. I think I’ve met Blue like twice but I’ve never had a long conversation with him.

Most of these stories with brand founders in our media tend to be heroic epics with the goal of promoting the brand. I’m not claiming the people at Capita were unhappy to get the publicity, but the article was way better than the usual stuff.

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SPY’s Results for the Year and Some Thoughts on Their Market Position

As I’ve written before, I have a lot of respect for how SPY has restructured and repositioned itself. There seems to be an alignment of their corporate culture and market positioning that not only has the potential to differentiate the brand (in their market), but to save money and increase the efficiency of the organization.

Here’s how they put it in the 10K for the year ended December 31, 2014:

“We have a happy disrespect for the usual way of looking (at life) and this helps drive our innovative design, marketing and distribution of premium products, especially eyewear for youth-minded people who love to be outside doing what makes them feel most alive and happy. We feel a primary strength is our ability to create distinctive products that embody our unique, happy, and irreverent point of view, and this has helped us become what we believe is one of the most recognizable action sports and eyewear brands in the world, with a twenty-year heritage in surfing, motocross, snowboarding, cycling, skateboarding, snow skiing, motorsports, wakeboarding, multi-sports and mountain biking. We have a happy disrespect for the usual way of looking (at life) and this helps drive our innovative design, marketing and distribution of premium products, especially eyewear for youth-minded people who love to be outside doing what makes them feel most alive and happy. We feel a primary strength is our ability to create distinctive products that embody our unique, happy, and irreverent point of view, and this has helped us become what we believe is one of the most recognizable action sports and eyewear brands in the world, with a twenty-year heritage in surfing, motocross, snowboarding, cycling, skateboarding, snow skiing, motorsports, wakeboarding, multi-sports and mountain biking.”

So is irreverence really an attribute that can provide a competitive advantage? Think about that and we’ll get back to it after going over the numbers.

For the year, sales rose 0.9% to $38.1 million. Below is the breakdown of those sales by product line.

spy 12-31-14 10k image 1







The sales increase was due to increases in prescription frames and goggles. Sunglass sales fell by 5.7%, or $1.5 million. They say that decline was “…principally attributable to an overall decline in the consumer market, particularly during the second quarter of 2014, coupled with several key retailers currently holding lower levels of inventory, lower closeout sales of our sunglass products and the loss of a key account.”

I’d note that SPY gets 64% of revenues from the very competitive sunglass category (down from almost 69% last year. 16.5% of revenue internationally is low compare to a lot of other companies, but that may turn out to be a good thing given the strength of the U.S. dollar. A strong dollar means that SPY’s product cost falls (same for all internationally sourcing companies). But it also means that the dollar value of their internationally sold product comes down when translated. The more international sales you have, the bigger the currency related decline in those sales.

Gross profit margin rose from 49.9% to 50.6%. The increase was due to purchasing more product from China (instead of Italy) and having lower closeout sales, which fell from $2.8 to $2.0 million.

Sales and marketing spending grew by $0.2 million to $11.5 million. I see they spent more on marketing events and promotions. Good. Advertising expense rose from $394,000 to $540,000. Also good.

Meanwhile, SPY cut general and administrative expenses by 6.9% to $5.7 million. They did it by reducing bad debt expense $0.3 million through better collections and consulting and outside services by another $0.3 million. They took a chunk of those savings $0.4 million) and invested them in salaries. I assume for people who are doing productive things for the brand.

The result was operating income that grew from $399,000 to $890,000.

Below the operating line, there’s that inconvenient line “interest expense.” It declined from $2.97 million in 2013 to $2.5 million in 2014. Remember the interest rate was reduced significantly during 2014 and you’ll see that impact even more in 2015.

Largely as a result of that interest expense, SPY reported a loss for the year of $1.9 million, an improvement from the loss of $2.9 million the previous year.

In terms of revenue, the fourth quarter was stronger than last year’s quarter, with revenue rising from $8.6 to $9.8 million. The net loss was $423,000 compared to $1.265 million in last year’s quarter. That explains most of the improvement in the bottom line over the whole year.

Over on the balance sheet, there’s still that note payable to shareholder of $21.6 million, but it’s up only very slightly from $21.5 million at the end of the previous year. However, the line of credit rose from $4 million a year ago to $6.8 million at the end of this year.

The current ratio has fallen a bit from 1.6 to 1.3. I see that receivables rose 9.6% with sales up just 0.9% and their mention of collecting receivables better. And I see yearend inventory up 31% to $7.7 million. I wonder if that might not have something to do with lousy snow conditions up and down the West coast making it difficult to sell snow goggles.

If so, SPY is hardly the only company with that issue. I see they’ve increased their allowance for returns from $1.6 to $2 million, so maybe I’m on to something.

