Troubled surfwear retailer Billabong will shut stores, cut product lines and expand its online presence as it works to recover from a $275.6 million loss.
The result to June 30, 2012 was a huge drop from the $119.1 million net profit Billabong made in 2010/11.
Chief executive Lorna Inman also unveiled a transformation plan on Wednesday, which included closing stores, cutting product lines, expanding its online business and globalising its supply chain to return Billabong to profit as takeover talks with private equity firm TGP continue.
TPG is carrying out due diligence on Billabong after it made a $1.45-a-share takeover bid for the retailer in late July.
Ms Inman said she was unable to answer any questions about the bid as Billabong had signed a confidentiality agreement with TPG.
But RBS Morgans private client adviser Craig Walker said the fact that Billabong’s share price closed only one cent, or 0.74 per cent, higher at $1.36 after the results and transformation plan had been released, meant that it was unlikely that it would receive a higher offer.
“The shares are 10 cents below the $1.45 price from TPG so the market isn’t expecting another offer or superior offer to come through,” he said.
Billabong expected the current challenging trading conditions to continue in its 2013 financial year.
It said, assuming there was no deterioration in the conditions, earnings before interest, tax, depreciation and amortisation (EBITDA) were expected to be between $100 million and $110 million, in constant currency terms.
Its transformation plan aims to deliver EBITDA more than two-and-a-half times the $84 million EBITDA in 2011/12.
As part of the strategy the company closed 58 stores between February and June 30 and a further 82 of its current 634 outlets were planned for closure by the end of 2012/13.
About 20 per cent of Billabong’s stores were currently operating at a slight loss but Ms Inman said most would remain open.
The remaining stores would be refurbished in an effort to increase customers.
“I definitely believe these are fixable. It’s not a solution to close them,” she said.
The retailer has invested in multi-brand online shopping sites Surfstitch and Swell and said it would be looking to start a Billabong site to maximise internet sales.
Ms Inman said Billabong would also reduce the number of its styles and focus on profitable items of clothing.
She admitted that the company’s decision to cut back on marketing to increase profits in recent years was a mistake and said it would now focus on promoting to the youth market.
However, company research shows that in Australia the under 21s and 30- to 44-year-old demographics were its equal biggest markets.
“If customers up to 45 want to buy it, that is their prerogative but we will pitch it to the market appropriate 14 to 29,” she said.
