Shares in surfwear giant Billabong International have fallen almost 10% after the company released a shock profit warning this morning.
Billabong has warned that net profit in the six months to December 31 will be 8-13% less than in the previous corresponding period.
This is despite the company saying just 45 days ago at its annual general meeting that net profit would be “slightly” lower in the first half of the financial year.
The company now expects net profit for the full financial year will be flat, after earlier predicting profit would increase 2-8%.
Billabong shares have fallen 9% in initial trade to $8.09, as investors reacted angrily to the shock downgrade.
Billabong has blamed its profit warning on a host of factors, including unseasonably cool and wet weather in Australia, which has dragged sales down ahead of the crucial Christmas trading period, and generally poor consumer sentiment, particularly in what Billabong describes as the “crucial” Queensland market.
Sales in North America have been affected by a change in seasonal ordering patterns, which are likely to push sales into the second half of the financial year. However, Billabong said comparable store sales at its Billabong-branded stores have lifted.
Finally, the company said it has had problems getting Billabong brands into the host of retail outlets it has purchased in the last few months, including the Surf Dive ‘n’ Ski and Jetty Surf chains, the Rush Surf chain in Queensland and the West 49 chain in Canada.
It appears Billabong is having troubling selling out the stock in these stores, which it needs to do before it can start fitting out these stores with goods from the Billabong family of brands.
The strategy of buying retail chains and selling directly to the public is seen as a key way for surfwear brands to control the supply chain and improve margins by effectively cutting out the middleman.
Privately-held surfwear rival Rip Curl is another brand moving to implement this strategy. The company has just bought the Perth-based chain Waves for an undisclosed price. Rip Curl will pick up 15 stores around the state from former owners Chris and Vicki Prastidis.
“Chris and Vicki have some excellent staff on the team, all of whom we look forward to working with, alongside our own retail people,” Rip Curl Asia Pacific chief Steven Kay told Inside Retailing.
“It is an exciting time for us in the West.”
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