As we transition from the financials to strategy, I want to remind you of the licensing deal SPY signed. Here’s how they describe it:

“In December 2013, we entered into a merchandising license agreement, pursuant to which we licensed the SPY IP [intellectual property] to a third party…The agreement provides that the licensee shall develop, introduce, market and sell certain licensed products incorporating the SPY IP, including men’s and boy’s apparel, bags and luggage, consumer electronics, protective cases, and other unisex accessories, throughout North America through certain distribution channels, other than deep discount retail channels.”

They expect those products to start generating revenue this quarter, but don’t offer any clue as to how much. Wish I knew what SPY’s definition of “deep discount retail channels” was. I also wonder if these products will get sold into any existing SPY accounts and how that will get managed.

To get out of its balance sheet hole, SPY needs more bottom line earnings. Perhaps these royalties will make a meaningful contribution to that. Meanwhile, SPY is a small company in a market of some big companies with much greater resources than SPY. The traditional response of smaller companies in this situation is to position itself as a niche company, and I’d say that’s what SPY has done.

Here’s how they describe it:

SPY “…is a creative, performance-driven brand that is fueled by collaborative efforts across various facets of youth culture, including competition, art, music and day-to-day athletic performance. We strive to ensure that our in function and design, as well as style. We do this, in part, through partnerships with our world class athletes who help us design, then wear and test our products during training and competition. We believe that the intimate knowledge of our customers’ lifestyles is what helps us develop a stronger, more relevant product offering for our market. We reinforce our irreverent brand profile through unique and disruptive marketing, using traditional and non-traditional means to convey our branded point of view to both entertain and edify people…”

You can’t have intimate knowledge of your customer’s lifestyle if that customer base is very broad- especially as a small company. This is a bit of a conundrum for SPY, and for similarly positioned companies. You need growth, but as you move to broaden your existing market, you may start to lose the thing that has made you special to the existing customer base without attracting the new customers.

What I think may happen is that the attitudes and lifestyles of the millennial generation (larger than the baby boomers) may reduce this challenge. Facilitated by mobile/internet/omnichannel/ecommerce, etc. certain traditional issues of segmentation and perhaps demographics are, I think, going to become less important.

That’s where SPY’s opportunity may lie.

Billabong Turns a Profit; But There’s More Work to Do

Wow, this is going to be way shorter than most of my previous Billabong articles. Where’s the drama, the kind of hard to get your head around accounting, the recapitalizations and explanations thereof, the endless list of “significant items” I always complain about?

Gone. Mostly. Well, not all the significant items. Billabong is implementing their plan and running their business. The watch word that ran through the conference call was “transparent” and the call and documents really were.

We’ll get to the numbers. First, I want to show you and discuss a few quotes from CEO Neil Fiske.

“I think we’re getting better at running our operations, sometimes at the expense of pumping up top line sales, but with better margins…We tried to maintain a full price brand building, equity building business, and not chase volume for the sake of volume, where we’d dilute our margins.”

Long time readers know I’ve been recommending a focus on operating profit over sales growth (not specifically for Billabong) since sometime in 2008 when the Great Recession hit. You certainly leave the financial documents and conference call with the sense that Billabong has the chance to grow sales, but I suspect as they get more of their systems/supplier/logistics/ changes done, we’ll see efficiency improvement that will also help their bottom line.

Speaking of that, here’s the link to the Billabong investor page. You can review all the documents from the half year report and see the conference call transcript and presentation. If you want to. If you don’t, at least open the transcript and start reading two thirds of the way down page five with the paragraph that starts “Ultimately.” Read about two pages from there and see what they are doing with their systems, suppliers, and logistics.

What they are doing is really hard, really disruptive, really complex, and really necessary. Good for them.

“For the first time, we will have one system capable of supporting all our channels in all our regions, including brick and mortar, retail, catalogue, digital commerce, wholesale accounts and licensed stores.”

The goal is deploy the new platform in 12 to 15 months. That’s just one of the systems they are working on. They are also in the process of “…reducing our global vendor list from over multiple hundreds of suppliers to a much smaller group of preferred vendors.”

This is not just about buying some computers and software. That’s the easiest, though not easy, part. It’s aligning the people and processes to get the most out of those systems that’s hardest.

Those processes include “…tighter integration between merchandising and sales and marketing in our go-to-market calendar…” Neil notes that they are “Going to market with a point of view about what’s important, what we stand for and what we want them [the retailers] to get behind.

All things being equal, I’d expect these changes to offer opportunities to both increase revenue and cut costs as they come on line.

The Numbers

Let’s start with the “as reported” numbers. All numbers are in Australian dollars. As we do that, keep in mind they sold West 49 in February 2014 and SurfStitch and Swell in September of the same year. We’ll look at the numbers without them in a bit.

