Bloomberg News

Billabong Slumps by Record After Cutting Earnings Forecast

December 28, 2011

(Updates with comment from analyst in sixth paragraph.)

Dec. 19 (Bloomberg) -- Billabong International Ltd. fell by a record in Sydney trading after the Australian surf-wear maker said first-half profit may fall as much as 26 percent and flagged a review of its capital structure.

The stock slumped 44 percent to A$2.03 at the close of trade, the largest drop since it was listed in 2000. The decline cut Billabong’s market value to A$518 million ($514 million), compared with A$1.5 billion as of the June 30 fiscal year end.

Sales stalled in the company’s three key markets amid a cool start to the Australian summer, a drop in European demand and a decline in December sales in North America amid concern an economic recovery may weaken. The forecast comes less than two months after Billabong predicted a “strong” rise in earnings.

“This is what happens when you guide to profit growth and come out with a completely different result,” said Peter Esho, Sydney-based chief market analyst at City Index, a London-based provider of trading services in bond, stock and commodities markets. “It really diminishes trust with the market to have such a turnaround in performance.”

Goldman Sachs Group Inc. has been hired to review all alternatives for Billabong’s balance sheet, with an equity sale “not the preferred path,” according to a filing. The review comes “in light of the existing operating environment and the risk for further deterioration,” Billabong said in the filing.

Revenue Growth

The review may consider asset sales, cuts to dividends and an equity raising, Craig Woolford, an analyst at Citigroup Inc., wrote in a note to clients today.

Earnings before interest, tax, depreciation and amortization will fall to between A$70 million and A$75 million in the six months ending December from A$94.6 million a year earlier, the Gold Coast, Australia-based company said.

The forecast is 30 percent less than Citigroup’s profit estimates, Woolford wrote.

The pace of Billabong’s first-half revenue growth has halved since September as retailers defer purchases. Sales in the five months ended Nov. 30 rose 12 percent, compared with the 25 percent pace posted for the three months ended Sept. 30.

“The sales growth trend has deteriorated significantly in this critical retail period,” Billabong said.

--Editors: Dave McCombs, Suresh Seshadri

To contact the reporter on this story: Robert Fenner in Melbourne at rfenner@bloomberg.net

To contact the editor responsible for this story: Dave McCombs at dmccombs@bloomberg.net


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