BILLABONG International will close up to 150 stores and shed hundreds of jobs in a capital restructure plan following a 70 per cent free-fall in half year profit.
The Gold Coast-based company reported a net profit after tax of $16.1 million ending December 2011 – down from $57.2 million on the corresponding period.
It follows a tumultuous decline in value for the surf hardware giant where almost 35 per cent was wiped off the share price in December, giving executives a long Christmas hangover.
Caught in a rough sea of underperforming bricks and mortar, Billabong will partially sell-down ownership of its US watchmaking company Nixon in a deal that will see around $264 million used to pay down debt.
The move rallied investors with the share price jumping almost 50 per cent to a morning high of $2.65 from a low of $1.79 before a recent trading halt.
In a statement to the ASX, Billabong CEO Derek O’Neill confirmed the company had entered an agreement with Trilantic Capital Partners (TCP) to establish a joint venture to accelerate the global growth of the Nixon brand.
Billabong and TCP will each hold around 48.5 per cent of Nixon and management will purchase the remaining 3 per cent stake. The transaction values Nixon at around US$464 million ($431.1m).
“Nixon has achieved strong growth since Billabong’s acquisition of the brand in 2006. Nixon is now well placed to grow deeper into accounts such as existing Nixon retailers, specialty watch and fashion retailers as well as select consumer electronics stores,” says O’Neill.
The closure of between 100 and 150 Billabong-owned stores will see 400 full-time job losses worldwide including up to 80 in Australia.
Job cuts have been the order of the week across the airline, banking and manufacturing sectors with Qantas, ANZ and Toyota slashing staff – with retailers to follow suit.
Billabong has 677 company-owned stores worldwide and more than 11,000 wholesale doors. The company says it will redeploy staff from other Billabong retail stores where possible. The rental restructure is expected to save up to $30 million in rent expenses.
The Billabong Board hopes the restructure will drive some value back into the brand and stave off swooping private equity players such as the US-based TPG, which this week put a $766 million offer on the table at $3 per share.
The deal would require Board approval with founder Gordon Merchant, the major 15 per cent stake holder, but the Nixon deal may have dented immediate talks.
Billabong says the TPG proposal was subject to due diligence, finance and conditional on a number of other matters, including Billabong not selling down ownership interest in any of its brands and exclusivity. In the absence of certainty, Billabong proceeded with the partial sale of Nixon to stabilise its balance sheet.
Despite a slowdown in sales growth in Europe and an overheated Aussie dollar hurting its bottom line, Billabong managed global sales revenue of $847.2 million, up 1.5 per cent.
Earnings before interest, tax, depreciation and amortisation were $74.1 million, down 21.7 per cent on the previous period.