Revenue from continuing operations for the six months ended December 31, 2014 fell just slightly from $527.2 to $525.8 million. Gross margin rose from 44.8% to 45.2%. SG & A expense was down 1.85% from $217.2 to $203.2 million. The result was an operating profit from continuing operations of $12.5 million, a big improvement from a loss of $34.9 million in the pcp.

Net profit was $25.7 million, up from a loss of $126.3 million in the pcp. $71.4 million of that improvement comes from a change in income tax expense and has nothing to do with how the business operated. Interest expense fell from $57.2 million to $16.2 million as a result of the restructuring. Discontinued operations contributed an after tax profit of $10.5 million compared to a loss of $23.1 million in the pcp.

If you add up the changes in income taxes, interest expense and discontinued operations you’ll find that the improvement in net income as reported was only about $6 million excluding those items. It’s not quite as simple as that, but you can see what I mean.

Obviously, there was a lot going on and Billabong has helped us to isolate that so we can see how the business is doing. You know what the discontinued operations represent. The “significant items” generated income of $13.5 million in the most recent period. They were an expense of $65.6 million in the pcp. They are restructuring costs, deal costs, inventory write downs, and a host of other stuff. See footnote 4 in the financial statements if you’re interested.

We could have a long conversation about which of these should be included or excluded. Every company seems to have some new significant items or extraordinary events or one time charges pretty much every year. They have an impact on the bottom line. Some, I’m okay with excluding for the operating analysis. Others, not so much. Anyway, let’s just acknowledge that there’s a certain amount of art in this and move on.

Below are the segment revenues and EDITDAs including the items and discontinued operations.

Billabond 12-31-14 results chart 1






Next, from the presentation during the call, here’s a breakdown of revenue and EBITDA by geographic segment that excluded the significant items and sold businesses.

Billabong 12-31-14 results chart 2
















You can see that revenues fell slightly as did EBITDA. The gross margin for the continuing business was 54.9%, down from 55.4% in the pcp.

In the Americas, Billabong and RVCA grew 9.5% and 5.7% respectively. There was weakness in the Canadian market and Element brand. There was $6.1 million less in wholesale business from West 49, who is now a wholesale customer. CEO Neil Fiske makes the interest comment that “…when we owned this business [West 49], we were pushing our family brands hard. Arguably with too much inventory and too little regard for the natural level of consumer demand.”

Comparative store sales were down 3.5% in the Americas, but only 0.4% in the U.S. The number of stores fell from 173 to 68 mostly due to the sale of West 49.

The good news in Europe is the strong performance of Element (we aren’t told exactly what that means) and the improvement in the gross margin from 49.4% to 55.9% after adjusting for the divestments. It was even a little better as reported. You can see the result above in the improved EBITDA. Neil says the improved margin was “…driven by better inventory control, improved merchant planning, margin management and a focus on higher quality distribution.” Comparative store sales were flat but store margins rose 1.7%. The number of stores, at 111, was down from 112 in the pcp.

Asia Pacific suffered from soft Australian retail sales.

It’s interesting that we still don’t hear much about their other brands. They do mention opening some Tiger Lily shops, but that’s it. I’d be curious to hear what’s going on with Sector 9 and Excel, among others. I still wouldn’t be surprised to see the sale of some other brands.

The balance sheet has strengthened enough as a result of the recapitalization that I’m going to pay them the compliment of not spending much time on it. Non-current liabilities have fallen from $512 million a year ago to $268 million at the end of December 2014. Equity has risen from $194 million to $311 million. If I wanted to pick around the edges a little, I might ask why receivables were actually up a bit given the decline in revenue. Maybe because of the growth of the wholesale business. Cash flow from operations was a positive $13.7 million for the six months compared to a negative $27.3 million in the pcp.

So “stabilizing,” the word Neil Fiske uses, is the right one to describe the continuing business. The profit turnaround is more about the taxes, interest and discontinued operations. However, a chunk of that represents benefits Billabong will continue to see- especially the interest expense reduction. The plan they are pursuing is the same one Neil announced when he took the CEO job, and it looks like they continue to move forward.





Berrics Consumer Report

You know, I always assumed/took for granted that skateboards you bought at Walmart or other large discount chains were not too good. I have to admit though that sometimes I thought to myself that maybe they weren’t a bad idea for a first deck if somebody was starting out.

To be clear, I’m way too old to fall on concrete or asphalt, so I didn’t test that hypothesis myself. Happily, The Berrics Consumer Report has.

I can’t help but remind you that it’s basically one guy testing a couple of boards and that he’s doing things some skaters never do.  But the results seem so compelling that even I, who believe in large sample sizes, statistical validation, comparisons against a norm, and all sort of statistical stuff took notice.

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