BILLABONG'S FANS SHOW THAT IT'S ALL ABOUT THE BRAND

Written on the 24 November 2016 by Nick Nichols

BILLABONG'S FANS SHOW THAT IT'S ALL ABOUT THE BRAND SURFWEAR retailer Billabong International (ASX:BBG) may still be struggling to return to profit, but its brand has been a winner on social media.

The Gold Coast-based company, which revealed tough retail conditions in the first few months of the current financial year, has managed to boost its social media following by 20 per cent over the past year as it narrows its focus to just a handful of key brands.

"We now have 26 million social media followers for the Billabong, Element and RVCA brands, their advocates and their athletes," Billabong CEO Neil Fiske told shareholders at the Billabong annual general meeting on the Gold Coast this week.

"These are brands with a global reach across the surf, skate and urban art communities, and it's the strength and growth potential of these brands that remain the focus of our transformation."

Growth in social media engagement has been a strong suit for Billabong throughout its much publicised corporate challenges and Fiske revealed the company has increased its global social media following by 20 per cent or more a year for its big three brands.

"Billabong has widened its number one market share lead in both men's and women's surf apparel in both the US and Australia," he says.

"RVCA has proven its global appeal and opportunity, most recently in Australia with a smashing 44 per cent growth in wholesale equivalent sales last year, and demand exceeding supply.

"Element has built on its strength in Europe and begun to recapture its core position in the US market.

"Billabong has reaffirmed itself as the world's leading surf brand and is dominant in the key US and Australian specialty channels."

However, after three years at the helm of the embattled actionwear brand, the US-based Fiske concedes the job has been tough, and made harder by the bankruptcy of a major wholesale client and the need to discount stock to reduce surplus inventory.

Currency fluctuations also remain problematic, costing the company an extra $17 million last financial year, yet Fiske says the restructuring he has undertaken has helped to minimise the effects of these losses.

"Executing against our strategy has helped us withstand most of the adverse market conditions, and our project agenda is just beginning to contribute financially," he says.

Fiske has not ruled out Billabong selling more assets to become even leaner, with Tigerlily, VonZipper and Xcel now openly on the market.

The Billabong CEO this year also couldn't resist taking a shot at its former subsidiary SurfStitch (ASX:SRF), the online actionwear company that has just endured a year from hell on the share market.

Fiske described the business as 'complex and cash-draining', and that offloading it more than two years ago had helped simplify the Billabong business.

"We have adopted the fewer-bigger-better approach, and the company is now organisationally stronger and far better positioned to compete and grow in a rapidly evolving retail environment," he says.

The sale of SurfStitch has not dented Billabong's ambitions to grow its online business. Sales through e-commerce channels rose 52 per cent in FY16.

While this was only 4 per cent of total sales, Fiske points out that this is up from about 1.5 per cent before the business was split from SurfStitch, and he expects this could grow to 10-15 per cent of sales over the next few years.

While Billabong has forecast a significant fall in underlying profit during the first half, Fiske remains confident that the company will post a healthy increase in earnings for the full year, with an EBITDA target of between $60 million to $65 million which, at the upper end of that range, will bring it on par with FY15.

"Of course, our full year expectation is subject to reasonable trading conditions and currency markets remaining relatively stable," Fiske says.

There is no indication yet whether the black ink will flow to the bottom line. Writedowns have dogged Billabong's annual profit since 2012. The company last posted an annual profit in FY11.

This financial year, Billabong is pinning its hopes on a more active US market, particularly leading into the northern hemisphere summer period, after unseasonal weather has kept a lid on European operations.

"In Australia, October was particularly weak across the surf retail market as a whole," he says. "However, as weather conditions have normalized, our trading has picked up substantially in November."

Author: Nick Nichols

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