Shares in embattled surfwear giant Billabong International have fallen 25% minutes after the opening of the Australian Securities Exchange this morning after the company withdrew its profit guidance for the financial year ahead and warned poor trading conditions would continue.
The company this morning delivered an 18.4% fall in net profit for 2010-11, to $119.1 million. Revenue for the period rose 13.5% to $1.7 billion.
While the result was not unexpected – Billabong warned earlier this year that sales had been hit by a combination of poor consumer confidence, the high Australian dollar and natural disasters in Australia, Japan and New Zealand – the company’s decision to confirm earlier guidance for the 2011-12 year was a shock.
While Billabong said it expected underlying earnings to grow strongly in 2011-12, trading conditions mean it wouldn’t make a firm prediction.
“Twelve months ago, the Group communicated the likely financial benefits from its evolving business strategy,” Billabong said.
“At the time, the Group indicated that it was anticipating Earnings Per Share (EPS) growth rates in excess of 10% in constant currency terms to return from 2011/12.”
“This guidance was predicated upon a global recovery gradually taking hold.”
“With the exception of the USA and some Asian territories, global trading conditions have generally deteriorated significantly. This has been exacerbated by the recent global economic uncertainties and extreme volatility in currencies, especially the AUD/USD.
“Until there is more visibility of these matters, and more particularly their effect on consumer spending patterns and hence the quantum of underlying growth in EBITDA, the Group will not offer EPS guidance.”
The poor outlook for the retail sector in Australia, the state of the global economy and the likelihood the Australian dollar has sent investors rushing for the exits this morning.
Billabong shares plunged from $5.17 at the close on Thursday to $3.85 at the open on Friday, wiping 25% or $338 million off the market value of Billabong.
At 11:00 AEST the shares had recovered slightly to $4.05 but the fall of 22% suggests investors will take some convincing to park their cash in stocks related to the retail and clothing sectors.
The difficulties being experienced by the sector were further underlined this morning with the collapse of Melbourne-based streetwear brand Bauhaus.
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.
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