News From Billabong
I just listened to a Billabong conference call where new CEO Launa Inman announced they were raising more capital, downgrading earnings expectations, and undertaking a top to bottom review of all Billabong operations with the goals of reducing expenses, identifying efficiencies and improving the competitive positioning of Billabong and its brands.
They want to raise 225 million Australian dollars (about $229 million U.S. dollars) by selling shares to existing shareholders at $1.02 for each new share, a 44% discount from the 1.83 Australian dollar share price before the trading halt. The offer is fully underwritten by Goldman Sachs and Deutsche Bank, which means that Billabong will get the money.
Apparently, business conditions weakened significantly in May and into June. There was weaker in season business and some wholesale accounts delayed shipments. The European, Canadian and Australian markets have deteriorated. The U.S. has some signs of improvement, but it’s too soon to call it a recovery, they said.
You’ll remember that Billabong sold half of Nixon and turned down a AUD 3.00 per share for the company not very long ago, saying that it couldn’t justify raising equity at that price. Now, apparently it can and then some, which says something about how conditions have deteriorated.
CEO Inman announced that they were starting a “deep dive” complete review of all Billabong operations, expenses, procedures, market positioning, supply chain, and pretty much anything else you can think of. Nothing is off limit. The goal is not just to cut expenses, but to rationalize systems and procedures. That will be completed and the actions announced August 24th when they present their full year results.
My sense from the comments is that there are some inefficiencies and system overlaps/incompatibilities left over from acquisitions that haven’t been fully addressed.
The company is already in the process of closing 140 stores and expects that to be completed by the end of fiscal 2013. They had previously announced AUD 30 million in expense cuts, and that is proceeding. I think they expect to find more as a result of the business review.
But it’s not just about reducing expenses. They want to improve the retail experience, do more with ecommerce (which is 4% of retail sales and growing), define the customer base, look at perceptions of the brands and positioning, and define their customer base. They seem particularly concerned with the Billabong brand which, they acknowledged, has weakened in recent years.
Right now, of course, that’s all just a statement of intentions and they are asking shareholders to pony up more money with no plan in place. I guess that’s an indication of how badly they needed the money. The most important thing, they noted, was “…to stabilize the balance sheet.”
They are also hiring a global retail manager. The new executive will be introduced next week.
I have no doubt that Billabong will be able to do some things better and make itself more competitive. And I’d note that it usually takes a new CEO with a fresh perspective and no hesitation about questioning everything to make that happen quickly. That was always my experience doing turnarounds. There’s a certain element of ruthlessness required.
But the real question, and not just for Billabong, continues to be what happens to the world economy? I think that’s the same point I made when I reviewed their half yearly results. CEO Inman was adamant that they were raising enough money, but then the proceeds from the sale of half of Nixon were supposed to solve the problem too. PacSun and Quiksilver have had a hard time implementing their restructurings and turnarounds swimming upstream against the economic current. Billabong won’t be different.
Yikes…..